Lenape Resources Corp. v. Tennessee Gas Pipeline Co.
925 S.W.2d 565 | Texas Supreme Court | 1996
What This Case Means for Subcontractors
Lenape Resources and Tennessee Gas Pipeline disputed a take-or-pay gas contract where Tennessee agreed to buy gas or pay for it anyway. The Texas Supreme Court ruled that this type of contract is NOT subject to UCC rules that would limit quantity increases or require strict proportionality. The court enforced the contract as written, meaning parties can lock in payment obligations even if actual delivery amounts aren't fixed upfront, as long as the contract clearly defines what "take-or-pay" means.
Key Takeaways
- •Take-or-pay clauses in supply contracts are enforceable even without fixed minimum quantities—the contract language controls, not UCC defaults
- •If your contract specifies a determinable amount (like 85% of capacity), courts will enforce it as written without applying UCC good-faith restrictions that might otherwise limit increases
- •Good faith still applies to changes in delivery capacity, so you can't act arbitrarily, but the other party can't escape payment obligations by claiming the quantity was too vague
The take-or-pay gas purchase contract is not subject to section 2.306.
Frequently Asked Question
If my contract says 'take-or-pay' but doesn't lock in exact quantities, can the other party avoid paying?
No. Courts will enforce take-or-pay clauses even without fixed quantities, as long as the contract clearly defines what amount triggers payment. The UCC's default rules about proportionality don't override what you negotiated. However, the other party can still challenge unreasonable increases in delivery demands under good faith obligations.
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