A
GENERAL
PRACTITIONER'S
tion 2-703 provides that upon buyer's breach of contract the seller may: withhold or stop delivery of such goods, resell and recover damages as provided in §2-706, recover damages for nonacceptance, or in a proper case, the price. under §§2-708 or 2-709. and cancel. These remedies have been invoked often in the recent take-orpay cases. Generall y, the UCC does not allow sellers to recover the full purchase price from buyers for breach of a natural gas contract since undelivered oil and gas usu-
UCC contains specific references to the mitigation of damages and reasonableness. Comment I to §l106 states that the UCC "makes it clear that damages must be minimized." Common law mitigation principles arguably also supplement the UCC through §1-103. -Good Faith Finally, it is important to note §l203's imposition of a good faith standard under all UCC transactions. Oil and gas law has imposed a common law standard of good faith only in certain situations. and even then the stan-
ally remains in the ground. Under
dard is not so high or exact as that
§2-706(l), if goods are retained by the seller and resold, the measure of damages is the difference between the contract price and the price of resale. Where such goods are not resold after repudiation by the buyer. §2-708(l) provides that the measure of damages is the contract price less the market price at the time and place for tender. Sellers may sue for the contract price under §2-709 only if the goods are lost or damaged, which usually does not occur to unextracted natu-
of Article 2. Generally, the UCC term "good faith" means "honesty in fact in the conduct or transaction concerned." In the case of Article 2 transactions involving merchants, however. §2-103(b) clearly imposes an objective standard of reasonable commercial standards of fair dealing. When combined with the fact that many courts recognize an affirmative cause of action for breach of the duty of good faith. this objective standard can become very meaningful to litigants. particularly in light of recent litigation establishing the tort of bad faith breach of contract."
ral oil and gas. Furtherl an action
for contract price is applicable only if the goods are "identified to the contrac!." In Piney Woods Country Life School v. Shell Oil Company, the court stated that "gas underground is future goods; no particular gas is sold until it is identified -- i.e., brought to the surface."" As such. natural gas which has not been produced is not "identified to the contract." and therefore the remedy of contract price was not available." Further. §2709(l)(b) allows recovery of contract price only if "the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing." In today's current market. it is unlikely that sellers would be able to meet this test. Sellers should also note that the 60IArkansas Lawyer/April 1989
CONCLUSION Courts have not traditionally applied the provisions of UCC Article 2 to oil and gas transactions. No question exists. however, that the UCC controls oil and gas purchase/sale contracts. Using the scope analysis previously presented in this article. it is possible to argue that the UCC applies to related oil and gas contracts such as oil and gas leases. whether
directly or by analogy. Article 2's more lenient contract formation
and interpretation rules, liberal remedies and objective standards of good faith for merchants may well lead imaginative attorneys to attempt to broaden this area of the law. 0
PRIMER
Editor's Note: f. Thomas Hardin is Q director of Hartzog. Conger & Cason, P'C., of Oklahoma City. Oklahoma. He has a B.S. from Purdue University and a J.D. from the University of Arkansas. FOOTNOTES See Harrell and Dancy. Oil and Gaa Financing Under Uniform Commercial Code, Article 9. 41 Okla. 1. Rev. 53 (1988). 2 V.C.C. § 2-102. 3 E. Kuntz. Treatise on the Law of the Oil and Ga •. Vo1s. 1-7. § 2.5 (1987 ed.). -4 See Amoco Production Co. v. Western Slope Gas Co.. 754 F.2d 303 (10th Ci,. 1985): Pine Woods Country Life School v. Shell Oil Co.. 726 F.2d 225 (5tb Ci,. 1984): Pem120il Co. v. Federal Energy Regulatory Commission. 645 F.2d 360 (5tb Ci,. 1981): Amoco Pipeline Co. v. Admiral Crude Oil Co,?.. 490 F.2d 114 (10tb Ci,. 1974): and Fo,ay LR Fo,k. 912 (1981 ad.); Legg and Dacy. The Applicability of the Uniform Commercial Code to Natural Gas Contracts. 36 Oil and Gas Tax Court. Vol. 3. p. 67 (1987). 5 Summers. Oil and Gas. Vol. IA. Section 152 at 371 (1981 ed.). s 489 F.2d 543 (lOtb Cir. 1973). 7 R. Anderson. Uniform Commercial Code. Vol. I. § 2-107:12 (3rd ed. 1981). 8 See generally. 4 ALR 4th 85. §§ 3 and 4 (1981 Ed.). , 312 S.E.2d 765 (W. Va. 1984). 10 ld, 01772. 11 4 ALR 4tb 85. §§ 8. 9, 10. 17.21 and 22 (1981 Ed.). 12 See Sally Beautyeo. Inc. v. Nexus Products Co.. Inc.. 801 F.2d 1001 (7th Cir. 1986) (applying Texas law). 13 White and Summers. Uniform Commercial Code. § I-I (1980 ed.). 14 See Columbia Gas Transmission Corp. v. Larry H. Wright. Inc .. 443 F. Supp. 14 (S.D. Obio 1977). 15 V.C.C. § 2-207. 16 V.C.C. § 1-205(1). 17 V.C.C. § 1-205(2). 18 V.C.C. § 2-208. 19 Se. Paragon Resources v. Natural Fuel Gas Disl.. 695 F.2d 991 (5tb Cir. 1983). 20 See Madino. McKinsey & Danial. Take or Litigate: Enforcing tbe Plain Meaning of the Take-Or-Pay Claus. in Natural Gas Controct., 49 Ark. L. Rev. 185 (1987). " 726 F.2d 225. 22 ld. 23 See Comment. The New Tort of Bad Faith Breach of Contract: Christian v, American Home Assurance Corp.. 13 Tulsa t.J. 605 09_); Comment. Tortious Breach of Contract in Oklahoma. 20 Tulsa t.J. 233 (l9~. 1