1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-8-1994

U&W Industrial Supply, Inc. v. Martin Marietta

Alumina, Inc.

Precedential or Non-Precedential:

Docket 93-7318

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Recommended Citation

"U&W Industrial Supply, Inc. v. Martin Marietta Alumina, Inc." (1994). 1994 Decisions. Paper 129.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/129
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 No. 93-7318 

 ___________ 

 U&W INDUSTRIAL SUPPLY, INC., 

 Appellant 

 v. 

 MARTIN MARIETTA ALUMINA, INC. 

 ___________ 

 No. 93-7350 

 ___________ 

 U&W INDUSTRIAL SUPPLY, INC. 

 v. 

 MARTIN MARIETTA ALUMINA, INC. 

 MARTIN MARIETTA ALUMINA PROPERTIES, INC., 

 Appellant 

 ___________ 

 Appeal from the District Court of the Virgin Islands 

 (D.C. Civil Action No. 85-00195) 

 ___________ 

 Argued: December 2, 1993 

 PRESENT: MANSMANN, HUTCHINSON and LEWIS, Circuit Judges

 (Filed September 8, 1994) 

 ____________ 

Thomas Alkon, Esquire 
Alkon, Rhea & Hart 

2115 Queen Street 

Christiansted, St. Croix, U.S.V.I. 00820 

 and 

Arthur Newbold, Esquire (Argued) 

Kathleen Milsark, Esquire 

Dechert, Price & Rhoads 

4000 Bell Atlantic Tower 

1717 Arch Street 

Philadelphia, PA 19103-2793 

 Attorneys for U&W Industrial Supply, Inc. 

Diane Trace Warlick, Esquire 

Warlick & Quigley, P.C. 

P.O. Box 3209 

Christiansted, St. Croix, U.S.V.I. 00822 

 and 

R. Eric Moore, Esquire 

Downtown Station 

P.O. Box 3086 

Christiansted, St. Croix, U.S.V.I. 00822 

 and 

Henry L. Feuerzeig, Esquire (Argued) 

Dudley, Topper and Feuerzeig 

P.O. Box 756 

St. Thomas, U.S.V.I. 00804 

 Attorneys for Martin Marietta Alumina, Inc. 

 ____________ 

 OPINION OF THE COURT 

 ____________ 

HUTCHINSON, Circuit Judge. 

 In this appeal and cross-appeal, appellant U&W 

Industrial Supply, Inc. ("U&W") contends that a judgment for 

damages of $27,790.19 entered by the District Court of the Virgin 
Islands on U&W's requirements contract claim is inadequate. U&W 

argues that the district court erroneously held U&W had a duty to 

mitigate damages arising from appellee and cross-appellant Martin 

Marietta Alumina Properties, Inc.'s ("MMA's") breach of 

contracts, styled by the parties "blanket order contracts," under 

which U&W agreed to supply MMA's requirements of certain parts 

and supplies. 

 MMA, in its cross-appeal, argues that the district 

court should have entered judgment in its favor on U&W's breach 

of contract claims. MMA contends that the district court erred 

in awarding partial summary judgment to U&W on the theory that 

MMA breached a duty of good faith which the law implies in all 

commercial contracts. The district court implied a thirty day 

notice provision into the blanket order contracts because it felt 

MMA had breached this good faith duty when it failed to give U&W 

thirty days notice before canceling individual purchase orders it 

had the option of placing under its blanket order contracts with 

U&W. The district court's holding had the effect of adding a 

second thirty day notice provision to blanket order contracts 

which had only expressly required MMA to give U&W thirty days 

notice of a change in production levels at MMA's St. Croix 

aluminum ore processing facility. 

 Because MMA's requirements did not end, and its 

production levels did not vary substantially from those the 

requirements contracts were based on, until it actually closed 

its Virgin Island plant operations in May of 1985, we conclude 

that the court erred in implying this second thirty day notice 
provision into the contracts. Moreover, because uncontradicted 

evidence in this record establishes that the production levels on 

which U&W's obligation to maintain its own inventories was based 

never decreased before the plant closed in May of 1985, we also 

conclude that there is no disputed issue of material fact whose 

resolution in U&W's favor would permit it to prevail under 

applicable substantive law. Therefore, we will reverse the 

district court's order entering partial judgment for U&W and its 

order denying MMA's cross-motion for summary judgment and remand 

with instructions to enter an order granting summary judgment to 

MMA. 

 I. Statement of Facts

 U&W is an industrial piping and valve supplier located 

on the island of St. Croix in the United States Virgin Islands 

("Virgin Islands"). MMA operated an aluminum processing plant on 

St. Croix until May of 1985. From time to time, prior to 1983, 

MMA purchased large quantities of industrial piping and valves 

from U&W for use in MMA's aluminum processing operations under 

individual purchase orders. MMA's orders constituted 90% of 

U&W's business. 

 In 1982, MMA decided to implement a blanket order 

system for the purchase of materials. In doing so it joined an 

industry trend toward the use of blanket orders as a means of 

better competing against the Japanese. Before adopting the 

blanket order system, MMA had maintained a six month supply of 

the materials U&W was supplying. It wanted to reduce its 
inventory to a one week supply and rely on contractors to supply 

those items and other materials as needed. As finally adopted, 

MMA's blanket ordering system required suppliers who signed on to 

maintain inventories adequate to meet MMA's usual production 

levels but required MMA to place only one order within ninety 

days of signing. MMA was then free to place, or not place, 

orders as it saw fit. 

 U&W was one of the suppliers who signed on after 

responding to MMA's invitations to bid on some of the blanket 

order contracts. U&W submitted bids for valves, instrumentation, 

gaskets, electrical supplies, fittings and piping. On these 

items U&W's bid was the lowest and MMA awarded U&W requirements 

contracts for these items under the terms of the blanket order 

contracts. In its invitations to bid, MMA had included an 

analysis of its inventory needs that gave part numbers and 

descriptions of the items required, its levels of use or 

consumption of each for the current and prior year and the 

maximum quantity MMA had previously kept in inventory. These 

blanket contracts were drafted by MMA and were offered to U&W on 

a "take-it-or-leave-it basis." Brief for Appellee at 6. U&W 

attempted to negotiate the terms of the blanket contracts but 

MMA's purchasing manager informed U&W the agreement could not be 

modified. U&W then accepted the blanket contracts as MMA had 

presented them. 

 The parties executed four of the five blanket contracts 

at issue on December 23, 1983 and these were designed to run from 

January 1, 1984 to December 31, 1984. The fifth contract ran 
from July 1, 1983 to June 30, 1984. Except for the description 

of the products required, all five contained identical terms and 

conditions. Under each, U&W was obligated to maintain an 

inventory of each specific part adequate to supply MMA's needs at 

its current level of production. U&W understood the agreement 

obligated it to carry a ninety day supply of each part for MMA 

until the term of that blanket contract expired or it was 

otherwise terminated by one of the parties. Paragraph 19 of the 

blanket contracts stated: 

 19. ESTIMATED QUANTITY OF PRODUCT

 Estimated quantity of PRODUCT required 

and release activity as defined in Exhibit A, 

is based on current production levels at [] 

Tons. [MMA] reserves the right to change 

production levels at its sole discretion. In 

the event of any cahnges [sic] in production 

levels, [MMA] will notify vendor of either a 

reduction in PRODUCT quantities or increase 

in PRODUCT quantities to the maximum level 

set forth in Exhibit A. Any increase beyond 

the maximum level set forth in Exhibit A will 

require written agreement between [MMA] and 

[U&W]. 

Joint Appendix ("Jt. App.") at 248. Each blanket contract 

expressly obligated MMA to place only one order within the first 

90 days, but each agreement also specifically stated MMA intended 

to place follow-up orders with U&W, despite MMA's disclaimer of 

any obligation to do so. Each blanket contract contained a 

cancellation provision: 

 18. CANCELLATION

 (a) [MMA] may cancel this agreement 

upon thirty (30) days written notice, at its 

sole discretion, provided however, that [MMA] 
shall remain obligated to pay for any PRODUCT 

order hereunder proir [sic] to the effective 

date of any such cancellation. [MMA] may 

cancel any individual Purchase Order or 

release placed hereunder, subject to payment 

for materials committed to the manufacture of 

PRODUCT ordered hereunder prior to the time 

of such cancellation. No other cancellation 

charges shall apply. 

Id. (emphasis in original). 

 In mid-1984 MMA sought purchasers for its St. Croix 

plant. In order to maintain the plant as a going concern pending 

its sale, MMA wanted to cut plant operating costs but still 

maintain production at pre-existing levels. In July of 1984, to 

help accomplish this, MMA decided to reduce all its inventories. 

Accordingly, on July 20, 1984 MMA sent U&W reduction orders 

canceling or reducing individual purchase orders it had already 

placed under the blanket contracts. MMA informed U&W that MMA 

was reducing its inventory without changing its production levels 

but cautioned U&W against ordering certain items to replenish 

stock until MMA advised it to. Nevertheless, U&W states it never 

received any notice of decreased requirements from MMA. 

 In response to the July 20, 1984 reduction orders and 

MMA's cautions, U&W decreased its own inventory of the items it 

had agreed to supply MMA, even though MMA's production levels 

remained the same. Glenn Knorr, a U&W officer, testified on 

deposition: 

 A: [After receiving the reduction orders, 

U&W] did not continue to order products 

and material to reinforce [our] 

inventories. [With respect to the 

blanket contract for piping,] I spoke 
specifically with [James Ross ("Ross"), 

head of purchasing for MMA's St. Croix 

plant] and asked him, look are we going 

to have to order a fair amount of pipe 

in order to adhere to this contract and 

he advised me verbally again that I 

should hold off on ordering any pipe 

until he advised me again. So at that 

time we [held off]. 

* * * 

 Q: . . . After June or July of 1984 [sic] 

then you stopped ordering from your 

suppliers to replenish your inventories? 

 A: That's correct. 

Jt. App. at 319-20. 

 On October 16, 1984 MMA's parent corporation publicly 

announced it was withdrawing from the aluminum business. The 

announcement, as well as MMA's subsequent efforts to locate a 

buyer for its St. Croix plant, were well publicized but efforts 

to sell the plant failed. U&W conceded it knew of MMA's attempts 

to sell the St. Croix plant as early as the spring of 1984 but 

was continually reassured by MMA that it would be "business as 

always," Jt. App. at 319, and MMA had assured U&W that if it 

could sell the plant as a going concern, U&W's contracts would 

pass to the new owner. Also, even though U&W knew MMA's St. 

Croix plant was for sale, it believed MMA's reduction of its 

parts inventory would somehow, in the end, increase U&W's sales 

because MMA would have to rely even more heavily on U&W to make 

timely delivery of parts MMA needed. 
 When the St. Croix plant closed, U&W unsuccessfully 

attempted to dispose of its remaining supply of the parts that 

were the subject of its requirements contracts with MMA. U&W 

also offered MMA an exchange of those parts it could not sell on 

the island for parts that could be sold there, dollar for dollar, 

but MMA refused this exchange offer. U&W eventually sold some of 

the parts to a salvage company. 

 II. Statement of Procedural History

 On August 12, 1985 U&W filed this action against MMA. 

The complaint sought damages for breach of contract, contending 

U&W was entitled to actual, formal notice in July, 1984 of MMA's 

decreased needs so that U&W could make appropriate adjustments in 

its own inventory levels. U&W alleged MMA had failed to give 

notice of a decrease in its production level and that this was a 

breach of the governing agreements. Both parties filed motions 

for summary judgment on liability. On April 24, 1987 the late 

Chief Judge David V. O'Brien granted partial summary judgment in 

favor of U&W after concluding MMA "constructively canceled" five 

of the contracts when it implemented internal inventory 

reductions in July of 1984 without advance notice to U&W and that 

this breached an implied obligation of good faith and fair 

dealing reciprocal to U&W's express contractual duty to maintain 

an inventory "adequate" to meet MMA's requirements. The court 

held U&W was entitled to thirty days' notice of MMA's changed 

needs because MMA had an express contractual right to terminate 

the blanket contracts on thirty days' written notice. Judge 
O'Brien granted summary judgment to MMA on the remaining 

liability issues and ordered a hearing at a later date to 

determine damages.1 He issued two additional orders on July 16, 

1987 and September 21, 1987 concerning the damages U&W would be 

permitted to prove. Under these orders, U&W was limited to 

damages resulting from its inability to dispose of inventory 

acquired during the thirty days immediately prior to U&W's 

receipt of MMA's reduction orders.2 If U&W had thirty days 

advance notice of MMA's construction cancellation, the court 

reasoned that U&W would not have purchased any additional 

inventory during this thirty day period. The court did not 

permit U&W to recover damages for the inventory it had on hand 

but could not return prior to the date notice was required. 

 Judge O'Brien's unfortunate death and Hurricane Hugo 

delayed final decision in the case for several years. In 1991, 

it was assigned to a visiting judge, who had been temporarily 

assigned to the District Court for the Virgin Islands. The 

district court held a hearing to assess damages and on 

December 27, 1991, appointed a Special Master to "prepare a 

report with findings of fact and conclusions of law and [make] a 

 

1. U&W has not appealed the portion of Judge O'Brien's order 

granting partial summary judgment to MMA. 

2. Neither the parties nor the district court tell us whether 

those damages would be measured by the difference between the 

salvage price U&W received for the items it purchased during that 

thirty day period and its cost, or the prices it expected to 

receive from MMA. 
recommendation for total damages to be awarded to [U&W]." Jt. 

App. at 10. 

 On August 20, 1992, the Special Master filed a report 

recommending U&W receive damages of $27,790.19. The Special 

Master concluded that the "thirty day window" for damages ran 

from June 20, 1984 to July 20, 1984. The report stated that the 

Special Master "view[ed] the scope of her review as being 

strictly limited to the holdings of the late [Judge] O'Brien" and 

therefore awarded damages only for inventory acquired during the 

thirty-day window as the inventory U&W "could have . . . 

returned"3 within the thirty day window but for lack of fair 

notice from MMA. Jt. App. at 11-12, 17. In setting U&W's 

damages at a net of $27,790.19, the Special Master decided U&W 

had not fully mitigated the loss that resulted from MMA's 

July 20, 1984 cancellation of the contracts because U&W should 

have immediately made greater efforts to reduce its inventory 

than it had. 

 The Special Master found that U&W did make some 

reduction in its purchases after July 20, 1984, that U&W knew it 

would not need to maintain as large an inventory as it had before 

that date and that this triggered its immediate duty to mitigate. 

Perhaps the Special Master's most pointed conclusion on 

mitigation was that U&W should have reduced its inventory to the 

 

3. The fact that MMA continued to purchase parts from U&W after 

July of 1984, and as late as May of 1985 when the plant closed, 

seems arguably inconsistent with the conclusion that U&W would 

have ceased purchasing inventory during the thirty days prior to 

the reduction. See also infra note 12. 
level it would have normally maintained absent its blanket 

contracts to supply MMA's requirements. Finally, the Special 

Master recommended that U&W receive prejudgment interest of 9% on 

the damages awarded from the date of cancellation, July 20, 1984, 

until payment. 

 Both U&W and MMA objected to the Special Master's 

Report. On April 12, 1993 the district court adopted the Special 

Master's Report and ordered MMA to pay damages to U&W in the 

amount of $27,790.19, but only awarded interest of $3.98 per day 

to U&W from July 20, 1992 to date.4 U&W appealed this order on 

May 3, 1993. MMA filed its cross-appeal on May 11, 1993. 

 III. Statement of Jurisdiction and Standard of Review

 The district court had subject matter jurisdiction over 

this breach of contract action pursuant to V.I. Code Ann. tit. 4, 

§ 32(a) (Supp. 1993). We have appellate jurisdiction pursuant to 

28 U.S.C.A. § 1291 (West 1993). The construction of an 

unambiguous contract is a matter of law for the court and 

therefore is subject to plenary review. Contract interpretation, 

as opposed to construction, involves mixed questions of law and 

fact. We exercise plenary review over questions of law and 

reverse findings of fact only if they are clearly erroneous. See

Coca-Cola Bottling Co. of Elizabeth, Inc. v. Coca-Cola Co., 988 

F.2d 386, 401 (3d Cir.), cert. denied, 114 S. Ct. 289 (1993). 

 

4. The district court rejected the Special Master's prejudgment 

interest recommendation because she felt both sides had 

contributed to the long delay in this case. 
When reviewing an order granting summary judgment, we view the 

facts in the light most favorable to the nonmoving party and 

decide whether any genuine issue of material fact exists and 

whether the moving party is entitled to summary judgment as a 

matter of law. Fed. R. Civ. P. 56(c); see Clark v. Modern Group 

Ltd., 9 F.3d 321, 326 (3d Cir. 1993). An order granting summary 

judgment will be reversed if there is sufficient evidence for a 

jury to return a verdict in favor of the nonmoving party; 

however, if the evidence is merely colorable or not significantly 

probative, an order granting summary judgment should be affirmed. 

A disputed fact is material if it would affect the outcome of the 

lawsuit. Id.

 IV. The District Court Erred When It Rewrote

 the Parties' Contract in Favor of U&W

 Under the UCC as adopted by the Virgin Islands, V.I. 

Code Ann. tit. 11A, § 1-203 (1987), and the Restatement (Second) 

of Contracts § 205 (1981),5 all contracts impose an obligation of 

good faith and fair dealing in their performance and enforcement. 

See also Action Eng'r v. Martin Marietta Aluminum, 670 F.2d 456, 

460 n.8 (3d Cir. 1982). This obligation of good faith 

 

5. The blanket contracts do not provide what local law is to 

govern their construction or interpretation. The parties assume 

that the law of the Territory of the Virgin Islands applies. 

Because the contract was entered into and performed in the Virgin 

Islands by two corporations organized and existing under the laws 

of the Virgin Islands, we agree and will apply Virgin Islands 

law. The Virgin Islands look to the Restatement for their common 

law. V.I. Code Ann. tit. 1, § 4 (1984); see also St. Surin v. 

Virgin Islands Daily News, Inc., 21 F.3d 1309, 1315 n.5 (3d Cir. 

1994). 
incorporates honesty in fact as well as reasonable commercial 

standards of fair dealing. See V.I. Code Ann. tit. 11A, § 1-201 

(defining good faith); Restatement (Second) of Contracts § 205 

cmt. a. We have held that UCC section 1-203 imposes a general 

requirement of fundamental integrity in commercial transactions 

falling under the UCC. Skeels v. Universal C.I.T. Credit Corp., 

335 F.2d 846, 851 (3d Cir. 1964). In this case, it is U&W's 

burden to prove that MMA acted in bad faith. See Tigg Corp. v. 

Dow Corning Corp., 962 F.3d 1119, 1123 (3d Cir.), cert.

dismissed, 113 S. Ct. 834 (1992); HML Corp. v. General Foods 

Corp., 365 F.2d 77, 83 (3d Cir. 1966);6 see also V.I. Code Ann. 

tit. 11A, § 2-306. 

 Because of the risk U&W agreed to expose itself to 

under the blanket contracts by undertaking to maintain a parts 

inventory adequate to meet MMA's usual production requirements, 

the district court decided that the duty of good faith which 

U.C.C. § 1-203 implies required it to add a notice term otherwise 

"missing" from the contract. We disagree. The implied duty of 

good faith and fair dealing in commercial contracts that section 

1-203 imposes controls the manner in which the contracting 

parties carry out the obligations they have undertaken in a 

 

6. In Tigg we noted two different theories by which a court may 

decide who should bear the burden of proving bad faith: the case 

law approach, implying the burden should be placed on seller, and 

the commentator approach, favoring placing the burden on whoever 

is to benefit from a showing of bad faith. Tigg Corp., 962 F.2d 

at 1123-24. In HML Corp., we simply placed the burden on the 

plaintiff. HML Corp., 365 F.2d at 83. Here, under either 

theory, U&W is the appropriate party on which to place the 

burden. 
contract; it does not give a court the power to impose additional 

obligations on one contracting party because a court concludes it 

is unfair to have the other shoulder a market risk that the 

former expressly bargained to avoid and the other expressly 

agreed to assume. 

 The district court relied on Tymshare, Inc. v. Covell, 

727 F.2d 1145 (D.C. Cir. 1984), and KLT Industries, Inc. v. Eaton 

Corp., 505 F. Supp. 1072 (E.D. Mich. 1981) to reach its 

conclusion that the duty to act in good faith necessitated MMA's 

giving notice to U&W. Tymshare was a breach of contract action 

brought by a salesman against his former employer. The salesman 

alleged the employer breached the implied contractual duty of 

acting in good faith when it altered sales quotas in such a way 

as to deprive the plaintiff of previously earned commissions. 

Then-Judge Scalia noted that "the doctrine of good faith 

performance is a means of finding within a contract an implied 

obligation not to engage in the particular form of conduct which 

. . . constitutes 'bad faith.'" Tymshare, 727 F.3d at 1152. The 

court then noted that "the object of our inquiry is whether it 

was reasonably understood by the parties to this contract that 

there were at least certain purposes for which the expressly 

conferred power to adjust quotas could not be employed. If not, 

then [the employer] is correct that no action in this regard 

could constitute 'bad faith'--or, as we would put it, there is no 

implicit contractual restriction." Id. at 1153. The court 

stated that the implied covenant of good faith does not 

countermand acts specifically authorized, id. (quoting VTR, Inc. 
v. Goodyear Tire & Rubber Co., 303 F. Supp. 773, 778 (S.D.N.Y. 

1969), nor should it be permitted to dictate an outcome contrary 

to the intent of the parties. Id. (quoting MacDougald Constr. 

Co. v. State Highway Dep't, 188 S.E.2d 405 (Ga. 1972)). But, as 

the court in Tymshare noted, "the trick is to tell when a 

contract has been so drawn." Id. (emphasis in original). 

 KLT Industries provides one example of how a duty to 

notify may be included in the generalized obligation to act in 

good faith. In that case, two parties entered into an agreement 

where the plaintiff would design and fabricate six highly 

specialized test stands to be used by the defendant in testing 

and adjusting cruise control devices. Although the plaintiff did 

not perform on time, the defendant did not object and plaintiff 

continued on in the design and fabrication of the parts. Then 

the defendant, without notice, canceled the contract without 

giving the plaintiff an opportunity to demonstrate it could 

complete the contract. The court held that termination without 

notification violated the duty to act in good faith: 

 The good faith obligation imposed by the 

UCC requires reasonable notification before 

termination to avoid surprise, protect good 

faith judgment and reduce uncertainty. Under 

the circumstances here [defendant's] conduct 

led [plaintiff] to reasonably believe it 

would have the opportunity to perform under 

the contract. At least [plaintiff] was 

entitled to the opportunity to demonstrate to 

[defendant] it could perform under the 

contract within the time frame contemplated 

. . . . 
KLT Indus., 505 F. Supp. at 1079-80. Thus, where the defendant 

permitted the plaintiff to continue a specialized contract and 

failed to object to a performance that did not strictly conform 

to the agreement, the defendant was required to give some notice 

of its intention to cancel the contract. 

 Neither of these cases stands for the proposition that 

a party invariably has a good faith obligation to notify a 

supplier before reducing, altering or canceling an agreement. 

Instead, they merely acknowledge certain circumstances in which a 

general implied obligation to act in good faith will command or 

prohibit acts not specifically delineated in the agreement. But, 

as Tymshare recognized, the language of the agreement and 

expressed intent of the parties always guide the application of 

the implied duty of good faith. 

 Here, MMA did not act in bad faith when it reduced or 

canceled some of the individual purchase orders issued under the 

contracts. When MMA sent U&W the individual purchase order 

reductions in July or August of 1984, it did so under section 

18(a) of the contract. That section required no prior notice of 

such reductions but made MMA liable to pay U&W only "for 

materials committed to the manufacture of PRODUCT ordered 

hereunder prior to the time of such cancellation." Jt. App. at 

248.7 The district court incorrectly treated MMA's decision to 

reduce its own inventory as a change in MMA's requirements. 

 

7. U&W does not contend that MMA owes it any money for materials 

committed at the time of these cancellations and/or reductions. 
Although MMA decided to reduce its individual purchase orders 

because it wanted to reduce its own inventory and use up stocks 

on hand, it continued to maintain normal production and 

accordingly continued to place individual purchase orders with 

U&W as necessary to meet its usual production requirements until 

it closed its plant in May 1985. The blanket contracts were not 

canceled by MMA's actions because MMA continued to order parts 

from U&W and U&W continued to supply parts to MMA to meet MMA's 

normal production levels, in accordance with the blanket 

contracts. See infra note 12. 

 Despite MMA's additional reliance on U&W for parts that 

resulted from MMA's decision to reduce its own inventory, MMA 

told U&W not to order certain additional parts until MMA told U&W 

it needed them and never objected to U&W's decision to reduce its 

own inventory of some of the parts it had agreed to supply to 

MMA. Indeed, with MMA's knowledge and implicit approval, U&W 

thereafter curtailed its own orders from its suppliers and 

delayed placing them until absolutely necessary to meet MMA's 

continuing requirements. In fact, this caused U&W's inventory of 

the parts it had agreed to supply to MMA to fall below that which 

would have been required to meet the estimated production levels 

MMA continued to maintain, thus putting U&W itself in technical 

breach of its express obligation to maintain an inventory 

adequate to meet MMA's unchanged production requirements.8 MMA 

 

8. This is consistent with Knorr's testimony that he understood 

"if [U&W didn't] have the quantities on hand even up to the end 

of the agreement[,] the agreement can be terminated." Jt. App. 

at 311. 
not only acquiesced in this, it told U&W not to order certain 

additional parts unless advised otherwise.9 In order to help U&W 

reduce its inventory, U&W's Knorr testified MMA also extended 

delivery times on orders for items U&W still had on its shelves. 

 MMA's previously specified production levels were the 

guide the blanket order agreement required U&W to use in deciding 

how many parts it had to keep on hand to meet its obligations 

under the blanket contracts. Paragraph 19 of the blanket 

contract required MMA to give U&W notice of changes in its 

production level because MMA's production level was the basis for 

U&W's inventory levels. See Jt. Ap. at 248. Ross testified 

MMA's production levels and its commensurate needs did not change 

until shortly prior to the plant's closing on May 12, 1985, and 

there is no other evidence in the record showing that MMA 

decreased its production levels between July of 1984 and May of 

1985.10

 Under the blanket contracts, MMA was not obligated to 

buy any product from U&W beyond placing one initial order within 

ninety days of entering into each contract. U&W expressly agreed 

to bear the market risk of disposing of unneeded inventory it had 

 

9. We note, however, that the court did correctly grant summary 

judgment to MMA on the two blanket contracts under which MMA had 

advised U&W not to order additional parts. 

10. Knorr did testify that he noticed a decrease in MMA's 

production levels during the first quarter of 1984, (App. at 317) 

but U&W does not claim any damages resulted from this reduction. 

Although U&W alleges it was harmed by a decrease in MMA's 

production levels in July of 1984, there is no evidence 

supporting U&W's allegation that MMA's production decreased 

between July 1984 and May 1985 when the plant closed. 
purchased to meet MMA's normal requirements when its contract 

with MMA was terminated. See Jt. App. at 248. 

 This unrebutted evidence contradicts any implicit 

finding the district court may have made that MMA dealt unfairly, 

dishonestly or unreasonably with U&W.11 Thus, U&W, the moving 

party on its motion for partial summary judgment, has failed to 

produce evidence from which it could be inferred that MMA acted 

in bad faith. See HML Corp., 365 F.2d at 83. 

 U&W took a calculated business risk when it agreed to 

supply MMA with parts as needed. It accepted the risk that it 

would have to dispose of unused inventory if MMA canceled the 

contract or went out of business. This risk is inherent in 

requirements contracts. The contract did not oblige MMA to make 

any more than one order, let alone notify U&W if it would not be 

placing its usual amount of purchase orders. 

 It is indeed unfortunate that U&W was unable to return 

the parts it had on hand when MMA terminated the contract in May 

of 1985, but this is a risk it assumed when it agreed to supply 

MMA's requirements on MMA's terms.12 In a requirements contract, 

 

11. The district court stated that "MMA's unbridled discretion 

[to expose U&W to great risk in requiring it to keep the same 

inventory even though MMA had decreased its own] requires a 

corresponding duty to act in good faith." Jt. App. at 209. 

Thus, it implied a notice provision because "a good faith 

performance required advanced notice." Id. The court never 

expressly found that MMA acted in bad faith but that finding is 

implicit in its decision to add a second notice requirement into 

the blanket order agreements. 

12. U&W co-owner John McCallum ("McCallum") testified he did not 

try to return any of his stock when he received the reduction 

and/or cancellation orders from MMA because he did not believe 

the contracts were terminated by MMA's actions. He testified 
"[t]he seller assumes the risk of all good faith variations in 

the buyer's requirements, even to the extent of a determination 

to discontinue the business." Welded Tube Co. of Am. v. Phoenix 

Steel Corp., 377 F. Supp. 74, 79 (E.D. Pa. 1974), aff'd in 

relevant part, 512 F.2d 342 (3d Cir. 1975); see also HML Corp., 

365 F.2d at 81. MMA did not breach its contract with U&W or 

contravene its duty to act in good faith in May of 1985, when it 

closed its Virgin Islands bauxite plant, or in July of 1984, when 

it notified U&W it planned to reduce its own inventories while 

maintaining pre-existing production levels. See Welded Tube Co., 

377 F. Supp. at 79.13

 V. Conclusion

 The order of the district court granting partial 

summary judgment to U&W and its order denying MMA's motion for 

summary judgment will be reversed and the case will be remanded 

to it with instructions to enter judgment for MMA. 

(..continued) 

that had he attempted to return his stock at that time, his 

suppliers would have accepted approximately 80-85% of it in 

returns. When U&W attempted to return parts to its suppliers 

after the plant closed in May of 1985, the suppliers refused to 

accept U&W's returns. U&W believes they did so because they no 

longer considered U&W a good customer based on U&W's lack of 

recent orders and rumors concerning MMA's plant closing. 

13. Because of our disposition of the case, we do not reach 

U&W's argument that the district court erred in reducing its 

damages because it had not met its duty to mitigate.