Opinion ID: 1154750
Heading Depth: 3
Heading Rank: 5

Heading: The Agreement Between National and Central Farmers.

Text: In 1980 and 1981, the price of potash on the export market ballooned and was approximately 30% to 50% higher than National realized from its sales on the domestic market. In their lawsuit, the plaintiffs alleged that National failed to market Lea County potash on the export market in breach of its implied duty to exercise reasonable diligence. Had it done so, they argued, National would have eliminated the accumulated loss carry-forward in two years and generated significant net profits and thus substantial royalties. These lost royalties were valued in excess of $800,000. National could not take advantage of the boom in the market, however, because it was obligated by an outputs contract. In December 1958, National entered into a sales agreement with Central Farmers Fertilizer Company (Central Farmers), in which Central Farmers agreed to buy the entire output of the Lea County mine up to 500,000 tons per year through 1974. Central Farmers was interested in developing a continuous source of potash for re-sale to farm cooperatives across the country. National was interested in finding a steady customer for its potash, believing that a guaranteed ongoing customer would give it an advantage against fluctuations in the potash market. In addition, such an arrangement ensured that National could honor its sizable debt service. [4] The price agreed upon was market price less a discount to reflect the fact that National could forego employment of a sales staff to market the ore. The parties established as a benchmark for determining market price the Carlsbad list price. [5] Thus, the price National would receive was tied to prices in the local potash market. National and Central Farmers simultaneously executed a stock purchase and option agreement, giving Central Farmers an option to purchase enough shares in National to bring its ownership interest up to 45%. The deadline for exercising the options was June 30, 1969. In January 1964, Central Farmers and National amended their 1958 agreement by changing the price discounting formula and extending the term of the agreement to June 30, 1980. Six months later, Central Farmers assigned its right to purchase the National stock back to National, released its option to purchase additional shares, and sold the 500 shares it then owned back to National. In July 1964, National and Central Farmers executed another contract in which Central Farmers was given another option to purchase a 45% undivided interest in the mine itself, exercisable for a period of one year after National permanently ceased mining operations. Central Farmers never exercised the option.