In Convenience Store Leasing & Management v. Annapurna Marketing (2017AP1505), the Court of Appeals District II held defendants could not prove frustration of purpose excused breach of their fuel supply agreement with the plaintiff.

After purchasing a gas station, plaintiff Bulk Petroleum Corp. entered into a fuel supply agreement with defendants Annapurna (AP) Marketing. The agreement required AP Marketing to purchase a certain amount of fuel from Bulk. Bulk was required to select a “Branded Supplier,” in this case major brand fuel marketer U.S. Oil/Exxon Mobil, to supply fuel to the station. U.S. Oil required AP Marketing to make several cosmetic changes to the building.

AP Marketing ultimately decided that U.S. Oil’s branding requirements were too costly and walked away from the fuel supply agreement. Bulk filed the instant action for breach of contract. AP Marketing argued its breach of the contract was excused by frustration of purpose.

The appeals court held that Bulk’s claim that AP Marketing did not comply with the fuel supply agreement was not excused by frustration of purpose.  U.S. Oil’s costly branding requirements did not frustrate the principal purpose of the contract. The principal purpose of the contract was to supply fuel, and lower profits due to branding requirements do not frustrate that purpose. Furthermore, there was no basic assumption under the fuel supply agreement that such branding upgrades would not be required. In fact, the contract specifically referenced that AP Marketing may have to make cosmetic changes as required by the selected Branded Supplier. Because AP Marketing could not meet the principal purpose and basic assumption elements of the frustration of purpose doctrine, the court reinstated Bulk’s claim that AP Marketing breached the fuel supply agreement.