The Anchor Glass Container Corporation and its parent company, Consumers Packaging, Inc. (CPI), entered into a series of agreements with Encore Glass, Inc., to supply glass containers of a specific type and quality for the wine industry. On June 24, 1999, Encore entered into an amended agreement with Anchor and CPI. In the amended agreement, the parties agreed that the products would be manufactured at CPI’s Lavington plant. Additionally, the amended agreement gave Encore a generous rebate schedule ranging from 1 to 2.5 percent and a new discount schedule.
In May 2001, CPI filed for bankruptcy. As a result of the bankruptcy proceedings, the Lavington plant was sold in August 2001. The new owners of the Lavington plant did not assume CPI’s obligations under the amended agreement. The Lavington plant could no longer be used to supply the glass containers to Encore. As a result of the sale, Anchor notified Encore on October 12, 2001, that it considered itself relieved of its obligations under the agreement due to its impossibility to perform. Encore took its business to another company, which did not offer the same rebates and discounts as had Anchor.
When Anchor filed for bankruptcy in 2002, Encore filed a claim to recover the $6,102,912.60 it lost when Anchor stopped providing it with rebates and discounts under the contract. The bankruptcy court ruled against Encore, finding that it was impossible for Anchor to perform after the Lavington plant was sold. Encore appealed.
1. Should Anchor be required to honor the contract despite the loss of the Lavington plant? Why or why not?
2. What ethical system, if any, would permit Encore to recover the lost rebates and discounts?