Cadillac Rubber & Plastics Inc v. Tubular Metal Systems LLC ( 2020 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
CADILLAC RUBBER & PLASTICS, INC., doing FOR PUBLICATION
business as AVON AUTOMOTIVE, and AVON February 11, 2020
AUTOMOTIVE HOLDINGS, INC.,
Plaintiffs-Appellants,
v No. 345512
Oakland Circuit Court
TUBULAR METAL SYSTEMS, LLC, LC No. 2018-164214-CB
Defendant-Appellee.
Before: FORT HOOD, P.J., and SAWYER and SHAPIRO, JJ.
SHAPIRO, J. (concurring in part, dissenting in part).
I concur in the majority’s conclusion that a separate, signed document was not required to
create a valid irrevocable option because there was consideration for that option. However, I
respectfully dissent from the majority’s affirmance of the conclusion that, as a matter of law, the
written agreement created a “requirements contract.” I conclude that the contract language itself
does not unambiguously create a requirements contract and that its status should be determined
after discovery and with consideration of parol evidence.
The majority relies largely on Johnson Controls, Inc v TRW Vehicle Safety Sys, Inc, 491 F
Supp 2d 707 (ED Mich, 2007), and Gen Motors Corp v Paramount Metal Prods Co, 90 F Supp 2d
861, 873 (ED Mich, 2000). In my view, neither of those cases support the trial court’s decision
that the contract can only be read as a requirements contract. Neither concluded that the agreement
in question was a requirements contract as a matter of law. To the contrary, they each found that
there was an ambiguity regarding the nature of the contract and concluded that it was a question
of fact to be determined after consideration of parol evidence and the parties’ past practices and
dealings. See Johnson Controls, 491 F Supp 2d at 719-720; Gen Motors Corp, 90 F Supp 2d at
873.
The majority contends that Johnson Controls held that a term of “a minimum quantity of
at least one piece or unit of each of the Supplies and no more than 100% of Buyer’s requirements
for the Supplies,” meets the requirements of the UCC. I disagree with this reading of the case.
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Johnson Controls held that the terms were sufficient to establish a contract that did not violate the
statute of frauds. Johnson Controls, 491 F Supp 2d at 718. However, as noted, the court remanded
the case for a factual finding to determine whether “the parties’ past dealings and current course
of performance . . . indicate that a requirements contract was intended.” Id. at 720. See also Metal
One America, Inc v Ctr Mfg Inc, unpublished opinion of the United States District Court for the
Western District of Michigan, issued July 14, 2005 (Case No. 1:04-CV-431) (relying on the
parties’ course of performance and past dealings to find that a requirements contract existed).
Similarly, in General Motors, the court held that a supply contract need not be exclusive in order
to constitute a requirements contract, but did not rule on whether the agreement was a requirements
contract, stating:
Construing the pleadings and evidence in a light most favorable to the
plaintiffs [, the non-moving buyer], it remains possible for the plaintiffs to develop
a record at trial demonstrating that the various purchase orders are in fact
enforceable requirements contracts. [Gen Motors Corp, 90 F Supp 2d at 873.]
For an agreement to unambiguously create a requirements contract it is not necessary that
the agreement be exclusive, but it must define a practicable estimate or range of future
requirements. “A requirements or output term of a contract, although general in language,
nonetheless is, if stated in the writing, specific as to quantity . . . .” Lorenz Supply Company v
American Standard, Inc, 419 Mich. 610, 615; 358 NW2d 845 (1986) (emphasis removed). In
Plastech Engineered Prod v Grand Haven Plastics, Inc, unpublished per curiam opinion of the
Court of Appeals, issued March 31, 2005 (Docket No 252532), pp 7-8, our Court held that a
requirements contract need not contain an estimate of needed goods where the contract provides
that the buyer will use the seller’s products for “100% [of the buyer’s] requirements.” Where the
buyer’s requirements will all be ordered from the seller, i.e., an exclusive arrangement, such a
description is sufficiently specific even though the actual amount may vary. However, where the
contract is not exclusive, it should not be read as a requirements contract absent an estimate or
range of anticipated future orders. See e.g., Cyril Bath Company v Winters Indus, 892 F2d 465,
467 (CA 6, 1989) (“[A] contract to furnish only part of the buyer’s requirements along with an
approximate number of the identified goods is sufficient to be a requirements contract under
[the] UCC . . . .”); 1 White and Summers, Uniform Commercial Code (6th ed), § 4:20, p 335
(“Where an agreement does not establish exclusivity and is otherwise silent as to quantity, the
agreement is treated as an open offer to sell [or buy].”). “Because section 2-306 depends on
exclusivity to determine the contract, there can be no valid requirements contract without it . . . .
Despite the presence of another supplier, the contract may be sufficiently ‘exclusive.’ This may
occur where a purchaser agrees to purchase exclusively from a seller up to a certain quantity.” Id.
at p 333.
The majority does not cite any case holding that a promise to buy between 1 unit and 100
percent of requirements is sufficient to create a requirements contract. Such a conclusion would
severely undercut the UCC’s requirements that the parties act in good faith regarding an estimate
of production requirements. When the contract is non-exclusive and also provides no estimate of
future requirements, it is difficult to see how a party’s good faith could ever be challenged. Here,
the range is nothing more than “whatever we order.” If that is adequate then a buyer could sign
another non-exclusive contract with another supplier who can sell more cheaply and order 99.9%
of their requirements from this alternative supplier without ever breaching the contract with the
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first supplier. In sum, without a baseline estimate, a non-exclusive contract does not provide
sufficient information to meet the requirement that the “output or requirements will approximate
a reasonably foreseeable figure.” MCL 440.2306, comment 2.
It is certainly possible that the past practices and dealings between the parties establish a
reasonable basis from which defendant could determine what its production requirements are
likely to be, taking into account good faith variations. See 1 White and Summers, Uniform
Commercial Code (6th ed), § 4:20, p 334 (“Exclusivity can also be established through
implication, course of dealing, or extrinsic evidence.”). If so, it would constitute a requirements
contract. But that conclusion cannot be made on the text of the contract alone. To determine
whether the agreement is a requirements contract, factual findings must be made. See Aleris
Aluminum Canada LP v Valeo, Inc, 718 F Supp 2d 825, 832 (ED Mich, 2010) (holding that where
the quantity term is not clearly stated, “parol evidence is admissible to show that the parties
intended as to the exact quantity.”) (quotation marks and citation omitted).
If parol evidence of past practice or dealings demonstrates beyond a question of fact that
there was a good faith estimate on which the seller could generally rely, I would agree that the trial
court could rule on the question in a motion under MCR 2.116(C)(10). If, however, a question of
fact remains, the determination is for the factfinder.
In my view, a promise to purchase anywhere from 1 unit to 100% of needs in a non-
exclusive contract, does not, in and of itself, create a requirements contract consistent with the
UCC. Accordingly, I would reverse the grant of summary disposition to plaintiff and remand for
further proceedings.
/s/ Douglas B. Shapiro
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