Anaheim Industries, Inc., Frank Gilchrist, Inc., D/B/A Texas Stagecoach of Houston v. General Motors Corporation ( 2007 )

Opinion to: SJR TGT SN TJ EVK ERA GCH LCH JB

Opinion issued December 20, 2007

In The

Court of Appeals

For The

First District of Texas

 

No.    01-06-00440-CV

 

ANAHEIM INDUSTRIES, INC. & FRANK GILCHRIST, INC.

d/b/a TEXAS STAGECOACH OF HOUSTON, Appellants

V.

GENERAL MOTORS CORPORATION, Appellee

On Appeal from the 55th District Court

Harris County, Texas

Trial Court Cause No. 2002-62430

MEMORANDUM OPINION

Anaheim Industries, Inc. (Anaheim) and Frank Gilchrist, Inc. d/b/a Texas Stagecoach of Houston (Stagecoach) (collectively, the upfitters) appeal the trial court’s grant of summary judgment in favor of General Motors (GM), claiming that, under Michigan law, the trial court erred in granting GM summary judgment on their claims for (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) unconscionability; (4) economic duress; (5) promissory estoppel; (6) negligent misrepresentation; and (7) fraud.  Because the trial court properly concluded that the upfitters failed to raise a genuine issue of material fact in support of any of these claims, we affirm. 

Background

The upfitters are engaged in the business of customizing vans, trucks, and other vehicles by removing factory-installed seating and other fixtures and installing premium products and materials in their place.  The upfitters performed custom conversions for GM as well as other vehicle manufacturers and dealers. 

GM provided its vehicles to upfitters, also known as converters, through its Approved Converters Program. GM provided these converters with its Approved Converters Program Manual, which sets forth policies and procedures to follow to qualify as an approved converter as well as for ordering and processing the GM vehicles.  If an upfitter qualified and GM selected it as an approved converter, they executed a “pool converter agreement” with the converter. 

          The converter agreement:

· reserves to GM the right to change the manual in writing at any time;

· reserves to GM the absolute right to accept or reject orders;

· does not require GM to provide any particular number or any specific model of vehicle;

· allows for termination at any time by either party with written notice; 

· provides notice that “no waiver or modification of any term of this agreement or the creation of additional terms shall be valid or binding upon [GM] unless made in writing, executed on its behalf”;  and

· contains a merger clause providing that the documents constituted the sole and complete agreement of the parties and that they had no other agreements, either oral, or written, between them with respect to their subject matter. 

Stagecoach and Anaheim entered their first pool converter agreements with GM in approximately 1988.  GM from time to time asked the upfitters to execute new agreements with revised terms, and they did so. 

Over the years, consumer demand and industry developments led GM to upgrade the interior seating and other features available as factory-installed in its standard vehicle packages.  As the formerly custom details became standard features installed on the GM assembly line, the demand for custom conversion dwindled, and the number of vehicles supplied to the upfitters declined.  Also, without notice to the upfitters, GM began installing newly designed standard seating with integrated seatbelts in its vehicles. This change in seat design made the installation of custom seating unprofitable, which, until then, had been a popular custom feature.

As GM made fewer numbers and models of vehicles available to the upfitters, the upfitters could not meet the preferred volume of 300 vehicles set forth in the manual.  In December 1998, GM put Stagecoach on probation in part because it had not converted the preferred volume of vehicles.  Around the same time, GM had a new computer system installed at Stagecoach for ordering vehicles.  The system did not work, though, and Stagecoach was unable to order vehicles for four months.  GM terminated its relationship with Stagecoach in May 1999.

Throughout this period, Anaheim continued its relationship with GM, but found it increasingly difficult to turn a profit with the limited number and types of vehicles made available for conversion.  As a result, Anaheim voluntarily terminated its agreement with GM in 2001.

In 2002, both upfitters sued GM for breach of contract, breach of a covenant of good faith and fair dealing, economic duress, promissory estoppel, negligent misrepresentation, and fraud. GM moved for summary judgment under both the traditional and no-evidence standard on the upfitters’ claims, which the trial court granted.  This appeal followed.

Discussion

A.      Standards of Review

GM moved for summary judgment against the upfitters under both traditional and no-evidence grounds.  See Tex. R. Civ. P. 166a(c), (i).  The traditional standard for summary judgment requires a movant to show that no genuine issue of material fact exists and that the trial court should grant judgment as a matter of law.  Tex. R. Civ. P. 166a(c); KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999).  We view all evidence in a light favorable to the nonmovant and indulge every reasonable inference in the nonmovant’s favor.  Provident Life & Accid. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).  We review a no-evidence summary judgment de novo by construing the record in the light most favorable to the nonmovant and disregarding all contrary evidence and inferences.  Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).  A nonmovant meets its burden and defeats a no-evidence motion by bringing forth more than a scintilla of probative evidence that raises a genuine issue of material fact.  See Tex. R. Civ. P. 166a(i); Coastal Conduit & Ditching, Inc. v. Noram Energy Corp., 29 S.W.3d 282, 284 (Tex. App.—Houston [14th Dist.] 2000, no pet.).  When, as here, the trial court’s order does not specify the grounds for granting summary judgment, we affirm if any of the grounds raised by the movant is meritorious.  FM Props. Operating co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000);  Oliphint v. Richards, 167 S.W.3d 513, 516 (Tex. App.—Houston [14th Dist.] 2005, pet. denied).

B.      Choice of Law

Both converter agreements contain choice of law clauses specifying that Michigan law applies to any dispute arising under them. 

C.      Michigan Law on Commercial Contracts

Initially, we determine whether, as the upfitters claim, the converter agreements are ambiguous and, to the extent they are not, the manner in which they define the parties’ relationship. 

We depend on both the common law and the UCC in making these determinations.  Among other goals, the UCC aims “to make uniform the law among various jurisdictions.” Power Press Sales Co. v. MSI Battle Creek Stamping, 238 Mich. App. 173, 180, 604 N.W.2d 772, 776 (1999) (quoting Mich. Comp. Laws Ann. § 440.1102(c) (West 1994).  Accordingly, Michigan courts have found it appropriate to “seek guidance from the decisions of other jurisdictions” when interpreting UCC provisions.  Id.; see Conagra, Inc. v. Farmers State Bank, 237 Mich. App. 109, 121, 602 N.W.2d 390, 396 (1999).  In keeping with Michigan’s judicial policy, we, too, look to other jurisdictions for guidance in interpreting the UCC provisions at issue. 

“In ascertaining the meaning of a contract, we give the words used in the contract their plain and ordinary meaning that would be apparent to a reader of the instrument.” Rory v. Cont’l Ins. Co., 473 Mich. 457, 464, 703 N.W.2d 23, 28 (2005).  Further, “[w]e read contracts as a whole, giving harmonious effect, if possible, to each word and phrase.”  Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41, 50 n.11, 664 N.W.2d 776, 781 n.11 (2003); see also Klapp v. United Ins. Group Agency, Inc., 468 Mich. 459, 468, 663 N.W.2d 447, 453 (2003) (declaring that courts must “give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract surplusage”).

1.       Ambiguity

The upfitters contend that the following manual provision renders the converter agreements ambiguous: 

Annual Volume: The preferred annual volume is 300 units.  An exception would be low volume manufacturers for which special consideration is required due to a strong reputation for customer satisfaction, special geographic locations or strong and long standing relationships with local Chevrolet dealers.  Facilities and sales support should be adequate to grow over time – with minimum inventory turn rates of 6 times per year.

Specifically, the upfitters claim that this provision potentially conflicts with the express disclaimer that GM is not obligated to deliver any particular number or type of vehicles to its upfitters, and urge us to allow the jury to find whether the annual volume provision imposes a requirement that the upfitters customize at least 300 vehicles per year and, in turn, a corresponding requirement that GM provide sufficient vehicles. 

The threshold issue of whether contract language is clear or ambiguous is a question of law for the court.  Wilkie, 469 Mich. at 61, 664 N.W.2d at 787; Port Huron Educ. Ass’n v. Port Huron Area Sch. Dist., 452 Mich. 309, 323, 550 N.W.2d 228, 237 (1996).  Contract language is ambiguous if it “may reasonably be understood in different ways.”  Raska v. Farm Bur. Ins. Co., 412 Mich. 355, 362, 314 N.W.2d 440, 441 (1982), quoted in UAW-GM Human Res. Ctr. v. KSL Recreation Corp., 228 Mich. App. 486, 491, 579 N.W.2d 411, 414 (1998).  Courts must not create ambiguity where none exists.  Mahnick v. Bell Co., 256 Mich. App. 154, 159, 662 N.W.2d 830, 833 (2003).  Even if a contract is inartfully worded, it is not ambiguous if it “fairly admits of but one interpretation.”  Meagher v. Wayne State Univ., 222 Mich. App. 700, 722, 565 N.W.2d 401, 415 (1997).   

Parol evidence may not be used to contradict or vary the terms of an unambiguous contract.  Schmude Oil Co. v. Omar Operating Co., 184 Mich. App. 574, 580, 458 N.W.2d 659, 663 (1990), quoted in UAW-GM Human Res. Ctr., 228 Mich. App. at 492, 579 N.W.2d at 414.   It may be used to prove the existence of a latent ambiguity, but is otherwise admissible only to clarify the meaning of an ambiguous contract.  Meagher, 222 Mich. App. at 722, 565 N.W.2d at 415. 

The converter agreements allow the upfitters to order vehicles, subject to GM’s acceptance or rejection.  The manual provision language relied on by the upfitters contains no language making the annual volume required or mandatory.  To the contrary, it expressly refers to the “preferred annual volume” of vehicles.  We may not rewrite this provision by discarding one word and replacing it with one that has a wholly different meaning.

Accepting the upfitters’ proposed interpretation would also render ineffective the provision in the converter agreement expressly reserving to GM “absolute discretion” over whether to accept or reject an upfitter’s order.  We may not change the plain meaning of a term to create an ambiguity where none exists.  See Glenwood Shopping Ctr. Ltd. v. K Mart Corp., 136 Mich. App. 90, 99, 356 N.W.2d 281, 286 (1984); cf. Lytle v. Malady, 458 Mich. 153, 166, 579 N.W.2d 906, 911 (1998) (explaining that written policy in employee handbook that “[n]o employee will be terminated without proper cause or reason and not until management has made a careful review of the facts” was insufficient to overcome express disclaimer that “[t]he contents of this booklet are not intended to establish . . . any contract between . . . [the employer] and any employee, or group of employees”) (alteration in original);  Fed. Express Corp. v. Dutschmann, 846 S.W.2d 282, 283 (Tex. 1993) (determining that express disclaimer in employee handbook negated any implication that “Guaranteed Fair Treatment Procedure” outlined in personnel procedures manual placed restriction on company’s right to terminate employment at will).  Thus, we conclude that the converter agreements do not contain any ambiguity concerning GM’s unfettered discretion over whether to accept vehicle orders from the upfitters.[1]

2.       Quantity term

          The UCC statute of frauds provides:

Except as otherwise provided in this section, a contract for the sale of goods for the price of $1,000.00 or more is not enforceable by way of action or defense unless there is a writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his or her authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this subsection beyond the quantity of goods shown in the writing.

Mich. Comp. Laws Ann. § 440.2201(1) (West Supp. 2007).  A party may not use course of performance or other parol evidence to supply a quantity term.  In re Estate of Frost, 130 Mich. App. 556, 559, 344 N.W.2d 331, 333 (1983).  Moreover, the quantity term may not be inferred, and must be written.  Lorenz Supply Co. v. Am. Standard, 419 Mich. 610, 614–15, 358 N.W.2d 845, 847 (1984).

Brooklyn Bagel Boys, Inc. v. Earthgrains Refrigerated Dough Products, Inc., 212 F.3d 373 (7th Cir. 2000), is helpful in determining the legal effect of the converter agreements.  In that case, Earthgrains contracted with Brooklyn Bagel, a producer of bagels for third parties, to be a co-packer for the distribution of bagels out of its regional facility in Alabama.  Id. at 375-76.  The agreement provided that Brooklyn Bagel would process and package bagels for Earthgrains under its brand and would purchase all of the raw materials and packaging supplies necessary to produce bagels at Earthgrains’ regional facility in Illinois.  Id. at 376.  The agreement also defined a pricing structure, but did not require Earthgrains to purchase any specific quantity of bagels from Brooklyn Bagel.  Id.  Instead, it obligated Brooklyn Bagel to process and pack the “ordered quantity” of bagels.  Id. 

The court of appeals determined that the agreement, standing alone, did not expressly obligate Earthgrains to buy all or any specified quantity of its bagel requirements from Brooklyn Bagel.  Id. at 379.  Rather, the court observed, the agreement gave Earthgrains complete discretion concerning whether to order any or all of its bagel needs from Brooklyn Bagel.  The agreement did not contain any language indicating that it would be a breach of contract for Earthgrains either to (1) stop ordering from Brooklyn Bagel, (2) use another manufacturer, or (3) manufacture its own bagels.  Id. at 379–80.  The court concluded that, “[u]nder the [agreement], Earthgrains clearly had no obligation to buy all, let alone any quantity, of its bagel requirements from Brooklyn Bagel.”[2] Id. at 379. 

Similarly, here, the converter agreements confer absolute discretion on GM concerning whether to accept any, all, or part of the upfitters’ vehicle orders.  They also outline the requirements that the upfitters must satisfy so that they may qualify as “approved converters” to order vehicles from GM.  Like the agreement in Brooklyn Bagel, the converter agreements do not, standing alone, constitute enforceable contracts.  They expressly state that a “Manufacturer’s orders for Vehicles are not binding on Chevrolet until accepted by Chevrolet, and may be cancelled by Manufacturer until that time.”  Consequently, no enforceable contract exists until GM accepts an upfitter’s purchase order.  Each of the accepted purchase orders specifies a quantity term which, together with the converter agreement, forms a contract that satisfies the UCC statute of frauds. We thus view the relationship between each upfitter and GM as governed by a series of contracts.[3]  See id. at 379 n.4 (approving district court’s view of parties’ relationship as series of separate contracts, with added element that several of terms would relate back to original agreement, on theory that each time Earthgrains placed order for bagels, contract was created); Benedict Mfg. Co. v. Aeroquip Corp., No. 242563, 2004 WL 1532280, at *4–6 (Mich. App. Jul. 8, 2004) (per curiam) (finding that parties’ course of performance substantiated existence of contract because plaintiff manufactured parts and supplied them to defendant on demand at negotiated price when it received purchase orders and releases; purchase orders supplied statement of quantity).  

D.      The Upfitters’ Claims

1.       Breach of contract

The upfitters contend that the trial court erred in granting summary judgment on their breach of contract claims, asserting that the evidence raises a fact issue concerning whether GM breached the converter agreements.  The upfitters’ request that we consider the parties’ course of performance in determining whether GM limited or modified its rights in a way that is not reflected in the agreements.  Course of performance may be relevant to show waiver or modification of a written term.  Mich. Comp. Laws Ann. § 440.2208(3) (West 1994); accord Tex. Bus. & Com. Code Ann. § 1.303(f) (Vernon Supp. 2007). 

Both the UCC and the converter agreements prohibit consideration of the parties’ course of performance to the extent that it is not consistent with the language of the agreements.  When an alleged course of performance conflicts with the express terms governing a contractual relationship, the express terms prevail.  Mich. Comp. Laws Ann. § 440.1205(4) (West 1994); accord Tex. Bus. & Com. Code § 1.303; see Blalock Mach. & Equip. Co. v. Iowa Mfg. Co., 576 F. Supp. 774, 777-78 (N.D. Ga. 1983).  Further, “[a] signed agreement which excludes modification or rescission except by a signed writing cannot otherwise be modified.”  Mich. Comp. Laws Ann. § 440.2209(2) (West 1994); accord Tex. Bus. & Com. Code Ann. § 2.209(b) (Vernon 1994).  The converter agreements specifically provide that “no waiver or modification of any term of this agreement or creation of additional terms shall be valid or binding upon [GM] unless made in writing, executed on its behalf.”   

Our conclusion that converter agreements alone do not constitute enforceable contracts under Michigan law until GM accepts an order for vehicles is dispositive of this claim.  The upfitters do not allege that GM failed to satisfy any term of the converter agreement after committing to fulfill a purchase order.   Absent an accepted purchase order, the upfitters cannot demonstrate that GM breached the only obligation that would bind it under the converter agreements.  The trial court, therefore, correctly granted summary judgment on the upfitters’ breach of contract claims. 

2.       UCC claims

a.       Breach of the implied covenant of good faith and fair dealing

The upfitters contend that the trial court erred in summarily dismissing their claim that GM breached the duty of good faith and fair dealing implied under Michigan law.  They specifically allege that GM breached that duty by:

· modifying the contract language to expand GM’s discretionary authority;

· releasing new SUV models that incorporated new standard features that previously had been available only through customization and altering the seat belt mounts so that it was infeasible for the upfitters to install high value seat packages, both of which effectively shut the upfitters out from work they previously had performed;

· failing to provide the number of vehicles and the particular vehicle models the upfitters requested and requiring them to accept less marketable vehicles in order to obtain other, more marketable, vehicles; and

· terminating its agreement with Stagecoach for failure to customize the “preferred annual volume” of customized vehicles when the agreement gave GM absolute discretion over the number and type of vehicles it would provide to Stagecoach.

Neither the converter agreements nor the duty of good faith obligated GM to perform otherwise.  The UCC imposes a good faith duty of “honesty in fact in the conduct or transaction concerned.”  Mich. Comp. Laws Ann. §§ 440.1201(119), 440.1203 (West 1994 & Supp. 2007).   This good faith duty extends to the performance, enforcement, and modification of an agreement.  Id.  The official comment to this section explains the duty’s function as follows:

This section does not support an independent cause of action for failure to perform or enforce in good faith. Rather, this section means that a failure to perform or enforce, in good faith, a specific duty or obligation under the contract, constitutes a breach of that contract or makes unavailable, under the particular circumstances, a remedial right or power.  This distinction makes it clear that the doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached.

Mich. Comp. Law § 440.1203 (emphasis added), quoted in Whirlpool v. Grigoleit, No. 1:06-CV-195, 2007 WL 397030, *5 (W.D. Mich. Feb. 1, 2007).  The implied covenant of good faith and fair dealing thus “serves to supply limits on the parties’ conduct when their contract defers decision on a particular term, omits terms or provides ambiguous terms.”  Hubbard Chevrolet Co. v. Gen. Motors Corp., 873 F.2d 873, 876–77 (5th Cir. 1989) (applying Michigan law); accord N. Nat. Gas Co. v. Conoco, Inc., 986 S.W.2d 603, 606–07 (Tex. 1998) (“In the absence of a specific duty or obligation [in the contract] to which the good-faith standard could be tied, section 1.203 will not support [the plaintiff’s] claim for damages.”); Fetter v. Wells Fargo Bank Tex., 110 S.W.3d 683, 689 (Tex. App.—Houston [14th Dist.] 2003, no pet.) (same); Adolph Coors Co. v. Rodriguez, 780 S.W.2d 477, 482, 482 (Tex. App.—Corpus Christi 1989, writ denied) (explaining that UCC “duty of good faith and fair dealing is aimed at making effective the agreement’s promises”), cited with approval in N. Nat. Gas, 986 S.W.2d at 606. 

Conversely, Michigan law does not imply a covenant of good faith and fair dealing when the parties to an agreement have “unmistakably expressed” their respective rights.  Hubbard Chevrolet Co., 873 F.2d at 877.  Existing only in the interstices of a contract’s provisions, the good faith duty cannot override or replace express contractual terms.   Aetna Cas. & Sur. Co. v. Dow Chem. Co., 883 F. Supp. 1101, 1111 (E.D. Mich. 1995); Van Arnem Co. v. Mfrs. Hanover Leas. Corp., 776 F. Supp. 1220, 1223 (E.D. Mich. 1991); accord Blalock Mach., 576 F. Supp. at 777–78; Adolph Coors Co., 780 S.W.2d at 482 (warning that if fact-finder may write into contract other terms it believes are fair under circumstances, any contract is subject to being rewritten to better suit court’s or jury’s view of what parties should in “good faith” have included in agreement, regardless of what parties actually did or did not provide). 

The converter agreements contain specific, “unmistakably expressed” terms addressing and authorizing the conduct about which the upfitters complain, and compel dismissal of this claim as a matter of law.  The agreements expressly authorize GM to modify agreement from time to time in writing; grant GM absolute discretion to accept or reject the upfitters’ vehicle orders; and allow either party to terminate the agreement on notice to the other.  By acceding to the converter contracts, the upfitters agreed that GM’s exercise of discretion over the identified subjects would constitute good faith, regardless of its motivation for doing so.  For example, the termination provision of the converter agreements expressly provides:

This Agreement may be terminated by either party at any time by written notice thereof to the other party.  Written notice of termination shall be delivered personally or by certified mail, return receipt requested; termination shall be effective at the end of the third business day after the day of receipt of such written notice or at such later time as may be set forth in such notice.

In executing this provision, the parties mutually agreed that no showing of cause for termination was necessary and no reason for exercising that right would amount to bad faith.  See Hubbard Chevrolet, 873 F.2d at 877–78.  When a termination notice complies with the terms of the parties’ contract, it is reasonable.  Adv. Plastics Corp. v. White Consol. Indus., Inc., 828 F. Supp. 484, 491 (E.D. Mich. 1993), aff’d, 47 F.3d 1167 (6th Cir. 1995).[4] Consequently, GM’s reasons for exercising its right to terminate its relationship with Stagecoach does not raise any issue of fact supporting the upfitters’ breach claim.  See Corenswet, Inc. v. Amana Refrigeration, Inc., 594 F.2d 129, 138 (5th Cir. 1979) (“When a contract contains a provision expressly sanctioning termination without cause there is no room for implying a term that bars such a termination.”); cf. Tex. Farm Bur. Mut. Ins. Co. v. Sears, 84 S.W.3d 604, 609 (Tex. 2002) (reasoning that, because employment-at-will doctrine does not require employer to be reasonable in making termination decisions and allows employer to discharge employee for bad reasons without liability, employer cannot incur liability when it terminates employee for carelessly formed reasons). 

Likewise, the converter agreements have no provision either restricting GM’s own ability to modify vehicles and upgrade the available standard options to enhance their appeal and improve GM’s profit margin, or requiring GM to accept the upfitters’ orders for any particular type or number of vehicles.  To conclude that GM acted in bad faith for its conduct would require GM to waive its contractual rights, contrary to Michigan law.  See Van Arnem Co., 776 F. Supp. at 1223 (holding that defendant was entitled to advance own interests by enforcement of contract terms and was not required to forgo enforcement to put plaintiff’s interests ahead of its own).

b.      Unconscionability

The upfitters next contend that GM’s actions in either actually or effectively terminating the converter agreements and in modifying the contract language expanding GM’s discretion in accepting vehicle orders are unconscionable.  The party seeking to prove unconscionability must show that the challenged contract or term is both procedurally and substantively unconscionable.  Clark v. DaimlerChrysler Corp., 268 Mich. App. 138, 143, 706 N.W.2d 471, 474 (2005). 

“Procedural unconscionability exists where the weaker party had no realistic alternative to acceptance of the term.”  Id.; see also In re Halliburton Co., 80 S.W.3d 566, 571 (Tex. 2002) (explaining that procedural unconscionability relates to actual making or inducement of contract provision).  Whether the contract is one of adhesion has no bearing on whether it is procedurally unconscionable.  Clark, 268 Mich. App. at 143, 706 N.W.2d at 474; accord In re Halliburton Co., 80 S.W.3d at 572 (observing that contract provision is not procedurally unconscionable simply because party with superior bargaining power makes “take it or leave it” offer, leaving weaker party with no opportunity to negotiate). If the circumstances surrounding the contract formation show that the weaker party could have freely accepted or rejected the contract, it is not procedurally unconscionable.  Clark, 268 Mich. App. at 144, 706 N.W.2d at 475. 

In defining substantive unconscionability, the Clark court explained that it

exists where the challenged term is not substantively reasonable. However, a contract or contract provision is not invariably substantively unconscionable simply because it is foolish for one party and very advantageous to the other.  Instead, a term is substantively unreasonable where the inequity of the term is so extreme as to shock the conscience.

Id. (citing Allen v. Mich. Bell Tel. Co., 18 Mich. App. 632, 637–38, 171 N.W.2d 689, 692 (1969), and Gillam v. Mich. Mtg.-Inv. Corp., 224 Mich. 405, 409, 194 N.W. 981, 982 (1923)); accord In re FirstMerit Bank, N.A., 52 S.W.3d 749, 757 (Tex. 2001) (“The principle [of allowing relief for unconscionability] is one of preventing oppression and unfair surprise and not of disturbing allocation of risks because of superior bargaining power.”).

          The court decides as a matter of law whether a contract term is unconscionable.  See Mich. Comp. Laws Ann. § 440.2302(1) (West 1994).   The high threshold a party must meet in proving unconscionability stems from the strong policy favoring freedom of contract. As the Michigan Supreme Court declared:

The general rule of contracts is that competent persons shall have the utmost liberty of contracting and that their agreements voluntarily and fairly made shall be held valid and enforced in the courts. Under this legal principle, the parties are generally free to agree to whatever they like, and, in most circumstances, it is beyond the authority of the courts to interfere with the parties’ agreement. 

Wilkie, 469 Mich. at 62–63, 664 N.W.2d at 787–88 (quotations, citations, and footnotes omitted); see also WXON-TV, Inc. v. A.C. Nielsen Co., 740 F. Supp. 1261, 1264 (E.D. Mich. 1990) (“The law presumes that business people are fully competent to enter into contracts and obligate themselves to perform in any manner they wish.  The courts have no authority to rewrite the terms of a contract because they might feel that it was an unwise agreement for a party to have entered into.”).  Neither of the upfitters’ challenges approaches this threshold. 

          The upfitters’ first claim of unconscionability, which concerns GM’s conduct leading to the termination of the parties’ relationships, does not raise a fact issue for the same reason it does not support a claim for breach of the duty of good faith and fair dealing.  In their second claim, the upfitters assert that GM’s alteration of the converter agreement language addressing the scope of GM’s discretion was unconscionable.  The upfitters point out that the converter agreements originally provided that “[GM] shall have no obligation to deliver to [the upfitter] any model or number of vehicles, but may deliver to [the upfitter] such number and type of vehicles as requested by [the upfitter] as it deems appropriate,” but that GM later changed that provision to state that “[t]here are numerous factors which affect the availability of vehicles to [GM] and [GM] reserves to itself discretion in accepting orders and distributing vehicles and its judgment in such matters shall be final.”  We do not construe the former language as limiting GM’s discretion as to the quantity of vehicles ordered and consequently, do not view the alteration, which expressly confers absolute discretion to GM, as material.  Even if it were, the change in language is not unconscionable. Procedurally, we note that the upfitters agreed at the outset that GM would have unrestricted power to modify the terms of the converter agreement.  The upfitters could either accept the modification by continuing to perform under the agreements or notify GM that they were terminating the relationship.  See Mich. Comp. Laws Ann. § 440.2208(1) (West 1994) (providing that, where “contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement”); see also Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 229 (Tex. 1986) (explaining that employer may enforce changes to at-will employment contract if it unequivocally provides notice of definite change and employee accepts change by continuing employment).  Accordingly, the trial court properly granted summary judgment on this claim. 

3.       Extracontractual claims

                   a.       Economic duress

The upfitters’ economic duress claim rests on their allegations that GM threatened to further reduce the number of more marketable vehicle models available to them if they failed to accept less marketable models and also imposed minimum volume requirements after the upfitters had already entered into converter agreements and begun performance.  To succeed on a claim of duress and void an otherwise valid contract under Michigan law, a plaintiff must prove that the defendant illegally compelled or coerced the plaintiff to act by fear of serious injury to it, its reputation, or its fortune.  Norton v. Mich. State Hwy. Dep’t, 315 Mich. 313, 319–20, 24 N.W.2d 132, 135 (1946). 

No evidence raises a fact issue that GM threatened to do anything it did not have a legal right to do.  Either party had the power to terminate the contract at will with notice.  At no time did any alleged action by GM impair the upfitters’ ability to terminate their expressly at-will relationship with GM if they considered it to be unfair or oppressive.

The upfitters also fail to show that GM had any legal duty to continue provide them with certain types and numbers of vehicles, or forgo its own modification of its vehicle line as a means of maximizing its profit.  “[E]conomic duress requires a showing of illegal conduct.”  Whirlpool, 2007 WL 397030, at *4.  The upfitters allege that GM attempted to coerce them into accepting less marketable vehicles by tying their delivery to the more marketable ones, but fail to provide any evidentiary support that GM’s actual conduct violated their agreement or any law.  Consequently, the trial court correctly granted summary judgment dismissing the upfitters’ economic duress claim.

b.      Promissory estoppel, negligent misrepresentation, and fraud

The upfitters base their promissory estoppel, negligent misrepresentation, and fraud claims on GM’s alleged oral assurances that they would receive a reasonable allocation of marketable product, allocations would return to normal, GM products would remain suitable for conversion, GM would not compete with them, and GM would require its dealers to use approved converters exclusively.  All three claims, however, require upfitters to show that their reliance on GM’s alleged oral representations was reasonable.  See Adv. Plastics Corp., 828 F. Supp. at 491 (promissory estoppel); Novak v. Nationwide Mut. Ins. Co., 235 Mich. App. 675, 688, 599 N.W.2d 546, 553 (1999) (misrepresentation and fraud).  Because the converter agreements expressly prohibit reliance on any waiver or modification of any term or creation of additional terms unless made in writing and executed by GM, and the upfitters’ reliance conflicts with the plain language of the agreement reserving full discretion to GM, the upfitters cannot demonstrate the reasonableness of their reliance on any of GM’s oral assurances as a matter of law.  See Novak, 235 Mich. App. at 689–691, 599 N.W.2d at 553–54 (holding that plaintiff’s reliance is unreasonable as matter of law when terms of parties’ contract specifically contradict representations on which plaintiff claims to have relied).   

Moreover, GM did not owe any special duty to the upfitters to disclose its own business plans.  GM and the upfitters were parties to commercial relations defined by their respective agreements, not by any independent duty owed by GM to act for the benefit of the upfitters or refrain from acting in its own interest at the upfitters’ expense.  See Central Cartage Co. v. Fewless, 232 Mich. App. 517, 524–25, 591 N.W.2d 422, 426 (1998); see also McDerment v. Biltmore Props., Inc., No. 257155, 2005 WL 3556147, at *6 (Mich. App. Dec. 29, 2005) (per curiam) (declaring that person may not reasonably place trust and confidence in another when their interests are adverse).  Because these reasons support the trial court’s grant of summary judgment on the upfitters’ fraud, promissory estoppel, and misrepresentation claims, we need not examine the remaining grounds. 

Conclusion

We agree with the trial court that the upfitters did not present any genuine issue of material fact supporting their claims for breach of contract, breach of the covenant of good faith and fair dealing, unconscionability, economic duress, promissory estoppel, negligent misrepresentation, or fraud.  We therefore affirm the judgment of the trial court.

Jane Bland

                                                          Justice

Panel consists of Chief Justice Radack and Justices Alcala and Bland.

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[1] The upfitters’ reliance on Salpietra v. Kinder Properties, No. 248153, 2004 WL 2601209, at *2 (Mich. App. Nov. 16, 2004) (per curiam) is misplaced.  In that case, the plaintiffs purchased a residential lot from the project developer defendant, only to discover that the lot had been improperly graded and filled.  The trial court granted summary judgment, concluding that the plaintiffs’ purchase agreement imposed no duty to provide suitable soil.  The Michigan court of appeals reversed, noting that the agreement was ambiguous in that it specifically stated that the property was a “building site suitable and ready for construction of a residence.”  Id.  In contrast, neither the converter agreements nor the guidebook in this case obligate GM to place a certain quantity of orders with the upfitters. 

[2] In Acemco, Inc. v. Olympic Steel Lafayette, Inc., a Michigan court of appeals reached the same conclusion concerning the following language: “During the term of this Agreement, the Seller agrees to sell to the Buyer such quantities of the Products as the Buyer may specify in its purchase orders, which the buyer may deliver at its discretion.”  No. 256638, 2005 WL 2810716, at *4 (Mich. App. Oct. 27, 2005) (per curiam).  The court declared:

Reasonable minds could not construe the above language as containing a quantity term because the language specifies no quantity whatsoever. The language instead grants complete discretion to the buyer to deliver purchase orders containing any amount or no amount at its discretion without any other limiting feature. The grant of complete discretion results in a countless number of possible quantities from zero to infinity. “Any” quantity is in fact no quantity at all.

  Id.

[3] The Brooklyn Bagel court primarily viewed the parties’ relationship as creating an enforceable buyer’s option contract.  Brooklyn Bagel Boys, Inc. v. Earthgrains Refrigerated Dough Prods., Inc., 212 F.3d 373, 379 (7th Cir. 2000).  Because the cases addressing Michigan’s UCC statute of frauds do not appear to favor this view, which would allow for enforcement of an agreement without a quantity term even though the agreement is neither a requirements nor an output contract, we do not endorse it for purposes of our analysis of the converter agreements.  See, e.g., Acemco, Inc., 2005 WL 2810716, at *4; see also Merritt Campbell v. RxP Prods., Inc., 164 F.3d 957, 963 (5th Cir. 1999) (explaining that agreement would have been option contract but was unenforceable for failure to satisfy UCC statute of frauds).

[4] The resolution of analogous facts in Brooklyn Bagel also supports the trial court’s judgment in this case.  See 212 F.3d at 376.  Brooklyn Bagel and Earthgrains had performed under the contract for nearly two years when Earthgrains, without informing Brooklyn Bagel, decided to begin manufacturing its own bagels.  Id.  A few months later, after Earthgrains finished installing bagel-making equipment in its Illinois facility, it sent a ninety-day written notice to Brooklyn Bagel of its intent to terminate the contract.  Id.  In affirming summary judgment against Brooklyn Bagel’s claim for breach of the duty of good faith and fair dealing, the Seventh Circuit noted that nothing in contract prohibited Earthgrains from manufacturing its own bagels, and Brooklyn Bagel did not show that Earthgrains’ conduct could not reasonably have been contemplated by parties.  Id. at 382.