Cadillac Rubber & Plastics Inc v. Tubular Metal Systems LLC

Citation: Not availableDocket: 345512

Court: Michigan Court of Appeals; February 10, 2020; Michigan; State Appellate Court

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An opinion marked "FOR PUBLICATION" is subject to revision until its final publication in the Michigan Appeals Reports. In the case of Cadillac Rubber Plastics, Inc. and Avon Automotive Holdings, Inc. (collectively "Avon") vs. Tubular Metal Systems, LLC, Avon appeals a circuit court order granting summary disposition in favor of Tubular under MCL 2.116(I)(2). Avon, a supplier of automotive parts, provided hoses to Tubular, which used them for General Motors production. Tubular issued two blanket purchase orders in 2012 and 2016, requiring weekly material releases, and incorporated Tubular’s posted terms and conditions. 

Key points from the terms include that Tubular had an irrevocable option to purchase supplies as specified in material releases, and the contract was tied to General Motors’ Epsilon program. Avon contends that the orders create series of spot-buy contracts, granting it the right to accept or reject releases. Avon also challenges the validity of the irrevocable option, arguing it is unenforceable because it was on Tubular's form and not separately signed by Avon. Avon seeks a declaration that the orders are not requirements contracts and that it may reject any unaccepted material releases, while alleging Tubular breached the contracts by imposing supply requirements. Avon filed a motion for summary disposition asserting these claims, which Tubular opposed, requesting summary disposition in its favor.

Tubular claimed the existence of an enforceable requirements contract based on blanket purchase orders, its terms and conditions, material authorization releases, and a longstanding relationship with Avon since 2012. Tubular also asserted the existence of an enforceable option contract. After a hearing, the trial court ruled in favor of Tubular, leading to Avon's appeal, which was subsequently affirmed.

The court reviewed the summary disposition standard under MCR 2.116(I)(2) and established that a motion for summary disposition under MCR 2.116(C)(10) assesses the factual sufficiency of the complaint and should be granted when there are no genuine issues of material fact. The moving party must provide evidence supporting their claim, while the opposing party must present specific facts beyond mere allegations to demonstrate a genuine issue. A genuine issue exists when reasonable minds could differ based on the record evidence.

The court also stated that contract interpretation is a question of law reviewed de novo. If a contract's language is unambiguous, it must be enforced as written, reflecting the parties' intent.

Avon contended that the trial court erred by rejecting its argument regarding the enforceability of Tubular's firm offer due to the lack of a separate signature, as required by MCL 440.2205. The court disagreed, clarifying that the separate-signature requirement only applies when no consideration is given for the firm offer. In this case, Tubular's firm offer was supported by consideration of $10, making the offer enforceable regardless of the separate-signature requirement.

The provision in question does not apply, as supported by UCC 2-205 comments, which clarify that "firm offers" are no longer required to have consideration to be binding; they only need to be expressed in signed writings. Comment 1 specifies that this section applies to current firm offers, not long-term options, establishing a three-month irrevocable period for such offers. The offer can remain irrevocable if it is contingent upon an event within that timeframe. Any promise lasting longer binds the offeror only for the first three months unless renewed with consideration. The comments, although non-binding, aid in interpreting Michigan’s UCC, emphasizing uniformity. The court should prioritize the statute's plain language, and if unambiguous, it must be enforced as written, as highlighted in cases like Fisher Sand & Gravel Co v Neal A Sweebe, Inc. The official comments reinforce the interpretation that a firm offer must be a signed writing ensuring it remains open for acceptance. UCC 2-205 restricts the offeror's ability to withdraw an offer without consideration, aligning with the notion that the offeree can rely on the offer's firmness. Overall, MCL 440.2205 is inapplicable when a firm offer is supported by consideration, a conclusion further backed by various persuasive authorities.

Avon does not contest the adequacy or existence of consideration, which was set at $10 in the agreement. The company asserts that the agreement is a "spot buy" contract rather than a requirements contract. This argument is rejected, as MCL 440.2306(1) defines requirements contracts based on a buyer's needs or a seller's output, emphasizing that such contracts are valid as long as they reflect good faith efforts and do not demand quantities disproportionate to prior estimates. Comment 2 clarifies that these contracts are not too indefinite and maintain mutual obligations, as the party determining quantity must operate in good faith and adhere to commercial standards.

The court in Gen Motors Corp v Paramount Metal Prods Co established that both exclusive and non-exclusive requirements contracts can be enforced under MCL 440.2306. It also pointed out that not all requirements contracts are exclusive, allowing for arrangements where some or all of a buyer's needs can be sourced from the seller.

In Johnson Controls, Inc v TRW Vehicle Safety Sys, Inc, the court examined a contract where purchase orders did not specify quantities but were instead dependent on the buyer's production needs. The practice, common in the automotive industry, involved issuing material releases for parts as needed. The court noted that these contracts often rely on standard boilerplate language and are typically executed with minimal negotiation. JCI's purchase orders included terms similar to those in Tubular's terms and conditions, indicating an irrevocable option for the buyer to purchase supplies in quantities determined by the buyer during the contract's term.

Material Releases sent to the Seller during the Order's term obligate the Seller to supply Supplies at specified prices and terms, with the Buyer required to purchase a minimum of one unit and a maximum of 100% of its requirements. In the Johnson Controls case, the court noted that the UCC allows for contracts with indefinite quantity terms, emphasizing that JCI’s periodic material releases defined the necessary quantities. The court found that these releases formed a nexus to the amounts due to industry practices. Although the Global Terms allowed fixed pricing within a range, the arrangement functioned as a requirements contract, accommodating the flexibility needed in the automotive supply chain.

In the current case, Tubular's issued purchase orders from 2012 and 2016 incorporated terms stating that material requirements would be released weekly. These terms indicated that Tubular was obligated to purchase between one part and 100% of its needs from Avon. The court noted that Tubular's non-requirement to purchase all its needs exclusively from Avon did not invalidate the contract. The court recognized that a requirements contract does not have to be exclusive to be enforceable, supporting its conclusion with precedents from Johnson Controls and Gen Motors Corp.

Tubular has consistently adhered to the contractual agreements since 2012, providing forecasts for parts needed, which Avon has fulfilled without claims of bad faith regarding the determination of requirements. The court addressed Avon’s citation of a lower federal opinion suggesting ambiguity in Michigan law on the exclusivity of requirements contracts, clarifying that it is not bound by such opinions. Ultimately, the court affirmed the trial court's finding that the documents collectively established a requirements contract, properly granting summary disposition to Tubular and allowing it to tax costs.