BRC Rubber & Plastics, Incorpo v. Continental Carbon Company
900 F.3d 529 (2018)
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Rule of Law:
A supply agreement that specifies an approximate quantity and includes a "meet or release" clause, which grants the seller a right of first refusal on better offers, is an enforceable contract supported by sufficient mutuality of obligation and consideration. A party may alter its legal theory of a contract during litigation so long as the underlying factual allegations of the complaint remain consistent.
Facts:
- On January 1, 2010, BRC Rubber & Plastics, Inc. ('BRC') and Continental Carbon Co. ('Continental') entered into a five-year supply agreement.
- The agreement stated that Continental would sell to BRC 'approximately 1.8 million pounds of prime [carbon] black annually' at prices that were 'to remain firm throughout the term.'
- The agreement contained a 'Meet or Release' provision granting Continental a right of first refusal, meaning BRC had to allow Continental the opportunity to match any better offer BRC received from another supplier before accepting it.
- In March 2011, a market-wide shortage of carbon black occurred, and Continental began experiencing production issues.
- In April 2011, Continental notified BRC that a specific grade of carbon black would be unavailable and a Continental sales representative attempted to increase the baseline prices, which BRC rejected based on the contract's 'firm' price term.
- Continental failed to fulfill a BRC order, told BRC to 'call another supplier' after BRC refused a price increase, and provided equivocal assurances about its ability to meet future orders, stating it would 'do the best we can.'
- On May 18, 2011, after Continental stated it did not have the requested product available, BRC purchased a railcar of carbon black from another supplier at a higher price.
- In early June 2011, Continental again emailed BRC seeking to increase prices and accelerate payment terms.
Procedural Posture:
- BRC sued Continental in U.S. District Court, alleging breach and anticipatory repudiation of what it characterized as a 'requirements contract.'
- The district court granted summary judgment to BRC on liability, agreeing that the agreement was an enforceable requirements contract that Continental had repudiated.
- Following a bench trial on damages, the district court awarded BRC $982,643.11.
- Continental appealed to the U.S. Court of Appeals for the Seventh Circuit.
- In the first appeal, the Seventh Circuit held the agreement was not a requirements contract, vacated the district court's judgment, and remanded the case.
- On remand, both parties filed new cross-motions for summary judgment, with BRC now arguing the agreement was for a fixed quantity of approximately 1.8 million pounds.
- The district court granted summary judgment to Continental, ruling that BRC's complaint only stated a claim under a requirements contract theory and, alternatively, that the agreement was unenforceable for lack of mutuality and consideration.
- BRC appealed this second grant of summary judgment to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a supply agreement that specifies an approximate annual quantity and grants the seller a right of first refusal ('Meet or Release' clause) fail for lack of mutuality of obligation and consideration, thereby rendering it unenforceable?
Opinions:
Majority - Ripple, Circuit Judge.
No. A supply agreement containing an approximate quantity and a seller's right of first refusal does not fail for lack of mutuality or consideration because both parties incur definite legal obligations. The agreement is supported by mutuality because Continental is obligated to make available 'approximately 1.8 million pounds' of carbon black annually at firm prices, and in return, BRC incurs a legal detriment through the 'Meet or Release' provision. This right of first refusal, which prohibits BRC from purchasing from other suppliers at a better price without first giving Continental the chance to match it, constitutes valid consideration. The court clarified that under Indiana law, contractual obligations need not be mirror images of each other. Furthermore, the contract does not fail for indefiniteness, as 'approximately 1.8 million pounds' is a sufficiently certain quantity term under the UCC, and the absence of specific quantities for each grade is resolved by the UCC provision giving the buyer the option of assortment.
Analysis:
This decision reinforces the UCC's liberal approach to contract formation by upholding an agreement with an approximate quantity term and non-symmetrical obligations. It clarifies that a right of first refusal, granted by a buyer to a seller, is a substantial legal detriment that constitutes valid consideration, thereby preventing the contract from being an illusory 'buyer's option.' The case also provides an important procedural clarification, affirming that a plaintiff can change its legal theory (e.g., from a 'requirements contract' to a 'fixed-quantity contract') late in litigation, provided the new theory is supported by the original factual allegations in the complaint. This precedent gives businesses more confidence in the enforceability of flexible supply agreements and provides litigants with leeway to refine legal arguments as a case develops.
