Cadillac Rubber & Plastics Inc v. Tubular Metal Systems LLC
___ Mich. App. ___, ___ (2020) (For Publication, Feb. 11, 2020) (2020)
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Rule of Law:
Under the Uniform Commercial Code, the separate-signature requirement for a firm offer on an offeree's form (UCC § 2-205) is inapplicable if the offer is supported by consideration. Furthermore, an agreement obligating a buyer to purchase at least one unit and up to 100% of its needs creates an enforceable requirements contract (UCC § 2-306), which does not need to be exclusive.
Facts:
- Avon is a supplier of automotive hoses.
- Tubular produces parts for General Motors and purchases hoses from Avon for its production.
- In 2012 and 2016, Tubular issued blanket purchase orders to Avon for the hoses, which incorporated Tubular's online terms and conditions.
- The terms stated that the agreement was for the 'life of the program' initiated by Tubular's customer, General Motors.
- Paragraph 4(b) of the terms provided that in exchange for $10 consideration, Avon granted Tubular an irrevocable option to purchase supplies.
- The quantity term in the option was defined as no less than one unit and no more than 100% of Tubular's requirements, with specific quantities to be identified in weekly material authorization releases.
- From 2012 to 2018, Tubular consistently issued weekly material releases, and Avon fulfilled those orders by supplying the required parts.
Procedural Posture:
- Avon filed an action in the Oakland Circuit Court (trial court) against Tubular, seeking a declaratory judgment and damages for breach of contract.
- Avon moved for summary disposition, arguing the agreements were not requirements contracts and the irrevocable option was invalid.
- Tubular filed a response and requested summary disposition in its own favor under MCR 2.116(I)(2).
- The trial court granted summary disposition in favor of Tubular.
- Avon, as the appellant, appealed the trial court's decision to the Michigan Court of Appeals.
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Issue:
Does a blanket purchase order agreement, which for consideration grants the buyer an irrevocable option to purchase between one unit and 100% of its requirements for the life of a program, with specific quantities determined by weekly releases, create an enforceable requirements contract rather than a series of individual 'spot-buy' contracts?
Opinions:
Majority - Sawyer, J.
Yes, such an agreement creates an enforceable requirements contract. The court rejected Avon's argument that the firm offer was invalid under MCL 440.2205 (UCC § 2-205) for lacking a separate signature, holding that the separate-signature requirement only applies when a firm offer is not supported by consideration. Because Tubular provided $10 in consideration for the irrevocable option, the statute's requirement was inapplicable. The court also determined that the agreement constituted a valid requirements contract under MCL 440.2306 (UCC § 2-306). Citing persuasive federal precedent, the court held that a requirements contract need not be exclusive to be enforceable. The quantity term, obligating Tubular to purchase between one unit and 100% of its requirements, was sufficiently definite, and the parties' long-standing course of performance further evidenced the existence of a requirements contract.
Analysis:
This decision provides significant clarity for supply chain contracts, particularly within the automotive industry, by affirming the validity of common commercial practices. It establishes binding Michigan precedent that requirements contracts need not be exclusive, protecting buyers who source from multiple suppliers while still having enforceable long-term agreements. The ruling also reinforces that nominal consideration is sufficient to create a binding option contract, thereby bypassing the procedural safeguards of UCC § 2-205 which are intended for gratuitous firm offers. This case solidifies the legal framework for 'just-in-time' inventory systems that rely on blanket purchase orders with release-based quantities.
