Cadillac Rubber & Plastics Inc v. Tubular Metal Systems LLC
FOR PUBLICATION (2020)
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Rule of Law:
The separate-signature requirement of UCC § 2-205 for a firm offer on an offeree's form does not apply if the offer is supported by consideration. Additionally, an agreement where a buyer commits to purchase between a nominal amount and 100% of its requirements creates an enforceable requirements contract under UCC § 2-306, even if it is not exclusive.
Facts:
- Cadillac Rubber & Plastics, Inc. ('Avon') is a supplier of automotive parts, specifically hoses.
- Tubular Metal Systems, LLC ('Tubular') buys hoses from Avon to use in parts it produces for General Motors.
- In 2012 and 2016, Tubular issued two blanket purchase orders to Avon to supply hoses for the duration of a specific General Motors program.
- The purchase orders specified that Tubular would determine the quantity of parts needed each week through 'material authorization releases.'
- The orders incorporated Tubular’s online terms and conditions, which stated that for a consideration of $10, Avon granted Tubular an irrevocable option to purchase supplies.
- The terms specified that Tubular would purchase 'no less than one piece or unit' and 'no more than one hundred percent (100%) of Buyer's requirements for the Supplies.'
- From 2012 through early 2018, Tubular consistently issued weekly material releases, and Avon fulfilled those releases by supplying the required parts.
Procedural Posture:
- Avon filed a lawsuit against Tubular in the Oakland Circuit Court (trial court) seeking a declaratory judgment that their agreement was not a binding requirements contract.
- Avon filed a motion for summary disposition, arguing it was entitled to judgment as a matter of law.
- Tubular filed a response and requested summary disposition in its favor.
- The trial court granted summary disposition in favor of Tubular, finding an enforceable contract existed.
- 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 grants the buyer an irrevocable option for nominal consideration to purchase between one unit and 100% of its requirements for the life of a program with quantities specified in weekly releases, create an enforceable requirements contract, or is it merely a series of individual 'spot-buy' contracts that the seller can unilaterally reject?
Opinions:
Majority - Sawyer, J.
No, the agreement creates an enforceable requirements contract, not a series of individual spot-buy contracts. The court held that the contract was valid and binding for two primary reasons. First, the 'irrevocable option' was supported by consideration ($10), which makes it a standard option contract. The separate-signature requirement of MCL 440.2205 (UCC § 2-205) is inapplicable because that statute, by its own terms and as explained in its official comments, only applies to firm offers made without consideration. Second, the agreement constitutes an enforceable requirements contract under MCL 440.2306 (UCC § 2-306). Relying on persuasive federal court decisions interpreting Michigan law, the court ruled that requirements contracts need not be exclusive. The combination of the blanket purchase orders, the incorporation of terms defining quantity by Tubular's requirements (within a 1% to 100% range), the system of weekly releases, and the parties' long course of performance established the existence of a valid requirements contract as a matter of law.
Analysis:
This decision provides significant clarity for commercial transactions in Michigan, particularly within the automotive supply chain. It definitively establishes that the procedural safeguards of UCC § 2-205, such as the separate-signature rule, are irrelevant for option contracts supported by consideration. More importantly, by holding that requirements contracts under UCC § 2-306 do not need to be exclusive, the court validates a common industry practice of using blanket purchase orders with variable-quantity releases. This ruling enhances contractual stability for 'just-in-time' supply systems, ensuring that suppliers cannot prematurely exit long-term agreements simply because the buyer is not exclusively bound to them.
