Michigan litigators commonly rely on federal authority to interpret and enforce blanket orders and requirements contracts under Article 2 of Michigan’s Uniform Commercial Code. This is in part due to more plentiful and detailed analyses of blanket orders and requirements contracts in the federal case law, and a countervailing paucity of Michigan appellate decisions on these subjects. That gap in authority narrowed on February 11, 2020, with the to-be-published decision of the Michigan Court of Appeals in Cadillac Rubber & Plastics, Inc. v. Tubular Metal Sys., LLC, Docket No. 345512, (Mich. Ct. App. Feb. 11, 2020). In that case, the Court of Appeals provided binding guidance on two issues of first impression under Michigan law concerning requirements contracts. First, whether requirements contracts must be exclusive, meaning that the buyer may only purchase the contracted-for goods from the seller to satisfy its requirements? Second, whether an irrevocable “firm offer” must be separately signed by a seller pursuant to MCL 450.2205 to validate the existence of a requirements contract?
In Cadillac Rubber, the plaintiffs (collectively referred to as “Avon” in the opinion) sold hoses to defendant Tubular Metal Systems, LLC (“Tubular”) for use in producing automotive parts for General Motors. In 2012 and 2016, Tubular placed two “blanket orders” with Avon stating that Tubular would provide weekly material release requirements. Both blanket orders incorporated Tubular’s online terms and conditions, which provided the contract was “for the life of” General Motors’ Epsilon program, and incorporated the following quantity provision:
If the face of the Order . . . specifies the quantities as . . . “blanket order”, then, in consideration for ten US dollars (US$10.00), the payment of which shall be made by Buyer upon the termination or non-renewal of this Order, Seller grants to Buyer an irrevocable option during the term of this Order to purchase Supplies in such quantities as determined by Buyer and identified as firm orders in material authorization releases, manifests, broadcasts or similar releases (“Material Authorization Releases”) that are transmitted to Seller during the term of this Order . . . provided that Buyer shall purchase no less than one piece or unit of each of the Supplies and no more than one hundred percent (100%) of Buyer’s requirements for the Supplies. All references herein to “this Order” shall include any Material Authorization Releases.
(Emphasis added). From 2012 until 2018, Avon and Tubular treated the blanket orders as requirements contracts. Specifically, “Tubular issued weekly material authorization releases to Avon, listing the quantity of parts needed and a reasonable forecast of future requirements.” In response, “Avon fulfilled those releases with the required parts.”
In 2018 Avon filed an action for declaratory judgment and breach of contract, claiming the “‘per-releases’ quantity term creates a series of spot-buy (also called fixed-quantity) contracts, not a requirements contract.” Under Avon’s interpretation, this would allow it “the right to accept or reject each material authorization release issued by Tubular.” Avon also challenged whether the “irrevocable option” language of Tubular’s terms and conditions created a firm offer under MCL 440.2205 because Avon did not separately sign a form reflecting this language. Tubular responded by arguing that the blanket orders and irrevocable option were valid and binding, and created a life-of-program requirements contract. The trial court sided with Tubular, and granted summary disposition in its favor. Avon appealed.
The Michigan Court of Appeals affirmed. It first rejected Avon’s argument that UCC Section 205 required a separate signature to validate Tubular’s irrevocable option. Applying the plain language and official comment to Section 205, the Court reasoned that “the separate-signature requirement only applies when no consideration is given for the firm offer.” (Emphasis added). Because Tubular had agreed to pay $10 “upon the termination or non-renewal of this Order,” the separate-signature requirement of Section 205 was inapplicable.
The Court next rejected Avon’s argument that the blanket orders, terms and conditions, and weekly material releases constituted separate “spot buy” contracts. It definitively held that “[r]equirements contracts need not be exclusive,” adopting the holdings of two United States District Court decisions, Gen Motors Corp v Paramount Metal Prods Co, 90 F Supp 2d 861 (E.D. Mich. 2000) and Johnson Controls, Inc v TRW Vehicle Safety Sys, Inc, 491 F Supp 2d 707 (E.D. Mich. 2007). Therefore, “[t]he fact that Tubular was not required by the terms and conditions to purchase 100% of its requirements from Avon is not dispositive.” Furthermore, Tubular’s blanket orders provided that “MATERIAL REQUIREMENT WILL BE RELEASED WEEKLY,” and its terms and conditions provided that Tubular “was obligated to purchase from Avon a quantity between one part and 100% of Tubular’s requirements.” (Emphasis added). Based on these provisions, coupled with the fact “that the parties have performed consistently with the contractual documents since 2012,” the Court held that “the evidence indisputably establishes that the parties have a requirements contract.” While federal case law may still be the “go to” on a range of issues relating to blanket orders and requirements contracts, Cadillac Rubber has put to rest issues of exclusivity and the separate-signature requirement for firm offers in requirements contract disputes under Michigan law.
Authored by: Matthew D. Smith