Requirements contracts between businesses for the sale of goods can be enforceable without specific signatures, and the sufficiency of the consideration for that is typically not second-guessed by courts, as the Michigan Court of Appeals pointed out in a recent, for-publication decision released on February 11, 2020.
In Cadillac Rubber & Plastics, Inc., doing business as Avon Automotive, and Avon Automotive Holdings, Inc. v. Tubular Metal Systems, L.L.C., No. 345512, Avon supplied automotive hoses to Tubular. Tubular used the hoses in making parts for General Motors as part of a just-in-time production arrangement. Tubular issued two blanket purchase orders to Avon, both of them stating that Tubular would release its material requirements for production of the amount of hoses it needed each week.
The incorporated terms of purchase, posted online, provided that for ten dollars, hose-maker Avon gave Tubular the option to purchase supplies in quantities determined by Tubular, so long as Tubular purchased no less than one unit and no more than 100% of Tubular’s requirements for the hoses. Neither the incorporated terms of purchase, nor the weekly materials requirements were ever separately signed by Avon.
Avon filed suit, claiming the above terms created only a series of spot-buy (fixed quantity) contracts, not a single requirements contract, and that because of that, Avon had the right to accept or reject each weekly material authorization release issued by Tubular. Avon also claimed Tubular’s terms were invalid because Avon did not separately sign the weekly materials requirements.
The Court of Appeals disagreed, stating that the ten-dollar consideration was sufficient consideration to mean that the weekly materials requirements did not need to be separately signed by Avon. The Court also found that because no spot-buy contracts were formed by the weekly material authorization releases, Avon could not separately reject each weekly release and instead was bound by all of them, even though Tubular was not required to purchase all of its hoses from Avon.
The takeaway is to carefully review your contracts and terms with your business partners before signing them, and to request a seasoned business attorney to review those contracts for you.
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