Brc Rubber & Plastics, Inc. v. Continental Carbon Company

Facts

Carbon black is used to manufacture rubber products. P designs and manufactures rubber and plastic products. D manufactures carbon black. In 2009, P solicited bids from several suppliers of carbon black, seeking a long-term contract to ensure continuity of supply. P sought a single supplier of carbon black to help make its products' qualities as consistent as possible. P and D signed a five-year contract to run from January 1, 2010, to December 31, 2014. D agreed to supply 1.8 million pounds of prime furnace black annually' taken in 'approximately equal monthly quantities.' The price of carbon black consists of a baseline price and so-called 'feedstock' adjustments for the fluctuating prices of oil and natural gas. The contract listed baseline prices for three grades N339, N550, and N762, which were 'to remain firm throughout the term of this agreement.' The contract included instructions for calculating the feedstock adjustments each month. At dispute are the baseline prices in their contract. In 2010 P bought 2.6 million pounds from Continental. In the first four months of 2011, P bought about 1.3 million pounds, putting it on pace to buy about 3.9 million pounds that year. In April 2011, supplies became tight. D tried to use market shortages to impose an increase in the baseline prices to P. D concedes that its actions gave P reasonable grounds for insecurity under § 2-609. Moccia, D's vice president of marketing and development instructed Nunley, its sales representative, to raise prices. Nunley protested the change. He thought it violated the contract. Moccia told him to proceed anyway because P could not obtain carbon black elsewhere. Nunley emailed P to announce a unilateral price increase of two cents per pound effective June 1. P replied the next day that the price increase would violate the contract. D refused to rescind the price increase, and Moccia instructed Nunley to withhold shipping from P unless it agreed to the increase. Between April 15 and 27, 2011, P placed new orders relying on the contract's prices. It did not receive any communications from D regarding the price increase. On April 27, P told D it expected D to abide by the contract prices. D did not respond. Moccia had instructed Nunley not to respond to P's April 27 letter. On April 29, Nunley called P and said that his superiors had told him he was no longer allowed to communicate with P. P was worried because if D refused to ship it would disrupt P's ability to fulfill its customer's demands, which would have been 'devastating' for P's business. On May 9, 2011, D fired Nunley, and Nunley told P. P emailed D that it expected D to abide by the terms of the contract. P asked for a written response to the April 27 letter by May 20. Moccia had D's sales manager David Word call P on May 10. Word said that pricing was out of his control. On May 11, 2011, D missed a shipment. On May 13, Word again told P that D could not guarantee to ship product under the April 26 purchase order and that it was 'out of his control.' Word also would not confirm any future shipment dates or tell P when to expect a response to confirm that D intended to perform under the contract. In a May 13 email, P told Word that this was 'totally unacceptable,' that the delay in shipping jeopardized P's ability to satisfy its customers, and that 'P will not allow this to occur.' On May 13, P began looking for alternate suppliers. One was able to promise grade N762 carbon black for a shipment in 30 days at a spot rate higher than the 'P-D contract' price. On May 16, 2011, Ps lawyer emailed D asking for adequate assurances of performance. P asked D to respond by May 18. The contested issue is whether D actually provided adequate assurance. On May 20, 2011, D's lawyer confirmed that D would comply with the contract. On that same day, D's Nelson wrote to P that D could fulfill the April 26 purchase order with modified shipping dates, but with the disputed price increase. P objected to the price increase. Moccia replied that P should look for another supplier. P asked Moccia to confirm what D's lawyer had said and got no response. On May 28 when D sent P its June prices. The list included the disputed price increase. D's failure to provide adequate assurance meant that P was entitled to treat Continental as having repudiated the contract. On June 2, 2011, P notified D that it was terminating the parties' contract and had filed this lawsuit. P then proceeded to 'cover' by starting to buy carbon black from another supplier at higher prices, which it did for the rest of the contract term. Applying the standard of commercial reasonableness to all the circumstances, the district court found that D's assurance was inadequate. D's repeated use of its unauthorized baseline price increase-after its lawyer supposedly assured P it would abide by the contract-was a 'clear indication' that it did not intend to continue performing under the existing contract. Eventually, this appeal resulted. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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