Brc Rubber & Plastics, Incorporated v. Continental Carbon Company

Facts

BRC RUBBER & PLASTICS, INCORPORATED V. CONTINENTAL CARBON COMPANY

900 F.3d 529 (7th Cir. 2018)

NATURE OF THE CASE: In a prior appeal the court rejected the characterization of the agreement between BRC (P) and Cardon (D) as a requirements contract and vacated and remanded. P then claimed that the agreement was for a fixed amount of carbon black and the district court granted summary judgment to D holding in part that the agreement was unenforceable for a lack of mutuality and consideration. P appealed. 

FACTS: P and D entered into the contract which stated: 'It is the intent of this agreement that D agrees to sell to P approximately 1.8 million pounds of [carbon] black annually.' In 2010, D shipped 2.6 million pounds to P, and shipments continued into early 2011. By April 2011, for a variety of reasons, D was struggling to keep up with the total demand from all its customers. P placed an order on April 26, 2011, but D neither confirmed nor shipped that order. D believed that as long as it shipped approximately 1.8 million pounds annually, it did not have to accept and fill each and every order. P believed instead that D had to fill every order. P contends that the agreement was a 'requirements contract.' P filed suit. The court found as a matter of law that the agreement was a requirements contract and D's refusal to confirm and ship some orders was a breach and repudiation of the agreement. The court entered judgment for P for nearly $1 million. D appealed the judgment and P cross-appealed the exclusion of certain testimony from the damages trial. D claimed the Agreement does not obligate P to buy any amount of carbon black, let alone all of its required carbon black, from D. The appeals court agreed with this reasoning and vacated the district court's judgment. On remand, the district court ordered the parties to submit new cross-motions for summary judgment. D argued that P's claims now fail as a matter of law because if the Agreement is not a requirements contract, it must be an unenforceable 'buyer's option' that lacks mutuality and consideration. D also claimed that the Agreement is unenforceable because it lacks essential terms, particularly a precise quantity of total carbon black and each grade of carbon black. P contends that if the Agreement is not a requirements contract, it is nonetheless an 'enforceable agreement requiring D to sell at least 1.8 million pounds of carbon black annually to P.' P now claimed that D anticipatorily repudiated the Agreement when it failed to fulfill D's order, demanded higher prices and accelerated payment terms, and sent equivocal messages about its intent to provide even 1.8 million pounds per year. The district court granted summary judgment to D. The court ruled in part that the Agreement is an unenforceable 'buyer's option' because it lacks the requisite mutuality and consideration. D appealed. 

ISSUE: Can a right of first refusal to sell support mutuality of obligation? Does mutuality of obligation require that the seller be required to sell and the buyer be required to buy?

RULE OF LAW: A right of first refusal to sell can support mutuality of obligation. Mutuality of obligation does not require that the seller be required to sell and the buyer be required to buy.

HOLDING AND DECISION: (Ripple, Circuit Judge.) Can a right of first refusal to sell support mutuality of obligation? Yes. Does mutuality of obligation require that the seller be required to sell and the buyer be required to buy? No. The district court reasoned that 'because the Supply Agreement is not a requirements contract, and because even the 'Meet or Release' provision in the Supply Agreement does not require P to purchase carbon black exclusively from D, there is no mutuality of obligation in the Supply Agreement. It is therefore unenforceable for lack of consideration. A contract must impose mutual obligations on the parties in order to be enforceable. If both parties are not bound, neither is bound. A benefit is a legal right given to the promisor to which the promisor would not otherwise be entitled. A detriment, on the other hand, is a legal right the promisee has forborne. The obligations must be 'reasonably definite and certain,' on both sides of the contract. They cannot be illusory (i.e. making them optional. This Agreement imposes definite obligations on both parties. Dl is obligated to make available 'approximately 1.8 million pounds of prime [carbon] black annually ... to be taken in approximately equal monthly quantities,' at the baseline prices set out 'firmly' in the Agreement. P's legal detriment is that if it sought to buy carbon black from another seller at a lower price, D had to be given the chance to meet that price. P is not obligated to purchase any carbon black from D. P is prohibited from purchasing carbon black from other suppliers on better terms than the Agreement unless D reviews the offer and decides not to match it. A right of first refusal is 'a 'valuable contractual right' in which the right-holder may 'preempt' a third-party offer for a protected interest.' Even if a contract is supported by consideration, it 'is unenforceable if it is so indefinite and vague that the material provisions cannot be ascertained.' Even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. UCC 2-204(3). The approximation of the annual quantity does not undermine the definiteness of the contract. The lack of a specific quantity for each grade does not undermine the definiteness of the Agreement. Reversed and remanded. 

LEGAL ANALYSIS: We stated another rule of law in the holding. 

Consideration can be the surrender or forbearance of a legal right. The first right of refusal is such a right. If P buys from another, D has the right to look at the price and beat it in which case P must buy from D. That the agreement does not cover the entire spectrum of possibilities does not mean it lacks mutuality. This was a very narrow contract as far as what each party was obligated to do. 

There is much confusion over the meaning of the terms 'mutuality' or 'mutuality of obligation' as used by the courts in describing contracts, 1 S. WILLISTON, supra, § 105A, at 420-421; 1A A. CORBIN, supra, § 152, at 2-3. Sometimes the question involved where mutuality is discussed is whether one party to the transaction can by fair implication be regarded as making any promise; but this is simply an inquiry whether there is consideration for the other party's promise. 1 S. WILLISTON, supra, § 105A, at 423. (Footnote omitted.) Mutuality of contract means that an obligation rests upon each party to do or permit to be done something in consideration of the act or promise of the other; that is, neither party is bound unless both are bound. Aden v. Dalton, 341 Mo. 454, 107 S.W.2d 1070, 1073 (1937), quoting Gillen v. Bayfield, 329 Mo. 681, 46 S.W.2d 571, 575 (1935). (Emphasis supplied.) See Middleton v. Holecroft, 270 S.W.2d 90, 92 (Mo. Ct. App. 1954).

© 2007-2023Abn Study Partner

Issues

Rule of Law

Holding and Decision

Legal Analysis

© 2007-2024 ABN Study Partner.