BENEDICT MANUFACTURING CO V AEROQUIP CORP
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STATE OF MICHIGAN
COURT OF APPEALS
BENEDICT MANUFACTURING CO.,
UNPUBLISHED
July 8, 2004
Plaintiff-Appellant,
v
No. 242563
Jackson Circuit Court
LC No. 99-093245-CK
AEROQUIP CORP.,
Defendant-Appellee.
Before: Talbot, P.J., and Owens and Fort Hood, JJ.
PER CURIAM.
Plaintiff appeals as of right from an order granting defendant’s motion for summary
disposition. Plaintiff claimed that defendant breached as many as 140 contracts for the sale of
goods. The trial court granted summary disposition on the basis of the Uniform Commercial
Code’s (UCC) provisions concerning the statute of frauds. MCR 2.116(C)(7). We conclude that
the trial court erred in determining that plaintiff was bound by the quantity expressed in the
purchase orders and that there are genuine issues of material fact that must be submitted to the
trier of fact. We therefore reverse.
I. Factual background
Plaintiff supplied defendant with various marine parts for many years. These parts could
be broken down into two broad categories: “rings and bands” and “parts other than rings and
bands.” In 1990, defendant switched from ordering “spot buys,” or purchases for a specific
quantity of parts that are shipped on a specific delivery date, to “contract buys,” purchases for a
specific quantity of parts that are shipped over the term of the contract.
Defendant’s buyer from 1990 to May 31, 1994, Lois Jones, attested that she had a “verbal
understanding” with plaintiff that, for “parts other than rings and bands,” she would order a
specific quantity of parts that was approximately 80 percent of the parts that defendant would
require for a period of one year. Jones further attested that she “had a verbal understanding with
Benedict Manufacturing that the full quantity of parts shown on those purchase orders would be
purchased by the end of one year whether or not Aeroquip had requirements for the parts.” For
“rings and bands,” she attested that “it was intended that Aeroquip was committed to purchase
the full quantity of parts shown on those purchase orders within a reasonable period of time,
whether or not Aeroquip had requirements for the parts.” In other words, Jones claimed that
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Aeroquip agreed to purchase all the parts ordered—whether within one year or “within a
reasonable period of time.”
After Jones’s retirement in 1994, Julia Corbett-Liles became defendant’s buyer for
marine parts. Plaintiff’s principal, Thomas Benedict, testified that he thought that the purchase
orders received from Corbett-Liles would be “business as usual,” even though he did not discuss
his prior verbal agreements with Jones. Moreover, Benedict also testified that he was aware that
the purchase orders received from defendant after Corbett-Liles became defendant’s buyer
contained contract provisions. Benedict testified that he thought the parties’ past practices
controlled over those provisions. Thus, plaintiff’s position was that defendant was obligated to
purchase all parts that were ordered via the purchase orders, regardless of whether defendant
actually needed the parts.
Defendant’s position was that the purchase orders limited defendant’s liability for parts to
only those parts that it actually required. Thus, if defendant did not send releases for the
shipment of the parts previously referenced in a purchase order, defendant would not have to pay
for the parts.1
Ultimately, defendant’s purchase orders referenced quantities of parts for which it never
subsequently issued releases. Plaintiff, relying on its understanding of the estimated number of
parts required and of the business practices followed in the past, apparently manufactured the
entire number of parts referenced by the purchase orders, incurring labor and material expenses
in the process. Defendant paid for the specific number of parts ordered in each release, but
refused to pay for the additional parts. Plaintiff therefore filed the instant action, contending that
defendant breached its contractual obligation to purchase the entire quantity of manufactured
parts.
The trial court granted defendant’s second motion for summary disposition pursuant to
MCR 2.116(C)(7) ruling that plaintiff’s claim was limited by the statute of frauds provision in
the UCC to the quantity of parts specified in the purchase orders. MCL 440.2201(1).2
1
The orders in question were divided between orders prefixed with “NB” or “NC.” The NB
prefix referred to parts intended to fulfill a government contract for the manufacture of six ships
by the Bath Iron Works in Bath, Maine, while the NC prefix orders related to parts sought to fill
general customer requirements.
2
At the time relevant to this appeal, MCL 440.2201(1) provided:
Except as otherwise provided in this section a contract for the sale of
goods for the price of $500.00 or more is not enforceable by way of action or
defense unless there is some writing sufficient to indicate that a contract for sale
has been made between the parties and signed by the party against whom
enforcement is sought or by his authorized agent or broker. A writing is not
insufficient because it omits or incorrectly states a term agreed upon but the
contract is not enforceable under this paragraph beyond the quantity of goods
shown in such writing.
(continued…)
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II. Standard of Review
“This Court reviews a grant or denial of summary disposition de novo to determine if the
moving party is entitled to judgment as a matter of law.” Maiden v Rozwood, 461 Mich 109,
118; 597 NW2d 817 (1999). Summary disposition may be granted under MCR 2.116(C)(7)
where the claim is barred by the statute of frauds.
A party may support a motion under MCR 2.116(C)(7) by
affidavits, depositions, admissions, or other documentary evidence. If
such material is submitted, it must be considered. MCR 2.116(C)(5).
Moreover, the substance or content of the supporting proofs must be
admissible in evidence. . . . Unlike a motion under subsection (C)(10), a
movant under MCR 2.116(C)(7) is not required to file supportive material,
and the opposing party need not reply with supportive material. The
contents of the complaint are accepted as true unless contradicted by
documentation submitted by the movant. Patterson v Kleiman, 447 Mich
429, 434, n 6; 526 NW2d 879 (1994). [Maiden, supra at 119.]
III. Relevant legal principles
The parties agree that the issues in this case are governed by the UCC as adopted in
Michigan. MCL 440.1101 et seq. The UCC “is to be liberally construed and applied to promote
its underlying purposes and policies.” Power Press Sales Co v MSI Battle Creek Stamping, 238
Mich App 173, 180; 604 NW2d 772 (1999), quoting Shurlow v Bonthuis, 456 Mich 730, 737 n
12; 576 NW2d 159 (1998). One of the UCC’s purposes is “to make uniform the law among the
various jurisdictions.” Power Press, supra at 180, quoting MCL 440.1102(2)(c). For that
reason, it is appropriate to look to other jurisdictions to seek guidance when interpreting
provisions of the UCC. Id. Additionally, MCL 440.1103 provides that principles of law and
equity shall supplement UCC provisions unless displaced by particular provisions of the UCC
itself. Therefore, in the absence of directly controlling UCC provisions, questions are resolved
according to general legal principles, i.e., the law of contract interpretation. Conagra, Inc v
Farmers State Bank, 237 Mich App 109, 131-132; 602 NW2d 390 (1999). “The primary goal of
contract interpretation is to honor the intent of the parties.” Id.
Generally, the threshold issue whether contract language is clear or ambiguous is a
question of law for the trial court. Port Huron Ed Ass’n v Port Huron Area School Dist, 452
Mich 309, 323; 550 NW2d 228 (1996). Courts must not create ambiguity where none exists.
Mahnick v Bell Co, 256 Mich App 156, 159; 662 NW2d 830 (2003). A contract is ambiguous if
the language is susceptible to more than one interpretation or is inconsistent on its face.
Petrovello v Murray, 139 Mich App 639, 642; 362 NW2d 857 (1984). A contract, even if
inartfully worded or clumsily arranged, is not ambiguous “if it fairly admits of but one
interpretation.” Allstate Ins Co v Goldwater, 163 Mich App 646, 648; 415 NW2d 2 (1987).
(…continued)
The primary change accomplished by the 2002 amendment of this provision was to
increase the dollar limit to $1,000. 2002 PA 15.
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“Parol evidence is not admissible to vary a contract that is clear and unambiguous, In re Skotzke
Estate, 216 Mich App 247, 251; 548 NW2d 695 (1996), but may be admissible to prove the
existence of an ambiguity and to clarify the meaning of an ambiguous contract. Goodwin v
Orson E Coe Pontiac, Inc, 392 Mich 195, 209; 220 NW2d 664 (1974).” Meagher v Wayne State
Univ, 222 Mich App 700, 722; 565 NW2d 401 (1997).
IV. Analysis
Both parties agree that there was a contract between them for the purchase of marine
parts3; however, they disagree regarding the form of the contract. Plaintiff contends that the
contract was an oral contract negotiated over the telephone,4 that its terms were defined by the
parties’ prior course of dealing, and that the purchase orders sent by defendant were simply
confirmations of the contract. Plaintiff further asserts that, because the purchase orders
contained additional terms that materially differed from the parties’ established course of
dealing, those material additions were not part of the contract. Defendant contends, on the other
hand, that the purchase orders themselves were the contracts, that the contracts were clearly
“requirements” contracts5 under which defendant was only obligated to purchase the quantity
specified in each individual contract, and that plaintiff was required to perform according to the
terms specified in the purchase orders/contracts.
The court ruled that there was no written contract, as required by the statute of frauds,
that the parties’ oral contract was evidenced by the purchase orders submitted by defendant, and
that plaintiff therefore could enforce the oral contract only to the amount specified in each
purchase order. Because, in the trial court’s opinion, each purchase order specified a particular
quantity of parts, the court determined that the purchase orders satisfied the requirements of the
statute of frauds, and therefore plaintiff was precluded from submitting parol evidence to
contradict the quantity of parts stated in each individual purchase order.
3
There is no dispute that defendant ordered various marine parts from plaintiff and that
defendant has paid for those parts it has actually obtained. In fact, even after this action
commenced, defendant has continued to periodically send releases for additional parts plaintiff
had previously manufactured based on its understanding of the parties’ agreement. This lawsuit
therefore concerns only those parts previously manufactured by plaintiff but as yet not purchased
by defendant.
4
The parties did not execute a writing incorporating the terms of their oral telephonic
negotiations.
5
A requirements contract has been described as one “in which the seller promises to supply all
the specific goods or services which the buyer may need during a certain period at an agreed
price in exchange for the promise of the buyer to obtain his required goods or services
exclusively from the seller.” Propane Industrial, Inc v General Motors Corp, 429 F Supp 214,
218 (WD Mo, 1977). The UCC accepts the validity of such contracts. MCL 440.2204(3) (“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.”). See also MCL 440.2306.
-4-
The UCC statute of frauds provision applies to the sale of goods and the alleged
contract(s) in this case concerned the sale of goods, i.e., marine parts; therefore, MCL
440.2201(1) applies to this case. The statute requires (1) a “writing sufficient to indicate that a
contract for sale has been made between the parties” and (2) that the writing be “signed by the
party against whom enforcement is sought.” Id.
The only writing that appears to have been generated in this case is the succession of
purchase orders that were sent to plaintiff by defendant to trigger manufacture of particular parts.
Defendant listed the specific number of each part to be supplied in response to the purchase
order, the number of each part being ordered in total, and the agreed upon price for the parts
(apparently derived from the parties’ oral negotiations). Plaintiff then performed the contract
pursuant to its understanding of the agreement: it manufactured the requested number of parts
and shipped them to defendant at the agreed upon price and in the agreed upon time frame when
it received a release for a particular number of the manufactured parts.
Aside from the fact that the parties agree that a contract was formed for the manufacture
and provision of marine parts, their behavior substantiates the existence of a contract because
plaintiff manufactured the parts and supplied them to defendant on demand at a negotiated price
when it received the purchase orders and releases. MCL 440.2204(1) (“A contract for sale of
goods may be made in any manner sufficient to show agreement, including conduct by both
parties which recognizes the existence of such a contract.”).
Furthermore, while MCL 440.2201(1) provides that an enforceable contract for the sale
of goods over $500 must be in writing, there are statutory exceptions to this requirement. The
first exception concerns where a party sends, within a reasonable time, “a writing in confirmation
of the contract and sufficient against the sender.” MCL 440.2201(2). Because such “confirming
writings” must be “sufficient against the sender,” they must be “signed” by the sender and
contain a statement of quantity. White and Summers, Uniform Commercial Code (4th ed)
[White], § 2-5, p 5, see also, Lorenz Supply Co v American Standard, Inc, 419 Mich 610, 614;
358 NW2d 845 (1984) (“The requirements of § 2-201 are satisfied if the writing indicates that ‘a
contract of sale has been made between the parties’ and ‘specif[ies] a quantity.’ 2 Anderson,
Uniform Commercial Code (3d ed), § 2-201:97, p 61.”). Case law indicates that an actual
signature is unnecessary; rather, it is enough if the document contains the letterhead or the
buyer’s name and address. Cf. Jem Patents, Inc v Frost, 147 Ga App 839; 250 SE2d 547 (1978).
The purchase orders sent by defendant to plaintiff displayed defendant’s corporate logo as well
as its plant name and address; this was sufficient to satisfy the “signature” requirement.
The purchase orders contained a statement of quantity. In fact, the dispute between the
parties centers on the fact that at least some of the purchase orders contained two statements of
quantity. Based on this difference in the quantity stated, plaintiff maintains that the contract was
for the manufacture of a total number of each part that would then be furnished over a period of
time as defendant provided individual releases for portions of that total. Plaintiff further claims
that the terms of this contract may be explained by consideration of the parties’ previous course
of dealing or performance. MCL 440.2202(a). Conversely, defendant maintains that each
individual purchase order was a contract that was satisfied by the supplying of the parts called
for in the purchase order and that reference to the parties’ course of dealing or performance was
inappropriate because the terms of the contract(s) were contained in the purchase order(s). The
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trial court concluded that the oral contract was enforceable to the extent of the quantity specified
in the purchase orders. MCL 440.2201(3)(b); Lorenz, supra at 614.
The purchase orders contained a listing of the part number, a description of the part, a due
date (although this was sometimes given as “TBA” – presumably signifying “to be announced” –
or the typed date was replaced by a hand-written one), a quantity, a price, some further
descriptive notations, and an account number. The “NB” purchase orders also contained the
following language:
This purchase order is issued to cover 100% of Aeroquip Division
requirements. Specified quantities to be manufactured will be authorized on a
release and shipping schedule. This order is subject to reduction or cancellation
on evidence of failure to meet Aeroquip’s delivery and/or quality requirements.
Estimated annual quantities are to be reviewed by Aeroquip and adjusted in
demand. Price is to remain firm for the life of this contract.
Estimated annual quantity =
Minimum release quantity =
The “NC” purchase orders followed the above language with statements such as: “Bath 3
yr prices” and “Total Contract = 278 pcs.”6 This created an ambiguity between the two different
statements of quantity. Even the “NB” purchase orders were ambiguous with respect to the
quantity terms because there was a stated order quantity at the top of the document, but there
were also blank provisions for “Estimated annual quantity = ___” and “Minimum release
quantity = ___” further down in the contract. Therefore, particularly with respect to the “NC”
purchase orders, the typical order included a listing of quantity at the top and a subsequent listing
of total quantity without an explanation of the significance of these two figures.
Given these two statements of quantity, and the purchase order language that “This
purchase order is issued to cover 100% of Aeroquip Division requirements. Specified quantities
to be manufactured will be authorized on a release and shipping schedule,” it was equally
reasonable to conclude that a purchase order constituted an order for only the quantity of parts
listed at the top of the purchase order or that the purchase order requested provision of a total
number of parts with only a portion of those parts to be sent in response to a subsequently filed
release.
MCL 440.2202 provides, in relevant part:
Terms with respect to which the confirmatory memoranda of the parties
agree or which are otherwise set forth in a writing intended by the parties as a
6
It was also not explained why the “NC” orders – related to other customer orders – would make
reference to “Bath 3 yr prices” when it was the “NB” orders that covered the orders for the Bath
Iron Works.
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final expression of their agreement with respect to such terms as are included
therein may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement but may be explained or supplemented
(a) by course of dealing or usage of trade (section 1205) or by course of
performance (section 2208)[.]
MCL 440.2202 permits the parties to explain or supplement the terms of a confirmatory
memorandum “by course of performance” pursuant to MCL 440.2208(1).7 Plaintiff has
maintained that the parties’ course of performance when executing previous similar contracts for
marine parts clearly demonstrated that plaintiff was required to manufacture the total amount of
parts initially estimated by defendant (which permitted plaintiff to provide the lowest possible
cost-per-part estimate), supply specific quantities from this total as defendant presented a
succession of releases, and that, in turn, defendant was required to ultimately purchase the total
number of parts it had originally estimated.
The trial court ruled that consideration of the parties’ course of dealing or performance
was not permissible because there was no ambiguity in the contract to resolve by considering
evidence of the parties’ course of performance. But, given that the trial court concluded that the
contract was an oral contract that was enforceable to the extent of the quantity listed in the
purchase order, an ambiguity in the quantity term stated in the purchase orders would call for a
parol evidence explanation. MCL 440.2202. Moreover, “Parol evidence . . . may be admissible
to prove the existence of an ambiguity.” Meagher, supra at 722. This Court in In the Matter of
the Estate of Frost, 130 Mich App 556, 561; 344 NW2d 331 (1984), approvingly quoted the
holding of two Washington cases:
“‘When quantity is not precisely stated, parol evidence is admissible to
show what the parties intended as the exact quantity,’ * * * but where the writing
relied upon to form the contract of sale is totally silent as to quantity, parol
evidence cannot be used to supply the missing quantity term. Alaska Independent
Fisherman’s Marketing Ass’n v New England Fish Co, 15 Wash App 154, 159160; 548 P2d 348 (1976), quoting Hankins v American Pacific Sales Corp, 7
Wash App 316; 499 P2d 214 (1972).
Contrary to the trial court’s view, we find that the listing of two different quantities (or a
stated quantity followed by a blank provision for an “Estimated annual quantity” and a
7
MCL 440.2208(1) provides, in relevant part:
Where the contract for sale involves repeated occasions for performance
by either party with knowledge of the nature of the performance and opportunity
for objection to it by the other, any course of performance accepted or acquiesced
in without objection shall be relevant to determine the meaning of the agreement.
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“Minimum release quantity” was an ambiguity in the contract language. Parol evidence was
therefore properly “admissible to prove the existence of [this] ambiguity and to clarify the
meaning of an ambiguous contract.” Id.
Moreover, defendant does not dispute that the parties had conducted business for a
number of years with plaintiff manufacturing parts according to defendant’s specifications or that
the manufactured parts were supplied to defendant in accordance with the submission by
defendant of purchase orders and releases. Pursuant to MCL 440.2208(1), this course of
performance was relevant and admissible to explain or supplement the quantity terms that were
contained in the purchase orders. Frost, supra at 564, citing MCL 440.2202, Comment 2 (“the
course of actual performance by the parties is considered the best indication of what they
intended the writing to mean.”).
Defendant points to the “requirements” language in its purchase order and asks this Court
to conclude that this language limited plaintiff to manufacturing only the quantity listed at the
top of the purchase orders. However, acceptance of this position would require us to focus on
the “requirements” language while at the same time ignoring the “quantity” language that
follows after the “requirements” language. This we will not do.
We therefore conclude that, although a quantity is stated in the purchase orders sufficient
to take this case out of the statute of frauds, the quantity term is nonetheless ambiguous and parol
evidence was admissible to explain the ambiguity. MCL 440.2202(a); Frost, supra at 562-563;
Meagher, supra at 722. The trial court’s decision granting summary disposition to defendant is
therefore reversed and this case is remanded to the trial court for further proceedings.
Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.
/s/ Michael J. Talbot
/s/ Donald S. Owens
/s/ Karen M. Fort Hood
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