Lorenz Supply Co. v. American Standard, Inc.

419 Mich. 610, 39 U.C.C. Rep. Serv. (West) 1169

• Court: Michigan Supreme Court
• Decided: December 3, 1984
• Docket: Docket No. 66357
• Status: Published

Opinions

Levin, J.

The principal question presented is whether the distributorship agreement¹ between Lorenz and American Standard is a "contract for the sale of goods” within the meaning of § 2-201 of the Uniform Commercial Code.² We hold that it is not and affirm the decision of the Court of Appeals affirming the judgment entered by the circuit court on the jury’s verdict in favor of Lorenz._

I

Lorenz pleaded and the jury found that Lorenz entered into a distributorship agreement with American Standard. The only written evidence of this agreement was a letter from American Standard to Lorenz that "welcome[d]” Lorenz "to the numbers of American Standard distributors across the country.”

Section 2-201 does not require that the terms of a contract for the sale of goods, other than the quantity term, be expressed in writing.³ The requirements of § 2-201 are satisfied if the writing indicates that "a contract of sale has been made between the parties” and "specifies] a quantity”. 2 Anderson, Uniform Commercial Code (3d ed), § 2-201:97, p 61.⁴

The concurring opinion recognizes that the quantity term of a distributorship agreement is generally uncertain, and to require that it be stated with certainty would put most distributorship agreements out of compliance with §2-201 and, hence, if a distributorship agreement is a "contract for the sale of goods”, make them unenforceable. The concurring opinion seeks to avoid this dilemma by inferring a quantity term. The quantity term must, however, under § 2-201, be specifically stated.^{5 6}

A requirements or output term of a contract, although general in language, nonetheless is, if stated in the writing, specific as to quantity, and in compliance with § 2-201.⁶ However, not all distributorship agreements are requirements or output contracts. The jury was not asked to decide whether the instant distributorship agreement contained a requirements or output term, and this Court would exceed its role if it were to imply a provision akin to a requirements term.⁷ Under the construction advanced in the concurring opinion, American Standard could maintain an action against Lorenz for failure to purchase its requirements whether the parties agreed thereto or not.

Because many distributorship agreements are not requirements or output contracts and in such cases the quantity term is generally uncertain, we conclude that the drafters of the Uniform Commercial Code did not intend that all distributorship agreements be regarded as "contracts] for the sale of goods”.⁸

II

A writing that satisfies § 2-201 does not prove the terms of a contract; such a writing merely removes the statutory bar to the enforcement of the contract whether its terms — other than the quantity term which alone must be specified in writing — be written, oral, or partly written and partly oral. In the instant case, the letter from American Standard to Lorenz welcoming him as a distributor indicates that a contract was made between the parties. If one concludes, as would the author of the concurring opinion, that the letter satisfies the requirements of §2-201, then the terms of the instant agreement, whatever those terms might be, are enforceable. Because the terms of a contract for the sale of goods, other than the quantity term, need not be stated in writing, the declaration in the concurring opinion that § 2-201 applies to distributorship agreements does not bear on the disputed terms of the instant distributorship agreement.

HI

Turning to another issue, American Standard was not prejudiced by the jury’s apparent misunderstanding of the judge’s instruction that it must bring in a verdict of at least $65,100 on American Standard’s counterclaim; the parties have consented to a judgment on the counterclaim in excess of that amount.

The jury’s $45,000 verdict on Lorenz’s claim against American Standard for breach of the agreement for the sale of inventory is not inconsistent as a matter of law with its finding that American Standard breached the distributorship agreement. It is generally a question of fact whether a breach by a buyer, Lorenz, is so far material as to justify the seller, American Standard, in terminating their contract.⁹ American Standard did not ask for a jury finding on this issue and thereby waived such a finding. This Court would exceed its role if it were to decide as a matter of law that Lorenz’s failure to pay a portion of the amount admittedly owed by Lorenz to American Standard was a material breach justifying American Standard in terminating the distributorship agreement that the jury found was entered into.¹⁰

IV

We all agree that the other assignments of error were adequately dealt with in the opinion of the Court of Appeals.

Affirmed.

Williams, C.J., and Kavanagh, Ryan, Cav-anagh, and Boyle, JJ., concurred with Levin, J.

1 Plaintiff Lorenz Supply Company and defendant American Standard, Inc., entered into an agreement whereunder Lorenz agreed to purchase $420,000 worth of plumbing inventory from American Standard. The jury found that, at the same time, the parties agreed that Lorenz was to become a distributor of American Standard products in the Detroit area. The terms of the inventory sale agreement, but not the distributorship agreement, were set forth in writing.

Subsequently, a dispute arose concerning the performance of the inventory sale agreement. Lorenz withheld payments totaling $65,100 for goods received because it believed that it was owed over $70,000 for alleged errors pertaining to the inventory sale. American Standard then refused to supply additional products under the distributorship agreement unless Lorenz paid cash in advance.

Lorenz filed the instant action claiming breach of both the written inventory sale agreement and the oral distributorship agreement. The complaint sought $2,000,000 in damages. American Standard counterclaimed for approximately $72,000 for products delivered under the inventory sale agreement.

The jury awarded Lorenz $45,000 on the inventory claim and $255,000 on the distributorship claim. Although the circuit judge directed the jury to find for American Standard on its counterclaim in an amount between $65,100 and $72,106.08, the jury found no cause of action on the counterclaim. After the judge ordered a new trial on the counterclaim issue only, the parties stipulated that American Standard would recover $69,873.40 on the counterclaim.

The Court of Appeals affirmed. 100 Mich App 600; 300 NW2d 335 (1980). This Court granted leave to appeal. 412 Mich 864 (1981).

2 MCL 440.2201; MSA 19.2201.

3 The Official Comment to § 2-201 provides, in part:

"The required writing need not contain all the material terms of the contract and such material terms as are stated need not be precisely stated. All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction. * * * The only term which must appear is the quantity term which need not be accurately stated but recovery is limited to the amount stated. The price, time and place of payment or delivery, the general quality of the goods, or any particular warranties may all be omitted.” (Emphasis added.)

4 It appears that most, if not all, commentators agree with Anderson’s observation that § 2-201 requires that a writing must specify a quantity. See, e.g., Calamari & Perillo, The Law of Contracts, § 313, p 486; White & Summers, Uniform Commercial Code (2d ed), § 2-4, pp 59-60; 3 Duesenberg & King, Uniform Commercial Code Service (Bender), § 2.04[2][a], p 2-59.

5 See fn 4 and Doral Hosiery Corp v Sav-A-Stop, Inc, 377 F Supp 387, 389 (ED Pa, 1974), stating that the written inclusion of a quantity term is "mandatory” under the UCC.

6 See Cox Caulking & Insulating Co v Brockett Distributing Co, 150 Ga App 424, 426; 258 SE2d 51 (1979); 3 Duesenberg & King, Uniform Commercial Code Service (Bender), § 2.04[2][a], p 2-59; 2 Anderson, Uniform Commercial Code (3d ed), §§ 2-201:lÍ3, 2-201:114, p 70.

7 Other courts have refused to hold that a distributorship agreement contains an implied term that the seller will supply the buyer with its requirements. See, e.g, Eastern Dental Corp v Isaac Masel Co, Inc, 502 F Supp 1354, 1364 (ED Pa, 1980); Cavalier Mobile Homes, Inc v Liberty Homes, Inc, 53 Md App 379, 395; 454 A2d 367 (1983).

8 We express no opinion on the question whether a distributorship agreement may fall within the broader category of “transactions in goods” within the meaning of § 2-102 of the UCC, MCL 440.2102; MSA 19.2102.

9 See Farnsworth, Contracts, § 8.16, p 612; 3A Corbin, Contracts, § 700, p 309.

10 Even if Lorenz’s failure to pay $20,100 constituted a breach, it was for the jury to determine the materiality of the breach. It is not for this Court to decide as a matter of law whether Lorenz’s failure to pay $20,100 of the $65,100 admittedly owed to American Standard justified, under the circumstances, American Standard in terminating the distributorship agreement.