Juris Doctor Candidate, 2016
Valparaiso University Law
It is not uncommon for a business to rely on one manufacturer to provide them with a majority or a certain amount of one product to resell to the public. Often, these businesses and manufacturers enter into contracts with one another, but sometimes one party does not truly understand what they agreed to. As illustrated in BRC Rubber & Plastics Inc. v. Continental Carbon Company, a mistaken belief in a contract can have a potentially devastating impact on all parties involved.
BRC Rubber & Plastics Inc. entered into a contract with Continental Carbon Company for Continental to supply BRC with carbon black. Continental was unable to complete orders for BRC in April 2011 based on high demand for carbon black and refused to fill additional orders by BRC. BRC subsequently filed suit, alleging breach of contract. Continental was under the belief that as long as they shipped approximately 1.8 million pounds to BRC annually, as the contract provided, they did not have to accept and fill each and every order from BRC. BRC, on the other hand, believed that Continental had to fill every order. BRC’s belief was based on its view that the parties’ agreement was a requirements contract, where a purchaser agrees to buy all of its needs of a specified material exclusively from a particular supplier, and the supplier agrees, in turn, to fill all of the purchaser’s needs during the period of the contract. Because the parties’ agreement is governed by Indiana law, an unambiguous contract is interpreted by giving the terms their ordinary meanings while reading the contract as a whole, with the ultimate goal of determining the parties’ intent.
The District Court agreed with BRC that the companies had a requirements contract, reasoning that Continental’s refusal to confirm and ship some orders was a breach and repudiation of the agreement. BRC was awarded nearly $1 million in damages. However, the 7th Circuit Court of Appeals vacated the judgment, holding the lower court erred in ruling in favor of BRC after finding the agreement between the companies was a requirements contract.
Although the parties’ agreement did provide that BRC would purchase a specific amount of carbon black from Continental each year, according to the 7th Circuit Court of Appeals, the parties’ agreement did not qualify as a requirements contract. To constitute a requirements contract, BRC would not only have had to be obligated to buy some amount of carbon black from Continental but also be prohibited from buying carbon black from any other seller. Judge Williams, in vacating the judgment, stated, “In our view, neither condition is met, so we hold that the parties’ agreement was not a requirements contract.” This case has been remanded back to the District Court, who will need to make a decision that isn’t premised on the agreement being a requirements contract.
Based in the foundations of American law, we are free to contract with one another; however, as evidenced by BRC Rubber & Plastics Inc. v. Continental Carbon Company, the 7th Circuit reminds us that it is imperative that we fully understand any contract before agreeing to it and that we must contract within the law.