BRC Rubber & Plastics, Inc. v. Continental Carbon Co.

United States District Court for the Northern District of Indiana · Contracts

Contractsrequirements contractUCC 2-306good faith requirementsunreasonably disproportionatestated estimateadequate assuranceanticipatory repudiation

Facts

BRC and Continental entered into a five-year supply agreement effective January 1, 2010, under which Continental agreed to supply all of BRC's requirements for three grades of carbon black, with an annual estimate of approximately 1.8 million pounds and rebate/penalty thresholds tied to annual volume. In 2010 Continental supplied BRC 2.612 million pounds and gave BRC a rebate, and Continental's 2011 forecast projected BRC would purchase about 2.68 million pounds. After market demand rose in 2011, Continental sought a price increase from BRC; when BRC refused, Continental stopped confirming BRC's orders, failed to ship requested May 2011 quantities, and internally limited BRC to 1.8 million pounds. After BRC demanded adequate assurance, Continental gave conflicting responses, stated it would do its best based on an intent to supply only 1.8 million pounds, and BRC terminated the agreement and filed suit.

Issue

Whether Continental breached a requirements contract by refusing to confirm and ship BRC's April 26, 2011 order, whether Continental repudiated the agreement by failing to provide adequate assurance and by limiting supply to 1.8 million pounds, and whether Continental's nonperformance was excused by commercial impracticability.

Rule

Under UCC § 2-306, a requirements buyer may demand its actual requirements so long as they occur in good faith and are not unreasonably disproportionate to any stated estimate. Under UCC § 2-609, when reasonable grounds for insecurity arise, a party may demand adequate assurance in writing, and failure to provide adequate assurance within the circumstances of the case constitutes repudiation. Under UCC § 2-615, a seller claiming commercial impracticability must show an unforeseen contingency making performance impracticable and, if capacity is only partially affected, must allocate production among customers in a fair and reasonable manner.

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Summit Gasket Works, a manufacturer in Toledo, Ohio, signed a five-year agreement under which Prairie Ash Materials would supply all of Summit's requirements for industrial filler, with an annual estimate of approximately 900,000 pounds. In 2025, demand from Summit's auto-parts customers rebounded, and Summit began ordering more filler while continuing its usual practice of keeping about a month's inventory on hand; Prairie refused, claiming Summit was taking advantage of a favorable fixed price in a rising market.

If Summit sues for breach, which fact most strongly supports that Summit's increased orders were made in good faith under the governing rule?

Explanation. Under § 2-306, a requirements buyer may demand its actual requirements if they arise in good faith. The opinion emphasized that increased orders tied to ordinary business demand and unchanged purchasing methods are consistent with good faith, while speculation or manipulation to exploit market prices is not. Summit's increased needs from a rebounding downstream market, combined with its ordinary inventory practice, best supports good faith. (Derived from BRC Rubber & Plastics, Inc. v. Continental Carbon Co. (n.d.).)