Lorenz Supply Co. v. American Standard, Inc.

• Decision Date: 03 December 1984
• Docket Number: No. 20,Docket No. 66357,20
• Citation: 39 UCC Rep.Serv. 1169,358 N.W.2d 845,419 Mich. 610
• Parties: LORENZ SUPPLY COMPANY, a Michigan Corporation, Plaintiff-Appellee, v. AMERICAN STANDARD, INC., a Delaware Corporation, Defendant-Appellant. Calendar419 Mich. 610, 358 N.W.2d 845, 39 UCC Rep.Serv. 1169
• Court: Michigan Supreme Court

Page 845

358 N.W.2d 845

LORENZ SUPPLY COMPANY, a Michigan Corporation, Plaintiff-Appellee, v. AMERICAN STANDARD, INC., a Delaware Corporation,

Defendant-Appellant.

Docket No. 66357.

Calendar No. 20.

419 Mich. 610, 358 N.W.2d 845, 39 UCC Rep.Serv. 1169

Supreme Court of Michigan.

Argued March 10, 1983.

Decided Dec. 3, 1984.

Lampert, Fried & Levitt, P.C. by Gary E. Levitt, David M. Fried, Birmingham, for plaintiff-appellee, Lorenz Supply Co.

Clark, Klein & Beaumont by J. Walker Henry, James E. Baiers, Suanne Tiberio Trimmer, Individually and for the Firm, Detroit, for defendant-appellant, American Standard, Inc.

LEVIN, Justice.

The principal question presented is whether the distributorship agreement ¹ between Lorenz and American Standard is a "contract for the sale of goods" within the meaning of Sec. 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 Sec. 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.), Sec. 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 Sec. 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 Sec. 2-201, be specifically stated. ⁵

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 Sec. 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 "contract[s] for the sale of goods". ⁸

II

A writing that satisfies Sec. 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 Sec. 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 Sec. 2-201 applies to distributorship agreements does not bear on the disputed terms of the instant distributorship agreement.

III

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, CAVANAGH, RYAN and BOYLE, JJ., concur.

BRICKLEY, Justice (concurring).

This case presents for the first time in this state the question whether the Uniform Commercial Code, M.C.L. Sec. 440.1101 et seq.; M.S.A. Sec. 19.1101 et seq., and its Statute of Frauds, M.C.L. Sec. 440.2201; M.S.A. Sec. 19.2201, are applicable to a distributorship agreement, and whether the Statute of Frauds' quantity requirement can be satisfied by a writing stating that one party is a distributor of another's products. I would answer yes to both questions.

I

In July of 1972, plaintiff Lorenz Supply Company was engaged in a family-owned and operated business selling "in the wall" plumbing items, such as pipes and valves, in the Detroit area. Defendant American Standard, Inc., a major manufacturer of diversified products, was planning to close out a heating and plumbing distribution outlet in Troy, run by its Amstan supply division.

Plaintiff's president, Robert Lorenz, desirous of expanding his plumbing line to "out of the wall" fixtures, such as sinks and faucets, entered into negotiations with defendant's local management. These negotiations resulted in an agreement whereby Lorenz would purchase $420,000 worth of inventory from defendant's Troy warehouse and take responsibility for its outstanding delivery orders. As part of the inducement for the inventory sale, Lorenz was to be made a "preferred" distributor of defendant's products. Plaintiff's president testified at trial that defendant promised to use its best efforts to supply items on a regular basis as they were needed and that plaintiff could distribute defendant's products for as long as it desired.

The arrangement for the inventory sale was reduced to a specific writing which set forth the details for transfer of the goods. The goods were to be transferred from the defendant's warehouse in August 1972. When Mr. Lorenz inquired as to the distributorship part of the arrangement, he was advised that it was the policy of defendant not to have written distributorship agreements. However, in the following month plaintiff received a confirmation letter from an official of defendant corporation. It expressed "happiness with the way our whole negotiations turned out with regard to your purchase of the Amstan inventory and, more importantly, to welcome you to the numbers of American Standard distributors across the country". Lorenz immediately began to enlarge his facilities and augment his staff in preparation for the distributorship and its expected enhancement of his business.

Unfortunately, happiness did not become a hallmark of the relationship. Lorenz first became concerned that defendant was not honoring the terms of their agreement at the time of the inventory transfer in August of 1972, when he received reports that some of the fastest-selling inventory from the Troy warehouse was seen departing for destinations other than plaintiff's business. Lorenz would later testify that some of the fastest-selling items from the inventory were sold to other distributors. Lorenz also testified that defendant overcharged him for some of the items he received from the sale, and charged for some items not received at all. Lorenz further testified at trial that, when he complained to defendant about these various errors, he was told on several occasions that restitution would be made for the missing inventory, and that he should keep track of the billing errors so that the total amount could be offset against his account at a later date.

The dispute between the parties and efforts to resolve it continued through the remainder of 1972 and into 1973. Finally, in December 1973, plaintiff, claiming that it was owed $72,000 by defendant as a result of the alleged errors, refused to pay approximately $65,000 otherwise owing to defendant. ¹ Defendant, disputing these assertions, advised plaintiff that it would be cut off from further products if it did not pay on its account. When the payment was not received by January 1974, defendant placed plaintiff on "credit hold", meaning that plaintiff could receive additional products only by paying cash in advance.

Meanwhile, plaintiff filed suit for breach of contract. Defendant denied a breach and counterclaimed for the monies due according to defendant's accounting. Robert Lorenz testified at trial that he secured additional financing, at great personal cost, in order to continue to buy essential items from defendant in cash. This in turn compounded his financial problems. Finally, in June 1974, d...