A plastics company purchased ingredients from a producer of rubber products for many years under a series of short-term agreements. A few years after signing a long-term agreement, the rubber producer attempted to unilaterally raise the price of the products it was selling to the plastics company. When the plastics company protested that this was not allowed under the agreement, the rubber producer failed to make scheduled deliveries on time. The plastics company then sought an alternate source of rubber and sued the producer for the difference in cost it paid. The district court determined that the rubber company failed to adequately assure the plastics manufacturer of its ability to perform under the contract, and the plastics company was therefore entitled to seek supplies elsewhere and recoup damages. The appellate panel affirmed, finding that the plastic company’s actions were reasonable under the Uniform Commercial Code.
BRC Rubber & Plastics, Inc. designs and manufactures rubber and plastic products, primarily for the automotive industry. Continental Carbon Company manufactures carbon black, an ingredient in many rubber products. Before 2010, BRC bought all the carbon black it needed from Continental, though the two companies did not have a long term supply contract.
In 2009, BRC solicited bids from several suppliers of carbon black, seeking a long-term contract to ensure continuity of supply. Continental won the bidding, and in late 2009 the two companies signed a five-year contract to run to Dec. 31, 2014. Continental agreed to supply BRC with approximately 1.8 million pounds of prime furnace black annually in equal monthly quantities. The contract listed baseline prices for three types of carbon black which were to remain firm throughout the agreement. The contract also included instructions for calculating the feedstock price adjustment to account for fluctuations in the price of oil and gas. Continue reading ›