## Facts

- Chainworks, Inc. brokered/distributed steel tubing and sourced tubing from Webco Industries, Inc. for resale to a third-party buyer in Canada.
- In November 2003, Webco issued a memorandum quoting prices for calendar year 2004 and stating the prices were “firm.”
- After Chainworks questioned whether prices would remain fixed despite market volatility, Webco confirmed the tubing would remain priced as quoted.
- In December 2003, Chainworks offered to buy all of its 2004 tubing requirements from Webco at the memorandum prices; Webco began shipping and invoicing at those prices in January 2004.
- Webco later announced a steel surcharge due to supplier surcharges and demanded Chainworks’ acceptance, threatening supply interruptions if Chainworks refused.
- Chainworks agreed in writing to pay the surcharge to avoid disrupting supply to its customer, while reserving rights and asserting it had no practical alternative.
- In August 2004, Webco imposed an additional general price increase and again threatened to stop shipments unless Chainworks accepted; Chainworks again paid under protest and reserved rights.
- At the end of 2004, Chainworks ended the relationship and, when paying a final invoice, deducted the amounts attributable to the surcharge and later increase.
- Chainworks sued for a declaration that it did not owe the surcharge or price increases; Webco counterclaimed for the deducted amounts, asserting valid price modifications.
- The case came before the district court on Chainworks’ motion for summary judgment; Webco opposed and asserted commercial impracticability.

## Issues

1. Whether the parties formed an enforceable 2004 requirements contract at Webco’s “firm” quoted prices under UCC § 2-306.
2. Whether Chainworks’ written “acceptances” of the surcharge and later increase were enforceable contract modifications under UCC § 2-209 or were voidable for economic duress.
3. Whether Webco was excused from the fixed-price terms by commercial impracticability under UCC § 2-615 based on steel-market cost increases and supplier surcharges.

## Decision

- The court granted Chainworks’ motion for summary judgment in substantial part.
- The court held the parties formed an enforceable 2004 requirements contract at the prices stated in Webco’s November 2003 “firm” pricing memorandum.
- The court held the surcharge and later price increase were not enforceable modifications because Chainworks’ assent was induced by economic duress, including threats of supply disruption and lack of reasonable alternatives.
- The court rejected Webco’s commercial impracticability defense as a matter of law because increased input costs and market volatility were foreseeable risks for a seller that offered “firm” annual pricing.
- The court declared Chainworks was not obligated to pay the surcharge or later increases and that Webco could not recover those amounts on its counterclaim.

## Legal Principles

- A requirements contract may be formed under UCC § 2-306 when a buyer commits to purchase its good-faith requirements and the seller accepts, including by performance, at agreed terms.
- Under UCC § 2-209, a sales contract may be modified without new consideration, but the modification must still reflect voluntary, good-faith agreement.
- Economic duress renders a purported modification unenforceable where assent is procured by a wrongful threat and the aggrieved party lacks a reasonable alternative.
- Under UCC § 2-615, commercial impracticability requires an unforeseen contingency whose nonoccurrence was a basic assumption of the contract; ordinary market shifts and increased costs generally remain within the seller’s assumed business risk, especially where the seller committed to “firm” fixed pricing.

## Conclusion

The court enforced the parties’ 2004 fixed-price requirements contract and ruled that Webco’s mid-contract price increases were ineffective because Chainworks’ written acquiescence was coerced by threatened supply cutoffs, and because the asserted steel-market conditions did not satisfy UCC commercial impracticability.


Chainworks, Inc. v. Webco Indus., Inc., No. 1:05-cv-00135, 2006 U.S. Dist. LEXIS 9194 (W.D. Mich. Feb. 23, 2006)