The delightfully named Grigoleit supplied knobs to Whirlpool for many years, and was the sole supplier for a particular line of washing machines and dryers. Whirlpool began to phase out these appliances.
As their arrangement became smaller, Grigoleit requested price increases. They later entered into an agreement for a smaller supply of knobs at a higher price, subject to volume and inventory issues, for which Whirlpool was financially on the hook.
Whirlpool then kicked Grigoleit to the curb, and Grigoleit issued a final invoice. Whirlpool refused to pay it and declared the agreement unconscionable.
In Michigan, a claim of unconscionability is subject to a procedural (What is the bargaining power of the parties?) and substantive (Is the challenged term reasonable?) analysis.
The court did not look at the substantive issue because it found no procedural issue.
“Although courts should not substitute their judgment for that of freely contracting parties, “[i]mplicit in the principle of freedom of contract is the concept that at the time of contracting each party has a realistic alternative to acceptance of the terms offered.””
The court noticed that Whirlpool was a large, sophisticated company and presumed it was capable of competent negotiation. The court also noted that unconscionability is rarely found in the commercial context.
And the kicker: the term that Whirlpool considered unconscionable was a term that was proposed by Whirlpool.
The court noted a few key points:
- Grigoleit was the sole supplier in this case by Whirlpool’s own design. It was a cost-saving measure on their own part. It created the risk that a disagreement with its supplier would cause manufacturing disruptions.
- An unfavorable contract term is not the same as an unconscionable contract term.
- Whirlpool had the resources, experience and ability to look elsewhere for its parts.