Legal Memorandum: Contract Validity in MI

Issue: Under the laws of Michigan, how does industry custom and usage, such as in commodities markets like the natural gas industry, affect the validity of a contract?

Area of Law: Business Organizations & Contracts
Keywords: Contract's validity; Custom and usage; Natural gas industry, commodities market
Jurisdiction: Michigan
Cited Cases: 336 N.W.2d 856; 723 F. Supp. 50; 175 Mich. App. 48; 89 N.W.2d 471
Cited Statutes: Mich. Comp. Laws § 440.2202
Date: 02/01/2001

           A factor that points to the validity of the contract is the industry custom and usage.   In dealing with this type of contract, whether they be futures or swaps, time and price are of crucial importance.  Prices can change by the minute.  Agreements and contracts are made over the telephone with confirmation letters and contracts signed afterward.  It is an accepted practice to fax these documents to the other party for signature.  Courts have held these to be binding contracts.

In the absence of an agreement to contrary, persons engaged in the same industry are presumed to have contracted with respect to industry custom and usage; as a consequence, particular customs and usages of industry will be taken into account when interpreting a contract.  Skinner v. Shirley of Hollywood, 723 F. Supp. 50, 55 (N.D. Ill. 1989).  A general usage applicable to a particular business becomes a part of the contract relating to such business, in the absence of a particular stipulation to the contrary.  Redding v. Snyder, 352 Mich. 241, 89 N.W.2d 471, 474 (1958).

The argument can be made that, in the natural gas industry, contracts are made over the telephone and then later confirmed in writing.  Once signed, they are binding and enforceable.  That is what occurred here.  The contract in this case also provided for arbitration in case of a dispute.  Since a dispute has arisen, this matter should be headed for arbitration pursuant to […]

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