What constitutes a requirements contract in Michigan under the Uniform Commercial Code? Will your purchase orders be enforceable as a contract? On July 11, 2023, the Michigan Supreme Court issued an opinion in MSSC, Inc. v. Airboss Flexible Prods. Co., which adds another layer to these tricky questions.
Under the Uniform Commercial Code, contracts for the sale of goods must contain a quantity term to be enforceable. And that quantity term may be the buyer’s “requirements” for the product or material. Historically, some in the automotive and other industries considered the words “blanket” on a purchase order sufficient to establish such a requirements contract. But in the MSSC case, the Michigan Supreme Court held that purchase orders and terms and conditions between a Tier 1 customer and Tier 2 supplier, which stated that they were a “blanket order” and contemplated the use of releases, failed to contain a quantity term necessary to satisfy the UCC’s statute of frauds.
To be clear, whether an enforceable contract exists turns on the specific facts of the commercial relationship and contract papers used. There could be fact situations where the words “blanket” in combination with other language may be sufficient to constitute an enforceable contract. That said, the MSSC decision should be considered and reviewed by any company in the automotive, aerospace, or other manufacturing industries which use purchase orders and release processes.
Dykema’s Supply Chain and Automotive & Transportation teams include attorneys with decades of experience reviewing purchase orders and release processes, drafting terms and conditions, and litigating these purchase order disputes. Please contact Laura Baucus, Director of Dykema’s Automotive Industry Group, Lisa Brown, or a member of these teams to assist with a purchase order and terms and conditions review and to advise on any anticipated disputes.