/>iAmid increasing pressure on supply chains across the globe, multiple recent court opinions have disrupted the law of requirements contracts. These decisions are critical as requirements contracts are common features across many industries, and particularly prominent in the automotive industry, where they are used by many original equipment manufacturers and suppliers. In July 2023, the Michigan Supreme Court in MSSC, Inc. v. Airboss Flexible Products Co. (“Airboss”) scrutinized whether certain contracts intending to be requirements contracts comply with the Statute of Frauds. According to the Airboss decision, the designation of a purchase order as a “blanket” order is not sufficient to supply a valid quantity term as required under the Uniform Commercial Code (“UCC”). The court further elaborated that, in order to form a blanket contract, the buyer must commit to purchase a “set share” of its needs from the seller. This represented a significant change compared to the approach that many lower courts previously had applied when assessing the existence of a requirements contract, and created legal uncertainties as to whether buyers and sellers of goods could rely on their long-standing supply contracts. Airboss triggered a cascade of new cases addressing requirements contracts. Suppliers subject to unfavorable long-term agreements took advantage of the opportunity to challenge their contract language, using the lack of clarity as leverage in negotiations. The state of the law of requirements contracts remains in flux. This article will analyze the current state of the law regarding requirements contracts in light of the Airboss decision and its progeny, and then analyze what comes next for requirements contracts.
The UCC’s Statute of Frauds and Requirements Contracts
Article 2 of the UCC applies to all commercial contracts for the sale of goods in 49 of the 50 states.[1] Under the UCC “a contract for the sale of goods for the price of $500 [2] or more is not enforceable . . . unless there is a record sufficient to indicate that a contract for sale has been made between the parties.” UCC § 2-201. The provision goes on to specify that, “A record is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this subsection beyond the quantity of goods shown in the record.” Id. In other words, the only term absolutely required to be in writing in order to satisfy the Statute of Frauds is “the quantity of goods.” If the contract is in writing but does not contain a quantity term, then the agreement is unenforceable to require additional purchases or sales as a matter of law, although its terms still will be enforceable with regard to any quantities actually supplied.
This does not mean that the quantity term must be stated as a precise numerical value in the writing, nor that a specific quantity must be proven from the writing alone without reference to oral testimony. The Official Comments to the UCC recognize this, providing that “the quantity term . . . need not be accurately stated.” UCC § 2-201, cmt 1. As long as the contract includes a written quantity term – even if the quantity term is ambiguous – it will meet the requirements under the statute of frauds and the court can consider parole evidence to interpret the quantity.[3]
The UCC expressly allows for “[a] term which measures the quantity by the output of the seller or the requirements of the buyer.” UCC § 2-306(1). This provision allows for what are known as “output contracts,” where the buyer promises to purchase a portion or all of the goods the seller produces, and “requirements contracts,” where the buyer promises to purchase a portion or all of the goods the buyer requires from a seller.
Because of uncertainty in volume requirements and customer demand, requirements contracts are prevalent in manufacturing, particularly in the automotive supply chain. Typically, a buyer in the manufacturing supply chain will issue a blanket purchase order promising to buy a specified percentage of its requirements from a seller. The buyer then will issue regular “releases” that include the exact number of products being ordered. A requirements contract allows the buyer to secure a stable supply of goods even before the precise quantity needed has been determined and even if the quantity needed fluctuates frequently over time. A requirements contract also helps manage inventory risk by allowing the buyer to avoid an accumulation of surplus stock of inventory when forecasted volumes do not match demand. Requirements contracts also benefit sellers by providing for a promise of future sales, contingent upon the continued need for the goods.
Notably, some jurisdictions will not recognize a requirements contract unless the contract obligates the buyer to buy goods exclusively from the seller. For example, Georgia courts have said: “A true requirements contract obligates the buyer to purchase exclusively from the seller all the goods needed for a particular use contemplated by the parties. . . .”[4] Similarly, the Ninth Circuit has recognized that, under Idaho law, a “requirements contract exists if a buyer agrees to purchase up to a certain amount of its requirements exclusively from one seller.”[5] Courts in Illinois,[6] New Hampshire,[7] Indiana,[8] and Arkansas,[9] among others, have also recognized that requirements contracts obligate a buyer to obtain its requirements by purchasing exclusively from a seller.
However, not all jurisdictions require exclusivity to form a binding requirements contract. For example, Michigan courts have expressly concluded that “[r]equirements contracts need not be exclusive.”[10] This pronouncement about lack of exclusivity clashes with older case law in Michigan about what written quantity terms satisfy the Statute of Frauds. Compare Cadillac Rubber & Plastics, Inc. v. Tubular Metal Systems, LLC (finding that a purchase order obligating the buyer to purchase “a quantity between one part and 100% of [its] requirements” was a sufficient written quantity term and satisfied the Statute of Frauds), with Acemco, Inc. v. Olympic Steel Lafayette, Inc.[11](defining a requirements contract as an agreement “in which the seller promises to supply all the specific goods or services which the buyer may need during a certain period at an agreed price in exchange for the promise of the buyer to obtain his required goods or services from the seller.”).Suppliers in jurisdictions where there is no exclusivity requirement continue to push for courts to require more certainty of obligation on the part of the buyers, in essence arguing that a promise to purchase either 1 or 1,000,000 parts is insufficient to satisfy the quantity requirement of the Statute of Frauds.
MSSC, Inc. v. Airboss Flexible Prods. Co.
The Airboss case[12] put the limits of the Statute of Frauds’ written quantity term requirement to the test. There, a Tier-1 automotive supplier issued a “BLANKET ORDER” to its Tier-2 supplier of certain parts. The order included a price for the parts but stated that “[a]nnual volume is an estimate based on the forecasts of [buyer’s] customers and cannot be guaranteed.” The purchase order also stated that it was “valid and binding on seller for the lifetime of the program or until terminated” but contained no quantity term. For many years, the parties operated under the blanket order by having the buyer issue periodic releases that identified the particular quantities for seller to provide. Eventually, the seller sought to renegotiate the price contained in the blanket order and refused to fulfill or accept any releases unless the parties agreed to an increased price. The buyer argued that the seller was contractually obligated to fulfill the quantities identified in the releases because the blanket order was a binding requirements contract.
The trial court agreed and found that the purchase order constituted an enforceable contract because the term “blanket order” expressed a quantity term sufficient to satisfy the Statute of Frauds.[13] The Michigan Court of Appeals also agreed with the buyer.[14] The Michigan Supreme Court, however, sided with the seller, holding that the phrase “blanket order” did not constitute a written quantity term, and thus the agreement was unenforceable under the Statute of Frauds.[15] “Most importantly, in a requirements contract, the terms . . . dictate that the buyer will obtain a set share of its total need from the seller. . . .” The Court concluded that “blanket” was not merely an imprecise quantity term—it did not constitute a quantity term at all.
In the absence of a binding purchase agreement obligating the seller to provide any set portion of the buyer’s requirements, the seller was not required to accept future releases issued by the buyer. Instead, the Michigan Supreme Court recognized the parties’ dealings as a “release-by-release contract,” whereby each release constituted a separate offer which the seller was free to accept or reject. The Court reasoned that, under the Statute of Frauds, the accepted releases formed the only binding contracts between the parties because only the releases provided a written quantity term.
The Court also noted an “apparent inconsistency” with the prior Cadillac Rubber holding. While Cadillac Rubber held that a purchase order for “a quantity between one part and 100%” contained a proper quantity term, the supplier in Airboss urged the Michigan Supreme Court to adopt the holding in Acemco, which found unenforceable an agreement granting “complete discretion” to the buyer and held that “‘[a]ny’ quantity is in fact no quantity at all.”[16] The Airboss court acknowledged the conflicting case law, but it expressly reserved ruling on this issue because the relevant facts regarding a quantity term were not present in the case.
Although Airboss was a Michigan state court case, its holding has reverberated with companies across the country because of the extensive manufacturing taking place in Michigan and because many OEM agreements incorporate Michigan law. Airboss opened the door for supplier to challenge their agreements with buyers, especially given the common practice in the supply relationships to issue “blanket” purchase orders. Parties throughout the country rushed to review whether their supply agreements stated a quantity term. As a result, there has been a significant increase in sellers challenging whether their contracts are actually requirements contracts or if they are free to reject releases with unfavorable price terms.
Subsequent Cases
Over the following year and a half after the Airboss decision, several courts have grappled with its implications and cast doubt on prior cases such as Cadillac Rubber. Does Airboss stand for only the narrow proposition that “blanket order” is not a quantity term or does it signal a broader shift to apply a more stringent standard for identifying a written quantity term under the Statute of Frauds?
The District Court for the Eastern District of Michigan was one of the first to weigh in on this issue in an opinion by Judge Paul D. Borman in Higuchi International Corp. v. Autoliv ASP, Inc.[17] In that case, a Tier-1 automotive supplier issued a “blanket contract” to a Tier-2 supplier, but the purchase order also referenced that it was “to cover [buyer]’s requirements.” After Airboss, the Tier-2 supplier filed suit seeking a ruling that the purchase order was not enforceable under the Statute of Frauds, meaning the supplier could accept or reject each individual release. In August 2023, the District Court sided with the buyer, finding that the purchase order’s reference to the buyer’s “requirements” constituted a written quantity term sufficient for satisfying the Statute of Frauds. The supplier filed an appeal to the Sixth Circuit.
In May 2024, the Sixth Circuit reversed,[18] finding that the purchase orders did not unambiguously establish a requirements contract because they relied on an inference that “to cover . . . requirements” meant to purchase “any and all requirements.” The court reasoned that “cover” can simply mean “to deal with” the buyer’s subsequent needs, which would be equally consistent with a release-by-release contract. The court also relied upon the general principle of contract law to construe agreements against the drafter. Since the buyer had unilaterally drafted the purchase orders, any uncertainty regarding whether they established a requirements contract would be construed against the buyer. Therefore, the parties did not have a binding requirements contract but instead had a release-by-release contract that enabled the supplier to accept or reject future releases as it wished.
While the Higuchi appeal was pending, several other courts also rendered decisions about requirements contracts. First, the District Court of the Eastern District of Michigan issued an opinion by Judge George Caram Steeh in Ultra Manufacturing (U.S.A.) Inc. v. ER Wagner Manufacturing Co.[19] In that case, the agreement stated that “some portion or all of [buyer]’s requirements will be obtained from [seller].” This phrasing was very similar to the phrasing in the pre-Airboss case of Cadillac Rubber, where the Michigan Court of Appeals found a promise to purchase “a quantity between one part and 100% of [the buyer’s] requirements” was a sufficient quantity term to satisfy the Statute of Frauds. The court in Ultra held that Cadillac Rubber “irreconcilably conflicts with Airboss” because Airboss said that a requirements contract must include a promise to purchase “a set share” of the requirements. Thus, the Court found that Airboss implicitly overruled Cadillac Rubber and the parties had a “release-by-release contract.”
Another district court judge in the Eastern District of Michigan analyzed Airboss and similarly found that a “set share” was necessary for a requirements contract. In Tower Automotive Operations USA I, LLC v. Vari-Form Manufacturing Inc.,[20] the purchase orders specified that the seller would provide “100%” of the buyer’s requirements for the “life of the program(s).” Citing Airboss, the court found that these terms were consistent with a requirements contract. Unlike release-by-release orders that have no firm quantity, the purchase orders in Tower “set forth the share of the buyer’s need to be purchased from the supplier.” The court thus found that the language satisfied the Statute of Frauds and granted the buyer’s preliminary injunction.[21]
Two decisions by Michigan trial courts have not applied Airboss as broadly, finding that the Airboss decision did not preclude application of the rule stated in Cadillac Rubber, resulting in a practical “split” between Michigan state trial courts and the federal courts’ application of Michigan law. First, in FCA US LLC v. KAMAX Inc.,[22] FCA brought suit and sought a preliminary injunction against KAMAX after KAMAX threatened to stop shipping fasteners unless FCA paid requested price increases. Under its standard terms and conditions, FCA stated that it would purchase “65%–100%” of its requirements from KAMAX. The court granted the injunction and subsequently found that the language satisfied the Statute of Frauds.[23] After several appeals, the case is currently pending before the Michigan Court of Appeals.[24]
The second Michigan trial court case was more definitive. In FCA US LLC v. MacLean-Fogg Component Solutions, LLC,[25] a different judge of the same court dealt with a nearly identical fact pattern and contract language when FCA sought an injunction against a second supplier, MacLean-Fogg. The court again found that FCA was likely to succeed on the merits regarding an enforceable requirements contract.[26]
On the same day as the MacLean-Fogg decision, the District Court for the Western District of Michigan also weighed in on the issue in an opinion by Judge Paul L. Maloney in Feighner Co., Inc. v. Thru-Flow, Inc.[27] There, a manufacturer of marine docks sued its decking supplier, under an agreement that provided a certain price for the first three “loads” of decking and a discounted price for “any subsequent orders” “[i]f [buyer] orders a 4th truckload.” The court found that these terms did not establish any obligation by the buyer to purchase any portion of its requirements from the supplier because the pricing terms used discretionary language through the words “any” and “if.” Thus, the parties had a release-by-release contract.
The courts in Ultra, Tower, KAMAX, MacLean-Fogg, and Feighner issued their opinions before the Sixth Circuit resolved Higuchi, which found that an agreement “to cover…requirements” was a release-by-release contract. After Higuchi, a few additional courts joined the debate.
In July 2024, FCA sought a temporary restraining order to require its supplier to continue shipping fuel tanks in FCA US LLC v. Spectra Premium Mobility Solutions.[28] FCA stated that it would purchase “65%–100%” of its requirements from Spectra, mirroring the terms and conditions in KAMAX and MacLean-Fogg. Without providing any reasoning for its decision, the court denied FCA’s request.[29]
The District Court for the Eastern District of Michigan then issued an opinion by Judge Denise Page Hood in L&P Automotive Luxembourg, S.a.r.l. v. Neways Electronics Riesa GmbH & Co. KG[30] in October 2024. In that case, the agreement contemplated multiple types of contracts, including blanket orders and requirements contracts, but it stated that the buyer’s obligation to purchase goods is “expressly contingent upon the issuance of a release,” which will supply the quantity term. The agreement then provided that purchase orders without a quantity term are “presumed to be Blanket Orders for 100% of Buyer’s requirements for the life of the…program.” Citing the Sixth Circuit’s decision in Higuchi, the L&P court emphasized the importance of a contract’s quantity term and found that the parties intended a release-by-release contract. The court reasoned that the buyer had no obligation to purchase goods despite purchase or blanket orders—instead, “releases” explicitly governed the buyer’s purchase obligations. Like Higuchi, the court also relied upon the general contract law principle to construe agreements against the drafter and stated that the buyer “could have easily drafted such a [requirements] contract using clearer language.”
While no jurisdictions outside of Michigan have discussed Airboss directly, other courts recently addressed requirements contracts and the importance of exclusivity. For example, a federal court in Kansas found no requirements contract where a supply agreement did not impose an exclusive relationship on the parties and had no enforceable quantity term.[31] Likewise, the Superior Court of Pennsylvania affirmed a trial court’s finding that an agreement for a supplier to furnish “all” necessary labor, materials, and equipment for a subcontractor’s work constituted an exclusive requirements contract and thus was enforceable.[32] Given these recent rulings, it is anticipated that other courts will continue to explore and clarify the application of exclusivity and enforceability in requirements contracts.
What Comes Next
In the aftermath of Airboss, the future direction of the law of requirements contracts and the Statute of Frauds remains to be seen. The law is in a state of flux, and we expect multiple updates to the case law within the next year, especially as the appellate courts continue to weigh in.
In practice, the recent legal developments have benefitted suppliers that were supplying under “blanket” purchase orders by reopening the opportunity to negotiate pricing. By requiring specificity as to quantity, the Michigan Supreme Court may have eliminated—or at least cast some doubt on—some long-standing arguments (most often advanced by buyers) that the original terms were binding for the life of the program. Any supplier currently supplying under a “blanket” order that lacks a quantity term likely now has additional arguments and leverage to request price increases. However, suppliers also should note that in certain situations it may be to the buyer’s benefit that it is not bound by a “blanket” order. Just as a supplier can refuse to accept a release in a release-by-release contract, the buyer is under no obligation to issue a release to the supplier.
Buyers and sellers alike should carefully consider how these changes will apply to their contracts going forward. All parties to purported “requirements” contracts should review their contract terms to determine if they are bound by a requirements contract or if their contract now lacks the necessary specificity in the quantity term.
[1] While Louisiana has adopted the UCC’s other articles, it has not adopted Article 2.
[2] The price threshold often varies by jurisdiction. For example, the provision as enacted in Michigan applies only to contracts for the sale of goods for the price of $1,000 or more. See Mich. Comp. Laws § 440.2201(1).
[3] In re Estate of Frost, 130 Mich App 556, 560-61, 344 NW2d 331 (1983).
[4] Billings Cottonseed, Inc. v. Albany Oil Mills, Inc., 173 Ga. App. 825, 328 S.E.2d 426 (1985).
[5] Bright Harvest Sweet Potato Co., Inc. v. H.J. Heinz Co., L.P., 760 F. App’x 537, 538 (9th Cir. 2019).
[6] Canteen Corp. v. Former Foods, Inc., 238 Ill. App. 3d 167, 181, 606 N.E.2d 174, 183 (1992) (“A requirements contract which does not obligate the buyer to obtain all of its requirements from the seller is illusory.”).
[7] PMC Corp. v. Houston Wire & Cable Co., 147 N.H. 685, 692, 797 A.2d 125, 130 (2002) (“Because a requirements contract depends on exclusivity to determine the quantity, there can be no valid requirements contract without it.”).
[8] Indiana-Am. Water Co. v. Town of Seelyville, 698 N.E.2d 1255, 1259 (Ind. Ct. App. 1998) (“A requirements contract is one in which the purchaser agrees to buy all of its needs of a specified material exclusively from a particular supplier, and the supplier agrees, in turn, to fill all of the purchaser’s needs during the period of the contract.”).
[9] Stacks v. F & S Petroleum Co., 6 Ark. App. 327, 330, 641 S.W.2d 726, 727 (1982) (“[A] requirements contract is simply an agreement by the buyer to buy his good faith requirements of goods exclusively from the seller.”).
[10] Cadillac Rubber & Plastics, Inc. v. Tubular Metal Sys., LLC, 331 Mich. App. 416, 430, 952 N.W.2d 576, 584 (2020).
[11] Acemco, Inc. v. Olympic Steel Lafayette, Inc., No. 256638, 2005 WL 2810716, at *4 (Mich. Ct. App. Oct. 27, 2005).
[12] 511 Mich. 176, 180, 999 N.W.2d 335, 338 (2023), as amended (Sept. 22, 2023).
[13] MSSC, Inc. v. Airboss Flexible Products Co., No. 20-179620-CB, 2020 WL 10964218 (Mich. Cir. Ct. July 17, 2020).
[14] MSSC, Inc. v. Airboss Flexible Prods. Co., 338 Mich. App. 187, 979 N.W.2d 718 (2021).
[15] Airboss, 511 Mich. at 183.
[16] Id. at 194 n.4.
[17] 688 F. Supp. 3d 582 (E.D. Mich. 2023), motion for relief from judgment denied, No. 23-CV-11869, 2023 WL 7093713 (E.D. Mich. Oct. 26, 2023).
[18] Higuchi Int’l Corp. v. Autoliv ASP, Inc., 103 F.4th 400 (6th Cir. 2024), reh’g denied, No. 23-1752, 2024 WL 3205995 (6th Cir. June 25, 2024).
[19] 713 F. Supp. 3d 394 (E.D. Mich. 2024).
[20] No. 24-CV-10144, 2024 WL 641020 (E.D. Mich. Feb. 15, 2024).
[21] The supplier later appealed to the Sixth Circuit, but the parties stipulated to dismiss the case with prejudice. No. 24-1176, 2024 WL 2830094 (6th Cir. Apr. 19, 2024).
[22] No. 24-205863-CB (Oakland Cnty. Cir. Ct. Mar. 21, 2024).
[23] No. 24-205863-CB (Oakland Cnty. Cir. Ct. May 17, 2024).
[24] After the Michigan Court of Appeals denied KAMAX’s appeal, KAMAX appealed the denial to the Michigan Supreme Court, which then remanded the case back to the Court of Appeals for consideration. Docket No. 167461 (Sept. 5, 2024). Appellate briefing is due in January 2025.
[25] No. 24-206687-CB (Oakland Cnty. Cir. Ct. Apr. 19, 2024).
[26] After injunction proceedings, MacLean-Fogg removed the case to federal court in the Eastern District of Michigan, where the case was initially assigned to the same judge—Judge Paul D. Borman—who issued the Higuchi opinion. However, the case was reassigned to Judge Judith E. Levy, who has yet to address any of these substantive issues. Pending before Judge Levy is MacLean-Fogg’s motion to stay the proceedings until the Michigan Court of Appeals handles the appeal in KAMAX.
[27] 730 F. Supp. 3d 684 (W.D. Mich. 2024).
[28] No. 24-208373-CB (Oakland Cnty. Cir. Ct. July 5, 2024).
[29] No. 24-208373-CB (Oakland Cnty. Cir. Ct. July 5, 2024). After the denial, FCA sought an injunction, the resolution of which was delayed due to show cause proceedings. In November 2024, the parties stipulated to dismiss the case with prejudice.
[30] No. CV 24-12202, 2024 WL 4424788 (E.D. Mich. Oct. 4, 2024), reconsideration denied sub nom. L&P Auto. Luxembourg, S.a.r.l. v. Neways Elecs. Riesa GmbH & Co KG, 2024 WL 4595114 (E.D. Mich. Oct. 28, 2024).
[31] Dustech, LLC v. Compass Mins. Ogden Inc., 685 F. Supp. 3d 1080, 1099 (D. Kan. 2023).
[32] T.A.T. Trucking & Contracting, Inc. v. James J. Anderson Constr. Co., Inc., No. 2700 EDA 2023, 2024 WL 4232750, at *6 (Pa. Super. Ct. Sept. 19, 2024).
