Blanket purchase orders, commonplace in the automotive industry, have previously been interpreted by Michigan State Courts as binding contractual agreements despite only very loosely specifying a quantity term. However, on July 11, 2023, the Michigan Supreme Court clarified the necessary specificity to satisfy the statute of frauds for blanket purchase orders. Blanket purchase orders, the most common type of orders within Michigan’s automotive industry, are purchase orders that do not specify a specific quantity term. Overruling previous caselaw at the appellate level, the Michigan Supreme Court in MSSC, Inc. v. Airboss Flexible Products Co. held that the word “blanket” does not provide enough specificity to satisfy the statute of frauds quantity requirement, possibly rendering many current contracts unenforceable beyond a release-by-release commitment.[1]
Previously, the Michigan Court of Appeals in Great Northern Packaging, Inc. v. Gen. Tire and Rubber Co., held that the term “blanket order” expresses a quantity term sufficient to satisfy the statute of frauds, which requires contracts for the sale of goods to be in writing.[2] However, the Michigan Supreme Court held in MSCC, Inc. that a contract must specify some amount of product that is required to be purchased or sold to satisfy the statute of frauds.[3] Therefore, without further specificity beyond “blanket,” a contract could be rendered unenforceable. This decision is important for suppliers, particularly in the automotive industry where these contracts are commonplace, as imposing greater quantity specificity helps provide increased certainty to suppliers and could shift bargaining power, as many of the blanket purchase orders have been binding for extensive periods of time. Typically, a contract is formed on a release-by-release basis, and the blanket purchase order merely provides the general terms applicable once a release is issued and accepted.
Notably, in reaching its conclusion, the Court contrasted the language of the purchase order in MSSC with the purchase order at issue in Cadillac Rubber & Plastics, Inc v Tubular Metal Sys, LLC, which gave the buyer the option to purchase a quantity between one unit and 100% of its requirements, a buyer-friendly term that is included in many auto industry supply agreements.[4] The Supreme Court noted that the Court of Appeals found this language in Cadillac Rubber to state a quantity term, and the absence of similar language in MSSC suggested that the present contract lacked a quantity term: “[I]n Cadillac Rubber, the Court found the existence of a quantity term—’a quantity between one part and 100%’—which therefore allowed it to use evidence of past practice (or parol evidence) to discern the parties’ intent…. Here, the documents between MSSC and Airboss do not contain such a quantity term.”[5] The Court then explained in a footnote that the supplier had asked the Court to overrule Cadillac Rubber and find that this type of language was not sufficient to state a quantity term, but the Court declined to do so since that issue was not properly before the Court and the issue could be decided “another day.”[6]
Varnum LLP previously litigated this issue before the United States District Court for the Northern District of Ohio in Revere Plastic Systems, LLC v. Plastic Plate, LLC. In this case, Revere asserted Plastic Plate materially breached its agreement when it refused to continue shipping absent a price increase.[7] However, the blanket purchase order contained no quantity or duration term and set only the general terms and conditions with each contract being formed by a release.[8] Revere argued under the terms of the blanket purchase agreement that Plastic Plate had an ongoing contractual obligation to continue shipping, an argument frequently utilized by buyers in the context of blanket purchase orders.[9] Agreeing with Varnum’s argument, the court, observing that a contract for sale of goods requires a quantity term,[10] held that there was no contract to enforce until Revere issued releases for “firm” quantities.[11]
The Michigan Supreme Court’s decision in MSSC, Inc. v. Airboss Flexible Prods. Co. impacts purchasers and suppliers with ongoing blanket purchase orders that do not specify quantity terms. Parties to these agreements should be cognizant of how this decision impacts their ongoing blanket purchase orders moving forward to evaluate their obligations and determine whether the quantity terms within the contracts contain the necessary specificity to make the contracts enforceable. In MSSC, Inc. v. Airboss Flexible Prods. Co., the Michigan Supreme Court explicitly states that “quantity is the only essential term required by the statute of frauds,” an important signal that current blanket purchase orders may require greater specificity if the parties hope to ensure their enforceability moving forward.[12] For further questions and guidance on these issues, please contact your Varnum attorney for assistance.
2023 summer associate Brady Diller contributed to this advisory. Brady is currently a student at Washington University School of Law.
[1] MSSC, Inc., v. Airboss Flexible Products Co., No. 163523, 2023 WL 4476721, at 3 (July 11, 2023)
[2] Great N. Packaging, Inc. v. Gen. Tire and Rubber Co., 154 Mich.App. 777, 787 (1986)
[3] MSSC, Inc., v. Airboss Flexible Products Co., No. 163523, 2023 WL 4476721, at 11 (July 11, 2023)
[4]331 Mich App 416, 952 N.W.2d 576 (2020)
[5] MSSC, Inc., v. Airboss Flexible Products Co., No. 163523, 2023 WL 4476721, at *8-9 (July 11, 2023)
[6] Id. at n4.
[7] Revere Plastic Sys., LLC v. Plastic Plate, LLC, 509 F.Supp.3d 986, 996 (N.D. Ohio 2020)
[8] Revere Plastic Sys., LLC v. Plastic Plate, LLC, 509 F.Supp.3d 986, 1001 (N.D. Ohio 2020)
[9] Revere Plastic Sys., LLC v. Plastic Plate, LLC, 509 F.Supp.3d 986, 1000 (N.D. Ohio 2020)
[10] Revere Plastic Sys., LLC v. Plastic Plate, LLC, 509 F.Supp.3d 986, 996 (N.D. Ohio 2020)
[11] Revere Plastic Sys., LLC v. Plastic Plate, LLC, 509 F.Supp.3d 986, 1001 (N.D. Ohio 2020)
[12] MSSC, Inc., v. Airboss Flexible Products Co., No. 163523, 2023 WL 4476721, at 3 (July 11, 2023) (citing In re Frost Estate, 130 Mich. App. 556, 559 (1983)).