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Is Your “Blanket” Purchase Order Enforceable?
In the commercial supply chain, particularly in the automotive sector, it is typical for buyers to issue “blanket” purchase orders to sellers, who then fulfill the blanket purchase orders via “releases” of specified quantities of goods from the buyer. Historically, Michigan courts have treated a blanket purchase order as an order for the buyer’s “requirements” to render it an enforceable agreement under the Statute of Frauds, which requires a contract for the sale of goods to have a specified quantity. Not so anymore.
In MSSC, Inc. v. Airboss Flexible Products, Co., the Michigan Supreme Court overruled longstanding precedent to hold that a blanket purchase order, without more, is not necessarily an enforceable requirements contract. Rather, a blanket purchase order without a quantity term merely establishes a “release by release” arrangement between the parties, where the seller is free to accept or reject releases under the purchase order and cannot be forced to perform. As a result, the Tier 2 automotive supplier in that case was relieved of any obligation to fulfill releases issued by its Tier 1 counterparty in connection with a blanket purchase order under which the parties had been performing for years.
This decision is likely to have a significant impact in the automotive sector and other commercial supply chains, as it will cast doubt on the enforceability of longstanding relationships between numerous parties. With fluctuating material prices, rising labor costs and other price pressures, suppliers might rely on this decision to reject releases, avoid performance or renegotiate terms.
Jared J. Lefevre, Mark W. Sandretto and Charles E. Hatch III are commercial litigators based in Toledo, Ohio, each of whom are licensed in Michigan and regularly represent clients in that state. If you have questions about how this decision may impact your business or contracts, please contact them for more information.
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Disclaimer: This alert has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.
