On May 29, 2024, the Sixth Circuit Court of Appeals reversed a preliminary injunction requiring an automobile parts supplier to supply products to a buyer, holding that the parties' purchase orders do not obligate the supplier to continue supplying parts beyond a set period of time. The decision raises new questions and issues regarding the enforceability of certain long term supply arrangements.
In Higuchi Int'l Corp. v. Autoliv ASP, Inc., the Sixth Circuit reviewed a long term supply agreement between Higuchi, a seatbelt manufacturer, and Autoliv, an automotive safety system supplier. Autoliv historically used purchase orders to purchase auto parts from Higuchi. Over time, the parties' relationship became contentious and Higuchi threatened to cease supplying parts to Autoliv. The district court ultimately granted Autoliv's motion for a preliminary injunction requiring Higuchi to continue supplying the goods.
The Sixth Circuit reversed the district court's decision relying on a 2023 Michigan Supreme Court decision that says Michigan law requires a “precise and explicit” quantity term to create an enforceable contract under the UCC's Statue of Frauds. The Sixth Circuit stated that quantity can be measured by (i) the number of goods to be sold, (ii) the output of the seller, or (iii) the requirements of the buyer. However, if an agreement simply states that a buyer will buy its requirements and there is no specific share of its requirements identified, then the agreement binds the supplier only to the extent of the quantity contained in the last accepted order of product.
The Sixth Circuit's decision raises questions with respect to the enforceability of long term supply agreements if such agreements do not contain a specific quantity term. Both manufacturers and suppliers should review their existing contracts to ensure that quantity is “precisely and explicitly” defined. If a quantity term or percentage of requirements is not precisely and explicitly defined, a long term agreement may only be enforceable on an order by order basis and may not require a seller to accept an order on previously agreed upon terms.
1Higuchi Int'l Corp. v. Autoliv ASP,
Inc. No. 23-1752, 2024 WL 2381879 (6th Cir. May 23,
2024)
2MSSC, Inc. v. Airboss Flexible Prod. Co., 511
Mich. 176, 999 N.W.2d 335, 2023 WL 4476721 (2023), as amended
(Sept. 22, 2023)
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