Michigan Supreme Court Upholds UCC Statute of Frauds Rule Requiring Quantity Terms To Be In Writing

Michigan Supreme Court Upholds UCC Statute of Frauds Rule Requiring Quantity Terms To Be In Writing

The Michigan Supreme Court issued an Opinion on July 11, 2023 in MSSC, Inc. v. Airboss Flexible Products Co., reversing a Court of Appeals opinion holding that blanket purchase orders were enforceable under the UCC Statute of Frauds.

In short, the Michigan Supreme Court upheld the longstanding Statute of Frauds rule that contracts must contain a written quantity of terms to be binding, including its conclusions that:

  1. The parties’ blanket purchase order, terms and conditions, and other writings lacked a written quantity term.
  2. The term, “blanket,” does not constitute a quantity term within the meaning of the Statute of Frauds, overturning Great Northern Packaging, 154 Mich App 777; 399 NW 2d 408 (1986), “to the extent that it conflicts with the holding.”
  3. Since there was not a quantity term in the MSSC and Airboss documents at issue, the parties’ agreement did not comply with the UCC Statute of Frauds, which requires a quantity term to be included in the written contract to be enforceable, and therefore, it was an error for the lower courts to use parol evidence to determine the intent of the parties.
  4. Without a quantity term, and without being a requirements contract under MCL 440.2306(1), the parties entered into a “release-by-release” contract that was binding against the supplier only to the extent of releases issued by the buyer and accepted by the supplier.

As a reminder, in MSSC, the parties, both automotive suppliers, entered into a contract whereby the defendant — a tier two automotive supplier of rubber products — would supply components to the plaintiff, a tier one supplier, for ultimate use in the plaintiff’s contract with an OEM. The parties’ contract was set forth in a blanket purchase order, which stated, “[i]f this order is identified as a ‘blanket order’, [MSSC] shall issue a ‘Vendor Release and Shipping Schedule’ to [Airboss] for specific part revisions, quantities, and delivery dates for Products. . . .” As a result, the plaintiff would place orders through periodic releases. Of note, the releases each were “firm orders”—or orders that could not be changed.

In mid-2019, however, Airboss began experiencing losses, totaling over $1 million, on 6 of the 42 parts it produced for MSSC, and sent a letter to MSSC in December 2019 stating that it would cease taking further orders from MSSC.

In response, MSSC sued Airboss in the Oakland County Circuit Court for anticipatory breach of contract and sought specific performance on the contract as written. Both parties moved for summary disposition. The trial court granted MSSC’s motion for summary disposition, finding that the blanket purchase order contained a valid “quantity term” as required by the UCC Statute of Frauds because the purchase order was identified as a “blanket” purchase order and included the statement that “annual volume is an estimate based on the forecast of MSSC’s customers and cannot be guaranteed.” The trial court also found that the parties’ prior interactions indicated an intent to enter into a requirements contract. The Court of Appeals affirmed the trial court’s decision holding that the “use of blanket order” was sufficient to create a requirement contract that satisfied the UCC Statute of Frauds.

On Tuesday, July 11, 2023, the Michigan Supreme Court reversed the lower courts’ decisions, holding that the writings between MSSC and Airboss did not contain a written quantity term, and therefore did not satisfy the UCC Statute of Frauds. Rather, the blanket purchase order stated only that MSSC would issue releases; it made no reference to a fixed quantity. The Michigan Supreme Court reasoned that, while the releases contained a firm quantity, they bound the supplier only to the extent of each individual release if Airboss accepted—not a promise to fulfill all future releases. The court further reasoned that while parol evidence could be used to establish the meaning of an imprecise quantity term in a UCC contract, it could not be used to determine the existence of a quantity term itself.

In determining this case, the Michigan Supreme Court overturned Great Northern Packaging, Inc v. Gen Tire & Rubber Co, 154 Mich App 777; 399 NW2d 408 (1986), a nearly 40-year-old appellate level decision, holding that the term, “blanket order expresses a quantity term, albeit an imprecise one.” The Michigan Supreme Court in MSSC noted, that “the Court of Appeals failed to recognize that although the total quantity might be imprecise in a requirement contract . . . the quantity term must be provided in writing and cannot be provided via parole evidence.”

In summary, the Michigan Supreme Court applied the long-standing general rule that a quantity must be precise, specific, and in writing for a sale of goods contract to be enforceable.

We have previously blogged about MSSC, Inc. v. Airboss Flexible Products Co. here.


No comments yet. Why don’t you start the discussion?

Leave a Reply

Your email address will not be published. Required fields are marked *