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Sixth Circuit Court of Appeals Invalidates Claimed Automotive “Requirements Contract”

The U.S. Court of Appeals for the Sixth Circuit weighed in on the changing landscape of automotive requirements contracts in Michigan in its March 23, 2024 decision in Higuchi International Corp. v. Autoliv ASP, Inc., Case No. 23-1752.

Automotive supplier Higuchi supplied seatbelt parts to Autoliv. Higuchi claimed the parties’ contracts did not obligate it to supply Autoliv because the parties lacked an enforceable requirements contract. Autoliv claimed breach of contract by Higuchi, and then sought and obtained a preliminary injunction from the district court compelling Higuchi’s continued supply at the contract price. The case hinged on the Michigan Supreme Court’s 2023 decision on requirements contracts in MSSC, Inc. v. Airboss Flexible Products Co., which the Sixth Circuit recognized as having brought order to the requirements contract doctrine.

The question for the court was whether there was an enforceable contract under which Higuchi was required to fulfill Autoliv’s requests, via releases, to purchase specific quantities of seatbelt parts for the life of the underlying vehicle platform or whether the arrangement permitted the parties to form contractual obligations on a release-by-release basis under Airboss, thereby allowing Higuchi to accept or decline Autoliv’s offers to purchase parts on a release-by-release basis.

The court recognized that “a contract’s written quantity term cannot be ambiguous—it must be precise and explicit,” and that parol evidence cannot be used to determine the existence of a quantity term. “The quantity term, on its face and as written, must therefore be clear and precise.” Autoliv’s contracts were held to not expressly state the set share of requirements Higuchi was to supply. In fact, the purchase orders shielded Autoliv from liability in the event that it sourced its requirements from other sellers. Without a clear quantity term, Autoliv’s contracts did not satisfy the statute of frauds.

“Had Autoliv wished to create a requirements contract, it could have easily drafted such a contract using clearer language.” Because the parties did not form a requirements contract, Higuchi was free to turn down Autoliv’s requests to purchase seatbelt parts on a release-by-release basis. Therefore, Autoliv was not likely to succeed on the merits, and the Sixth Circuit reversed the district court’s grant of a preliminary injunction.

Wolfson Bolton Kochis attorneys have extensive experience in automotive supply chain matters, in litigating supply questions and drafting client terms and conditions of purchase to avoid issues like those presented in Higuchi.

A link to the opinion can be found here.

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