Requirements Contracts, Stop-Shipment Threats, and Pricing Disputes: Recent Legal Developments in Supply Chain Agreements

Description

Requirements contracts allow a buyer to secure a stable supply of goods without specifying the exact quantities upfront. These contracts offer benefits such as flexibility and inventory risk management for the buyer. They also benefit sellers by providing for a promise of future sales, contingent upon the continued need for the goods.

However, these contracts also pose risks to the parties if market conditions change or demand shifts drastically. Factors like supply chain disruptions and inflation often put pressure on market conditions and can lead to pricing disputes if prices become unfavorable for either party. If a supplier finds an agreed price to be unsustainable, the disputes can escalate into stop-shipment threats, which a supplier may use as leverage to renegotiate.

In the 2023 Michigan Supreme Court decision MSSC Inc. v. Airboss Flexible Prods. Co., the court held that "blanket" order language incorporated by purchasers into the contracts at issue did not supply a valid quantity term as required under the UCC. In the year since Airboss, there has been a spate of supplier challenges to unfavorable long-term agreements, and the state of the law of requirements contracts is in flux.

Listen as our expert panel discusses requirements contracts, pricing disputes, and stop-shipment threats. The panel will also review recent legal developments and cases in this area and discuss the potential future direction of the law of requirements contracts and the Statute of Frauds.