Court Rules Contract for Automotive Parts Unenforceable Under the Statute of Frauds
From the perspective of a contracts law generalist, contracts in the automotive industry are peculiar. We’ve touched on this in prior posts. Relational contracts and rolling changes to contractual terms render the battle-of-the-forms analysis extremely challenging. Michigan law recognizes agreements as requirements contracts even when the supplier is not responsible for provisioning the buyer with 100% of the relevant goods, so long as a quantity is specified. This case involves similar idiosyncrasies in automotive parts agreements
Kiekert de Mexico S.A. de CV (Kiekert) manufactures and supplies door latches, locks, and other component parts for vehicles. Brose Jefferson, Inc. (Brose) contracted with Kiekert to buy side door locks, which Brose incorporated into door assemblies. This is all supply-chain stuff. Kiekert provides Brose with stuff it needs to make stuff that other entities need, and so on until a finished product reaches an end-user.
A 15th-century locksmith probably not working on a requirements contract.
The contractual mechanism was as follows: the parties entered into a Framework Purchase Agreement (FPA) that set forth parts, prices, and delivery terms. The FPA also expressly incorporated Brose’s 2006 Global Terms and Conditions of Purchase. Under the terms of the FPA, Brose would issue releases and Kiekert would supply locks to meet Brose’s requirements.
In June 2023, Kiekert switched to a new supplier, which led to it being subjected it to a 5.7% fee (dare I say tariff?) under the US-Mexico-Canada Agreement (USMCA). Kiekert tried to push that cost on to Brost, and Brost refused to pay. Kiekert sued to recover monies it believed it was owed and to cease continued losses. In its amended complaint, it sought a declaration that the FPA is unenforceable because it lacks a quantity term and thus fails to satisfy the statute of frauds’ requirement of a writing sufficient to evidence the transaction.
In Kiekert de Mexico S.A. de CV v. Brose Jefferson, Inc., the District Court for the Eastern District of Michigan granted Kiekert’s motion for judgment on the pleadings on its declaratory judgment claim. If the FPA is a requirements contract, it needs to quantity amount. But the Court agrees with Kiekert. The FPA is a release-by-release agreement, which is not a requirements contract. As a result, the Court finds that it lacks a quantity term and is unenforceable under the statute of frauds. The FPA provides that Brose will issue releases “in accordance with its needs,” but that language is insufficient to create a requirements contract. Indeed, so held the Sixth Circuit in Higuchi Int’l Corp. v. Autoliv ASP, Inc., 103 F.4th 400, 405 (6th Cir. 2024).
I’m not sure why this is a case about the statute of frauds. A contract that is not a requirements contract needs to have a quantity term. It is unenforceable without one whether or not it is in writing. Why not just skip the whole statute of frauds doctrine and just find that the that FPA was an unenforceable agreement to agree? The actual agreements were the releases, not the FPA. That seems to be the Michigan’s Supreme Court’s holding in MSSC, Inc. v. Airboss Flexible Products Co., The buyer in a release-by-release agreement can terminate the relationship at any point by issuing no new releases, regardless of its requirements. The Court hits the nail on the head when it cites Airboss for the proposition that “a release-by-release agreements is not, on its own, an enforceable contract.” If so, who needs the statute of frauds?
Similar issues have arisen in recent cases often enough to make me (again, as a contracts generalist) wonder if something is rotten in Motown. These are sophisticated parties in long-term relationships relating to the provision of parts essential to their business. Yes, there is a lot of uncertainty in the industry, but contracts are risk-allocation devices that assist in business planning. How can it be that the parties in this industry routinely enter into long-term but non-binding agreements that do not allocate risk and thus do not assist in business planning?