Johnson Controls, Inc. v. TRW Vehicle Safety Systems, Inc.
491 F. Supp. 2d 707, 2007 U.S. Dist. LEXIS 41368, 62 U.C.C. Rep. Serv. 2d (West) 863 (2007)
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Rule of Law:
Under Michigan's Uniform Commercial Code, a written agreement for the sale of goods satisfies the statute of frauds if it contains an imprecise quantity term that provides a basis for believing a contract exists, and a requirements contract does not lack mutuality of obligation if the buyer is bound by a good faith duty to purchase actual requirements.
Facts:
- Plaintiff Johnson Controls, Inc. (JCI) manufactures interior automotive component systems, and Defendant TRW Vehicle Safety Systems, Inc. (TRW) supplies custom parts for JCI's seat assemblies.
- JCI issued several purchase orders (e.g., 910-003, 910-031, 7002653) to TRW for parts, which stated unit prices but marked the quantity column as "AS REL." (as released) and incorporated JCI's Global Terms of Purchase by reference.
- JCI's Global Terms defined "AS REL." as an irrevocable option for JCI to purchase between one and 100% of its requirements for a one-year term, with specific quantities to be identified in future material releases, reflecting a common automotive industry "just-in-time" supply system.
- On February 23, 2006, TRW informed JCI that it would be raising its prices for components due to increased material costs.
- On March 3, 2006, TRW notified JCI that it was objecting to the inclusion of JCI’s Global Terms in the purchase orders, stating it had been unaware of their existence.
- TRW subsequently threatened to cease shipping parts unless JCI amended its purchase orders to reflect higher prices.
- Although TRW initially rescinded its threat to stop shipments on March 21, 2006, it later notified JCI on March 31, 2006, of its intent not to renew the current purchase orders once they expired.
- In October 2006, TRW again demanded JCI revise its purchase orders for price increases and threatened to stop shipping parts as of October 29, 2006, leading JCI to issue revised purchase orders with increased prices to avoid production cessation at General Motors.
Procedural Posture:
- Plaintiff Johnson Controls, Inc. (JCI) filed a complaint against Defendant TRW Vehicle Safety Systems, Inc. (TRW), alleging breach of contract and seeking a declaratory judgment.
- Plaintiffs JCI filed a Motion for Summary Judgment with the United States District Court for the Eastern District of Michigan on December 22, 2006.
- Defendant TRW filed its Motion for Summary Judgment with the United States District Court for the Eastern District of Michigan on January 12, 2007.
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Issue:
Does a supply contract evidenced by purchase orders stating 'AS REL.' for quantity and incorporating 'Global Terms' that define it as an option to purchase the buyer's requirements satisfy the Statute of Frauds, and does such an agreement create an enforceable requirements contract with mutual obligation, precluding summary judgment?
Opinions:
Majority - Zatkoff, District Judge
No, neither JCI nor TRW is entitled to summary judgment because genuine issues of material fact remain concerning contract formation, terms, and enforceability, even though the statute of frauds does not bar enforcement. The court found that the purchase orders, in combination with JCI's Global Terms, contain a satisfactory quantity term for purposes of the Michigan Statute of Frauds (MICH. COMP. LAWS § 440.2201). The term "AS REL." combined with the Global Terms' definition of an option to purchase requirements (from one piece to 100% of JCI's needs) provides a sufficient "nexus to quantity" to satisfy the statute, consistent with the UCC's policy of liberally incorporating trade usage and commercial background. The court relied on Great Northern Packaging, Inc. v. General Tire & Rubber Co. and In re Estate of Frost for the principle that an imprecise quantity term is sufficient if it indicates that a contract exists, allowing parol evidence for definiteness. Furthermore, the court held that a requirements contract is not unenforceable for lack of consideration (illusory promise) under MICH. COMP. LAWS § 440.2306, as the buyer is bound by a good faith duty to purchase its actual requirements, citing General Motors Corp. v. Paramount Metal Prods. Co. However, despite these findings, the court determined that material questions of fact persist. It was unclear when JCI's Global Terms were first incorporated into purchase orders, when TRW accepted these offers by shipment (if at all), and precisely what terms TRW accepted, especially given TRW's explicit objections to the Global Terms. The parties' conduct could be interpreted as consistent with either a long-term requirements contract or an agreement solely based on individual material releases, thus preventing summary judgment for either party.
Analysis:
This case illustrates the Michigan UCC's flexible approach to contract formation, particularly regarding the Statute of Frauds' quantity requirement in the context of requirements contracts. The court's ruling underscores that even an imprecise quantity term, when contextualized by incorporated terms and industry practice, can satisfy the Statute of Frauds. However, the ultimate denial of summary judgment highlights that satisfying the Statute of Frauds is merely a preliminary step; extensive factual inquiries into intent, acceptance of specific terms, and the parties' course of dealing remain critical for proving the existence and precise terms of an enforceable contract. This outcome emphasizes the importance of clear communication and unambiguous assent to all contractual terms, particularly in complex, long-term supply relationships within industries like automotive manufacturing.
