In the wake of the recent recalls and warranty campaigns, suppliers should bear in mind the threshold statute of limitations defense that they may have to any attempts by the OEMs to recover against them for costs for issues that the OEMs may have known about for years, but failed to act upon. An OEM seeking to recover against a supplier for an alleged breach must clear two timing hurdles: (1) warranty eligibility, meaning that the claim falls within the applicable warranty period; and (2) timeliness under the UCC’s four-year statute of limitations period. The expiration of the four-year statute of limitations period may be an absolute defense to certain breach of contract and breach of warranty claims.
Under the UCC, a party has four years after the cause of action accrues to bring its breach of warranty claims. In the automotive supply chain, most suppliers‘ contracts with OEMs extend to the future performance of the component. For warranties extending to future performance, a cause of action for breach does not accrue (begin to run) until the breach is or should have been discovered. Internal engineering documents, correspondence between the OEM and supplier and other documents and meeting minutes often will reveal when the OEM knew or should have known about the alleged breach. The fact that the OEM may not know the extent of its damages or the number of vehicles that will experience the failure mode do not impact the critical question of when the OEM’s cause of action accrued.