It is a general rule of construction that changes in the law subsequent to the execution of a contract are not deemed to become part of the agreement unless its language clearly indicates such to have been the intention of the parties.
For example, in Kia Motors America, Inc. v. Glassman Oldsmobile SAAB Hyundai, Inc., Kia and Glassman Dealership entered into a Dealer Sales and Service Agreement (“Agreement”) in 1998, which specified, in accordance with the Motor Dealers Act of 1981, that Kia was to provide Glassman limited territorial rights within 6 miles of its dealership. Specifically, Kia was required to provide Glassman notice of any proposed Kia dealership to be constructed within 6 miles of Glassman’s dealership.
On August 4, 2010, the Motor Dealers Act of 1981 was amended to extend the statutorily minimum protected area to 9 miles. Shortly after, Kia informed Glassman that it intended to establish a new dealership about 7 miles from Glassman’s location – thus, falling within the protected area of the 2010 Amendment, but outside the protected area as per the 1998 Agreement. In contention is the Agreement’s “applicable law” language that refers to Kia’s right to establish a new dealership in Glassman’s territory.
Glassman argued that the parties agreed to comply with subsequent changes to the Act, including the 2010 Amendment. Glassman highlights provisions of the Agreement, which require Kia to comply with current laws, not just the laws in effect when the Agreement was signed. However, the Court realized a distinction between the provision in question and other provisions that reference applicable law. The other provisions referenced Kia’s obligation to comply with generally applicable laws and regulations. In contrast, the provision at issue here relates directly to the relationship between Kia and Glassman. In other words, the 2010 Amendment would significantly alter the parties’ bargain and without clear language manifesting an intent to do so, the “applicable law” language refers exclusively to the law in effect in 1998
The Court, finding for Kia, held that parties are obviously free to agree that their rights and duties will mirror the changes in relevant law, but this intent must be made clear within the terms of the Agreement.
It is important to consult with an attorney before entering into any agreement. Please contact the attorneys at Demorest Law Firm for more information.
This article was written by Roger Leshinsky, Law Clerk.
