In a recent case, Wolverine Engineers & Surveyors, Inc v City of Leslie, the Michigan Court of Appeals considered whether the plaintiff could enforce a contract made by the defendant’s city manager. In Wolverine Engineers, the plaintiff met with the city manager and entered into a contract to provide engineering work on the city’s Main Street Project.

The city manager agreed to supervise the work performed by the plaintiff and to have the city pay for plaintiff’s services. The city manager also represented to the plaintiff that he had the ability to contract on behalf of the city. Despite the city manager’s assurances, the city’s charter set forth that any contract made by the city had to be approved by the city council and signed by the mayor and city clerk. As a result, the court ruled that the contract was unenforceable because the contract was not made pursuant to the city’s charter. The court, relying on precedent, stated that parties dealing with municipalities must take notice of which person or body of the municipality is authorized to enter into contracts.

The Court of Appeals rejected the plaintiff’s claims for unjust enrichment under the same rationale.

Finally, the plaintiff’s argued that the city manager, regardless of whether he had actual authority to enter the city into the contract, had apparent authority to do so. The Court rejected this argument as well noting that municipalities are not “bound when its officers act beyond the limits of their authority.”

Although the Court’s ruling might seem harsh, it is important to remember that the plaintiff had the ability to review the city’s charter to determine whether to not the city manager had the authority to bind the city. As a result, it is critical for any business to conduct its due diligence before entering into a contract with a municipality.

Simply put these changes should drive proactive tax planning starting right now, especially with small businesses that are prone to wait until the last minute and do what we call “crisis tax planning”. While 2011 was very forgiving (tax wise) because of the flexibility the depreciation rules provided, 2012 will not provide the same wiggle room.

For a brief summary of depreciation changes see “2012 depreciation changes” which summarizes three significant depreciation changes that have taken effect at the following hyperlink.

2012 Depreciation Changes

In 2006, the parents decided to give the bank a mortgage on the property. Three years later in 2009, the parents defaulted on the loan and lost the house to foreclosure.  After the expiration of the redemption period, Wanda sued the bank and argued that the bank’s foreclosure was improper because she had a protected homestead interest in the property. Under Michigan’s homestead laws, property is protected from forced sales, like foreclosures, unless all owners of the property have signed a valid mortgage.

The protection under MCL § 600.6023(1)(h) “extends to any person owning and occupying any house on land not his or her own and which the person claims as a homestead.” Michigan courts have broadly interpreted what “owning” under the statute means. Owning includes fee simple, joint tenants, possessors of land under land contracts, and even a lessee who has erected and occupied a dwelling on property.

Although the plaintiff admitted that she did not meet the current definition of owner, the plaintiff argued that she had an equitable ownership interest in the property based on improving the land with the insurance money, as a tenant, and based on her special circumstances.

The Court of Appeals rejected her argument and declined to expand the already liberal construction of “owning” under the statute. Despite the harsh result, the court concluded that she had no protected homestead interest in the property. Rather, her parents were the owners of the property. The court noted that if she claimed an interest in the real property, then she should have recorded such interest with the Register of Deeds to give public notice of her interest.

The IRS has recently released this handy tool on their website www.irs.gov to help you in preparing your 2011 tax return.

Due to the fact that this credit originally started out as an interest free 15 year loan and then was later changed to an actual tax credit, filing your return for the next several years has become a challenging task.

If your purchase falls under the 15 year interest free loan, not reporting the correct information on your return will cause a significant delay in the IRS processing your tax return.

In order to determine your reporting requirements you will need the following information to use this look up tool.

1. Your Social Security number.
2. Date of birth
3. Home address.

This is certainly a good news, bad news message. That the cost of living for all of us, from food to commodities like gasoline, has gone through the roof over the past several years is no surprise and painful. That is clearly the bad news.

The good news is that the tax law provides for adjustments which mitigate some of the damage of ongoing rises in cost of living.

To review recent changes see a recent message from UHY, LLP at the following hyperlink.

IRS Announces 2012 COLA Adjustments

The USPTO will allow inventors to patent and trademark their intellectual property. The new office will benefit Detroit by adding over 100 high-paying, high-skilled jobs in the first year alone. Additionally, the office is expected to lift Michigan’s innovation economy.

The new office is named after Elijah J. McCoy, an African American inventor from Ypsilanti, Michigan. McCoy was the son of two escaped slaves from Kentucky, who escaped using the Underground Railroad to Canada, where McCoy was born. After graduating from high school in Ypsilanti, McCoy moved to Scotland where he studied engineering. McCoy held 57 patents. His most well known invention was the oil drip cup, which continuously fed oil to steam engines. Allegedly, this invention was the inspiration for the phrase “the real McCoy.”

Michigan law has different statutes of limitations for different causes of actions. For example, lawsuits for breach of contract have six-year limits, while lawsuits for personal injury cases must be brought within three years. Additionally, contracts for the sale of goods contain a four-year statute of limitations.

In a recent case, Fisher Sand and Gravel Co. v. Neal A. Sweebe, Inc., the Michigan Court of Appeals had to determine whether the six-year statute of limitations or the four-year statute of limitations applied to an open account for the sale goods. An open account is an account that is left open for ongoing debit and credit entries and that ahs a fluctuating balance until one party settles and closes the account, at which time there is only one liability. Generally, an open account is a contract separate from the underlying contract for goods or services.

In Fisher Sand and Gravel, the plaintiff filed its claim after four years of the breach of contract. The underlying contract was for the sale of goods. As a result, the Court of Appeals had to determine whether the four-year statute of limitations under the UCC or the six-year statute of limitations for contract actions applied. The plaintiff argued that the six-year statute of limitations applied because an open account is a separate and distinct contract than the underlying contract for the sale of goods.

The Court of Appeals rejected the plaintiff’s argument and held that the four-year statute of limitations applied, despite the open agreement being a separate contract. The court reasoned that the open account existed “solely to facilitate [the] sale of goods.” In other words, the open agreement was so closely related to the sale of goods, that the UCC applies. Additionally, the statutes setting the limitations periods must be read together. When there is a conflict between them, the more specific statute governs.  In this case, the UCC was the more specific statute and therefore it governed the transaction.

The Court of Appeals also noted that its ruling was consistent with court cases from other states and that the UCC’s purpose of promoting uniformity among states with respect to transactions in goods was met.

By this point virtually every business owner in Michigan has received a State mailing putting them on notice that they are looking for any unclaimed property businesses may hold. This can include uncashed vendor checks, uncashed payroll checks, customer overpayments, and inactive bank accounts, to name a few.

While this law has been on the books forever it’s only recently that the State has pushed to claim what, according to the law, is rightfully theirs. The reason is simple; they need the money.

For an excellent summary of the State of Michigan’s voluntary disclosure program see the following hyperlink.

Michigan Unclaimed Property

Under 28 USC § 1332(a), federal courts have jurisdiction where the parties are diverse and “the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.” If the amount in controversy is not met, then the case will be remanded to the state court.

In Freeland v. Liberty Mutual Fire Insurance Co., the Sixth Circuit Court of Appeals interpreted § 1332(a) and ruled that the federal courts do not have diversity jurisdiction where the amount is exactly $75,000. In Freeland, there was a dispute over the amount of money that an insurance company was required to pay under a policy. The insurance company believed it was required to only pay $25,000, while the plaintiffs claimed that the insurance company was required to pay $100,000. The issue the court had to determine was whether the amount in controversy requirement under § 1332(a) was met.

The sixth circuit ruled that the federal courts lacked jurisdiction in the case because the amount in controversy did not exceed $75,000. Even though there was the potential for a $100,000 recovery by the plaintiffs, the amount in controversy did not exceed $75,000 because “the value of the consequences which may result from the litigation” was not more than $75,000. In other words, because it was undisputed that the plaintiffs were owed at least $25,000, but no more than $100,000, the value of the case was at most exactly $75,000.  To meet the jurisdictional threshold for federal court, the amount in controversy had to exceed $75,000 by at least a penny.  Since it did not, the court was obligated to remand the case back to the state court.