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.

In Miller-Davis, the plaintiff, a general contractor, filed a breach of contract claim against the defendant, a subcontractor who was hired to rebuild the roof of a YMCA swimming pool. The Plaintiff alleged that the defendant’s work failed to conform to the contract’s specifications. The plaintiff did not file a tort claims against the subcontractor. The problems with the roof were so severe that the roof had to be replaced, which is how the problem was identified.

Because the lawsuit was filed over six years after the work had been performed, there was an argument as to whether the statute of limitations for breach of contract, or the statute of repose applied. The subcontractor argued that Michigan’s statute of repose protected it from actions “to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death arising out of the defective and unsafe condition of an improvement to real property. …” Under the statute of repose, all claims must be filed within six years after occupancy. The plaintiff argued that the statute of repose did not apply because the claims were for breach of contract, not claims in tort.

Even though both statutes have six-year limitation periods, there is a significant difference between the two. Under the statute of repose, a claim accrues at the time of “occupancy of the completed improvement, use or acceptance of the improvement.” However, the statute of limitations for a breach of contract claim begins to run at the time the claim accrues.

The Michigan Supreme Court ruled that the statute of limitations for breach of contract applied because the claim was not a tort claim. The court noted that MCL 600.5839 “does not apply to a claim against an engineer or contractor for a defect in an improvement when the nature and origin of the claim is the breach of a contract.” The court ruled that the statute of repose applied only to tort actions.

The Supreme Court ruled that the claim did not fall under the statute of repose because:

There was no allegation that the roof deck system caused any “injury to property” or “bodily injury or wrongful death.” Nor was there any allegation of a “defective and unsafe condition.” Rather, plaintiff claimed that, because defendant failed to build the roof to the agreed-upon specifications, plaintiff was forced to expend money repairing it.

This case is significant because it narrows the scope of Michigan’s statute of repose exclusively to tort actions.

In Premer, the Michigan Court of Appeals confirmed how to properly state a claim for unjust enrichment. In order to state a claim for unjust enrichment the party making the claim must make two showings: First, the claiming party must show that the other party received some benefit; Second, there must be an inequity. In showing that a benefit was conferred, the Premer Court considered a number of factors, but reaffirmed that the key factor in these cases is that unjust enrichment must be determined by the benefit conferred on the defendant, such as the increase in value provided by the work.

For example, in Premer, the plaintiffs sued under a theory of unjust enrichment. The plaintiffs argued that they should be compensated based on value of the services they provided in improving the land. The court rejected this argument and stated that unjust enrichment is determined based on the value added to the land based on the work completed. Additionally the court noted that additions in value to the land needed to be offset by the costs incurred by the defendant in foreclosing on the land. As a result, the plaintiff’s claims for unjust enrichment failed.

Despite the often-complicated world of contract law, it is important to remember that this area seeks to reach fair and equitable results. As a result, contract law often provides remedies where those unfamiliar with the topic might not realize. Unjust enrichment is one these doctrines that seeks to reach fair results.

For those not familiar the intricacies of the legal world, legal jargon may seem like a foreign language (and in some cases it is). One of the more difficult subject areas of law is contract law. Contract law, at its essence, seeks to protect the expectations of the parties to the contract and to reach fair results.

Even where no contract exists between parties, the law has developed doctrines meant to provide for fair and equitable results. One such doctrine, called unjust enrichment, seeks to protect the party that conferred a benefit upon another party. Unjust enrichment is a substitute for damages. It may apply where either no contract between the parties existed, or where the benefit conferred was outside the scope of any contract that did exist between the parties. Unjust enrichment is unavailable when there is an express contract between the parties, because damages are available under the express contract, and the court is not supposed to re-write the deal that the parties themselves have negotiated.

In a recent case, Hosford Bros. Concrete, Inc. v. Premer (available at www.michbar.org/opinions/appeals/2011/072611/49429.pdf), the Michigan Court of Appeals discussed the principle that unjust enrichment is not available where an express contract exists. The parties had two express contracts for the lending of money to purchase land and the land contract entered into as a result of the loan. The plaintiff in Premer sought payment for unjust enrichment following work they completed in developing a subdivision. Due to the real estate market collapse, they were unable to fully develop the land and the land was foreclosed on by the defendants. The plaintiffs sought payment for the improvements they made to the land.

The court noted that although there were two express agreements in the case, an unjust enrichment claim was still actionable because the improvements to the land were outside the scope of the two express land sale contracts. Next, how the defendant was unjustly enriched by the improvements to the land needed to be determined and calculated.

In some circumstances, and often in the context of a loan, parties may enter into multiple agreements with one another. When there are multiple agreements between the same parties, one party may want to negotiate the inclusion of  “cross default” provisions in those agreements.  A cross default provision provides that a party’s default under one agreement triggers an automatic default of all of the other agreements between the parties. Banks or Lenders often include a cross default provision in their loan documents to protect their financial interests.  Once the cross default provision is invoked, the defaulting party is not likely to have many options for recourse.

In order to be effective, the cross default provision must be included in each of the agreements subject to the cross default. Eagle Ridge LLC v Albert Homes LLC, 2009 Mich App, LEXIS 2382 (November 17, 2009).  In the recent case of Eagle Ridge LLC v Albert Homes LLC, the Michigan Court of Appeals refused to enforce a cross default provision that was found in only one of two simultaneously signed agreements.

The Michigan Court of Appeals used basic contract principals to support its decision.  Quoting Randolph v Reisig, 272 Mich App 331 (2006), the Court found that “an unambiguous contractual provision is reflective of the parties’ intent as a matter of law, and if the language of the contract is unambiguous, we construe and enforce the contract as written.”  Therefore, because one of the agreements at issue did not contain a cross default provision, the Court concluded that the parties must not have intended that the agreement be subject to a cross default provision.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

The most important provisions in a severance agreement are those regarding payment, non-competition, and the release of claims. In a severance agreement, the employee typically agrees to accept payment in exchange for agreeing to release employer from claims he or she may have against employer. It is also very typical for a severance agreement, like many employment agreements, to include a non-compete provision. An agreement not to compete should be reviewed for reasonableness, which will vary depending on the specifics of the situation.

It is recommended that employers offer the terminated employee a reasonable period of time to consider signing a severance agreement with a release. A release is unenforceable unless the employee voluntarily executes it, i.e., the execution is not the result of duress or coercion.

Employers should make sure to have legal counsel draft or review their severance agreement to ensure that the employer is adequately protected. Employees should consult legal counsel before signing a severance agreement to ensure that the agreement terms are fair and reasonable.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

Some oral contracts are enforceable, but several types of contracts are enforceable only if they are in writing.  This stems from a legal concept called the “Statute of Frauds,” which was developed in the 17th Century and is still followed today.  The purpose of the Statute of Frauds is to prevent fraud in certain types of contracts

Under Michigan law, the following types of contracts (among others) generally must be in writing to be enforceable:

• real estate agreements, including purchase agreements, deeds, mortgages, and leases (unless the lease is for less than one year)
• contracts that cannot be performed within one year (e.g. a two-year employment contract)
• promises to pay the debt of another (e.g. a personal guarantee)
• marital contracts (e.g. prenuptial agreements)
• real estate commission agreements
• promises made by financial institutions (such as a promise to lend)
• misrepresentations regarding credit
• sales of goods worth more than $1000
• sales of personal property

How can you protect yourself or your business?  First, it’s generally a good idea to make sure that all contracts are in writing and are signed by all parties to the contract.  If the agreement is in writing, and signed by all parties, the parties usually cannot dispute later that something was left out of the agreement.  Second, if you have an existing agreement that’s not in writing, you should contact an attorney to find out whether that agreement should be put into writing in order to make it enforceable.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.

In the Michigan Court of Appeals case Bronco Oil v Citizens Bank (click here to download), the contract language, in essence, immunized the breaching party from having to pay the damages it allegedly caused because they occurred outside of a 12-month period before the lawsuit was filed. Even though the lawsuit was timely, the potential damages were lost because of when the lawsuit was filed.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm.

Click here to download a PDF.

This article was written by Stephen J. Dunn, Of Counsel to Demorest Law Firm.

Once you’ve found the bar that you want to buy, the first step is to sign a purchase agreement.  The purchase agreement should cover everything that you and the seller have agreed upon – purchase price, payment method (e.g. cash, promissory note, etc.), timing of various steps, all terms and conditions, default provisions, naming rights, etc.  (See our article on Merger Clauses for the importance of including everything in one document).  The purchase agreement should also provide a date for closing, which will not occur until after the liquor license is transferred.

Note that Michigan law requires that all liquor inventories be purchased in cash.  Therefore, if your purchase includes any type of financing (such as a promissory note or loan), the purchase of liquor inventory must be specifically excluded from the purchase agreement and must be done in cash at closing.

The purchase agreement should also include provisions about the liquor license, including the purchase price and a provision covering what will happen if the liquor license cannot be transferred.  This is because the license itself cannot be transferred just through a purchase agreement.  Rather, the purchaser has to apply to the Michigan Liquor Control Commission (“LCC”) to transfer the license.  The purchaser then must undergo a rigorous application process in order to be approved to buy the license.  This process can take months, so purchasers must be patient!

While the liquor license transfer is pending, you should conduct due diligence on the operations of the bar.  If you plan to keep the bar open continuously before and after the closing, you should plan accordingly for a seamless transition.  Once the liquor license transfer has been approved, you can hold a closing and complete the sale.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.