Statute of Limitations on an Open Account is 4 years in MI

The Michigan Court of Appeals in Fisher Sand and Gravel v Neal A. Sweebe, Inc. ruled that the four year Statute of Limitations under the Michigan Uniform Commercial Code that applies to Breach of Contract claims also applies to claims for Open Account when that account relates to the sale of goods.  This is an important ruling to collection attorneys and those who even dabble in debt collection.

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Any collection worth his or her salt knows enough to file a lawsuit with a claim for Breach of Contact, Account Stated and Open Account.  We plead the latter two claims when our contract claims is weak or when we simply want back up positions in the event that a court dismisses our Breach of Contract claim.

In Michigan a Breach of Contract claim generally has a six year statute of limitations (MCL 600.5807(8)), meaning that the Plaintiff has six years from the date that the contract was breached, to file his lawsuit against the Defendants. Under the Michigan UCC, however, if a transaction involves the sale of goods, then there is a shorter 4 year Statute of Limitations.

In this case,the Plaintiff’s claim involved the sale of goods to the Defendant.  The Defendant had breached this contract more than four years prior to the Plaintiff having filed its lawsuit to enforce its contract.  The trial court allowed the plaintiff to file an amended complaint to add a count of Open Account.  This was a futile amendment to the complaint.  The trial court subsequently found that the Open Account claim must fail on the same grounds as its Breach of Contract; namely that the four year Statute of Limitations under the UCC controls the transaction.  The Court of Appeals agreed with the trial Court.

I found the Plaintiff’s attempt to sever the Defendant’s obligations under Breach of Contract from its obligations for Open Account to be an excellent argument allowing for different limitations time periods.  While the Plaintiff’s effort was valiant, I believe that the trial court and the Court of Appeals came to the correct conclusion.  A Plaintiff cannot separate the nature of its Breach of Contract claim from its claim for Open Account as both of these claims involve the sale of goods. More importantly, the Defendant’s duties to pay under each claim is virtually identical.  As discussed below, I think the courts would have to arrive at a different result for a claim under Account Stated.  Its undisputed that the sale of goods is governed by the UCC and its statute of limitations.  So, where does this leave us collection attorneys?

Moral of the Story for Collection Attorneys – Know that if your breach of contract claims is out of statute, then your Open Account claim is equally out of statute.  BUT….take heart.  This opinion does not foreclose you from filing a claim for Account Stated claim.  Arguably, a court could hold that the same 4 year Statute of Limitations applies to Account Stated claims but I think that that argument would be less persuasive.  A debtor’s obligation to timely object to an invoice in a timely fashion in order to defeat an account stated is independent of whether the underlying contract involves the sale of a good or the sale of service.  A court would have to do a bit more reasoning to hold that the UCC Statute of Limitations applies to an Account Stated claim.

Moreover, if there were a contract between the parties that involved a sale of goods, a Plaintiff may choose to forego that argument if its claim is beyond the four year statute and simply attempt to enforce it on common law claims such as Unjust Enrichment or Promissory Estoppel.

I could admonish my fellow collection attorneys to be careful about taking cases that are outside the statute of limitations, but I think you know that already.  So I will advise you that if you take such a case, think creatively and consider your common law options.

If you have questions about credit or collection issues, contact Attorney Gary Nitzkin or call toll free (888) 293-2882 for a free consultation.  For more information about our firm, visit www.creditor-law.com.  For more information about debt collection, follow our blog at www.michigancollectionlawblog.com.

This entry was posted on Friday, June 24th, 2011 and is filed under Debt Collection Nuts and Bolts . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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