FISHER SAND AND GRAVEL COMPANY v NEAL A SWEEBE, INC
Docket No. 143374
Supreme Court of Michigan
Argued January 9, 2013. Decided July 30, 2013.
494 Mich 543
Docket No. 143374. Argued January 9, 2013 (Calendar No. 1). Decided July 30, 2013.
On August 13, 2009, Fisher Sand and Gravel Company brought an action in the Midland Circuit Court against Neal A. Sweebe, Inc., asserting claims for breach of contract, account stated, and unjust enrichment with regard to concrete supplies plaintiff provided to defendant. Plaintiff filed an amended complaint on October 29, 2009, that added a claim for amount owed on an open account. Plaintiff had provided concrete supplies to defendant from October 1991 through October 2004 and had issued invoices, and defendant had made sporadic payments toward the accrued balance. On May 9, 2005, defendant received a delivery of goods from plaintiff, and plaintiff issued an invoice for $152.98. On May 13, 2005, defendant made a payment of $152.98. That was the last time that defendant made any payment to plaintiff. Defendant moved for summary disposition, contending that the action was barred by the four-year limitations period in the Uniform Commercial Code (UCC) pertaining to contracts for the sale of goods,
In an opinion by Justice ZAHRA, joined by Chief Justice YOUNG and Justices CAVANAGH, KELLY, and MCCORMACK, the Supreme Court held:
1. Michigan law has recognized a number of collection actions, including open-account claims, mutual-and-open-account-current claims, and account-stated claims, but Michigan law concerning these claims has not always been clear. An open account is one that consists of a series of transactions and is continuous or current, and not closed or stated. An account stated is a contract based on assent to an agreed balance, and it is an evidentiary admission by the parties of the facts asserted in the computation and of the promise by the debtor to pay the amount due. An open account may be converted into an account stated, and whether that conversion has occurred will depend on the facts.
2. “Account stated” is an expression to convey the idea of a contract, having an account for its consideration, and is no more an account than is a promissory note, having a like consideration for its support. It requires the manifestation of assent by both parties to the correctness of the statement of the account between them. Assent may be inferred from a party‘s inaction; as against a party receiving an account, and not objecting to it within a reasonable time, its correctness may be considered as admitted. It is not necessary, in support of an account stated, to show the nature of the original transaction, or indebtedness, or to give the items constituting the account. Rather, an action on an account stated is an independent cause of action, separate and distinct from the underlying transactions giving rise to the antecedent debt. Therefore, contrary to the opinion of the Court of Appeals in this case, in an account-stated action it is immaterial whether the underlying transactions involved the sale of goods. Because the language of
3. In an action on an open account, there is no assent to the balance due. Thus, the creditor may be required to establish the validity of the entries in the account. When an integral component of a transaction for goods or services is an express agreement for the periodic payment of money, an open-account claim cannot be established by the mere performance or nonperformance of the contract obligation. Under those circumstances, the creditor‘s remedy is to timely pursue a breach of contract action when the debtor fails to live up to the terms of the underlying agreement. When the credit relationship is not defined as an integral part of the transaction for goods or services, and instead arises from a course of dealing between the parties, an open-account claim may arise by implied contract. With regard to the limitations period applicable to open-account claims, the language of
Judgment of the Court of Appeals reversed; case remanded to the trial court for further proceedings.
Justice MARKMAN, concurring in part and dissenting in part, agreed with the majority that plaintiff‘s account-stated claim was subject to the six-year limitations period governing general contract actions set forth in
Justice VIVIANO took no part in the decision of this case.
1. CONTRACTS — COLLECTION ACTIONS — ACCOUNTS STATED — LIMITATION OF ACTIONS.
An account stated is a contract based on assent to an agreed balance; it is an evidentiary admission by the parties of the facts asserted in the computation and of the promise by the debtor to pay the amount due; it requires the manifestation of assent by both parties to the correctness of the statement of the account between them; assent may be inferred from a party‘s inaction; as against a party receiving an account, and not objecting to it within a reasonable time, its correctness may be considered as admitted; an action on an account stated is an independent cause of action, separate and distinct from the underlying transactions giving rise to the antecedent debt; an action on an account stated is subject to the
2. CONTRACTS — COLLECTION ACTIONS — OPEN ACCOUNTS — LIMITATION OF ACTIONS.
An open account is one that consists of a series of transactions and is continuous or current, and not closed or stated; in an action for an amount owed on an open account, there is no assent to the balance due, and the creditor may be required to establish the validity of the entries in the account; when an integral component of a transaction for goods or services is an express agreement for the periodic payment of money, an open-account claim cannot be established by the mere performance or nonperformance of the contract obligation; under those circumstances, the creditor‘s remedy is to timely pursue a breach of contract action when the debtor fails to live up to the terms of the underlying agreement; when the credit relationship is not defined as an integral part of the transaction for goods or services, and instead arises from a course of dealing between the parties, an open-account claim may arise by implied contract; an open-account claim is subject to the six-year period of limitations governing general contract actions set forth in
Allan Falk, P.C. (by Allan Falk), and McClintic & McClintic, P.C. (by William M. McClintic and Gavin W. McClintic), for plaintiff.
W. Jay Brown PLC (by W. Jay Brown) for defendant.
Amicus Curiae:
Roger L. Premo for the Michigan Creditors Bar Association.
OPINION OF THE COURT
ZAHRA, J. At issue in this case is whether the four-year period of limitations in § 2725 of article 2 of
I. FACTS AND PROCEEDINGS
Plaintiff provided concrete supplies to defendant commencing in October 1991. Plaintiff timely and regularly invoiced defendant for these supplies. Defendant made sporadic payments to plaintiff in random amounts. Plaintiff maintained an account that recorded the supplies sold to defendant and the payments defendant submitted to plaintiff on that account. Through the course of the litigants’ business relationship, defendant never paid its account in full.2 Commencing in 2003, defendant acquired from plaintiff less product
More than four years later plaintiff sued defendant, claiming that defendant owed plaintiff $92,968.57, including $3,718.32 in finance charges.3 Plaintiff‘s claims included breach of contract, unjust enrichment, and account stated.4 Plaintiff filed an amended complaint on October 29, 2009, adding a claim for amount owed on an open account. Defendant moved for summary disposition pursuant to MCR 2.116(C)(7), arguing that plaintiff‘s claims were barred by the four-year period of limitations provided in § 2725 of the UCC. Plaintiff countered that defendant‘s obligation to pay on the open account was independent of any sale of goods and that its claim was therefore governed by the six-year
Judge O‘CONNELL dissented, asserting that “[p]ayment on an open account triggers a new obligation, separate and distinct from an underlying agreement,” and therefore, the new obligation is governed by the six-year period of limitations in
This Court granted leave to appeal to determine whether an action on an open account relating to the sale of goods is subject to the four-year period of limitations in § 2725 of the UCC or the general six-year period of limitations applicable to contract actions in
MCR 2.116(C)(7) allows a party to file a motion for summary disposition on the ground that a claim is barred because of the expiration of the applicable period of limitations. A movant under MCR 2.116(C)(7) is not required to file supportive material, and the opposing party need not reply with supportive material. Moreover, the contents of the complaint are accepted as true unless contradicted by documentation submitted by the movant.17 Appellate review of a trial court‘s summary disposition ruling pursuant to MCR 2.116(C)(7) is de novo.18 Questions of statutory interpretation are also reviewed de novo.19
III. ANALYSIS
A. COLLECTION ACTIONS GENERALLY
Michigan has recognized a number of collection actions. These actions include open account claims, mutual and open account current claims, and account stated claims. The purpose of these causes of action is to recover sums due that arose out of a course of dealing between the parties.
Historically the common law has distinguished an open account from a mutual and open account current. An “open account” is traditionally defined as “1. [a]n unpaid or unsettled account. 2. [a]n account that is left open for ongoing debit and credit entries and that has a fluctuating balance until either party finds it convenient to settle and close, at which time there is a single
An account stated action is based on ” ‘an agreement, between parties who have had previous transactions of a monetary character, that all the items of the accounts representing such transactions are true and that the balance struck is correct, together with a promise, express or implied, for the payment of such balance.’ ”24 Importantly, an open account may be converted into an account stated:25
The conversion of an open account into an account stated, is an operation by which the parties assent to a sum
as the correct balance due from one to the other; and whether this operation has been performed or not, in any instance, must depend upon the facts. That it has taken place, may appear by evidence of an express understanding, or of words and acts, and the necessary and proper inferences from them. When accomplished, it does not necessarily exclude all inquiry into the rectitude of the account. The parties may still impeach it for fraud or mistake.26
In the past these claims have been conflated or treated inconsistently by the Legislature and Michigan courts.27 For example, the burden-shifting statute (now
At times, this Court has not been a model of clarity when addressing collection actions. As previously discussed, this Court has characterized a mutual and open account current as an account that is both mutual and open, resulting from “a course of dealing where each party furnishes credit to the other on the reliance that upon settlement the accounts will be allowed, so that
[I]t is generally held essential, in order to constitute such an account as shall fall within the principle in question, that there shall be mutual open, current dealings and claims subject to a future final balance.
A payment, therefore, given and received as partial discharge of an account for goods or services does not make the account mutual; it merely diminishes the amount due on a one-sided account.32
The Fuerbringer Court dismissed this Court‘s earlier decision in In re Hiscock Estate without analysis,33 leaving practitioners and lawmakers to wonder whether there is a difference in Michigan between an open account and an open and mutual account current. As recently as 2009, this Court considered whether an action to collect past due attorney fees was an open and mutual account current. While the Court concluded that the action was not an open and mutual account current, this holding was not based on the lack of mutual exchange of credit between the law firm and its client but instead on the fact that the underlying service contract expressly provided the terms of payment.34
B. ACTIONS ON AN ACCOUNT STATED
Of the three claims discussed in this opinion, the account stated claim is most clearly defined under Michigan law. An account stated “is a contract based on assent to an agreed balance, and it is an evidentiary admission by the parties of the facts asserted in the computation and of the promise by the debtor to pay the amount due.”36 This Court has characterized an account stated as ” ‘but an expression to convey the idea of a contract having an account for its consideration, and is no more an account than is a promissory note or contract, having a like consideration for its support.’ ”37 An account stated, like all contracts, requires mutual assent. Specifically, “[a]n account stated requires the manifestation of assent by both parties to the correctness of the statement of the account between them.”38
In his treatise on contract law, Professor Arthur Corbin summarized the nature of an action on an account stated:
If a claimant renders an account and it is assented to as correct by the other party with an express or implied promise to pay, an action may be maintained on the
promise. The account stated is a new, independent cause of action superseding and merging the antecedent causes of action represented by the particular items included in the computation.39
In White v Campbell, this Court likened the obligation to pay the antecedent debt to that commonly associated with a promissory note:
[T]he agreed statement serves in place of the original account, as the foundation of an action. It becomes an original demand, and amounts to an express promise to pay the actual sum stated. The creditor becomes entitled to recover the agreed balance, in an action based on the fact of its acknowledgment by the debtor, upon an adjustment of their respective claims. The effect of the operation is said to be much the same as though the debtor had given his note for the balance.40
The parties to an account stated need not expressly assent to the sum due, as there are instances when assent may be inferred from a party‘s inaction:
[A]s against a party receiving an account, and not objecting to it within a reasonable time, its correctness may be considered as admitted by him, and the balance as the debt; or, in other words, that the party rendering the account may, under such circumstances, treat it as an account stated. . . . If the party to whom the account is rendered, object[s] within a reasonable time, there is no room for inferring an admission of its correctness.41
In other words, the debtor‘s new promise to pay is a matter of express or implied contract, depending on the conduct of the parties. When the parties expressly agree to the sum due, the stated account forms an express contract. By contrast, when one party‘s assent is in-
The Court of Appeals held that because the transactions giving rise to the debt on account related to the sale of goods, the four-year period of limitations set forth in § 2725 of the UCC applies to plaintiff‘s account stated claim. The Court of Appeals was persuaded by a case from the Oregon Court of Appeals that characterized account stated claims by the nature of the underlying obligations comprising the account. Specifically, the Michigan Court of Appeals relied on Moorman Mfg Co of California, Inc v Hall, which stated that ” ‘[a]lthough an account stated is based on a separate agreement between the parties, it relates to and cannot be divorced from the underlying sales transaction.’ ”44 But
It is not necessary, in support of an account stated, to show the nature of the original transaction, or indebtedness, or to give the items constituting the account. . . . Neither does the nature of the original transaction, out of which the acknowledgment of indebtedness grew, appear to be material.45
It follows, then, that an action on an account stated is indeed an independent cause of action, separate and distinct from the underlying transactions giving rise to the antecedent debt. Therefore, it is immaterial whether the underlying transactions involved the sale of goods.
The Court of Appeals erroneously relied on the official comment to § 2725 of the UCC to arrive at its result. The official comments to the UCC do not have the force of law.46 When ascertaining the Legislature‘s intent, a reviewing court should focus first on the plain language of the statute in question,47 and when the language of the statute is unambiguous, it must be enforced as written.48 Examining the plain language of § 2725, Professor Corbin concluded that, because an action on an account stated is not an action “for breach of any contract for sale,”49 the four-year limitations period does not apply to actions on an account stated:
Recent authorities hold that an action on an account stated arising out of a transaction in goods is subject to the four-year statute of limitations applicable to the underlying goods transaction. Despite the laudable goal of minimizing hardship and confusion for buyers and sellers “doing business on a nationwide scale,” the four-year limitation period of [§ 2725] is inapplicable to an action on an account stated. First, [§ 2725] states that an action “for breach of any contract for sale must be commenced within four years.” . . . An action on an account stated is not an action for the breach of a contract for sale. Rather, it is an action to enforce a subsequent promise to pay an account. Indeed, the action on such a promise is analogous to an action on a promise to pay embodied in a note or letter of credit. An action on either of these formal promises to pay is subject to the limitations period applicable to the promise to pay, not the underlying transaction, which might be a sale of goods.50
Because the language of § 2725 plainly states that it only applies to actions on the sale of goods,51 and an action on an account stated is an action on a promise to pay a certain amount that has nothing to do with any underlying sales transactions, the Court of Appeals erred by relying on the official comment to § 2725 of the UCC. Further, even if the underlying debt stemmed from the sale of goods, the Court of Appeals erred by concluding that the four-year limitations period applies because the nature of the underlying transactions is immaterial.
Therefore, it being established that an account stated is “a contract based on assent to an agreed balance,”52 an action on an account stated is subject to the six-year
Applying these legal principles to the present case, plaintiff submitted with its complaint a summary of the account and an “AFFIDAVIT OF ACCOUNT STATED.” Defendant did not expressly assent to the balance due as reflected in this affidavit. Nonetheless, plaintiff claims its statement of the account stood unimpeached at the time the trial court dismissed plaintiff‘s claims.54 Having erroneously concluded that plaintiff‘s claim was time-barred, the trial court did not consider whether defendant had properly objected to plaintiff‘s statement of the account. On remand, we direct the trial court to consider whether plaintiff presented evidence that defendant assented to plaintiff‘s statement of the account, either expressly or by implication.
Like account stated claims, actions on an open account have long been recognized in Michigan.55 Nonetheless, the caselaw defining this claim is far less developed than the caselaw addressing accounts stated. This may be because a suit on an open account is, from a creditor‘s perspective, a less desirable claim than an action on an account stated. In an action on an account stated, the creditor must present proof of the debtor‘s express or implied assent to the balance due. Upon such proof, the underlying transactions become irrelevant. In an action on an open account, however, there is no assent to a balance due. Thus, the creditor may be required to establish the validity of the entries in the account.56 Additionally, open account claims were tradi-
It is to be understood that the abolition of the forms of action does not abolish the remedies thereunder. If a cause of action is stated in the complaint showing the pleader entitled to relief, the appropriate substantive remedy will
Thus, there is no doubt that plaintiff can pursue a civil action on an open account. Unclear from our jurisprudence, however, is whether an action on an open account, like an action on an account stated, is an independent cause of action, separate and distinct from the underlying transactions giving rise to the antecedent debt, or a claim that is dependent on the underlying transactions.
This Court‘s opinion in Goodsole v Jeffery is insightful in distinguishing open account claims from claims based on an antecedent debt that arises from an express contract defining the rights and liabilities of the parties.61 In Goodsole, the litigants agreed by oral contract that the plaintiff would provide the defendant a piano and the defendant would pay the plaintiff rent of $2.50 per month on the eighth day of each month commencing August 8, 1906. It appears the contract was for an indefinite term. The plaintiff kept a book of the charges and payments. The last charge for rent came on May 8, 1911, and the last payment made to the plaintiff was February 2, 1910. On August 30, 1916, the plaintiff brought suit to collect all unpaid rental charges through May 8, 1911. The plaintiff maintained that since the debt was on an open and mutual account, the entire amount was due and owing. The defendant argued that only unpaid rental charges that had accrued within 6 years of the complaint were collectable. This Court held that the plaintiff failed to establish the existence of an open and mutual account current:
I know of no decision of this court, and think there is none to be found in any jurisdiction, holding that where the dealings of the parties relate entirely to and are governed by a special contract for the payment of money, at agreed upon periods, an open mutual account is established by performance of the contract obligation, whether a book account of it is kept or not.... [T]he defendant having pleaded the statute of limitations, judgment should have been directed in his favor....62
More than 20 years after Goodsole, this Court again considered the distinction between a claim on an account and a claim based on the underlying transactions giving rise to the debt that arises from an express contract defining the rights and liabilities of the parties. In In re Dei‘s Estate, the plaintiff, an attorney, performed legal services for Christina Dei from 1925 to 1933, during which time Dei only made two payments on the account.63 Dei died in 1935. After the plaintiff was made aware of Dei‘s death, he brought a claim against her estate for the unpaid balance on the account. The estate defended against the claim by arguing that any legal services provided more than six years before Dei‘s death were barred by the statute of limitations. The Court framed the issue as follows:
As to whether the whole or any part of plaintiff‘s claim is barred by the statute of limitations, we must first determine whether or not the account as presented was a mutual and open account current. If so, the [entire amount due on the account is collectable.] If not, only those items charged against decedent in her lifetime can be allowed that accrued within six years prior to her death.64
This Court recently reexamined In re Dei‘s Estate in Seyburn, which also involved a claim for unpaid legal fees.66 In Seyburn, this Court examined whether a claim for unpaid attorney fees was an action on an open and mutual account current. The Court looked to the retainer agreement and concluded that the parties’ credit relationship was expressly defined by the explicit terms of their agreement for services:
In the present case, it is undisputed that plaintiff and defendant entered into a signed contract containing specific terms. The contract stated that plaintiff agreed to provide legal services to defendant and, in turn, defendant would make payments of money to plaintiff. Specifically, the contract provided for plaintiff to send a billing statement by the 20th of each month, using hourly billing at an established rate, and also required defendant to pay within 10 days of the date of the statement. In addition, the contract defined the liabilities of both parties.67
Thus, because the terms of the parties’ credit relationship were provided for in their contract for services, a mutual and open account current claim could not be
We hold that when an integral component of a transaction for goods or services is an express agreement for the periodic payment of money, an open account claim cannot be established by the mere performance or nonperformance of the contract obligation.68 Under those circumstances, the creditor‘s remedy is to timely pursue a breach of contract action when the debtor fails to live up to the terms of the underlying agreement. But when the credit relationship is not defined as an integral part of the transaction for goods or services, and instead arises from a course of dealing between the parties, an open account claim may arise by implied contract.69 Applying this holding to the present case, it is unclear whether an integral component of the parties’ transactions was an express agreement for the periodic payment of money. Thus, we direct the trial court to determine as much on remand.
There are several factors that weigh in favor of our holding today. Significantly, for more than 150 years, Michigan courts have recognized actions on an open account. Likewise, for the same period of time our Legislature has recognized this claim, along with a
Recognition of an action on an open account as an independent claim that arises out of the course of dealing between a creditor and debtor also promotes commerce without encouraging creditors to file lawsuits to preserve their right to collect on debts. Assume for example that a merchant sold goods and services on account whereby goods and services would be regularly delivered to a purchaser who in turn made sporadic payments in varying amounts as the relationship developed. As the parties’ relationship nears its fourth year, the merchant would have to insist on settlement of the account or risk the possibility that all or part of the balance due on account could be declared uncollectable after the four-year limitations period on the sale of goods expires. Even if this merchant dealt exclusively in the sale of services, he would face the same dilemma in year six.
We must next determine what limitations period applies to open account claims. For all the reasons stated previously in our analysis of the limitations period for accounts stated, we reject the notion that § 2725 of the UCC applies when the underlying account arises from the sale of goods. The language of § 2725 plainly states that it only applies to actions for breach of
We further conclude that an open account, like an account stated, is premised on an express or implied contract. In some instances, the credit relationship between the creditor and debtor may be defined by an express contract.73 Yet, in other instances, the credit relationship will arise from the parties’ course of dealing.74 Having established that an open account claim is an action for breach of an express or implied contract, we conclude that open account claims are subject to the
An open account claim generally accrues on the date of each item proved in the account.75 Furthermore, those items “are severally barred when as to them the statute has run.”76 Partial payment on an account, however, may toll or even remove the statute of limitations under certain circumstances.77 As recently as 2000, this Court unanimously held that
a partial payment [on a debt] restarts the running of the limitation period unless it is accompanied by a declaration or circumstance that rebuts the implication that the debtor by partial payment admits the full obligation.
This rule is at least as old as Miner v Lorman, 56 Mich 212, 216; 22 NW 265 (1885). Though other aspects of Miner led this Court to conclude that the plaintiff could not prevail in his suit, Justice COOLEY‘s opinion for a unanimous Court included this explanation:
“The statute does not prescribe what effect part payment of a demand shall have, but it is familiar law that it operates as an acknowledgment of the continued existence of the demand, and as a waiver of any right to take advantage, by plea of the statute of limitations, of any such lapse of time as may have occurred previous to the payment being made. The payment is not a contract; it is not in itself even a promise; but it furnishes ground for implying a promise in renewal from its date, of any right of action which before may have existed.”
The Supreme Court frequently has restated this principle. In Hiscock v Hiscock, 257 Mich 16, 25; 240 NW 50; 78 ALR 953 (1932), a dispute concerning payments on a mortgage, the Court said:
“A voluntary and unqualified payment subsequent to the bar [of the statute of limitations] is the best evidence that the debtor does not claim his legal rights, but, on the contrary, intends to waive them and to perform his moral obligation to pay the whole of the just debt.”
With little discussion, the principle was applied in Wagner v Kincaid, 291 Mich 262, 266; 289 NW 154 (1939). To the same end, we explained in Collateral Liquidation, Inc v Palm, 296 Mich 702, 704; 296 NW 846 (1941), that “[t]he effect of the payment under the statute is equivalent to a new promise.” And in Beaupre v Holzbaugh, 327 Mich 101, 107-108; 41 NW2d 338; 27 ALR2d 532 (1950), this Court said, “In the absence of any showing that payment was not intended by the parties to imply a new promise to pay, the statute was tolled by the payment and the note was not outlawed when suit was begun.”
In recent years, the Court of Appeals has likewise applied this rule. Alpena Friend of the Court ex rel Paul v Durecki, 195 Mich App 635; 491 NW2d 864 (1992); Federal Deposit Ins Corp v Garbutt, 142 Mich App 462, 468; 370 NW2d 387 (1985); Bonga v Bloomer, 14 Mich App 315, 319; 165 NW2d 487 (1968).78
Indeed, consistently with the quoted passage, this Court concluded in Yeiter that the partial payments made less than six years before commencement of the action operated to renew the defendant‘s promise to pay the entire amount owed, thereby restarting the six-year limitations period provided in
In the instant case, plaintiff‘s May 9, 2005, delivery of concrete supplies was accompanied by an invoice in the amount of $152.98. On May 13, 2005, defendant rendered payment in the amount of the invoice, but did not pay the alleged balance due. Relying on this Court‘s
IV. CONCLUSION
Because both an action on an account stated and one on an open account are distinct from the underlying transactions giving rise to the antecedent debt, neither is governed by the four-year limitations period provided in § 2725 of the UCC. We conclude that both open account claims and actions on account stated are subject to the six-year period of limitations provided in
YOUNG, C.J., and CAVANAGH, KELLY, and MCCORMACK, JJ., concurred with ZAHRA, J.
MARKMAN, J. (concurring in part and dissenting in part). At issue is whether either an “account stated” or an “amount owed on open account” claim is subject to the four-year limitations period of § 2-725 of the Uniform Commercial Code (UCC),
I. PLAINTIFF‘S CLAIMS
Plaintiff‘s amended complaint set forth four causes of action: (1) breach of contract, (2) amount owed on open account, (3) account stated, and (4) unjust enrichment. Plaintiff did not appeal the dismissal of its breach of contract and unjust enrichment claims. Thus, only the “account stated” and “amount owed on open account” claims are at issue here. Regarding the “account stated” claim, plaintiff alleges that it submitted “statements of account” to defendant and that defendant either acknowledged the statements as correct, agreed to pay the balance shown on the statements, or never objected to the statements. Regarding the “amount owed on open account” claim, plaintiff alleges that it “supplied concrete on open account to Defendant from approximately October 30, 1991 through October 25, 2004,” that “Defendant did make payments on the
The sole issue here is whether these “account stated” and “amount owed on open account” claims are subject to the UCC‘s four-year limitations period,
The majority agrees with plaintiff that the six-year limitations period applies to both the “account stated” and “amount owed on open account” claims. I agree with the majority and plaintiff that the six-year limitations period applies to the “account stated” claim, but I agree with defendant that the UCC‘s four-year limitations period applies to the “amount owed on open account” claim.
II. “ACCOUNT STATED” CLAIM
I agree with the majority that an “account stated” claim results from a separate and distinct bargaining process in which the parties sum up all the credits and debits flowing between themselves, “strike a
In other words, when an account becomes “stated,” it establishes a new cause of action against the debtor in the same manner that a debtor giving a promissory note to a creditor for an antecedent debt would create a new cause of action against that debtor independent of the original indebtedness. White v Campbell, 25 Mich 463, 468 (1872) (“[IT]he agreed statement serves in place of the original account, as the foundation of an action.... The effect of the operation is said to be much the same as though the debtor had given his note for the balance[.]“). Accordingly, because the parties’ independent agreement here concerning the amount due under the account establishes the basis for defendant‘s liability on the “account stated” claim, and because that liability is not based on the underlying transactions in goods out of which the original account stemmed, I agree with the majority that the six-year limitations period governing general contract actions in
Further, I agree with the majority that an open account constitutes a commercial arrangement in which a seller allows a customer to buy on credit without a formal borrowing agreement or other guarantee as to the customer‘s payment. That is, under an “open account” arrangement, the seller delivers goods to the customer and a series of credit charges are made on the customer‘s open account without an express agreement between the seller and the customer as to when the customer will pay the seller for the goods. I further agree with the majority that the critical factor in deciding whether an account is open is whether the terms of payment are specified by the parties’ agreement or are left open and undetermined, and that there can be no open account where the parties have an express agreement defining their liabilities.
I disagree with the majority, however, as to the limitations period that applies when a seller sues a customer for the amount owed on open account and, as here, the open account has arisen from a UCC sale of goods. The majority concludes that the six-year limitations period governing general contract actions in
“The stated purposes of the [UCC] are ‘(a) to simplify, clarify and modernize the law governing commercial transactions; (b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; [and] (c) to make uniform the law among the various jurisdictions.‘” Neibarger v Universal Cooperatives, Inc, 439 Mich 512, 519; 486 NW2d 612 (1992), quoting
“To achieve these goals, Article 2 of the [UCC] governs the relationship between the parties involved in ‘transactions in goods.‘” Neibarger, 439 Mich at 519, quoting
The requirement of payment against delivery in subsection (1) is applicable to non-commercial sales generally and to ordinary sales at retail although it has no application to the great body of commercial contracts which carry credit terms. Subsection (1) applies also to... contracts which look to shipment by the seller but contain no term on time and manner of payment.... [Thomson West, Uniform Commercial Code: Official Text and Comments (2012-2013 ed), § 2-511, p 125.]3
Thus, article 2 fully recognizes that there will be breaches of contracts for the sale of goods sold on open account.
The limitations period provision for article 2 provides:
(1) An action for breach of any contract for sale must be commenced within 4 years after the cause of action has accrued....
(2) A cause of action accrues when the breach occurs.... [
MCL 440.2725 .]
both a present sale of goods and a contract to sell goods at a future time. A “sale” consists in the passing of title from the seller to the buyer for a price [
MCL 440.2401 ]. A “present sale” means a sale which is accomplished by the making of the contract. [Emphasis added.]
“Contract” means the total legal obligation which results from the parties’ agreement as affected by this act and any other applicable rules of law. (Compare “Agreement“.) [Emphasis added.]
And
“Agreement” means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this act [
MCL 440.1205 andMCL 440.2208 ]. Whether an agreement has legal consequences is determined by the provisions of this act, if applicable; otherwise by the law of contracts [MCL 440.1103 ]. (Compare “Contract“.)
Applying these definitions, the question is whether an “amount owed on open account” claim constitutes “[a]n action for breach of” “the total legal obligation that results from the parties’ agreement” to “pass[]... title [of goods]... for a price[.]”7 In contrast to an “account stated” claim, in which the basis for liability is the parties’ independent agreement concerning the amount due under the account, the basis for liability in an “amount owed on open account” claim is the underlying transactions that comprise the account. In “an open account... the items composing it must be
proved” because the parties have not reached an independent agreement as to the amount due under the account. A Krolik & Co v Ossowski, 213 Mich 1, 7; 180 NW 499 (1920). Because the plaintiff must instead prove its right to collect on each underlying transaction comprising a part of the account balance, the “amount owed on open account” claim is simply the equivalent of a suit for breach of the legal obligations that result from the parties’ discrete transactions that individually comprise the account. Accordingly, when the underlying transactions pertain to an agreement to pass title of goods from the seller to the buyer for a price,This same principle was recognized by this Court in Phelps v Abbott, 116 Mich 624, 625; 74 NW 1010 (1898), in which we held that an open account does not constitute a single claim or a single cause of action, explicitly rejecting
the claim of the defendant that a debt due upon a continuous account of book entries, made in the ordinary course of dealing is entire, and cannot be split up into separate and distinct demands, so as to form the basis of several suits; that an open account containing many items, all of which are due, constitutes but one claim, and one right of action.
Likewise, in Kruce v Lakeside Biscuit Co, 198 Mich 736, 742; 165 NW 609 (1917), this Court acknowledged that, under Phelps and other cases, separate suits could be maintained on each transaction comprising an open account. In A Krolik & Co, 213 Mich at 7-8, citing Phelps, 116 Mich 624, this Court reaffirmed that “[t]he right to bring separate suits upon claims embraced in an open account has been recognized,” holding that the “[p]laintiffs’ claim was not an open account. It constituted an entire demand. Separate actions could not be brought upon it.”
In furtherance of its argument that the underlying transactions comprising the open account are somehow not the actual source of liability, the majority asserts that “these [‘amount owed on open account’ suits] are premised on the debt due on the account and rarely discuss the underlying transactions, except to the extent that the transactions provide a defense to the debt.” Ante at 569. This, however, is also incorrect. Many cases discuss the underlying transactions be-
In behalf of the plaintiff, it is claimed there could be no recoupment for the reason that this action is to recover a balance due on an open account between the parties and not on a part of the contract; that payments were made and credited from time to time on such open account as a whole, and plaintiff now sues on such account to recover a general balance remaining unpaid. One item of plaintiff‘s bill of particulars going to make up his account is this contract for plumbing and heating. He must prove it in order to recover. Defendant‘s counterclaim is comprehended in, and connected with, and grows out of, said contract. It is a familiar rule that any damages may be recouped for which a cause of action growing out of the same transaction lies at the time of pleading. Plaintiff cannot defeat a right to recoup on a contract which he must prove in order to recover, by
including other items with it in his declaration and making a general claim for balance due on the whole under an open account. [Id..]10
[T]he caselaw defining [an “amount owed on open account” claim] is far less developed than the caselaw addressing accounts stated. This may be because a suit on an open account is, from a creditor‘s perspective, a less desirable claim than an action on an account stated. In an action on an account stated, the creditor must present proof of the debtor‘s express or implied assent to the balance due. Upon such proof, the underlying transactions become irrelevant. In an action on an open account, however, there is no assent to a balance due. Thus, the creditor may be required to establish the validity of the entries in the account. [Ante at 563 (emphasis added).]
In the instant case, in order for plaintiff to “establish the validity of the account” and prove its “amount owed on open account” claim, it must establish as fact that it completed each and every disputed “contract for sale” that comprises the open account and that defendant is
The majority states:
Justice MARKMAN, similarly to the out-of-state authority on which he relies, recognizes that article 2 of the UCC governs individual sales on credit but declines to acknowledge a distinction between individual sales on credit and serial sales on credit that lack an express agreement for the periodic payment of money that are melded into an account. Any lack of statutory analysis in this opinion stems from the absence of any express mention of actions on accounts in article 2 of the UCC. As previously discussed, this Court‘s treatment of these collection actions has been anything but a model of clarity and consistency, and the disagreement between Justice MARKMAN and the majority of this Court is not an unreasonable one. [Ante at 568 n 69.]
Finally, the majority‘s conclusion that “[a]n open account claim generally accrues on the date of each item proved in the account,” ante at 571 (emphasis added), directly contradicts its own “single liability” theory. How can there be a “single liability” when the statute runs on each item individually? The majority does not say. Notably, the authority on which the majority relies for its conclusion that “[a]n open account claim generally accrues on the date of each item proved in the account,” ante at 571, directly contravenes the majority‘s “single liability” theory:
In the case of an open running account which is not also a mutual account, so far as the statute of limitations is concerned, the cause of action arises from the date of each item, and they are severally barred when as to them the statute has run. However, there is some authority that where all the items of a unilateral account constitute a single demand, the statute begins to run from the date of the last item, and the rule may be changed by statute so that, if the last item in the account falls within the period of limitation, it draws with it all the other items. [1 Am Jur 2d, Accounts and Accounting, § 22, p 644 (citations omitted) (emphasis added).]
Again, as already discussed, this Court has expressly rejected the argument that an “amount owed on open account” claim constitutes a single demand, accrues on the date of the last item entered into the account, or draws with it all debts accrued before that time. Phelps, 116 Mich at 625.12 Although the majority believes that
Recognition of an action on an open account as an independent claim that arises out of the course of dealing between a creditor and debtor also promotes commerce without encouraging creditors to file lawsuits to preserve their right to collect on debts. Assume for example that a merchant sold goods and services on account whereby goods and services would be regularly delivered to a purchaser who in turn made sporadic payments in varying amounts as the relationship developed. As the parties’ relationship nears its fourth year, the merchant would have to insist on settlement of the account or risk the possibility that all or part of the balance due on account could be
declared uncollectable after the four-year limitations period on the sale of goods expires. Even if this merchant dealt exclusively in the sale of services, he would face the same dilemma in year six. [Ante at 569.]
It is unclear from the majority‘s discussion why the merchant would not face this very same “dilemma” in “year six” given its holdings that a six-year limitations period applies to an “amount owed on open account” claim and that “[a]n open account claim generally accrues on the date of each item proved in the account.” Ante at 571. Is this because the claim draws with it all debts accrued before that time? The majority does not say.
Regarding the majority‘s discussion of the hypothetical merchant, I believe that the majority misapprehends the nature of the open account. The merchant would have four years from the date of each transaction to sue on that transaction. The merchant could apply the debtor‘s payments against the oldest transactions, unless the debtor indicated a contrary intent. Operating in this fashion, the merchant would not have to “insist on settlement of the account” when the parties’ relationship neared its fourth year, because the debtor‘s “sporadic payments in varying amounts” would presumably have satisfied the oldest transactions that are approaching their four-year limitations period. The merchant would only need to sue the debtor if the debtor‘s account was delinquent with regard to four years’ worth of transactions.13
In sum, the majority fails to recognize that the presence in an “account stated” claim of an independent agreement concerning the “single liability” due under the account, and the absence of an independent agreement concerning any “single liability” in an “amount owed on open account” claim, is a critical distinction that determines which limitations period applies to each claim. That is, when the parties’ independent agreement concerning the amount due under the account constitutes the basis for liability (an “account stated” claim), the general six-year limitations period applicable to contract actions applies. When there is no independent agreement, and thus the basis for liability continues to be the underlying transactions in goods that comprise the account (an “amount owed on open account” claim), the four-year limitations period of the UCC applies, for there is no separate and distinct basis for the claim apart from the individual transactions in goods. For this reason, the majority is incorrect, in my judgment, in its assertion that “an open account claim is no more an action for a breach of a contract for sale than is an account stated claim.” Ante at 570 n 72.
I agree with the majority that an “account stated” claim arising out of transactions in goods is subject to the general six-year limitations period applicable to contract actions,
VIVIANO, J., took no part in the decision of this case.
Notes
Ashley v. Hill, 6 Conn., 246 [1826], The effect of the operation is said to be much the same as though the debtor had given his note for the balance: Bass v. Bass, 8 Pick., 187 [Mass, 1829], [White, 25 Mich at 468 (emphasis added to the relevant sentence).]The conversion of an open account into an account stated, is an operation by which the parties assent to a sum as the correct balance due from one to the other; and whether this operation has been performed or not, in any instance, must depend upon the facts. That it has taken place, may appear by evidence of an express understanding, or of words and acts, and the necessary and proper inferences from them. When accomplished, it does not necessarily exclude all inquiry into the rectitude of the account. The parties may still impeach it for fraud or mistake. But so long as it is not impeached, the agreed statement serves in place of the original account, as the foundation of an action. It becomes an original demand, and amounts to an express promise to pay the actual sum stated. The creditor becomes entitled to recover the agreed balance, in an action based on the fact of its acknowledgment by the debtor, upon an adjustment of their respective claims:
that defendant‘s May 13, 2005, payment may be considered a payment toward the parties’ open account, plaintiff‘s action was filed in August 2009, more than four years after the May 2005 payment. Thus, if plaintiff‘s action is governed by the four-year limitations period in the UCC, it is untimely. [Id. at 70-71 (citation omitted).] TheThe Revised Judicature Act provides a limitations period of six years “for ... actions to recover damages . . . due for breach of contract.”
MCL 600.5807(8) . All sales of goods are governed by Article 2 of the UCC,MCL 440.2102 . Section 2725 of the UCC,MCL 440.2725 , provides that “[a]n action for breach of any contract for sale must be commenced within 4 years after the cause of action has accrued.” . . .“In actions brought to recover the balance due upon a mutual and open account current, the claim accrues at the time of the last item proved in the account.”
MCL 600.5831 . Plaintiff contends that its claim accrued on May 13, 2005, the last date on which defendant made a payment. Assuming, without deciding,
The majority‘s decision to apply a six-year limitations period to an “amount owed on open account” claim whereas a four-year limitations period is to be applied to the underlying sales transactions is problematic. If an underlying sales transaction has a four-year limitations period, but an “amount owed on open account” claim based on that sales transaction has a six-year limitations period, a seller can wait five years to bring an “amount owed on open account” claim against the buyer, and the buyer[a]lthough an account stated is based on a separate agreement between the parties, it relates to and cannot be divorced from the underlying sales transaction. The UCC drafters intended that one limitation apply to all transactions involving the sale of goods, regardless of the theory of liability asserted. [Citation omitted.]
was enforced because it was a promise to pay a pre-existing debt called by the courts “past” consideration. In reality, the promise is enforced as other subsequent promises, such as a subsequent promise after the receipt of a material benefit or the promise to pay a debt that is barred by the statute of limitations. In each of these factual situations, the retention of a benefit previously received, the goods or services previously rendered, is unjust or the retention of the prior transfer of goods or services cannot be justified on the basis of a legal principle or a legal relationship. This is the fundamental reason for the enforcement of the promise. [Id. (citations omitted).]
[Partial payment of a demand] operates as an acknowledgment of the continued existence of the demand, and as a waiver of any right to take advantage, by plea of the statute of limitations, of any such lapse of time as may have occurred previous to the payment being made. The payment is not a contract; it is not in itself even a promise; but it furnishes ground for implying a promise in renewal from its date, of any right of action which before may have existed. [Id.]
All common counts, general issues, demurrers, pleas, fictions and technical forms of action or pleading, are abolished. The form and sufficiency of all motions and pleadings shall be determined by these rules, construed and enforced to secure a just, speedy, and inexpensive determination of all controversies on their merits. [Reprinted in 1 Honigman and Hawkins, Michigan Court Rules Annotated (2d ed), p 176.]