Business Law Blog
Kalamazoo - Business Law Blog

Statute of Frauds:

Posted December 4, 2018

Certain types of agreements are required to be in writing. See MCL 566.132 (general statute of frauds). The statute of frauds does not require the entire agreement to be in writing; a note or memorandum of the agreement is sufficient.  Examples of sufficient notes or memoranda include letters, account statements, a draft or note, or a check.  This requirement may be fulfilled by presenting several separate papers and documents, not all of which are signed by the party to be charged, and none of which is a sufficient memorandum in itself.

However, a note or memorandum of the agreement is not sufficient to satisfy the statute of frauds in certain actions brought against a financial institution. MCL 566.132(2) provides: An action shall not be brought against a financial institution to enforce any of the following promises or commitments of the financial institution unless the promise or commitment is in writing and signed with an authorized signature by the financial institution:

A promise or commitment to lend money, grant or extend credit, or make any other financial accommodation.

A promise or commitment to renew, extend, modify, or permit a delay in repayment or performance of a loan,

extension of credit, or other financial accommodation.

A promise or commitment to waive a provision of a loan, extension of credit, or other financial accommodation.”

The Michigan Court of Appeals explained that MCL 566.132(2) was enacted to provide greater protection to financial institutions from potentially fraudulent or spurious claims by disgruntled borrowers. Specifically, the Court noted that the protection afforded to financial institutions under MCL 566.132(2) is greater than the protection afforded generally under MCL 566.132(1). Accordingly, the party seeking to enforce the promise of commitment must present evidence that the promise or commitment itself was reduced to writing and properly signed. It is not, therefore, sufficient to show that the financial institution memorialized a portion of the agreement or reduced a preliminary understanding to writing and then later orally agreed to proceed under that framework, nor is it sufficient o present a series of documents—some signed and other not signed—that together purport to be the agreement; rather, the proponent must present evidence that the financial institution actually agreed to the essential terms of the promise or commitment and each of those essential terms must be accompanied by the required signature

Judicially created exceptions to the statute of frauds include

equitable estoppel,

ratification, and

part performance.

KellyStehney & Assoc, Inc v MacDonald’s Industrial Products, Inc (On Remand), 265 Mich App 105, 113 (2005).


Construction of a Contract:

Posted November 5, 2018

In determining contractual rights and obligations, a court must look to the intention of the parties, and a contract should always be construed so that it carries that intention into effect. When the words of a written contract are clear and unambiguous and have a definite meaning, the court has no right to look to extrinsic evidence to determine their intent. Indeed, if the language of the entire contract is clear and unambiguous, there is no room for construction by the courts, and in such case, the language must be held to express the intention of the parties and the court need not search for meanings nor indulge in inferences as to the intention of the parties.

Where a contract’s language “is subject to two or more reasonable interpretations or is inconsistent on its face, the contract is ambiguous, and a factual development is necessary to determine the intent of the parties. Generally, the language of a contract is to be construed against its drafter. However, construing a contract against the drafter to resolve ambiguous contract language (called the rule of contra proferentem) is applicable only if the intent of the parties cannot be discerned through the use of all conventional rules of interpretation, including an examination of relevant extrinsic evidence.

Klapp v United Ins Group Agency, Inc, 468 Mich 459, 472 (2003).


Is a Contract Unconscionable?

Posted October 22, 2018

A contract must be both procedurally and substantively unconscionable for it to be unenforceable. Hubscher & Son, Inc v Storey, 228 Mich App 478, 481 (1998). There is a two‐pronged test for determining whether a contract is unenforceable as unconscionable:

(1) What is the relative bargaining power of the parties, their relative economic strength, the alternative sources of supply, in a word, what are their options?;

(2) Is the challenged term substantively unreasonable?

In evaluating the unconscionability of a contract, reasonableness is the primary consideration.The theory underlying quantum meruit recovery is that the law will imply a contract in order to prevent unjust enrichment when one party inequitably receives and retains a benefit from another. Morris Pumps v Centerline Piping, Inc, 273 Mich App 187, 194 (2006). In order to prevail on a quantum meruit claim, a plaintiff must establish:

  1. that the defendant received a benefit from the plaintiff, and
  2. the defendant retained the benefit, which resulted in an inequity to the plaintiff.

Where an express contract exists between two parties, a quantum meruit claim regarding the subject matter of the contract is not appropriate. Morris, 273 Mich App at 199.The court, in equity, may grant complete relief to a party in the form of specific performance, including an award of damages. Reinink v Van Loozenoord, 370 Mich 121, 127 (1963). Ordinarily, tender of performance by the plaintiff is necessary before bringing an action for specific performance. Frakes v Eghigian, 358 Mich 327, 333 (1960).However, tender is not required where the defendant by his words or acts has shown that it would not be accepted. In Frakes (a real property case), the Court concluded that tender of performance was unnecessary where the defendant intentionally failed to attend several scheduled meetings at which the parties were supposed to close on the property. Frakes, supra at 333.