Fisher Sand and Gravel Company provided concrete supplies to Neal A. Sweebe, Inc., from October 1991 through October 2004. Fisher invoiced Sweebe for the supplies, and Sweebe periodically paid toward the accrued balance. On May 9, 2005, Sweebe received a delivery from Fisher and received an invoice for $152.98, which Sweebe paid on May 13, 2005. That was the last date that Sweebe made any payment to Fisher.
On August 13, 2009, Fisher sued Sweebe, claiming that Sweebe owed Fisher $92,968.57 as of June 30, 2009. Fisher’s complaint included counts for breach of contract, account stated, and unjust enrichment; in an amended complaint filed on October 29, 2009, Fisher added a claim for “amount owed on open account.” But Sweebe moved to dismiss Fisher’s claims, arguing that the statute of limitations had expired. Sweebe argued that, under § 2725 of the Uniform Commercial Code (MCL 400.2725), Fisher had four years to sue on its claims. Fisher countered that Sweebe’s obligation to pay on an open account was distinct from any underlying contract for the sale of goods. Accordingly, Fisher maintained, its lawsuit was timely because it was governed by the general six-year limitations period for contract actions, MCL 600.5807(8). The parties also disputed whether Sweebe’s May 13, 2005, payment was a payment on the open account, or a payment for a distinct transaction that was not part of the open account.
The trial court dismissed Fisher’s complaint, holding that, because the parties’ open account related to the sale of goods, Fisher’s lawsuit was governed by the four-year limitations period in § 2725 of the UCC. Fisher appealed, but in a published 2-1 opinion, the Court of Appeals affirmed.
The Court of Appeals majority observed that the Revised Judicature Act provides a six-year statute of limitations “for . . . actions to recover damages . . . due for breach of contract.” MCL 600.5807(8). But sales of goods are governed by Article 2 of the UCC, MCL 440.2102; 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.” Such a claim accrues as of the date of the “last item proved in the account,” the majority explained. “Assuming, without deciding, 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.”
Fisher argued that an open account – an account that is unpaid, unsettled, or has a fluctuating balance – “is a distinct agreement from an underlying agreement for the sale of goods and, therefore, is not subject to the four-year limitations period in the UCC,” the majority noted. But the majority rejected this argument. The majority said it was unable to find any earlier decisions that specifically addressed this issue, but reasoned that an open account is not separate and distinct from the underlying sale of goods. Rather, “the account exists solely to facilitate plaintiff’s sale of goods to defendant,” the majority stated. Moreover, the purpose of Article 2 is to take “sales contracts out of the general laws limiting the time for commencing contractual actions,” the majority said, citing official comments to the UCC. Applying the UCC’s four-year limit to actions on open accounts will “promote uniformity and consistency,” the majority said. In addition, “[o]ther jurisdictions that have addressed this question have favored applying the UCC limitations period to an action based on an open account related to the sale of goods,” the majority noted.
But the dissent disagreed, stating that, under Michigan Supreme Court precedent, a “[p]ayment on an open account triggers a new obligation, separate and distinct from an underlying agreement.”Although the majority’s decision was “not unreasonable,” the “new obligation” is governed by the six-year statute of limitations for contract actions, the dissent said. “There exists no language in UCC Article 2 that can be interpreted to abrogate Michigan’s common-law jurisprudence concerning open accounts,” the dissenting judge stated. “To prevail in the present case, defendant is required to demonstrate that a particular provision of the UCC displaces plaintiff’s claim for an open account. Defendant has not done so, and therefore plaintiff’s cause of action is subject to the six-year period of limitations.”
Fisher appealed. In a May 4, 2012 order, the Supreme Court granted leave to appeal. The Court directed the parties to “include among the issues to be briefed whether an action on an open account relating to the sale of goods is subject to the four-year limitations period in § 2-725 of the Uniform Commercial Code (MCL 440.2725), or the general six-year limitations period applicable to contract actions, MCL 600.5807(8).”