Where your business has open accounts with customers, it is important that any attempts at collecting payment be made timely. Although the normal rule allows breach of contract actions to be commenced within six years, where the breach of contract on an open account is based on the sale of goods, it must be filed within four years.
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 has 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.
