This is the fifth installment of a nationwide survey report we’re working on here at SLG, which will ask the questions listed below of each of the fifty U.S. states. Here’s our New York, California, Florida, and Illinois coverage, respectively. Next up:
LIMITS OF LIABILITY
Are contractual caps, ceilings, or limits on direct damages enforceable?
Yes, unless the limited remedy fails in its purpose or deprives either party of the value of the bargain. UCC § 2-719; MCL 440.2719; see also Kelynack v. Yamaha Motor Corp, 152 Mich App 105; 394 NW2d 17 (1986). In these exceptional cases, a plaintiff may pursue other remedies available under the Uniform Commercial Code (“UCC”) as adopted by the Michigan legislature, regardless of those insufficient contract limitations. UCC § 2-719. One such remedy is revocation. MCL 440.2608.
A limit of liability is merely optional, however, unless the relevant remedy is expressly agreed to be exclusive, in which case it generally serves as the sole and mandatory remedy. MCL 440.2719.
Limits of liability also fail where they are unconscionable, contrary to Michigan law, or contrary to Michigan’s public policy. Hometeam Inspection Serv. v. Twp. of Lyon, No. 260989, Mich. Ct. App., Aug. 4, 2005. For clarity, “it is not contrary to the public policy of Michigan for a party to contract against liability for that party’s own ordinary negligence.” Id. (citations omitted).
Are provisions that exclude all consequential damages enforceable?
Yes, unless the limitation or exclusion is unconscionable. MCL 440.2719. Limiting or excluding consequential damages for an injury to a person where the underlying agreement dealt with consumer goods is prima facie—i.e. by default—unconscionable. Id. However, limiting damages where the loss involved is commercial is not necessarily unconscionable. Id.
Additional Notes on consequential damages in Michigan:
1. In Michigan, “consequential damages” can mean one of two things, as Michigan’s courts define consequential damages (at common law) differently than does Michigan’s UCC. Michigan courts define consequential damages as damages that arise only from an innocent party’s unique or special circumstances that the breaching party was aware of at the time of contract. Kewin v Mass Mut Life Ins Co, 409 Mich 401; 295 NW2d 50 (1980). On the other hand, Michigan’s UCC defines consequential damages more expansively, to include any “injury to person or property proximately resulting from any breach of warranty.” MCL 440.2715(2)(b).
3. Where a limitation of liability provision fails, an exclusion on consequential damages may fail along with it. Kelynack v. Yamaha Motor Corp, 152 Mich. App. 105 (1986). Otherwise, a seller would, untenably, be “repudiat[ing] its limited obligation…while shielding itself behind another provision of the very [obligation] it has repudiated.” Id.
Can remedies be limited to those express remedies solely and exclusively provided for in a contract?
Yes. MCL 440.2719. For example, remedies can be limited to: (i) return of goods and repayment of their price, or (ii) repair and replacement of non-conforming goods or parts. Id. However, such a limitation is ineffective where “circumstances cause an exclusive or limited remedy to fail of its essential purpose.” Id. As noted above, in such instances a plaintiff may seek alternative statutory remedies. Id.
Does Michigan cap the amount of (A) consequential damages, or (B) punitive damages that a party may recover?
(B) Punitive damages are generally unavailable in Michigan, as described below.
Are punitive damages recoverable in contract matters? If so, when?
Michigan courts do not generally permit punitive damages. Jackson Printing Co. v. Mitan, 169 Mich. App. 334 (1988). However, exemplary damages are not punitive in nature—their aim is to compensate the plaintiff, not punish the defendant—and are therefore available in Michigan. Id.
Michigan courts may grant exemplary damages, in contract matters as in others, to compensate a plaintiff for “the humiliation, sense of outrage, and indignity resulting from injustices maliciously, willfully, and wantonly inflicted by the defendant.” McPeak v. McPeak, 233 Mich. App. 483 (1999). Indeed, a defendant’s conduct must be “malicious or so willful and wanton that it demonstrates a reckless disregard of the plaintiff's rights.” Veselenak v. Smith, 414 Mich. 567, 574 (1982).
Examples of conduct sufficient to justify the award of exemplary damages include: slander, libel, deceit, and seduction. Id. at 575. Moreover, due to the required (i.e. willful) mental element, “negligence is not sufficient to justify an award of exemplary damages.” Id. Altogether: exemplary damages are only available where a specifically heinous independent tort spawned the contract breach at issue. Id.
However, to win exemplary damages, a plaintiff need not present direct evidence of an injury to their feelings. McPeak, 233 Mich. App. 483. “Rather, the question is whether the injury to feelings and mental suffering are natural and proximate in view of the nature of the defendant’s conduct.” Id.
Practically, this makes contractual exemplary damages quite rare. For example, contractual exemplary damages tied to emotional distress may only be recoverable when the emotional distress is a foreseeable consequence of a breach involving cherished rights, dignities, or emotional issues such as marriage or childbirth. Fellows v. Superior Prods Co., 201 Mich. App. 155 (1993). And even in such contexts, to recover exemplary damages, a plaintiff must plead the requisite tortious conduct. Valentine v. General American Credit, Inc., 420 Mich. 256 (1984).
Finally, a plaintiff's status as a corporation does not preclude its receipt of exemplary damages; however, exemplary damages are not available “to compensate a purely pecuniary grievance susceptible to full and definite monetary compensation.” Joba Construction Co., Inc. v Burns & Roe, Inc.,121 Mich. App. 615, 642-643 (1982). In other words, when compensatory damages alone make an injured party (whether human or corporate) whole, exemplary damages are barred. Hayes-Albion Corp. v. Kuberski, 421 Mich. 170, 187 (1984).
DISCLAIMERS/LIMITATIONS OF WARRANTY
Are disclaimers of any and all implied warranties enforceable in Michigan?
Yes, subject to the following.
To exclude or modify the implied warranty of merchantability, a provision must:
- Mention merchantability; and
- Be conspicuous. MCL 440.2316(2).
To exclude or modify the implied warranty of fitness, a provision must be:
- In writing; and
- Conspicuous. Id.
Parties may exclude all implied warranties of fitness by providing, for example, that “There are no warranties which extend beyond the description on the face hereof.” Id. Contract language such as “as is,” “with all faults,” or “other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty” also suffices to exclude all otherwise implied warranties. MCL 440.2316(3)(a). That is, “unless the circumstances indicate otherwise.” Id.
STATE DISPUTE RESOLUTION
May claimants sue the State of Michigan for breach of contract? If so, does Michigan mandate any dispute resolution procedures with the State?
Yes, although the Michigan Court of Claims has exclusive jurisdiction over contract claims against the State. PA 164 of 2013. Generally, a Court of Claims claimant must file their action within one year from their claim’s accrual. MCL 600.6431. However, the notice period for claims pertaining to property damage or personal injuries is six months. Id. Finally, each claim must designate any Michigan department, commission, board, institution, arm, or agency connected with such claim. Id.