The Michigan Court of Appeals recently upheld the application of the "transactional approach" to a recoupment defense in McCoig Materials LLC v Galui Construction Inc, ___ Mich App ___, ___ NW2d ___ (2012). "Recoupment is, in effect, a counterclaim or cross action for damages." It's essentially "an equitable reason why the amount payable to the plaintiff should be reduced."
In McCoig, the plaintiff manufactured and sold concrete for use in construction projects. Defendant performed concrete construction work & reportedly purchased concrete from Plaintiff on an open account for use on various projects - two of which were relevant to the instant action.
One project was in the city of Center Line. According to the opinion, the contract required the defendant to notify the plaintiff of any defects in the contract within 15 days from receipt. Defendant didn't timely notify Plaintiff of any defects, nor did it file a lawsuit within one year after the materials were supplied.
The other project was in the City of Warren. Defendant allegedly failed to pay for the goods supplied for that project, and Plaintiff sued to compel payment for the balance that was allegedly due and owing. Defendant asserted the recoupment defense - arguing that it was entitled to an offset, back-charges and costs that it incurred to correct defective concrete on the Center Line project.
The Michigan Court of Appeals held that the defense of recoupment is applicable to "claims arising out of the same contract or transaction." It also held that "[a] party cannot accept a particular phase of construction without prompt objection, and then raise the recoupment defense."
The Court of Appeals noted that the plaintiff's claim was based upon the Warren project, while the defendant's recoupment defense was based upon the Center Line project. It also noted that although an open account contract, the transactions were treated as discrete events or separate transactions. It therefore ruled that the defendant's recoupment defense with regard to the Center Line project was inapplicable to the plaintiff's claim on the Warren project.
Disclaimer
In McCoig, the plaintiff manufactured and sold concrete for use in construction projects. Defendant performed concrete construction work & reportedly purchased concrete from Plaintiff on an open account for use on various projects - two of which were relevant to the instant action.
One project was in the city of Center Line. According to the opinion, the contract required the defendant to notify the plaintiff of any defects in the contract within 15 days from receipt. Defendant didn't timely notify Plaintiff of any defects, nor did it file a lawsuit within one year after the materials were supplied.
The other project was in the City of Warren. Defendant allegedly failed to pay for the goods supplied for that project, and Plaintiff sued to compel payment for the balance that was allegedly due and owing. Defendant asserted the recoupment defense - arguing that it was entitled to an offset, back-charges and costs that it incurred to correct defective concrete on the Center Line project.
The Michigan Court of Appeals held that the defense of recoupment is applicable to "claims arising out of the same contract or transaction." It also held that "[a] party cannot accept a particular phase of construction without prompt objection, and then raise the recoupment defense."
The Court of Appeals noted that the plaintiff's claim was based upon the Warren project, while the defendant's recoupment defense was based upon the Center Line project. It also noted that although an open account contract, the transactions were treated as discrete events or separate transactions. It therefore ruled that the defendant's recoupment defense with regard to the Center Line project was inapplicable to the plaintiff's claim on the Warren project.
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