Can It Be? Privity Of Contract Is Back!
Author: Randall Phillips
Dust off those old law school books and turn of the century
cases: privity of contract is making a comeback in Michigan!
Privity of contract, historically was a bar to certain tort law
suits, such as product liability and professional liability
cases filed by injured persons against other parties with whom
they had no direct contractual relationship.
In 1916, the Seminal New York case of McPherson v Buick Motor
Co. (1), triggered a major retreat in the country from privity
of contract in product liability and professional liability
cases, among others. In Michigan, privity disappeared as a
viable defense for product liability and professional liability
suits between the late 1950's and mid-1970's (2). While privity
of contract still lived on in certain situations such as for
claims of innocent misrepresentation (3), or malicious
prosecution against an attorney (4), modern litigators by and
large considered it an out dated and rarely viable way to
contest claims.
This began to change in 2004 when the Michigan Supreme Court
issued a surprisingly broad ruling in a simple slip and fall on
ice case, resurrecting the privity of contract defense in
ordinary tort cases. Fultz v Union-Commercial Associates (5).
The Court held that a snow removal contractor hired by the
parking lot owner could not be sued by the injured plaintiff who
had no contractual relationship with the contractor in the
absence of proof that the contractor assumed a duty separate and
distinct from the duties it assumed under its contract with the
owner.
Finding that there was no separate and distinct duty, the court
held that the snow removal contractor owed no duty of care to
the injured plaintiff.
Several cases since Fultz have followed its holding in ordinary
negligence and injury cases. However, some panels of the
Michigan Court of Appeals have also applied Fultz to
professionals and construction managers in unpublished opinions
(6).
In 2006, in Matrix Construction, LLC v Barton Malow, et al (7),
the Court of Appeals, applying the Fultz ruling limited the
prior rulings of Bacco and National Sand (2), which had allowed
suits against professionals without privity of contract. The
Matrix court held that privity of contract was not required only
if a design deficiency was at issue and privity did apply to
claims involving construction management services.
Later that year the Court of Appeals again applied the Fultz
case rationale and held that a consulting engineer could not be
sued by a third party without proof of privity of contract or
the assumption of a duty independent from the contractual duties
owed by the engineer to the owner. See Wallington v City of
Mason, et al(8).
In 2005 another Court of Appeals panel had held in favor of the
professional hired by the township against a claim by a
contractor for failure to discover defects in a sewer system
during inspections. The court, in New Dimension Development Inc
v Orchard Hiltz & McClinet Inc (9), found no duty owed by the
professional in claims sounding in negligence, fraud, or
negligent and innocent misrepresentation.
In December, 2007, another panel of the Michigan Court of
Appeals in Burton v Suretitle, et. al.(10), followed Fultz again
in holding that a Title Company acting as a real estate closing
agent could not be sued by the purchaser in tort, because there
was no privity of contract.
Will privity of contract regain its lofty stature in Michigan
from over a half century ago to become a dominant defense and
barrier to product liability, construction defect and
professional liability claims? The trend suggests it will. Until
published Court of Appeals or Michigan Supreme Court decisions
confirm the application of the Fultz doctrine in those areas we
will not be sure, but privity seems to have been resuscitated
and is alive, breathing and kicking.
1. MacPherson v Buick Motor Co, 217 N.Y. 382, 111 N.E. 1050
(1916).
2. Bacco Construction Co v American Colloid Co, 148 Mich App
397; 384 NW2d 427 (1986) revsd on other grounds, 204 Mich App
445 (1994); National Sand Inc v Nagel Construction Co, 182 Mich
App 327; 451 NW2d 618 (1990);Piercefield v Remington Arms Co,
375 Mich 85; 133 NW2d 129 (1965); Spence v Three Rivers Builders
& Masonry Supply Inc, 353 Mich 120, 90 NW2d 873 (Mich, 1958).
3. Forge v Smith, 458 Mich 198, 580 NW2d 876 (1998) privity
required for innocent misrepresentation claim; U S F&G Co v
Black, 412 Mich 99, 118-119, 313 NW2d 77 (1981); Chimko v
Shermeta, 2006 WL 2060417 (Mich App, 2006).
4. Mich AFSCME Council 25 v Livingston County Road Commission,
2007 WL 3357398 (Mich App, 2007) privity required to sue
attorney except for fraud or malicious prosecution.
5. Fultz v Union Commerce Associates, 470 Mich 460 (2004).
6. Unpublished opinions of the Court of Appeals do not have
precedential authority in Michigan, but their reasoning may be
adopted and applied by other courts.
7. 2006 WL 399762 (Mich App, 2006). Also see the trial court
ruling in Llangs Group v Barton Malow Co, 2006 WL 3950939 (Oak
Ct Cir Ctm 1/12/06). However, a federal court continued to apply
the Bacco and National Sand line of cases in RMF Nooter, Inc v
Gleeson Constructors, LLC, 2006 WL 3290126 (W.D. Mi, 2006). It
does not appear that the Fultz case was considered by the Court.
8. 2006 WL 3826784 (Mich App, 2006)
9. 2006 WL 2806134 (Mich App, 2005)
10. 2007 WL 4322269 (Mich App, 2007)
About The Author: Randall Phillips is the Principal of
Provizer&Phillips, P.C.,located in Bingham Farms, Michigan;
http://www.provizer-phillips
642-0444;rphillips@p-ppc.com. He handles complex litigation such
as professional liability, toxic tort,construction defect, and
insurance coverage litigation.
