Michigan's Uniform Commercial Code governs the sale of goods by a party. Under that Code, if a party does not pay for the goods it purchases, the seller has four years to bring a lawsuit.
Many business owners allow their customers to buy goods on an open account – i.e., an account that is left open for ongoing debit and credit entries and that has a fluctuating balance until a party either pays it off or closes it. Many times that account will become delinquent and the seller will be forced to sue a buyer to recover the balance. In the past, the seller has often argued that the open account is a separate contract from the original sale of the goods to the buyer. When the buyer breaches its obligation to pay the open account, the general rule of contract law states that the seller has six years to bring its lawsuit for breach of contract.
Time May Be Shorter Than You Think
In June of 2011, for the first time, the Michigan Court of Appeals was asked to decide whether a seller trying to collect on an open account has four years to file suit (under the Uniform Commercial Code) or six years (under general rules of contract law). The Court held that the four year time limit applied. Even though the open account was a separate and distinct obligation of the buyer, that open account related back to the sale of goods and was governed by the shorter, four year period to bring a lawsuit. Because the seller brought the suit more than four years after the buyer last made a payment on the open account, the creditor could not collect any of the $96,000 that was owed by the buyer.
Don't Let Your Window of Opportunity Shut!
If you allow your customers to buy goods from you on an open account, you must pay close attention to these time limits. If you are negotiating with the customer about disputed invoices or trying to negotiate an installment plan, be aware that you have only four years after the last payment from the customer to file a lawsuit. If you do not act within this timeframe, you will not be entitled to collect any of the outstanding balance.
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