Can It Be? Privity Of Contract Is Back!

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some panels of the Michigan Court of Appeals have also applied Fultz to professionals and construction managers in unpublished opinions (6).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)

Randall Phillips is the Principal of Provizer&Phillips, P.C.,located in Bingham Farms, Michigan; http://www.provizer-phillips.com; Contact:(248) 642-0444;rphillips@p-ppc.com. He handles complex litigation such as professional liability, toxic tort,construction defect, and insurance coverage litigation.

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