Don't Bet the Business

As a general rule of law in Michigan, there exists a freedom to contract as willing parties see fit.  There are, of course, within this sense of contractual freedom certain rules that must be followed. 

All contracts must result from an offer and an acceptance. All contracts must be supported by consideration. And the purpose of any contract cannot be illegal or offend recognized public policy. Past that, some contracts must be evidenced by a signed writing to be enforceable. Various state and federal rules may be applicable to certain consumer contracts, including real estate mortgage loans. These are but a few examples of objective rules applicable to specific types of contracts. 

In Michigan, even within the recognized broad scope of contractual freedom, there also are certain implied legal obligations. For example, contracts for the sale of goods are governed by the Uniform Commercial Code (UCC).  Michigan’s version of the UCC provides that “[e]very contract or duty within this act imposes an obligation of good faith in its performance and enforcement.”  MCL 440.1304.

Contracts for services fall outside of the UCC. Michigan law, unlike the law in some other states, does not recognize an implied duty of good faith and fair dealing in service agreements. See, Belle Isle Grill Corp v Detroit, 256 Mich App 463, 476; 666 NW2d 271 (2003). Instead, Michigan implies a duty to perform contracted for services “skillfully, carefully, diligently, and in a workmanlike manner.” 

These implied duties deal with the parties’ manner of performance and/or enforcement of contracts after they are made. Such implied duties should not be viewed as a limitation on the freedom to contract. Rather, they are benchmarks against which the contracting parties’ post-contract behavior is measured. Indeed, neither of these implied duties addresses the formation of the underlying contract. And neither of these implied duties addresses the perceived fairness of the deal – nor should they.

Plainly, requiring parties act in “good faith,” or implying an obligation to perform a contractual obligation with “care,” does not speak to the equity of the underlying agreement. Yet it is not at all uncommon to see these concepts distorted in the courtroom.  

The court’s primary task when deciding a contract dispute is to identify and enforce the parties’ unambiguous agreement. When that obligation gets blurred, a court may instead see its task as deciding if the parties’ agreement was “fair,” particularly when this new level of scrutiny is masked as enforcing duties of good faith, fair dealing or due care. 

Lawyers all too frequently try to convince judges and juries – without saying as much – that rather than enforce a contract as written, the dispute should be decided based on the fact-finder’s sense of fairness or equity. That offer can be tempting, but then contract enforcement quickly devolves into an ad hoc determination based on individual values and sensibilities.

Contracts are merely agreements between willing parties. If the freedom to contract means anything, the determination of what is fair should be left to the parties to decide when the deal is made.