McCoig Materials, LLC v Galui Construction, Inc. – Separate transactions in a revolving contract considered separate for recoupment

In McCoig Materials, LLC v Galui Construction, Inc., a published opinion, the Michigan Court of Appeals reversed a decision by the Macomb Circuit Court to deny plaintiff's motion for summary disposition, ruling that the defendant was not entitled to recoupment because the transaction Galui was attempting to set off was separate from the transaction McCoig was seeking payment for, even if the companies had one contract.

McCoig supplied Galui with concrete pursuant to a revolving basis contract. McCoig supplied concrete to Galui for a number of different construction projects, all governed by the one contract between McCoig and Galui. The contract had a one year statute of limitations for Galui against McCoig. The contract also required Galui to report defective material to McCoig within 15 days of delivery.

In late 2008, Galui failed to pay for concrete provided for one of the construction projects. In 2010, McCoig sued to compel payment for the unpaid concrete. Galui answered and requested an offset for costs incurred to correct defective concrete on a separate construction project that had been paid for prior to the 2008 contract. McCoig argued that recoupment did not apply because it only applies to debts arising from the same contract. The Macomb County Circuit Court ruled that there was only one contract between these two parties, so it did not matter that the concrete McCoig was requesting payment on was not the same supposedly defective concrete that Galui for which wanted credit applied.

The Michigan Court of Appeals reversed, ruling that the trial court erred by applying recoupment to an open account contract when the projects at issue were separate transactions. The categorization of the parties' agreement as a single contract or an open account is not determinative. The claim for recoupment by the defendant must come from the same transaction raised in the plaintiff's complaint, and the defendant must prove that the plaintiff is in breach of the contract from which the defendant seeks recoupment. Oakland Metal Stamping Co, 352 Mich at 125; Morehouse, 48 Mich at 340. When a defendant accepts goods or construction without timely objection or reservation, the defendant is barred from raising the recoupment defense. Wallich Ice Machine Co, 275 Mich at 615.

The Court of Appeals also pointed out that McCoig could not cut off Galui's defense of recoupment if it had applied by the inclusion of the statute of limitations in the contract. The court quoted the Supreme Court's application of recoupment: "The plaintiff will not be permitted to insist upon the statute of limitations as a bar to such a defense when he is seeking to enforce payment of that which is due him under the contract out of which the defendant's claim for recoupment arises." Mudge v Macomb Co, 458 Mich 87, 106-107; 580 NW2d 845 (1998). The expiration of a limitation period does not prevent the defendant from raising a recoupment defense as long as the plaintiff's action is timely. Id. at 107.