Skip to main content

The BUSKLAW September Newsletter: No Judicial Sympathy for "Unreasonable" Contracts in Michigan

If you work with contracts, it's just a matter of time before a contract with an "unreasonable" provision is sitting on your desk. Perhaps this happened because your company didn't have enough bargaining leverage to get the other party to change the unreasonable provision, but your senior management directed you to proceed anyway. Or maybe the unreasonable provision snuck in during the heat of contract negotiation and wasn't noticed until months later. In any event, you're thinking about going to court and arguing that the unreasonable provision should be disregarded (or even invalidate the contract). What are your chances? 

In Michigan, you'll have an uphill battle, as the plaintiffs found out in the case of Rory v Continental Insurance Company CNA that was decided by the Michigan Supreme Court in 2005 and, to my knowledge, is still good law. The contract at issue was an auto insurance policy issued by Continental to Rory. (Yes, an insurance policy is a contract.) The contract contained a provision that all claims must be filed within one year after an auto accident. Rory filed his claim after one year, and Continental denied it for that reason. Rory sued to have the court throw out the one-year limitation as "totally and patently unfair."

The trial court judge agreed with Rory, and so did the Michigan Court of Appeals. But the Michigan Supreme Court reversed, and so ensued a lengthy discussion of the reasonableness contract doctrine. I'm pleased to pull that apart for you.

The Court found that there is no such thing as an "unreasonable" contract or on the flip side, that a contract must be "reasonable" to be enforceable. The Court affirmed the bedrock principle that the parties are free to contract as they see fit. And courts must enforce their agreement as written absent some highly unusual circumstance such as a contract in violation of law or public policy.  

But what about the argument that Rory had no bargaining leverage with Continental? Continental wouldn't have changed the one-year contractual limitation on filing a claim in their standard-form auto policy even if Rory had asked for it. So because the insurance policy was presented to Rory on a "take it or leave it" basis, isn't it an unenforceable "adhesion" contract?  This sounds like a plausible argument, but the Court balked at rejecting the insurance contract on that basis, holding that an adhesion contract "is simply a type of contract and is to be enforced according to its plain terms just as any other contract."  

So if unreasonable and adhesion contracts are enforceable in Michigan, what legal grounds can be used to negate a contract? According to the Court, a contract will be unenforceable under the following typical grounds:
If a party was fraudulently induced to sign the contract.
(Example: Seller, an art dealer, represents that he has the original de Grebber “King David in Prayer” oil painting, so you sign a purchase agreement for that painting. Unknown to you, it’s hanging in the London Gallery and not for sale.)
If a party entered into the contract under duress.
(Example: You're persuaded to sign a contract with a gun pointed at you.)
If the contract is against public policy or illegal.
(Example: You sign a contract for the sale of an illegal drug.)
If a party to a contract is a minor (under 18).

The Court noted that Rory didn't assert any of these reasons for invalidating the insurance contract. Supporting the Court's decision (but not determinative of the result) was the Court's finding that the one-year limitation on filing a claim was acceptable because the Michigan Insurance Commissioner, who is charged with approving all form insurance contracts used in Michigan, approved the Continental policy containing that provision.

Lesson: You are probably stuck with your "unreasonable" contract if it's governed by Michigan law. If you need to get out of it, seek legal counsel to excavate for loopholes discuss your options. 
If you find this post worthwhile, please consider sharing it with your colleagues. The link to this blog is and my website is Thanks!


Popular posts from this blog

The BUSKLAW May Newsletter: Is There a Moral Imperative to Plain English? Part 1 - Examples

"The man in black fled across the desert, and the gunslinger followed." 

Thus begins Stephen King's epic story of the gunslinger, Roland Deschain, and the popular Dark Tower series of novels describing his adventures. But King didn't have to write this sentence that way; he could have consulted with the typical lawyer, politician, or company PR department first. Had he done so, the sentence may have appeared so:

"The bad hombre who was dressed mostly in dark clothing and running fast across an arid land was pursued by a multi-armed, extremely dangerous, and notorious vigilante."
The difference in these two sentences is clear. King's concise short sentence creates an image that grabs the reader's attention and raises provocative questions. Who is the man in black? Who is the gunslinger? Why is he after the man in black? But the Bizarro World Stephen King sentence - with its ethnic slur, passive voice, ambiguity, suppositions, and superfluous adjectives …

The BUSKLAW July Newsletter: Horsing Around with Non-Compete Clauses

Non-compete provisions are part and parcel of many employment agreements. But these provisions must be carefully drafted to be enforceable. There are three sure-fire ways to have a court invalidate your non-compete clause without much judicial cogitation:
Failure to provide a reasonable duration for the clause;Failure to restrict the operation of the clause to a reasonable geographic area; andFailure to establish a protectable business interest as the subject of the clause.The first point is easy to grasp. In Michigan, you are on solid legal ground if the duration of your non-compete clause doesn't exceed one year. And you are probably okay if you add a year to that. But you're walking on quicksand if your non-compete provision lasts longer than two years. 
The second point is a bit more complicated. Courts don't like to enforce a non-compete clause if its geographical scope is too wide. For example, if I'm in the packaged ice business and sell my product mostly to retai…

A BUSKLAW Newsletter Aside: Is Your Website Compliant with the European Union's GDPR?

Effective 25 May 2018, the EU's General Data Protection Regulation goes into effect. The GDPR is a big deal and quite complicated. There are 99 articles and 173 recitals defining the privacy rights of individuals and data controllers’ and data processors’ obligations. 

Are you a U.S.-baseddata controller or data processor subject to the GDPR? You are a “data controller” if you, alone or jointly with others, determine the purpose and means of “processing” personal data of EU individual customers or businesses. The threshold is that you offer goods or services to customers or businesses in the EU (including the UK, despite Brexit) and collect their personal data. But even if you don’t sell goods or services to EU customers but engage in marketing or monitoring activities involving EU individuals’ personal data, you are covered by the GDPR.

You are a data processorif you “process” personal data on behalf of a “data controller,” i.e., a data controller contracts with you to process pers…