PER CURIAM.
In this action alleging breach of contract, plaintiff, McCoig Materials, LLC, appeals by leave granted the trial court's order denying its second motion for summary disposition. The trial court denied this motion for summary disposition and plaintiff's motion for reconsideration, holding that defendant, Galui Construction, Inc.,
Plaintiff filed this litigation to recover for defendant's alleged breach of contract and to collect on the performance bond (provided by Ohio Casualty Insurance Company) for defendant's purported failure to pay for concrete ordered and delivered pursuant to an open-account contract. Plaintiff operates a business manufacturing and selling concrete materials for use in construction projects. Plaintiff receives orders from specific customers for an exact amount of concrete material to be delivered to a particular job site. Plaintiff's employees deliver the concrete to the job site in accordance with the purchaser's instructions. After the material is delivered to the job site, the employee gives a delivery ticket to the purchaser and provides a carbon copy of the delivery ticket to plaintiff's accounting department. After obtaining the delivery ticket, the accounting department creates an invoice for all materials delivered that day and mails the purchaser the invoice. At the end of each month, a statement of account is created that delineates all charges for materials, payments by the purchaser, and any credits issued.
Defendant performs concrete construction work. On February 7, 2007, plaintiff entered into a contract with defendant for the sale of concrete materials on a revolving basis. The contract provided that the goods were furnished to defendant on an open-account basis, but if defendant failed to pay, the account would be modified to require cash on delivery until the account
Between August 5, 2008, and September 18, 2008, plaintiff furnished concrete to defendant for work performed on a project in the city of Center Line. Pursuant to the terms of the contract, defendant was required to notify plaintiff of any defects within 15 days from receipt. Defendant did not timely notify plaintiff of any defects regarding the concrete used in the Center Line project, and it did not file a lawsuit within one-year after the materials were supplied. Between November 1, 2008, and December 3, 2008, plaintiff delivered concrete to defendant for repair work in the city of Warren. Defendant allegedly failed to pay for the goods supplied for the city of Warren project. On April 1, 2010, plaintiff filed this litigation to compel payment, asserting that a balance of $51,837.93 was due and owing for the deliveries for defendant's Warren project.
On April 30, 2010, defendant filed an answer, affirmative defenses, and a counterclaim in response to plaintiff's complaint. In its affirmative defenses, defendant asserted that it was entitled to offsets, backcharges, and costs incurred by defendant to correct defective concrete provided by plaintiff. Defendant's counterclaim asserted breach of contract
On July 23, 2010, plaintiff moved for summary disposition of defendant's counterclaim pursuant to MCR 2.116(C)(7), relying on the one-year limitations period set forth in the February 7, 2007 contract between the parties. Plaintiff also moved for summary disposition of its complaint under MCR 2.116(C)(10), contending that there was no genuine issue of material fact regarding the terms of the agreement, the concrete was delivered as promised, and defendant failed to pay the money owed without justification. On August 24, 2010, defendant filed a brief in opposition to the motion under MCR 2.116(C)(10), alleging that there were disputed issues of material fact regarding the quality of the concrete supplied by plaintiff and the amount due and owing in light of plaintiff's misapplication of payments. On September 8, 2010, the trial court entered an order dismissing defendant's counterclaim and denying plaintiff's motion for summary disposition of its complaint without prejudice.
On October 7, 2010, plaintiff filed its second motion for summary disposition pursuant to MCR 2.116(C)(10), asserting that there was no genuine issue of material fact regarding defendant's obligation to pay plaintiff for materials sold in connection with the Warren project. Plaintiff also alleged that defendant was obligated to pay the contract price because it accepted the goods at issue without objection. On October 25, 2010, defendant filed a brief in opposition to this motion, contending that there were genuine issues of material fact regarding any outstanding balance as well as the propriety of the interest charges. In this brief, defendant did not raise an issue regarding any alleged defective concrete.
On November 9, 2010, the trial court issued an opinion and order denying plaintiff's second motion for summary disposition. The trial court rejected defendant's challenge to the balance due and the argument that plaintiff misapplied payments. Nonetheless, the trial court denied plaintiff's motion, holding that defendant could recoup potential costs it suffered as a result of defective concrete plaintiff supplied for the Center Line project:
On November 29, 2010, plaintiff moved for reconsideration of the summary disposition ruling, challenging the trial court's decision to raise sua sponte the defense of recoupment, an issue not raised or briefed by defendant. In light of the trial court's dismissal of defendant's counterclaim, the only remaining issue in the case involved
On December 9, 2010, the trial court issued an opinion and order denying plaintiff's motion for reconsideration. The trial court held, in relevant part:
We granted plaintiff's application for leave to appeal.
A trial court's ruling on a motion for summary disposition presents a question of law subject to review de novo. Shepherd Montessori Ctr. Milan v. Ann Arbor Charter Twp., 486 Mich. 311, 317, 783 N.W.2d 695 (2010). Summary disposition pursuant to MCR 2.116(C)(10) is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Rose v. Nat'l Auction Group, 466 Mich. 453, 461, 646 N.W.2d 455 (2002). The moving party has the initial burden to support its claim for summary disposition by affidavits, depositions, admissions, or other documentary evidence. Quinto v. Cross & Peters Co., 451 Mich. 358, 362, 547 N.W.2d 314 (1996). The burden then shifts to the nonmoving party to demonstrate that a genuine issue of disputed fact exists for trial. Id. The nonmoving party may not rely on mere allegations or denials in the pleadings. Id. Affidavits, depositions, and documentary evidence offered in support of, and in opposition
Plaintiff alleges that the trial court erred by applying recoupment to an open-account contract when the projects at issue constituted discrete transactions. We agree.
"The essential elements of a contract are parties competent to contract, a proper subject matter, legal consideration, mutuality of agreement, and mutuality of obligation." Mallory v. Detroit, 181 Mich.App. 121, 127, 449 N.W.2d 115 (1989). Issues regarding the proper interpretation of a contract or the legal effect of a contractual clause are reviewed de novo. Fodale v. Waste Mgt. of Mich., Inc., 271 Mich.App. 11, 16-17, 718 N.W.2d 827 (2006). When interpreting a contract, the examining court must ascertain the intent of the parties by evaluating the language of the contract in accordance with its plain and ordinary meaning. In re Egbert R Smith Trust, 480 Mich. 19, 24, 745 N.W.2d 754 (2008). If the language of the contract is clear and unambiguous, it must be enforced as written. Id. A contract is unambiguous, even if inartfully worded or clumsily arranged, when it fairly admits of but one interpretation. Holmes v. Holmes, 281 Mich.App. 575, 594, 760 N.W.2d 300 (2008). Every word, phrase, and clause in a contract must be given effect, and contract interpretation that would render any part of the contract surplusage or nugatory must be avoided. Woodington v. Shokoohi, 288 Mich.App. 352, 374, 792 N.W.2d 63 (2010).
"Recoupment is, in effect, a counterclaim or cross action for damages." Smith v. Erla, 317 Mich. 109, 112, 26 N.W.2d 728 (1947). Recoupment is also an affirmative defense that must be properly pleaded. Ladd v. Reed, 320 Mich. 167, 171, 30 N.W.2d 822 (1948). The defense of recoupment is applicable to "claims arising out of the same contract or transaction." Id. (citations omitted). The defendant bears the burden of proving that the plaintiff breached the contract from which the defendant seeks a setoff or recoupment. Oakland Metal Stamping Co. v. Forest Indus., Inc., 352 Mich. 119, 125, 89 N.W.2d 503 (1958).
In Mudge v. Macomb Co., 458 Mich. 87, 106-107, 580 N.W.2d 845 (1998), the Supreme Court addressed the application of recoupment:
The expiration of a limitations period does not prevent the defendant from raising a recoupment defense as long as the plaintiff's action is timely. Id. at 107, 580 N.W.2d 845.
Recoupment decreases the plaintiff's recovery by reducing any judgment in its favor by any claim the defendant may have to damages arising out of the same contract or transaction. Morehouse v. Baker, 48 Mich. 335, 339, 12 N.W. 170 (1882). The purpose of recoupment is to prevent a multiplicity of suits. Id. "But where the cases are such that the issue upon the counter-claim would be distinct from that on the plaintiff's demand and rest upon distinct evidence, the reasons for permitting recoupment have little or no force, for `the nearer the controversy is to being single and distinct, the more likely is the jury to deal with it with full intelligence and justice.'" Id. (citation omitted). Recoupment is only applicable to the discharge of the plaintiff's claim; it cannot be utilized to "establish a demand for which the defendant can take judgment." Id. at 340, 12 N.W. 170.
A party cannot accept a particular phase of construction without prompt objection and then raise the recoupment defense. Wallich Ice Machine Co. v. Hanewald, 275 Mich. 607, 615, 267 N.W. 748 (1936). The fact that the underlying contract is an open account does not constitute an entitlement to raise the recoupment defense to all transactions between the parties:
In Wallich Ice Machine Co., 275 Mich. at 609, 267 N.W. 748, the defendant purchased a refrigeration plant from the plaintiff corporation in 1930. The purchase price was payable in installments within 12 months. The defendant defaulted on the payments and executed a series of notes for the unpaid portion with the last one payable in 1932. When the plaintiff did not receive the principal sum, it filed suit in 1934. Id. The defendant raised the issue of recoupment to off set the amount due and owing to the plaintiff, specifically asserting that the condition of the plant and the refrigeration equipment was not as promised. The Supreme Court rejected the recoupment defense, holding that acceptance of a particular phase of construction without prompt objection barred the defense:
Additionally, in Peerless Woolen Mills v. Chicago Garment Co., 347 Mich. 326, 327, 79 N.W.2d 500 (1956), the plaintiff agreed in 1950 to deliver merchandise to the defendant pursuant to a $5,000 extension of credit. Merchandise was shipped on six occasions, but the defendant failed to make payments or render sufficient funds for three of the shipments. The plaintiff refused to send further shipments and notified the defendant that the contract was cancelled. Id. at 327-328, 79 N.W.2d 500. In response to the lawsuit to collect the outstanding sums for the deliveries made pursuant to the 1950 contract, the defendant alleged that there had been shortages in the merchandise that had been delivered pursuant to a 1949 contract between the parties. Id. at 328, 79 N.W.2d 500. The Supreme Court rejected the claim for recoupment premised on the claimed shortages:
Accordingly, Michigan caselaw holds that a claim for recoupment must be premised on the same contract or transaction. The categorization of the parties' agreement as a single contract or an open account is not determinative.
In the present case, we conclude that the trial court erred by denying plaintiff's second motion for summary disposition by raising sua sponte the recoupment
Reversed and remanded for proceedings consistent with this opinion. We do not retain jurisdiction. Plaintiff, as the prevailing party, may tax costs. MCR 7.219.
SAAD, P.J., and KIRSTEN FRANK KELLY and M.J. KELLY, JJ., concurred.
