PORTABLE SPAS PLUS INC V INTEGRATED SOFTWARE SYSTEMS INC
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STATE OF MICHIGAN
COURT OF APPEALS
PORTABLE SPAS PLUS, INC.,
UNPUBLISHED
December 18, 2003
Plaintiff-Appellant,
v
INTEGRATED SOFTWARE SYSTEMS, INC.,
No. 242300
Oakland Circuit Court
LC No. 99-016963-CK
Defendant-Appellee.
Before: Saad, P.J., and Markey and Meter, JJ.
PER CURIAM.
Plaintiff appeals by right an order of dismissal. Plaintiff contends the trial court erred (1)
in refusing to consider plaintiff’s claim for breach of an implied warranty of fitness for a
particular purpose, (2) by granting summary disposition in favor of defendant on plaintiff’s
breach of contract claim, and (3) by refusing plaintiff permission to amend its complaint to
include a specific count of breach implied warranty of fitness for a particular purpose. We agree.
MCL 440.2315 provides:
Where the seller at the time of contracting has reason to know any particular
purpose for which the goods are required and that the buyer is relying on the
seller’s skill or judgment to select or furnish suitable goods, there is unless
excluded or modified under the next section an implied warranty that the goods
shall be fit for such purpose.
“Thus, to establish a valid warranty of fitness for a particular purpose, ‘the seller must know, at
the time of sale, the particular purpose for which the goods are required and also that the buyer is
relying on the seller to select or furnish suitable goods.’” Leavitt v Monaco Coach Corp, 241
Mich App 288, 293; 616 NW2d 175 (2000), quoting Ambassador Steel Co v Ewald Steel Co, 33
Mich App 495, 501; 190 NW2d 275 (1971).
In this case, plaintiff has consistently averred that it was not sophisticated about computer
systems and relied upon defendant’s expertise to select the appropriate software and equipment
to meet its business needs. Plaintiff provided defendant with a written list that explained its
business functions, needs and what it wanted to accomplish with new software. Plaintiff stated it
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provided defendant with a “blank check” to select the appropriate hardware and software for its
business and that it purchased all programs recommended by defendant.
In Leavitt, supra, the plaintiff sought to purchase a motor home sufficient to endure
excursions in the mountains. The plaintiff specifically informed the motor coach dealer of his
travel intentions, the problems he had encountered in the past with vehicles, and admitted his
own lack of knowledge regarding diesel engines. The Leavitt Court determined that “plaintiff’s
testimony about having communicated his problems with brakes in the past while seeking
defendant’s advice in the matter, along with having described the mountainous areas in which he
wished to drive the coach, was sufficient to support a finding that plaintiff articulated to
defendant his particular braking needs.” Leavitt, supra, 241 Mich App 294. Further, “plaintiff’s
insistence that he relied mainly on defendant for the choice of engine, and for deciding against
upgrading the brakes, is sufficient to support a finding that plaintiff relied on defendant’s
expertise in selecting a coach that suited his needs.” Id.
The facts here are analogous to those in Leavitt. Plaintiff communicated to defendant that
it was relying on defendant’s expertise to select an appropriate computer system to integrate its
various business functions. In fact, before plaintiff contracted with defendant, it provided
defendant a list of its business software needs, and defendant itself testified that the parties did
discuss integration of the various software programs. As in Leavitt, “the evidence created
genuine issues of material fact concerning whether defendant knew of plaintiff’s particular needs
and whether defendant knew that plaintiff was relying on defendant’s expertise in making his
selection.” Id., 294-295.
MCR 2.111(B) requires a complaint to contain:
(1) A statement of the facts, without repetition, on which the pleader relies in
stating the cause of action, with the specific allegations necessary reasonably to
inform the adverse party of the nature of the claims the adverse party is called on
to defend.
The “primary function of pleadings is to put the opposing party on notice of what he is called on
to defend.” Reinhardt v Bennett, 45 Mich App 18, 24; 205 NW2d 847 (1973). MCR 2.111(B)
is designed to avoid two opposite, but equivalent, evils. At one extreme lies the
straightjacket of ancient forms of action. Courts would summarily dismiss suits
when plaintiffs could not fit the facts into these abstract conceptual packages. At
the other extreme lies ambiguous and uninformative pleading. Leaving a
defendant to guess upon what ground plaintiff believes recovery is justified
violates basic notions of fair play and substantial justice. Extreme formalism and
extreme ambiguity interfere equivalently with the ability of the judicial system to
resolve a dispute on the merits. The former leads to dismissal of potentially
meritorious claims while the latter undermines a defendant’s opportunity to
present a defense. [Dacon v Transue, 441Mich 315, 329; 490 NW2d 369 (1992)
(footnote omitted).]
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In general, allegations contained in a complaint must state the facts, without repetition, on
which the party relies, and state the specific allegations necessary to reasonably inform the
adverse party of the claimant’s cause of action. Only claims of fraud or mistake must be pleaded
with particularity. A new theory of recovery which supports previously pleaded factual claims
may be asserted as within the scope of the pleadings. Iron Co v Sundberg, Carlson & Assoc, Inc,
222 Mich App 120, 124-125; 564 NW2d 78 (1997).
Here, defendant argued, and the court agreed, that plaintiff could not maintain a breach of
implied warranty claim because it had not been specifically pled. But given the general
guidelines applicable to pleading and the facts set forth in plaintiff’s complaint, clearly defendant
had sufficient notice of this claim. Plaintiff alleges in its complaint that “plaintiff gave defendant
a two page list of specific items and operations that it required to be performed by the system in
July of 1997,” and further references an exhibit detailing those functions. The complaint
specifically alleges, in relevant part:
The Defendant’s agent Brenda (trainer) discovered during this time period
that the system as sold and installed would not perform certain functions
as required by the Plaintiffs [sic] and as contracted for.
Specifically, the system would not link the Plaintiffs [sic] cash register
software with the software provided by the Defendant as represented and
required by the Plaintiff in Exhibit A.
As the training continued it became apparent that the system would not
perform specifically to wit:
The data that was currently in use by the Plaintiffs [sic] prior to
purchasing the system provided by the Defendants [sic] could not
be transferred to the new system and thus required manual key
entry.
The system would not link to any financial data in use by the
Plaintiffs [sic].
The system would not link to any inventory system used by the
Plaintiffs [sic].
The system would not accept customer data from the files of the
Plaintiff.
The system would not be functional until all of the above data was
entered by the Plaintiffs [sic] manually which took nearly 5
months.
After all data was entered the system would not generate any
reports.
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The system would not accept pricing data from the Plaintiffs [sic]
vendors.
The above actions constitute a material breach of the agreement of the
parties for which the Plaintiffs [sic] have suffered damage in that the
system is unusable for the purpose for which it was bought.
The issue pertaining to the pleadings in this case is factually similar to that in Smith v
Stolberg, 231 Mich App 256; 586 NW2d 103 (1998). In Smith, the plaintiff asserted a
negligence claim, but it was evident the allegations essentially set forth a claim for battery. The
Smith court dismissed the plaintiff’s negligence claim, and the plaintiff appealed arguing “the
trial court erred in denying his motion for reconsideration with respect to the court’s
interpretation of the meaning and scope of the pleadings on his assault and battery theory against
defendant . . . pursuant to MCR 2.111(B)(1). Smith, supra 231 Mich App 259. This Court
agreed with the plaintiff, indicating in relevant part:
Defendants argue that the facts did not reasonably inform them of the cause of
action for assault and battery so that they could defend on those grounds because
the facts were not specifically referenced under separate and distinct counts. The
court rules indicate otherwise. The only requirements for stating a cause of action
is a presentation of factual allegations that would reasonably inform defendants of
the ‘nature of the claims’ against which defendants are called on to defend. MCR
2.111(B)(1). Plaintiff complied. Defendants’ argument that the lack of a title
heading alone provides a basis for denying a claim is an ‘evil’ that the Michigan
Supreme Court sought to avoid: extreme formalism leading to the dismissal of a
‘potentially meritorious claim.’ [Smith, supra, 231 Mich App 260-261, citing and
quoting Dacon, supra, 441Mich 329.]
As we discussed above plaintiff’s pleadings are sufficient to have put defendant on notice
regarding its claim of breach of implied warranty of fitness for a particular purpose. Moreover,
in response to the list plaintiff provided, defendant gave plaintiff a presentation that represented
the “ability and capacity of the system” it recommended to perform the functions plaintiff
required. Defendant advised plaintiff as to which “modules” it needed to purchase for the
system. Finally, defendant revised the proposal to include other items to facilitate linkage
between plaintiff’s two store locations. Specifically, pursuant to the complaint, “this proposal
was accepted by the Plaintiffs [sic] based on the representations of the Defendant.” As such,
defendant knew plaintiff was relying on defendant’s expertise to select an appropriate computer
system to meet its specified business needs. Plaintiff has consistently asserted the programs
defendant provided were not suitable for its intended purpose. During discovery, the issue of
integration of the software system was the predominant area of inquiry. Defendant addressed this
issue, albeit in a different context, when it defended against plaintiff’s breach of contract claim
by arguing integration was not a goal or term of the parties’ contracts. Further, defendant
addressed this issue in the fraud claim that survived summary disposition. The allegations of
fraud specifically concerned plaintiff’s claim that defendant misrepresented the ability of the
software sold to integrate plaintiff’s current software programs in contradiction to plaintiff’s
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express reason for entering into the contracts. As such, the court should have considered
plaintiff’s claim of breach of implied warranty of fitness for a particular purpose.
Plaintiff also contends the court erred in granting defendant summary disposition,
pursuant to MCR 2.116(C)(10), on plaintiff’s breach of contract claim. A trial court’s decision
on a motion for summary disposition is reviewed de novo on appeal. Dressel v Ameribank, 468
Mich 557, 561; 664 NW2d 151 (2003). The essential elements of a contract are (a) parties
competent to contract, (b) a proper subject matter, (c) legal consideration, (d) mutuality of
agreement, and (e) mutuality of obligation. Mallory v Detroit, 181 Mich App 121, 127; 449
NW2d 115 (1989). In addition, to form a valid contract, the parties must have a “meeting of the
minds” regarding all essential terms of their agreement. Kamalnath v Mercy Memorial Hospital
Corp, 194 Mich App 543, 548; 487 NW2d 499 (1992). The parties do not dispute the existence
of a contractual relationship or that plaintiff received the contracted for hardware and software.
Rather, the dispute centers on different interpretations regarding defendant’s obligation to
plaintiff to install and provide a functioning computer system for plaintiff’s business. Defendant
contends the hardware and software provided is capable of performing all of the functions
required by plaintiff. But, plaintiff asserts the intent of the contracts was to provide a system that
would integrate the existing software without the necessity of manual input of historical data. It
did not wish to simply replace its existing software and equipment with another system that
would perform the same functions.
Plaintiff states that although before contracting with defendant, it had functional software
to run and maintain its business, it had recently purchased some new computer equipment. So its
goal and objective in hiring defendant was to improve and integrate sharing of data and
management information within its business. Plaintiff wanted to enter data one time into its
computer system and have that information available for all aspects of its business, including but
not limited to inventory, sales, accounting, customer service, etc. Plaintiff relies upon language
in the parties’ contracts that defendant’s “responsibility extends beyond supplying hardware and
software.” In the contract language itself, defendant promised to provide “system design and
information processing solutions.” Further, the contract indicated, “based on the Functional
Areas discussed, the following Navision Financials modules and granules are recommended.”
Plaintiff’s interpretation of these statements was that they memorialized the understanding
reached before entering into the contracts, that plaintiff’s predominant goal was to integrate the
various business functions of plaintiff’s existing computer system. Plaintiff points out that the
software contract provides that “to ensure the smooth integration of Navision Accounting
Software into your operations, a trained professional from Integrated Software Systems, Inc. will
come to your office and assist your staff in the implementation of Navision.” Plaintiff interprets
this contract language as an acknowledgment of the intent to integrate the new software with the
old system.
Defendant counters that it only contracted with plaintiff to provide new hardware and
software that would allow it to perform its various business functions. Defendant asserts that
although the parties discussed integration issues, defendant did not understand integration of the
systems to be a priority of plaintiff, and those services were not contained in the contracts.
Defendant further asserts the contracts are not ambiguous, as they do not contain specific
provisions pertaining to defendant’s obligation to integrate plaintiff’s various business systems,
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old and new. As such, defendant contends it has fully performed under the contracts by
providing the hardware and software for which plaintiff contracted.
The primary rule in the interpretation of contracts is to determine the intention of the
parties. D’Avanzo v Wise & Marsac, PC, 223 Mich App 314, 319; 565 NW2d 915 (1997). “In
the context of a summary disposition motion, a trial court may determine the meaning of the
contract only when the terms are not ambiguous. A contract is ambiguous if the language is
susceptible to two or more reasonable interpretations. In an instance of contractual ambiguity,
factual development is necessary to determine the intent of the parties and summary disposition
is inappropriate.” Id., (citations omitted).
The situation presented in D’Avanzo is analogous. In D’Avanzo, the parties contracted
for an employment severance package. The defendant agreed to pay the plaintiff his regular
salary and benefits for a period of five months. The defendant paid the insurance premiums for
the plaintiff. During the period of coverage, the plaintiff made a claim for disability benefits but
was informed that although the premiums had been paid, he was not covered as of the date of his
employment termination. The defendant contended it had complied with the contract terms
because it paid the premiums on the plaintiff’s behalf. The plaintiff claimed the contractual
agreement included not just the payment of premiums but the assurance that the benefits would
be available. The Court in D’Avanzo noted that while the trial court “adopted plaintiff’s
interpretation of the disputed language . . . both parties have set forth reasonable interpretations
of the same language. As such, we conclude that the disputed interpretations presented render
the contract terms at issue ambiguous. Because this ambiguity creates a question of fact . . . the
meaning of the disputed language cannot be construed as a matter of law.” Id., 319-320. While
defendant in this case may have technically performed its contractual obligations by providing
the hardware and software, a question of fact remains regarding whether the products performed
in conformance with the intent of the parties. As both interpretations of the contracts are
reasonable, further factual development is necessary to ascertain the intent of the parties.
Finally, plaintiff argues the trial court erred in refusing plaintiff permission to amend its
complaint to include a specific count for implied warranty of fitness for a particular purpose. On
appeal, a trial court’s decision regarding leave to amend will not be reversed unless it constituted
an abuse of discretion that resulted in injustice. Amerisure Ins Co v Graff Chevrolet, Inc, 257
Mich App 585, 598; 669 NW2d 304 (2003). A party may amend its pleadings with leave of the
court but leave should be freely given when justice so requires. Id.; MCR 2.118(A)(2); see also
MCL 600.2301. A motion to amend should be denied only for particularized reasons such as
“‘[1] undue delay, [2] bad faith or dilatory motive on the part of the movant, [3] repeated failure
to cure deficiencies by amendments previously allowed, [4] undue prejudice to the opposing
party by virtue of allowance of the amendment [and 5] futility.’” Amerisure Ins Co, supra, 257
Mich App 598, quoting Weymers v Khera, 454 Mich 639, 658; 563 NW2d 647 (1997), quoting
Ben P Fyke & Sons v Gunter Co, 390 Mich 649, 656; 213 NW2d 134 (1973). While under
certain circumstances delay may cause prejudice justifying a denial of leave to amend, mere
delay alone is generally an insufficient reason to deny leave. Amerisure Ins Co, supra, 257 Mich
App 599.
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In this instance, the court failed to state with particularity the reasons for its denial of
plaintiff’s request to amend its complaint. The court referenced the reasons defendant asserted in
objecting to an amendment of the complaint, but it did not delineate the court’s reasoning. It
merely stated:
I previously had granted summary disposition as to the breach of contract, and I
denied summary disposition as to fraud regarding representations about the new
software integrating with the old software. And Defendant has responded to your
motion by asserting that this should be denied, because further discovery would be
required, as this claim was not pled before, and the allegations cannot be
supported by the record of the facts in this case. These are two motions that are
on a 1999 case. I’m going to have to deny both of your requests.”
It appears that the court’s decision was based primarily on the age of the case as the court
provided no explanation for denying plaintiff’s motion. Defendant objected to amendment of the
complaint suggesting it would prejudice defendant because adding the claim would require
additional discovery. But defendant did not specify what discovery would be required. It is
difficult to understand how defendant would be prejudiced as plaintiff’s claim is based on the
same facts as those pursued throughout the litigation within plaintiff’s fraud and
misrepresentation claim.
Prejudice arises when an amendment would prevent a defendant from securing a fair trial.
The prejudice must come from the fact that the new allegations are raised so late in the
proceedings that it would be unfair to allow them. Prejudice does not stem from the possibility
that a new claim could result in defendant’s losing on the merits. Weymers, supra, 454 Mich
659. Arguably, plaintiff is not asserting a new claim. Throughout the proceedings the parties
have disputed whether integration of the software was a contractual obligation. A “trial court
may find prejudice when the moving party seeks to add a new claim or a new theory of recovery
on the basis of the same set of facts, after discovery is closed, just before trial, and the opposing
party shows that he did not have reasonable notice, from any source, that the moving party would
rely on the new claim or theory at trial.” Id., 659-660. Based on plaintiff’s original pleadings
and the discovery conducted, it is apparent defendant had notice of this claim or theory
throughout litigation. Defendant has consistently asserted as a defense that (a) any breach of
implied warranty of fitness was disclaimed by the contractual language pertaining to plaintiff’s
acceptance of the goods as suitable and (b) that the software provided by defendant was suitable
for the purpose intended as it would perform all functions plaintiff’s business required and is
capable of integration. Hence, plaintiff’s elaboration of this claim is not a surprise to defendant
and it would not be prejudiced by an amendment to the complaint.
Finally, defendant asserts plaintiff’s amendment of the complaint would be futile. An
amendment is futile if, ignoring the substantive merits of the claim, it is legally insufficient on its
face. Hakari v Ski Brule, Inc, 230 Mich App 352, 355; 584 NW2d 345 (1998). Given the court’s
denial of defendant’s motion for summary disposition on plaintiff’s fraud claim, which is based
on the same factual allegations as plaintiff’s breach of implied warranty theory, amendment of
the complaint is not futile. So, plaintiff should have been permitted the opportunity to amend its
complaint.
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We reverse and remand for proceedings consistent with this opinion. We do not retain
jurisdiction.
/s/ Henry William Saad
/s/ Jane E. Markey
/s/ Patrick M. Meter
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