Contracts and "Cooling-Off Periods" (Michigan)

By Matthew A. Quick As a general rule, consumers do not have a right to cancel a contract for the sale of goods or services, but certain instances exist when consumers have a right to a "cooling-off period" where, by law, a specific time is allowed to cancel a contract after signing it.

The first thing anyone should do when determining his or her rights under a contract is READ YOUR CONTRACT. Contract provisions have the ultimate effect on the rights of the parties. If the contract provisions do not provide the relief sought, the following laws may: Michigan's Gift Promotion Act (MCL 445.931), Michigan's Home Solicitation Sales Act (MCL 445.111, et seq.), Michigan's Home Improvement Finance Act (MCL 445.1101, et seq.). The Federal Trade Commission has a similar rule for sales made at someone's home (16 CFR 429, et seq.), as does the Federal Truth in Lending Act for home equity loans.

These acts require the sellers to provide written notice in the contract of the rights afforded by the acts. If the required notice is not provided by the sellers in the contract, the length of time the consumer has to cancel the contract may be extended.

The lesson: If you engage in a business that sells goods, services or does home improvement (plumbing, electrician, construction, etc.), be sure you have the language required by law in your contracts. Failure to do so could mean the consumer has a broader timeframe in which to cancel the contract.

Promissory Notes and Demand for Payment (Illinois)

By Matthew A. Quick The court in Reger Development, LLC v National City Bank, found that a bank may require a borrower to make full repayment on a commercial loan even though the borrower was current on the note at time the bank made demand. The terms of the promissory note in this case allowed the bank to make demand for full repayment at any time, and a duty to act in good faith, relied upon by the borrower, does not apply to lenders seeking payment on demand notes.

Fair Debt Collection Practices Act

By Matthew A. Quick The court in Jerman v Carlisle, McNellie, Rini, Kramer & Ulrich, LPA, et al., held that the bona fide error defense in §1692k(c) does not apply to a violation resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA.

Appropriate Business Organizations to Own Real Estate

By Matthew A. Quick For those that have real estate that they wish to be owned by an entity (a good idea for the sake of liability, tax and succession planning), the most beneficial entities to consider are generally neither S Corporations, nor C Corporations. Only a Partnerships or LLCs have the benefit of making a 754 Election, which provides a step up in basis upon the death of an owner. A step up in basis reduces the taxable gain on a future sale, thus reducing the eventual tax.

Home Repair and Remodeling Act and Oral Agreements (Illinois)

By Matthew A. Quick The court in K. Miller Construction Compay, Inc v McGinnis iterated that oral contracts are enforceable and quantum meruit relief is available even if the Home Repair and Remodeling Act was not followed. Specifically, the Act states that “[p]rior to initiating home repair or remodeling work for over $1,000, a person engaged in the business of home repair or remodeling shall furnish to the customer for signature a written contract or work order.” The court opined that recovery is available under both theories listed above even if the the agreement is not in writing.

An Example of Agency and Liability (Illinois)

By Matthew A. Quick The court in Sperl v C.H. Robinson Worldwide found that a principal-agent relationship existed between Defendant company and truck driver, as company owned the load of potatoes driver was hauling, and controlled method of payment and manner of driver's work performance, including imposition of fines if driver did not arrive at company's warehouse within certain time. With the court's finding of an agency relationship, the company was entirely liable for the driver's negligent conduct.

This case, among the many others, highlights the importance keeping people and entities, and their respective practices, completely separate, whether it is by separating control, accounting, etc. The liability protections built around a business can be rendered worthless if steps are not taken to ensure formalities are being followed.

Prohibitions of Due on Sale or Acceleration Clauses in Promissory Notes Secured by Real Estate

By Matthew A. Quick A due on sale clause, or acceleration clause, is the provision in a contract, most often a promissory note (a promise to pay), that authorizes the lender to demand payment of a sum when the property that is acting as security is sold or otherwise transferred. Federal law, specifically Title 12, Chapter 13, Section 1701j-3, restricts the ability of lenders from invoking such a provision under certain circumstances (also called Garn-St. Germain exceptions). These circumstances include, but are not limited to, the following:

The creation of a subordinate lender’s interest; The creation of a purchase money security interest for household appliances; A transfer on the death of a joint tenant; The granting of a leasehold interest of three years or less not containing an option to purchase; A transfer to a relative resulting from the death of a borrower; A transfer where the spouse or children of the borrower become an owner of the property; A transfer resulting from divorce; and A transfer to an inter vivos trust in which the borrower is and remains a beneficiary.

Mechanic's Lien Act and the Taxing of Attorney Fees (Illinois)

By Matthew A. Quick The court in the case of Action Plumbing Company, Inc v Bendowski held that a subcontractor's attorney fees cannot be taxed on subsequent purchasers of homes by including attorney fees in foreclosure actions, in violation of Mechanics Lien Act. The court stated that it was taxing attorney fees as against allegedly bankrupt developer, the developer had defaulted and thus was not in a position where it had to pay attorney fees to avoid any loss of interest.

Truth in Lending Act and Security Interests (Illinois)

By Matthew A. Quick In the case of Randle v Americash Loans, LLC, the Plaintiff took out a loan from the Defendant, which is a cash loan company. The Plaintiff filed suit alleging that company violated Truth in Lending Act and Illinois Interest Act by failing to disclose a security interest, because the Defendant's loan documents had an electronic funds transfer authorization form, which authorized the company to automatically debit the Plaintiff's checking account if Plaintiff defaulted on repayment. The loan documents did not include disclosure of the security interest. The court held that the loan documents, since they gave the Defendant the right to collect the debt upon default, must be disclosed as a security instrument.

LLCs and Creditor Attachment of Membership Distributional Interest (Illinois)

By Matthew A. Quick The holding in First Mid-Illinois Bank & Trust v Parker, highlights a concern of the protections afforded by a limited liability company (LLC). In the case, the Plaintiff succeeded in having the court enter a judgment against the Defendants. To enforce the judgment, the Plaintiff joined an LLC in which the Defendants owned membership interests. 805 ILCS 180/30-20 states that a court "may charge the distributional interest of the [LLC member] to satisfy the judgment." In addition, 805 ILCS 180/30-20 provides, "A charging order constitutes a lien on the judgment debtor's distributional interest. The court may order a foreclosure of a lien on a distributional interest subject to the charging order at any time. . . ."

Furthermore, 735 ILCS 5/4-101 states:

In any court having competent jurisdiction, a creditor having a money claim, whether liquidated or unliquidated, and whether sounding in contract or tort, or based upon a statutory cause of action created by law in favor of the People of the State of Illinois, or any agency of the State, may have an attachment against the property of his or her debtor, or that of any one or more of several debtors, either at the time of commencement of the action or thereafter, when the claim exceeds $20, in any one of the following cases: 1. Where the debtor is not a resident of this State. 2. When the debtor conceals himself or herself or stands in defiance of an officer, so that process cannot be served upon him or her. 3. Where the debtor has departed from this State with the intention of having his or her effects removed from this State. 4. Where the debtor is about to depart from this State with the intention of having his or her effects removed from this State. 5. Where the debtor is about to remove his or her property from this State to the injury of such creditor. 6. Where the debtor has within 2 years preceding the filing of the affidavit required, fraudulently conveyed or assigned his or her effects, or a part thereof, so as to hinder or delay his or her creditors. 7. Where the debtor has, within 2 years prior to the filing of such affidavit, fraudulently concealed or disposed of his or her property so as to hinder or delay his or her creditors. 8. Where the debtor is about fraudulently to conceal, assign, or otherwise dispose of his or her property or effects, so as to hinder or delay his or her creditors. 9. Where the debt sued for was fraudulently contracted on the part of the debtor. The statements of the debtor, his or her agent or attorney, which constitute the fraud, shall have been reduced to writing, and his or her signature attached thereto, by himself or herself, agent or attorney. 10. When the debtor is a person convicted of first degree murder, a Class X felony, or aggravated kidnapping, or found not guilty by reason of insanity or guilty but mentally ill of first degree murder, a Class X felony, or aggravated kidnapping, against the creditor and that crime makes the creditor a "victim" under the Criminal Victims' Asset Discovery Act. 11. When the debtor is referred by the Department of Corrections to the Attorney General under Section 3-7-6 of the Unified Code of Corrections to recover the expenses incurred as a result of that debtor's cost of incarceration.

When the statute provisions cited are read together, they allow for prejudgment attachment by a potential judgment creditor to preserve an LLC member's distributional interest. Once a judgment is entered and a charging order is obtained, the order relates back to the date of the prejudgment attachment order for purposes of lien priority.

GPS Vehicle Tracking Just Got A Little Tricky (Michigan)

By Marc F. Herron Michigan, as of July 1, 2010, has a new law that applies to the use of GPS vehicle tracking devices. So… all you do-it-yourselfers out there take note.

Under the new law, placing a GPS tracking device on a motor vehicle without the knowledge and consent of the owner or lessee is a criminal misdemeanor. This crime is punishable by up to one (1) year in jail or a fine of up to $1000.00, or both. The same applies to a person who tracks the location of a motor vehicle with a tracking device without the knowledge and consent of the owner, lessee, or the authorized operator of the vehicle.

Professional investigators are exempted from this statute.

To sum it all up… be careful when placing a tracking device and when monitoring a vehicle with a tracking device.

For more information, contact Karma Investigations, LLC, at 248-990-4274 or online at

Minimum Wage Law (Michigan)

By Marc F. Herron For some, starting a small business is a way to bridge the gap between employment opportunities. For others, it is the fulfillment of a dream. Regardless of one’s motivation, the Minimum Wage Law applies equally.

As Michigan employers, small business owners must be acquainted with the applicable wage law. In Michigan, that would be the Minimum Wage Law of 1964, MCL 408.381 et. seq., which requires all employers to pay a minimum wage. As of July 1, 2008, the lowest hourly rate for employees is $7.40. However, an employer may pay a training wage of $4.25 for the first 90 days to employees who are under 20 years old. Pursuant to the law, an employer cannot displace an employee to hire someone at the training wage. As for overtime, employers must pay one and a half times the regular pay rate for an employee in workweeks that exceed 40 hours.

Naming A Business (Michigan)

By Marc F. Herron Shakespeare’s Juliet said:

“What’s in a name? That which we call a rose By any other name would smell as sweet.”

Romeo and Juliet (II, ii, 1-2)

Well, under Michigan law, it does matter what is in a business’s name. There are some specific words that are required to be in business entity names. For Michigan domestic profit corporations, a corporation’s name must contain one of these words; “Corporation,” “Company,” “Incorporated,” or “Limited.” Alternatively, the abbreviations of these words may be used, which are “Corp.,” “Co.,” “Inc.,” and “Ltd.” If the business entity is a professional service corporation, then the name must contain either “Professional Corporation” or “P.C.” For limited partnerships, the words “Limited Partnership” are required. For limited liability companies, the required words and abbreviations are “Limited Liability Company,” “L.L.C.,” “LLC,” “L.C.,” or “LC.” For low-profit limited liability companies, the word and abbreviation requirements are “Low-Profit Limited Liability Company,” “L.3.C.,” “L3C,” “l.3.c.,” or “l3c.” Continuing on, the required words and abbreviations for professional service limited liability companies are “Professional Limited Liability Company,” “P.L.L.C.,” “PLLC,” “P.L.C.” or “PLC.” Finally, when naming a limited partnership or limited liability company certain words and abbreviations must not be used. The excluded words and abbreviations are “Corporation,” “Incorporated,” “Corp.,” and “Inc.”

It is noteworthy that when naming a non-profit corporation, the use of the required words associated with naming a for-profit corporation is not statutorily required.

(Michigan Act 284, Public Acts of 1972; Act 192, Public Acts of 1962; Act 213, Public Acts of 1982; Act 23, Public Acts of 1993.)

Nonprofit Corporations: Articles of Incorporation

By Marc F. Herron Aside from the Internal Revenue Service’s requirements for tax-exempt status, this article discusses Michigan’s statutory requirements for nonprofit corporation articles of incorporation. Pursuant to section 202 of the Michigan Nonprofit Corporation Act, MCL 450.2202, a nonprofit corporation’s articles of incorporation must contain the following information:

1. The corporation’s name. 2. The corporation’s purpose. This must be stated with detail. 3. The corporation’s registered office’s street address. If the mailing address is different from street address, it must be additionally listed. 4. The corporation’s resident agent’s name at the registered office’s address. 5. All the incorporators’ names and addresses. This applies regardless of their signature on the articles of incorporation. 6. If the corporation’s duration is any amount of time other than perpetual, the duration must be listed.

Where the corporation is formed on a non-stock basis, in addition to (1) through (6), the articles of incorporation must contain:

1. A description and statement of the value of any assets of the corporation, classified as real or personal property. 2. A statement of the terms of the general scheme for financing the corporation. 3. A statement as to whether the corporation is organized on a membership basis or a directorship basis.

Where the corporation is formed on a stock basis, in addition to (1) through (6), the articles of incorporation must contain:

1. The total number of shares the corporation has authority to issue. 2. If the shares are to be divided into classes, to the extent this information has been determined, a statement as to each class’ designation, number of shares, relative rights, preferences, and limitations.

Workers' Compensation (Michigan)

By Marc F. Herron Let’s take a look at some information small business owners should familiarize themselves with regarding workers’ compensation coverage in Michigan. Pursuant to Michigan’s Worker’s Disability Compensation Act, MCL 418.101, et seq., all private employers employing three (3) or more workers at the same time must have workers’ compensation insurance. MCL 418.115.

Maybe your small business regularly employs less than three employees. Well, the act addresses your situation, also. If during the preceding fifty-two (52) weeks your business employed at least one (1) employee for thirty-five (35) hours or more per week for thirteen (13) weeks or longer, then your company must have workers’ compensation insurance.

Let’s recap: 1. Private employer with 3 or more employees… coverage required. 2. Private employer with less than 3 employees... prior 52 weeks, 1 regularly employed worker, employed for 35+ hours, for 13+ weeks…coverage required.

Please note: the Act has different requirements for agricultural businesses than those mentioned in this article.

Prevailing Wage Act (Illinois)

By Matthew A. Quick In light of the recent holding in Town of Normal v Hafner, when individual sole proprietors construct private residences on privately owned land with financing from private banks are not obligated to pay prevailing wage to laborers working on the project, because they are not considered a public body and private multifamily residences are not considered public works under the Prevailing Wage Act, to wit, Chapter 820 of the Illinois Compiled Statutes, Act 130. The court opined that the purpose of the Prevailing Wage Act is to ensure prevailing wage is paid on public projects, not to interfere with private economic development.

Basics of Non-Profit and Charitable Organizations (Part One)

By Marc F. Herron The Internal Revenue Code breathes life into charitable organizations. For an organization to be recognized as a non-profit or charitable organization it must be limited in its activities to the purposes set out in Section 501(c)(3) of the Internal Revenue Code (26 USC 501(c)(3)). Such purposes are as follows:

-charitable, -scientific, -religious, -educational, -literary, -testing for public safety, -fostering of national or international amateur sports competition, and -preventing the cruelty to children and animals.

Moreover, none of the net earnings of the organization (the profit of the organization after paying salaries and other expenses) can benefit any shareholder or individual and all of its assets must be permanently dedicated to one of the exempt purposes.

Let’s recap: 1. Section 501(c)(3) of the Internal Revenue Code governs. 2. Limit purpose to those set out in 501(c)(3). 3. No net earnings to benefit any shareholder or individual. 4. Assets permanently dedicated to charitable purpose.

Please remember these series of articles are for informational purposes only and to ensure compliance with requirements imposed by the Internal Revenue Service, please note that any tax advice contained in this website is not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties under the Internal Revenue Code, nor for promoting, marketing or recommending to another party any matters addressed herein. For more information please visit


By Matthew A. Quick A guaranty assumes liability for contractual obligations of another in the event the obligations are not performed. In many instances, the contractual obligations that a guaranty ensures include payment of funds, payment of fees and costs associated with collecting any funds and performance of tasks and duties. To specifically ascertain the liability of a guaranty, however, one must always look to the agreement between the guaranty and the party for whom the guaranty is ensuring action (pursuant to the Statute of Frauds, agreements to guarantee must be in writing to be effective). McCarthy Foundation v Winshall, 372 Mich 389 (1964); First National Bank of Ypsilanti v Redford Chevrolet Company, 270 Mich 116 (1935). After agreeing to guaranty an obligation, guaranties are bound until the obligation has been performed, unless the obligation is modified.

If the obligation is modified, guaranties are not immediately discharged. A guaranty's continuing liability depends on the type of guaranty it represents. Guaranties are categorized in two types: gratuitous and compensated. A gratuitous guaranty ensures contractual obligations without requiring compensation (e.g. a friend or family member) and a compensated guaranty only ensures contractual obligations if paid (e.g. an officer of a company; a bond or surety company). In the case of gratuitous guaranties, liability will not be extended to an obligation which varies from the one that was contemplated when the guaranty became bound. In other words, the risk of the guaranty will not be increased in any manner without the guaranty's consent, nor will the immediate protection of the guaranty be lessened in the event of default. Grinnell Realty Company v General Casualty & Surety Company, 253 Mich 16 (1931).

In the case of compensated guaranties, the rule is that they are not discharged unless the departure from the initial obligation of the parties is material and the guaranty is injured by the change in the contract. In re Landwehr's Estate, 286 Mich 698 (1938); Grinnell Realty Company v General Casualty & Surety Company, 253 Mich 16 (1931); Gunsul v American Surety Company of New York, 308 Ill 312 (1923).

In short, a compensated guaranty's bond is looked upon as one of insurance or indemnity instead of one of suretyship or guaranty. Grinnell Realty Company v General Casualty & Surety Company, 253 Mich 16 (1931).