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Michigan Court of Appeals Overrides Express Contract Language by Creating "Gap Filler"

The Michigan Court of Appeals recently held that courts may create a "gap filler" that reaches a result contrary to a contract's terms. In Martlew v. City of Benton Harbor, et al. (Case No. 311897, May 1, 2014), the plaintiff entered into a contract with the City of Benton Harbor for the provision of services related to building inspections. The contract indicated that the plaintiff would receive payment only upon the completion of specific milestones. The contract also authorized the city to terminate the contract upon 30 days' notice at any time. The city terminated the contract in accordance with this provision before the plaintiff had reached any of the milestones triggering payment. The Court of Appeals found that the contract's terms were unambiguous; no payment was required under the plain terms. Nevertheless, it held that the plaintiff was entitled to the prorated value of work performed despite failing to reach any of the payment triggers outlined in the contract. The court reasoned that the contract was "incomplete" because it failed to describe how the city would pay plaintiff if it terminated the contract before a milestone was reached. "[W]hen a contract is incomplete because it fails to provide for a contingency, courts . . . may supply constructive conditions or 'gap fillers' to avoid failure for indefiniteness." Parties drafting commercial contracts should be mindful of this decision; it is possible for a court to create new terms outside of the contract's plain language. Courts are less likely to add such "gap fillers" if the parties expressly address foreseeable contingencies in the contract's terms.
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