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Michigan Court of Appeals Refuses to Enforce Contract on Public Policy Grounds

The Michigan Court of Appeals recently issued a rare opinion refusing to enforce a contract on public policy grounds. In Ammori v. Nafso (Case No. 312498, January 28, 2014), the parties entered into an otherwise valid oral agreement to divide ownership of a limited liability company in an effort to avoid the obligations of a separate non-compete agreement. The Court of Appeals quoted an 1877 court decision stating, "When parties associate for an unlawful purpose, they must calculate in advance the probabilities of bad faith towards each other, and must expect no assistance of the law against each other's frauds." The Court held that the parties' contract represented an agreement to defraud a third party, and was, therefore, unenforceable as a matter of public policy. This decision is a strong reminder to contracting parties and third parties to look beyond an agreement's terms in some circumstances and consider whether the contract's objectives are enforceable.
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