BSI LAND CO V MILLPOINTE WEST LTD
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STATE OF MICHIGAN
COURT OF APPEALS
BSI LAND COMPANY,
UNPUBLISHED
June 18, 1999
Plaintiff-Appellee,
v
No. 209698
Washtenaw Circuit Court
LC No. 97-008839 CK
MILLPOINTE WEST LTD.,
Defendant-Appellant.
And
TRANSNATION TITLE INSURANCE
COMPANY,
Defendant.
Before: Markey, P.J., and McDonald and Fitzgerald, JJ.
PER CURIAM.
Defendant appeals by right an order granting summary disposition in favor of plaintiff and
directing the payment to plaintiff of an escrow deposit on a real property purchase. We reverse.
Defendant, purchaser, deposited $50,000 in escrow pursuant to the parties’ purchase
agreement (“agreement”) for the purchase of real property in Scio Township from plaintiff, seller. After
the parties failed to close the transaction, both parties claimed entitlement to the deposit. The trial court
granted plaintiff’s motion for summary disposition, in which the court found that defendant did not timely
terminate the agreement to obtain a return of the deposit under the terms of the agreement and that
plaintiff was therefore entitled to retain the deposit.
I
Defendant first claims that the clear and unambiguous language of the agreement mandates that
summary disposition be granted for defendant under MCR 2.116(I)(2), or, at least, that plaintiff be
denied summary disposition. We agree that plaintiff was not entitled to summary disposition in its favor.
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This Court reviews summary disposition decisions de novo. Spiek v Dep’t of Transportation,
456 Mich 331, 337; 572 NW2d 201 (1998). A motion for summary disposition under MCR
2.116(C)(10) may be granted when, except with regard to damages, there is no genuine issue as to any
material fact, and the moving party is entitled to judgment as a matter of law. Giving the benefit of
reasonable doubt to the nonmovant, the court must determine whether a record might be developed
which will leave open an issue upon which reasonable minds could differ. Bertrand v Alan Ford, Inc,
449 Mich 606, 617-618; 537 NW2d 185 (1995).
Contracts which are unambiguous are not open to construction and must be enforced as written.
Cottrill v Michigan Hospital Service, 359 Mich 472, 476; 102 NW2d 179 (1960); Industrial Steel
Stamping, Inc v Erie State Bank, 167 Mich App 687, 692; 423 NW2d 317 (1988). No provision of
the parties’ contract states that defendant forfeits its $50,000 deposit for failure to terminate the
agreement within the 120-day inspection period. Further, because the language of the agreement is
unambiguous in providing for forfeiture of the $50,000 deposit upon defendant’s failure to timely cure a
default, there is no need to apply the rules of contract construction. The contract must be enforced as
written.
Under the express language of ¶¶ 2.1 and 6.3, defendant was entitled to a
return of the $50,000 deposit if it timely terminated the agreement:
2.1
Purchase Price . . . Upon the execution of this Agreement by both Seller and
Purchaser, Purchaser shall deposit with [Transnation], in trust, however, subject to the
terms and conditions of this Agreement, the sum of [$50,000], to be held as a good
faith deposit (“Initial Deposit”). On the Closing Date, the Initial Deposit . . . shall be
credited to the Purchase Price. So long as Purchaser has not breached any of his
obligations under this Agreement, if this Agreement is timely terminated by Purchaser by
no later than the expiration of the Inspection Period, the Initial Deposit . . . shall be
returned to Purchaser, . . . .
***
6.3
Termination after Inspection. Purchaser shall have the option (and may do so
for any or no reason) to notify Seller in writing at any time during the Inspection Period
and, if applicable, Extended Inspection Period(s) that Purchaser is dissatisfied with the
results of his investigation of contingencies affecting the Property or Purchaser’s plans
for its development and has elected to terminate this Agreement. If such notification
occurs at any time during the [120 day] Inspection Period, the Seller promptly shall
refund to Purchaser the Initial Deposit [of $50,000], and this Agreement shall terminate.
If Purchaser elects to extend the Inspection Period in accordance with the provision of
Paragraph 6.2, and subsequently terminates this Agreement during the Extended
Inspection Period(s), then Seller shall be entitled to retain the Initial Deposit [of
$50,000] and this Agreement shall terminate.
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The trial court found that defendant did not terminate the agreement pursuant to ¶¶ 2.1 and 6.3.
This finding is not clearly erroneous. See MCR 2.613(C). Defendant provided an affidavit stating that
defendant was unable to complete the initial inspection because of plaintiff’s breaches. Defendant
provided no evidence of written termination of the agreement other than the Scio Township letter to
defendant, which, according to the letter, was requested by, and “carbon copied” to, plaintiff’s counsel.
This letter did not meet the requirements of ¶ 6.3 regarding notice of termination, nor did it constitute
notice of default under the agreement’s default provision, ¶ 11.2, which requires that defendant deliver
“to [plaintiff] written notice specifying in detail the nature of the claimed default.”
Because defendant did not terminate the agreement during the inspection period, the parties
were mutually obligated, pursuant to ¶ 10.0, to close on the property within thirty days of the expiration
of the inspection period, and both parties were in default due to the failure to close.
Under the agreement, the appropriate remedy for default for either party is expressly addressed
under ¶ 11.0:
11.1 Purchaser Default. If Purchaser defaults hereunder and such default is not
cured within [15 days] after Seller delivers to Purchaser written notice specifying in
detail the nature of the claimed default, Seller, at its option, may declare a forfeiture
hereunder and retain the Initial Deposit and any additional funds deposited by Purchaser
as liquidated damages or Seller may elect to bring an action against Purchaser for its
actual (but not consequential) damages sustained as the result of Purchaser’s default,
including reasonable costs and attorneys’ fees, whereupon this Agreement shall
terminate . . . .
11.2 Seller Default. If Seller defaults hereunder and such default is not cured within
[15 days] after Purchaser delivers to Seller written notice specifying in detail the nature
of the claimed default, Purchaser, at his option, may elect to enforce the terms hereof or
may demand return of the Initial Deposit and any additional funds deposited by
Purchaser in full termination of this Agreement.
Paragraph 11.1 expressly states that plaintiff may declare a forfeiture and retain the deposit as a
remedy for defendant’s failure to cure a default within fifteen days. Likewise, defendant may declare a
default by plaintiff and demand return of the initial deposit for plaintiff’s failure to cure the default. Thus,
under the clear language of the contract, neither party is entitled to the deposit, having failed to declare a
default and to seek the specified remedy for default following the opposing party’s failure to cure.
Summary disposition was improper for either party.
Even if this Court were to agree with the trial court that the contract is ambiguous, and therefore
subject to construction, this conclusion would not result in a forfeiture of defendant’s deposit.
Generally, forfeitures for breach of contract are not favored by the courts, in law or in equity. Smith v
Independent Order of Foresters, 245 Mich 128, 134; 222 NW 166 (1928); Leighton v Leighton,
10 Mich App 424, 433; 159 NW2d 750 (1968). Forfeitures must be contracted for in clear and
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unequivocal language, and will not be created by implication. Smith supra at 128; Leighton, supra at
433-434; 6A Michigan Law & Practice, Contracts, § 293, p 301.
Plaintiff had a means of obtaining forfeiture of the deposit by declaring a default under ¶ 11.1,
which plaintiff did not pursue. “A construction entailing a forfeiture will not be given a contract unless no
other construction is reasonably possible, and since stipulations for forfeiture are not favored, they will
be strictly construed.” 6A Michigan Law and Practice, Contracts, § 187, p 215. The contractual
provision for forfeiture, agreed upon by the parties, must be strictly construed. No other mechanism of
forfeiture may be created by implication.
The trial court erred in implying a forfeiture of defendant’s $50,000 deposit and granting
summary disposition in favor of plaintiff. However, the court was correct in denying summary
disposition for defendant.
II.
Next, defendant claims that the trial court erred in granting summary disposition because
reasonable minds could differ as to whether plaintiff had breached the purchase agreement with respect
to the availability of on-site sewer and water access and because discovery was incomplete on this
issue. We agree.
The parties’ agreement contains potentially conflicting provisions regarding sewer and water
availability. First, ¶ 6.0, Inspection; Permits/Approvals; As-Is Sale, states:
6.1
Inspection Period. Purchaser shall have one hundred twenty (120) days from
the Effective Date of this Agreement (“Inspection Period”) to investigate all
circumstances which in Purchaser’s judgment are material to Purchaser’s determination
that the Property is suitable for Purchaser’s intended use, including, without limitation:
***
F.
the availability of sanitary sewer, storm sewer, public water, gas main, electrical
service and other utilities, in quantity and at a cost (initially and for on-going access and
usage) acceptable to Purchaser; . . . .
However, ¶ 7.0, Seller’s Representations And Warranties, provides:
Seller specifically represents and warrants to Purchaser that:
***
H.
Scio Township (City of Ann Arbor system) sewer and water utilities are
presently available at the site upon payment of standard tap fees. [Emphasis added].
-4
Pursuant to the contract provisions, defendant, as purchaser, had 120 days to investigate the
availability of sewer and water utilities, but plaintiff, as seller, specifically represented that the server and
water utilities were “presently available.” Thus, an ambiguity is inherent as to whether defendant
retained any duty to investigate the availability of the utilities, or whether defendant could rely on
plaintiff’s express representation to that effect. If a contract is susceptible to two or more reasonable
interpretations, it is ambiguous. D’Avanzo v Wise & Marsac, PC, 223 Mich App 314, 319; 565
NW2d 915 (1997). Where a contract is ambiguous, factual development is necessary to determine the
intent of the parties and summary disposition is inappropriate. Id.
In support of its contention that plaintiff had breached the purchase agreement, defendant
submitted a letter from Scio Township and an affidavit, which stated that plaintiff misrepresented the
availability of sewer and water. Defendant argues that further discovery may have uncovered facts
which could establish that plaintiff failed to perform its obligation to have the utilities “presently
available.” Summary disposition may be premature if granted before discovery on a disputed issue is
complete. State Treasurer v Sheko, 218 Mich App 185, 190; 553 NW2d 654 (1996).
Based on our review of the Scio Township letter, we conclude that a material question of fact
existed whether sewer and water utilities were “presently available” at the site.1 Although the
construction of contract terms is generally a question of law for the court, where the meaning of a
contract is obscure and construction depends on extrinsic facts, it is a matter to be submitted to the trier
of fact. D’Avanzo, supra. Summary disposition was premature and therefore improper in this case.
III
Next, defendant claims that summary disposition was improper because reasonable minds could
differ as to whether plaintiff satisfied conditions necessary for recovery of the deposit. Again, we agree.
As we have noted, under ¶ 11.1 the contract provides specific remedies to plaintiff in the event
of defendant’s default. Pursuant to ¶ 11.1, plaintiff must provide notice of default and an opportunity for
defendant to cure within fifteen days, before plaintiff is entitled to retain the deposit. Plaintiff concedes
on appeal that it has not alleged a default by defendant. Rather, plaintiff argues that defendant’s failure
to terminate the agreement was a failure of a condition precedent to make the contract binding between
the parties.
The courts generally do not construe contract provisions as conditions precedent in the absence
of express language, particularly where such construction results in an injustice. 6A Michigan Law &
Practice, Contracts, § 232, p 259. Regardless, this argument raises an issue of contract construction
dependent on the intent of the parties. Id. Summary disposition is rarely appropriate where there are
issues of motive and intent. Opdyke Investment Co v Norris Grain Co, 413 Mich 354, 361; 320
NW2d 836 (1982); Michigan National Bank-Oakland v Wheeling, 165 Mich App 738, 744-745;
419 NW2d 746 (1988).
The trial court erred in granting summary
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disposition where reasonable minds could differ as to whether defendant was entitled to notice of default
and an opportunity to cure before forfeiture of its deposit.
We reverse and remand for further proceedings. We do not retain jurisdiction.
/s/ Jane E. Markey
/s/ Gary R. McDonald
/s/ E. Thomas Fitzgerald
1
The trial court apparently concluded that any alleged breach was irrelevant because defendant could
have terminated the agreement and obtained a refund of its deposit. However, we note that defendant
had the option under ¶ 11.2 of enforcing the terms of the agreement.
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