SHALER INTERIORS V MKK TECHNOLOGIES INC
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STATE OF MICHIGAN
COURT OF APPEALS
SHALER INTERIORS,
UNPUBLISHED
January 19, 2010
Plaintiff/Counter-DefendantAppellee,
v
No. 287214
Lenawee Circuit Court
LC No. 07-002789-CK
MKK TECHNOLOGIES, INC.,
Defendant/Cross-DefendantAppellant,
and
ASTRO ACQUISITION CORPORATION, d/b/a
ASTRO BUILDING PRODUCTS OF HOWELL,
and SHEPHERD ENTERPRISES INC.,
Defendants/Cross-Defendants,
and
MASCO CONTRACTORS SERVICE D, d/b/a
GALE INSULATION OF DETROIT,
Defendant/Cross-Plaintiff/ThirdParty Plaintiff,
and
DIAMOND WINDOW COMPANY,
Third-Party Defendant,
and
LAUREN D. HONET,
Intervening Plaintiff.
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Before: Wilder, P.J., and O’Connell and Talbot, JJ.
PER CURIAM.
Defendant MKK Technologies, Inc., (MKK) appeals by leave granted1 the circuit court’s
order denying its motion for dismissal pending arbitration in this commercial litigation action.
MKK argues that Shaler Interiors’ claims are barred because of an agreement to arbitrate
included in the original contract entered into between the parties, and that the circuit court’s
decision was erroneous. We reverse.
MKK was the general contractor overseeing a student housing project at Siena Heights
University. Shaler Interiors, whose principal is David Shaler, is involved in drywall work. Rick
Schneider, a professional acquaintance of Shaler,2 was aware that MKK was seeking a
subcontractor to perform drywall work on the Siena Heights project, but Schneider could not
take the job himself because he was a union member and the job was nonunion. Shaler,
however, was not a union member. Consequently, Schneider and Shaler agreed that Schneider
would arrange to obtain the drywall job for Shaler Interiors, apparently in exchange for a portion
of the proceeds.3
Schneider subsequently made the arrangements to obtain the drywall subcontract.
Significantly, Schneider signed a subcontract with MKK for the drywall work on behalf of
Shaler Interiors.4 Shaler did not sign the subcontract. Shaler testified that he knew that
Schneider was getting the subcontract for Shaler Interiors and that he agreed to it. The
subcontract contained an arbitration agreement requiring that all “claims, disputes and other
matters in question arising out of or relating to this Subcontract” would be decided by arbitration,
unless MKK elected otherwise.
Shaler subsequently executed a change order (referred to as “Change Order 2”) for the
project on behalf of Shaler Interiors, increasing the subcontract price by over $150,000. The
change order stated: “Change Order 2 shall become part of the original subcontract agreement
including all terms and conditions without exception.” Shaler Interiors also submitted to MKK
sworn statements regarding work done in order to receive payment from MKK. Schneider
signed some of the sworn statements on behalf of Shaler Interiors, referring to himself as an
“agent” on the forms. Shaler Interiors also submitted to MKK a partial unconditional release of
1
Shaler Interiors v MKK Technologies Inc, unpublished order of the Court of Appeals, issued
December 4, 2008 (Docket No. 287214).
2
It is undisputed that Schneider was not an employee of Shaler Interiors.
3
Schneider and Shaler agreed that Schneider would get 33 percent of the proceeds and Shaler the
rest.
4
The subcontract indicates that Schneider signed under the “Shaler Interiors” name.
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lien, signed by Shaler, which expressly acknowledged the contract between Shaler Interiors and
MKK.
After Shaler Interiors completed the project, it initiated this cause of action, claiming that
MKK owed it approximately $59,500 for unpaid work. After substantial litigation, MKK filed a
motion for dismissal pending arbitration. MKK argued that discovery had shown that Schneider
acted as an actual or apparent agent of Shaler Interiors, that Shaler Interiors ratified his acts, and
that in any event, Shaler signed Change Order 2, which adopted and incorporated the original
signed subcontract containing the arbitration clause. In response, Shaler Interiors admitted that
Schneider facilitated obtaining the job for Shaler Interiors, but denied that he was authorized to
enter into contracts for the company. The circuit court denied MKK’s motion, apparently
concluding that the evidence was equivocal.5 MKK now argues that the circuit court erred in
denying its motion to dismiss pending arbitration. We agree.
The determination of the arbitrability of a dispute is a question of law subject to de novo
review. Madison Dist Pub Schools v Myers, 247 Mich App 583, 594; 637 NW2d 526 (2001).
“The existence of an arbitration agreement and the enforceability of its terms are judicial
questions for the court rather than for the arbitrators,” and these questions are reviewed de novo.
Watts v Polaczyk, 242 Mich App 600, 603; 619 NW2d 714 (2000).
An agent’s authority to bind a principal may be actual or apparent, and actual authority
may be either express or implied. Alar v Mercy Mem Hosp, 208 Mich App 518, 528; 529 NW2d
318 (1995). “Implied authority is the authority that an agent believes the agent possesses.” Id.
Here, MKK presents evidence that Schneider believed he had authority to bind Shaler
Interiors. In particular, Schneider repeatedly signed documents on behalf of Shaler Interiors, and
negotiated on behalf of the company. These actions by Schneider suggest that Schneider
believed he had authority to act for Shaler Interiors. Because the evidence indicates that
Schneider believed that he could sign a contract on behalf of Shaler Interiors, and because there
is no testimony suggesting that Schneider harbored any doubts concerning whether he could do
5
It is unclear whether the record captured the entirety of the trial court’s remarks regarding its
reason for denying MKK’s motion for dismissal pending arbitration. The relevant portion of the
transcript of the July 14, 2008, hearing states as follows:
[Defense Counsel]. Your Honor, could I respectfully request the Court indicate
its basis for denying the motion to dismiss based on the arbitration provision?
[The Court]. I think there’s a very serious question involved there, but I think
that you can both quote portions of the transcript that, taken out of context,
would indicate substanti—substantiate your position. I don’t think that they
do. That’s—
(At 10:45 a.m., proceedings concluded.)
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so, there is no genuine issue of material fact that Schneider had implied actual authority to act on
behalf of Shaler Interiors when he signed the subcontract with MKK.
There is also strong evidence that Schneider had apparent authority to act on behalf of
Shaler Interiors. “Apparent authority arises where the acts and appearances lead a third person
reasonably to believe that an agency relationship exists. However, apparent authority must be
traceable to the principal and cannot be established only by the acts and conduct of the agent.”
Id.
The evidence provided by the parties does not conflict, and it indicates that Schneider
was given apparent authority to act on behalf of Shaler Interiors. Shaler testified as follows in
his deposition:
Q. Okay. Who entered into the contract with MKK Technologies on behalf of
Shaler Interiors?
A. Rick Schneider.
Q. And at that time who was Rick Schneider?
A. He was just a guy who was in the business that I was in who needed
somebody to do the job for him because he couldn’t do it. And we were
introduced to each other and we had no affiliation other than the fact that he
needed somebody to do this job for him and I—we had some mutual
acquaintances and we were hooked up together and then I did the job for him.
Q. So you entered into an agreement with Rick Schneider to do a job that he
obtained from MKK?
A. Correct.
Q. And at the time did you know that he had obtained this job from MKK?
A. I knew in the fact that he told me that he had this job and he needed somebody
to do it for him. So basically, I was subcontracting it from them.
Q. So you were subcontracting it from Rick Schneider or his company?
A. No, subcontracting from MKK. He made all the arrangements. The checks
were written to my company.
Q. But you knew that he was making those arrangements, is that correct?
A. Yes.
Q. And you authorized him to make those arrangements on your behalf, is that
correct, on behalf of Shaler Interiors?
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A. He made all the arrangements with MKK. I was basically—he asked me if I
could do the job for “X” amount of dollars and I said yes, I can. You know, I
went down and looked at it and said yes, I can do that. And he had a
relationship before that with MKK and he couldn’t do the job because he was
union and I was nonunion and the job was nonunion. So he was looking for
somebody to do the job for him.
Q. So is the answer to my question that you knew he was going to contract with
MKK on your behalf, is that correct?
A. Yes.
Thus, Shaler admitted that he knew Schneider would enter into a contract with MKK on behalf of
Shaler Interiors, yet Shaler did nothing to dispel the notion that Schneider had the authority to do
so. These actions by Shaler would lead an observer to reasonably believe that Schneider was
authorized to bind Shaler Interiors. Alar, supra at 528. By doing nothing to dispel that notion,
Shaler misled MKK.
Further, Dale Tusek, an employee of MKK, stated in an affidavit that both Schneider and
Shaler represented to him that they would be working on the project on behalf of Shaler
Interiors. In answers to interrogatories, Shaler admitted that “[m]ost interactions with MKK
were through Rick Schneider who assisted Shaler in getting the job.” Thus, Schneider was
Shaler Interiors’ “point man” for dealings with MKK.
There is no conflicting evidence. All the evidence indicates that Shaler, through his
actions and inaction, led MKK to believe that Schneider had the authority to enter into the
subcontract on behalf of Shaler Interiors. Accordingly, there was no genuine issue of material
fact regarding Schneider’s apparent authority to act on behalf of Shaler Industries, and Shaler
Industries was bound by the arbitration provision in the subcontract with MKK.
We also agree with MKK that Shaler ratified Schneider’s acts. An agent’s unauthorized
acts may still bind the principal if the principal ratifies them. Echelon Homes, LLC v Carter
Lumber Co, 261 Mich App 424, 431; 683 NW2d 171 (2004), rev’d in part on other grounds 472
Mich 192 (2005). The principal ratifies the agent’s act when the principal accepts the benefits of
the unauthorized act, with knowledge of the material facts. Id. at 432; Hutton v Roberts, 182
Mich App 153, 162; 451 NW2d 536 (1989).
Shaler Interiors accepted payments from MKK for the job obtained by Schneider, and
Shaler clearly had knowledge of the material facts surrounding Schneider’s efforts on their
mutual behalf. Shaler admitted in his deposition that he knew that Schneider was obtaining the
job for Shaler Interiors. The evidence is not conflicting, and there is no genuine issue of material
fact.
We also agree with MKK that Shaler Interiors also agreed to be bound by the provisions
of the contract, including the arbitration agreement, when Shaler signed Change Order 2.
Michigan courts enforce contracts according to their terms in order to uphold the parties’ liberty
of contract. Coates v Bastian Bros, Inc, 276 Mich App 498, 503; 741 NW2d 539 (2007).
Unambiguous terms in a contract are enforced as written. Id. Furthermore, “‘[i]n a written
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contract a reference to another writing, if the reference be such as to show that it is made for the
purpose of making such writing a part of the contract, is to be taken as a part of it just as though
its contents had been repeated in the contract.’” Forge v Smith, 458 Mich 198, 207 n 21; 580
NW2d 876 (1998), quoting Whittlesey v Herbrand Co, 217 Mich 625, 628; 187 NW 279 (1922).
The unambiguous terms of Change Order 2 provide that the change order “shall become
part of the original subcontract agreement including all terms and conditions without exception.”
Thus, the parties to Change Order 2 unambiguously intended to make it part of the original
subcontract. By assenting to Change Order 2, Shaler Interiors agreed to all provisions in the
original subcontract, including the arbitration agreement.
For all these reasons, Shaler Interiors legitimately entered into the subcontract with MKK
for drywall work and was bound by the terms of this subcontract, including the arbitration
agreement. Accordingly, arbitration is the appropriate forum for settlement of Shaler Interiors’
claim, and the trial court erred when it denied MKK’s motion for dismissal pending arbitration.
Reversed.
/s/ Kurtis T. Wilder
/s/ Peter D. O’Connell
/s/ Michael J. Talbot
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