MAJESTIC GOLF LLC V LAKE WALDEN COUNTRY CLUB INC (Authored Opinion)
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STATE OF MICHIGAN
COURT OF APPEALS
MAJESTIC GOLF, L.L.C.,
FOR PUBLICATION
July 10, 2012
9:00 a.m.
Plaintiff/CounterdefendantAppellant/Cross-Appellee,
v
No. 300140
Livingston Circuit Court
LC No. 09-024146-CZ
LAKE WALDEN COUNTRY CLUB, INC.,
Defendant/CounterplaintiffAppellee/Cross-Appellant.
Advance Sheets Version
Before: WILDER, P.J., and TALBOT and SERVITTO, JJ.
WILDER, P.J.
In this case involving a commercial real-estate contractual relationship, plaintiff, Majestic
Golf LLC, appeals as of right from an opinion and order granting it summary disposition in part
and denying it summary disposition in part. Defendant, Lake Walden Country Club, Inc., crossappeals as of right from the same order. We affirm in part, reverse in part, and remand.
I. BASIC FACTS
In 1991, Waldenwoods Properties, L.L.C. (WPL) started planning for a “golf course-real
estate development” on approximately 1,400 acres of land it owned. As planned, the golf course
was to be constructed on approximately 400 acres, and residential properties were going to
surround the golf course. WPL planned to lease the land for the golf course (“the Golf Property”
or “the Premises”) to a different entity that would be responsible for constructing and operating
the golf course.
On December 8, 1992, WPL (as landlord) and defendant (as tenant) entered into a lease
agreement (Lease) for a period of 25 years. The Lease contained the following relevant
paragraphs:
17. OPTION TO PURCHASE. Tenant is hereby granted an exclusive
option to purchase the Premises on the following terms and conditions:
A.
The option shall be exercisable at any time during the final ten (10)
years of the Lease term, excluding however the final six (6) months.
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B.
Exercise of the option shall be in writing, delivered to Landlord.
C.
The option may be exercised only if Tenant is not in default of this
Lease at the time of exercise.
D.
The price shall be determined by appraisal of the fair market value
of the Premises as of the date of exercise of the option, but in the condition and
state they are in as of the date of executing this Lease, with the assumption they
are not subject to this Lease and are restricted to golf course use.
* * *
H.
Each party at its own expense shall retain an appraiser within thirty
(30) days after the option is exercised. Within ninety (90) days after the option is
exercised, the parties shall exchange appraisals. If the higher is no more than Ten
Percent (10%) higher than the lower, the average of the two (2) shall be the
purchase price. If the higher is more than Ten Percent (10%) higher than the
lower, the two appraisers within thirty (30) days shall select a third appraiser who
shall review the two (2) appraisals and within an additional (30) days determine
the purchase price, which shall be no less than the lower appraisal and no higher
than the higher appraisal. The cost of the third appraiser shall be borne equally by
the parties.
* * *
K.
If this Lease terminates for any reason prior to Tenant exercising
its option to purchase, the option shall automatically terminate on termination of
the Lease.
* * *
22. LANDLORD’S EASEMENTS AND ROAD CROSSINGS. Tenant
shall permit drainage and utility easements and road crossings to be developed by
Landlord on the Premises as required to permit development to occur on
Landlord’s Other Real Estate. The easements and crossings shall be installed by
Landlord at its expense but located in areas mutually agreeable. The utilities and
roads shall be installed in such a manner as to ensure that the integrity of the golf
course in [sic] preserved, leaving the golf course in equal or better condition.
* * *
26. DEFAULT. Each of the following events shall be a default hereunder
by Tenant and a breach of this Lease.
* * *
D.
If Tenant shall fail to perform any of the agreements, terms,
covenants, or conditions hereof on Tenant’s part to be performed (other than
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payment of rent) and such non-performance shall continue for a period within
which performance is required to be made by specific provision of this Lease, or
if no such period is so provided for, a period of thirty (30) days after notice
thereof by Landlord to Tenant, or if such performance cannot be reasonably had
within such thirty (30) day period, Tenant shall not in good faith have commenced
such performance within such thirty (30) day period and shall not diligently
proceed therewith to completion;
* * *
If any event specified above shall occur and be continuing, Landlord shall
have the right to cancel and terminate this Lease, as well as all of the right, title
and interest of Tenant hereunder.
* * *
31. NOTICES. Whenever it is provided herein that notice, demand,
request, or other communication shall or may be given to or served upon either of
the parties by the other, and whenever either of the parties shall desire to give or
serve upon the other any notice, demand, request, or other communication with
respect hereto or with respect to the Premises, each such notice, demand, request,
or other communication shall be in writing and, any law or statute to the contrary
notwithstanding, shall be effective for any purpose if given or served as follows:
A.
If by Landlord, by mailing the same to Tenant by registered mail,
postage prepaid, return receipt requested, addressed to Tenant at 4662 Okemos
Road, Okemos, Michigan 48864, or at such other address as Tenant may from
time to time designate by notice given to Landlord by registered mail.
At the time the Lease was originally signed, both parties anticipated the construction of
the “golf-real estate development.” Defendant was to develop the then-undeveloped Golf
Property into 27 golf course holes, and WPL was to develop the surrounding land into residential
real estate.
Defendant complied with its obligation under the Lease to construct the 27-hole golf
course. Plaintiff has not yet initiated construction on the residential real estate. Defendant had
paid rent in a timely manner and fully complied with its other obligations under the Lease until
the instant litigation commenced.
According to defendant, it has invested more than $6 million in the Golf Property and has
paid over $1.6 million in rent to plaintiff. According to Frank Crouse, a manager of both WPL
and plaintiff, defendant recovered its investment in the Golf Property within the first six years.
In March 2003, defendant and WPL (later, plaintiff, as WPL’s successor in interest),
began merger negotiations. In the potential merger, defendant was to transfer all of its interest in
the Golf Property to plaintiff in exchange for an 85 percent membership interest in plaintiff.
These merger negotiations continued until the present litigation began.
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On October 27, 2006, Crouse (as manager of WPL) sent a letter to Pat Hayes, defendant’s
president. In this letter, he discussed the status of the ongoing merger negotiations and also
discussed the status of the zoning approval process for WPL’s “Master Plan” for development.
He listed six necessary points of agreement for a successful merger and approval of the Master
Plan. The fifth point of agreement required defendant’s approval of a “road easement” between
holes #21 and #22 (the Road Easement). WPL needed defendant’s approval of the Road
Easement to obtain Hartland Township’s final approval of WPN’s Master Plan.
On April 3, 2007, WPL conveyed title to the Golf Property to plaintiff, 1 thereby making
plaintiff the successor in interest to WPL’s interest in the Golf Property. But WPL continued to
own the land surrounding the Golf Property. On April 26, 2007, plaintiff presented to defendant
a document titled “Consent to Grant of Easements.” This “Consent” document was styled as a
formal contract, and it included detailed maps and descriptions of the Road Easement.
On June 1, 2007, Crouse met with defendant’s representatives to discuss the proposed
merger and proposed Master Plan. According to the summary of the meeting, defendant
reviewed plaintiff’s proposed Road Easement and suggested certain changes. According to
Crouse, none of defendant’s suggested changes addressed the Road Easement’s location.
On June 19, 2007, Crouse sent an e-mail to James Hile (a representative of defendant).
The e-mail stated that Doug Austin would make “the appropriate changes previously agreed to”
for the Road Easement. Crouse reminded Hile that defendant’s consent to the Road Easement
was necessary for approval of the Master Plan.
According to Crouse, a revised version of the Road Easement was delivered to defendant
on November 5, 2007, for defendant’s consent. According to Crouse, the revised version
incorporated some of defendant’s recommended changes to the Road Easement, although the
location of the easement remained the same.
The discussions between plaintiff and defendant continued and finally culminated in a
letter dated October 7, 2008, from Crouse to Hayes that read as follows:
I am writing on behalf of both Waldenwoods Properties, LLC [WPL] and
Majestic Golf, LLC to request that you execute the Consent portion of the
enclosed Grant of Easement and return it to me for recording. As you will recall,
Section 22 of the golf course lease obligates Lake Walden to permit road crossing
easements when required by Waldenwoods for development of its adjoining land.
Sometime ago Waldenwoods requested a crossing easement from Majestic Golf,
which owns the golf course land. Majestic Golf approved the request, and on that
basis a proposed easement between Majestic and Waldenwoods was sent to Lake
Walden on April 26, 2007 for review and consent.
1
WPL is the only member of plaintiff.
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Following receipt and review of the document, you requested some changes.
Those were made, and the document was resubmitted to golf course management
with a request to execute the Consent. This occurred, I believe, late in 2007.
Despite the request, the written Consent has not been received. Concurrence by
Lake Walden is urgently required.
I am requesting that Lake Walden fulfill its obligation under the lease. Please
sign and return the enclosed Consent within thirty (30) days.
The next day, on October 8, 2008, Crouse sent an e-mail to both Hile and Hayes, which
stated in relevant part:
While we still very much hope that a cooperative merger will take place, we have
found it necessary to prepare for the circumstance that it may not, because the
differences are found to be irreconcilable. . . .
If an agreement cannot be reached, then we may be presented with a notice by
Lake Walden of its intent to exercise the purchase option included in our lease.
Accordingly, we are providing the following attachments.
* * *
Attachment 2 - A letter requesting Concurrence by Lake Walden in the
crossing easement, that has been in process since early 2007. The crossing
easement has not changed – hence the legal descriptions finalized by Desine
Inc.[ ]are dated 3/9/2007. We received approval subject to modifications to meet
certain LWCC objections, and have previously asked for your concurrence, which
has not be[en] provided as is required by Section 22 of the Lease. Failure to
obtain Lake Walden concurrence was a major reason why we were not able to
finalize a Master Plan for our property. Now we again request that Lake Walden
promptly fulfill its obligation under the lease.
* * *
We do not intend any of these items to be interpreted that we do not wish to
successfully conclude a merger – as you recall, it is WPL that has attempted to
have this matter continue to receive consideration. We are still hopeful that this
process will be successful.
According to Crouse, on November 10, 2008, defendant presented plaintiff with
defendant’s revised merger documents. These documents continued to claim that consent to the
Road Easement was contingent upon finalization of the merger. Crouse stated that these
documents were unreasonably one-sided in favor of defendant.
On November 24, 2008, legal counsel for plaintiff sent a letter to defendant that stated in
relevant part:
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The refusal of Lake Walden Country Club, Inc. to execute and deliver the
Consent to the Grant of Easements sent to you on October 6, 2008 [sic – October
7, 2008] constitutes a default under the provisions of Paragraph 26 D of the Lease.
On account of this default, Majestic Golf, LLC is hereby exercising its right under
Paragraph 26 to terminate the Lease, effective immediately. Because of this
termination, all rights granted to Lake Walden Country Club, Inc. to purchase the
property pursuant to Paragraph 17 K of the Lease are also terminated, effective
immediately.
On December 11, 2008, counsel for defendant sent a responding letter to plaintiff.
Defendant’s counsel stated that it was always the parties’ intent to execute the Road Easement at
the merger closing. He further stated that defendant was interpreting the November 24, 2008,
letter as the formal 30-day notice required under the Lease. He included defendant’s revised
version of the Grant of Easement and concluded by stating that defendant would agree to the new
terms of the Grant of Easement to comply with the Lease. The revised documents were
unsigned. In fact, defendant never signed any document to consent to plaintiff’s Road Easement.
On December 22, 2008, counsel for defendant sent another letter to plaintiff, informing
plaintiff that defendant was exercising its option to purchase the Golf Property under ¶ 17 of the
Lease. Defendant stressed that under the terms of the Lease each party must obtain an appraisal.
The parties both procured appraisals. Plaintiff’s appraisal value of the Golf Property was
$800,000, and defendant’s effective market value of the Golf Property was zero dollars. 2
Plaintiff filed its first amended complaint on May 21, 2009. Count I sought specific
performance of ¶ 29 of the Lease, which required defendant to vacate the Golf Property upon
termination of the Lease. Count II sought a declaratory order stating that defendant’s attempt to
exercise the option to purchase under ¶ 17 of the Lease was invalid because the Lease had
terminated before defendant’s attempt to exercise the option. Count III sought a stay of the 90day appraisal period stated in ¶ 17 of the Lease, pending the trial court’s resolution of the other
issues of the case. Count IV sought a declaratory judgment and order for payment for
defendant’s reasonable rental value of the Golf Property during the case. Count V sought a
declaratory judgment that defendant’s option to purchase was void because defendant’s appraisal
of zero dollars was submitted in bad faith.
Defendant filed its counterclaim on June 26, 2009. Count I sought specific performance
of the appraisal and option to purchase provisions of ¶ 17 of the Lease. Count II sought a
declaratory order stating that (1) defendant did not breach the Lease, and (2) defendant properly
exercised the option to purchase on December 22, 2008.
Defendant moved for summary disposition under both MCR 2.116(C)(8) and MCR
2.116(C)(10) on August 27, 2009. Plaintiff, without citing a court rule, countered by moving for
summary disposition on September 24, 2009.
2
Defendant explains that this value was derived using the appraisal instructions in the Lease.
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The trial court, while applying only MCR 2.116(C)(10), issued its opinion and order on
December 23, 2009. It identified three issues:
The first issue is whether or not [defendant] defaulted on the lease after
receiving notice of non-compliance with an obligation and an opportunity to cure
that non-compliance via the Crouse letter on October 7, 2008. The second is
whether, if [defendant] defaulted, such default warranted termination of the lease
and, by extension, termination of their option to purchase the subject property.
The final issue is whether, if [defendant] did properly invoke its option, either or
both of the appraisals should be stricken by the Court as failing to comply with
the appraisal procedures defined by ¶ 17(D) of the lease.
The trial court first held that defendant defaulted under the terms of the Lease. It
explained that ¶ 22 of the Lease obligated defendant to agree to the requested easements. It
further explained that the October 7, 2008, letter provided the requisite notice under ¶ 26 of the
Lease, stating:
It is inconsequential that the October 7 letter did not call itself notice or
reference an existing default. As the plaintiff argues, a default did not exist until
after 30 days of non-performance following the transmission of this letter.
Further, the terms of the lease do not require that the notice label itself as such but
require only that the landlord inform the tenant that it has not performed an
obligation under the lease, which this letter did. The October 8 e-mail from
Crouse to Pat Hayes and James Hile does not contextualize away the sufficiency
of this notice either but rather bolsters it. Although Crouse does express a desire
to continue the negotiations, he also recites in the e-mail the defendant had not
fulfilled its obligation under ¶ 22 of the lease and reiterates his request that the
defendant do so. Finally, the allegation that the parties had agreed to another
period for performance of this consent to easement is similarly immaterial. The
obligation to permit easements is stated in mandatory language, and the time of
performance is only contingent upon a mutually agreeable location being chosen.
The lease itself under ¶ 43 limits modification of its terms by requiring a written
instrument executed by both parties. Therefore, what the parties agreed orally as
to when performance would occur was irrelevant since the plaintiff had a right to
demand performance under the lease.
The trial court held that, because defendant did not provide its consent to the requested
easements within 30 days of receiving the October 8 letter, defendant breached the Lease.
The trial court then held that termination of the Lease was not proper under principles of
equity. The trial court concluded that termination was not warranted because defendant’s breach
was not material. It reasoned that defendant had invested over $6 million in the Golf Property
and had paid its rent in a timely manner. The trial court also reasoned that any wrongful
withholding of consent to the easement would be compensable in money damages. Thus, the
trial court concluded that forfeiture of the Lease would be “unduly harsh and oppressive.”
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The trial court declined to address the third issue. It noted that defendant did not properly
exercise the option under ¶ 17 because it breached the Lease before its attempt to exercise the
option. The trial court concluded its opinion as follows:
1. As to Count I of the plaintiff’s complaint seeking an order that the
defendant surrender the lease premises, the defendant’s motion for summary
disposition is GRANTED. Because there is no genuine issue of material fact and
the defendant’s breach was not material, the plaintiff cannot succeed on that
claim.
2. With respect to Count II of the plaintiff’s complaint, the plaintiff’s
motion for summary disposition is GRANTED in part since the defendant’s
attempt to exercise their option to purchase was ineffective as a result of the
defendant’s default. However, because the defendant’s breach was not material,
the option has not indefinitely lapsed.
3. Consistent with this ruling, summary disposition is GRANTED in favor
of defendant as to Count V of plaintiff’s complaint and in favor of plaintiff as to
Count I of the defendant’s counter-complaint.
4. Finally, with respect to Counts III and IV of the plaintiff’s complaint,
the defendant’s motion is DENIED. Count III was previously disposed of by the
Court in issuing a preliminary injunction, and Count IV is not germane to the
instant motion.
On January 22, 2010, plaintiff moved for reconsideration. Plaintiff urged the trial court
to reconsider its holding that equitable considerations prohibited plaintiff from terminating the
Lease. Plaintiff also urged the trial court, as a procedural matter, to dismiss count IV of
plaintiff’s first amended complaint without prejudice. On March 31, 2010, the trial court
declined to reconsider the substance of its previous order. However, the trial court agreed to
dismiss count IV without prejudice.
On August 23, 2010, the parties stipulated to dismissal of count II of defendant’s countercomplaint, which resolved the final issue and closed the case.
II. ANALYSIS
We review de novo a trial court’s decision on a motion for summary disposition brought
under MCR 2.116(C)(10). Dressel v Ameribank, 468 Mich 557, 561; 664 NW2d 151 (2003).
When deciding a motion for summary disposition under this rule, a court must consider the
pleadings, affidavits, depositions, admissions, and other documentary evidence then filed in the
action or submitted by the parties in the light most favorable to the nonmoving party. MCR
2.116(G)(5); Wilson v Alpena Co Rd Comm, 474 Mich 161, 166; 713 NW2d 717 (2006). The
motion is properly granted if the evidence fails to establish a genuine issue regarding any
material fact and the moving party is entitled to judgment as a matter of law. Michalski v BarLevav, 463 Mich 723, 730; 625 NW2d 754 (2001).
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Issues involving either contractual interpretation or the legal effect of a contractual clause
are reviewed de novo. McDonald v Farm Bureau Ins Co, 480 Mich 191, 197; 747 NW2d 811
(2008). “When reviewing a grant of equitable relief, an appellate court will set aside a trial
court’s factual findings only if they are clearly erroneous, but whether equitable relief is proper
under those facts is a question of law that an appellate court reviews de novo.” Id.
A. PLAINTIFF’S APPEAL
Plaintiff first argues that the trial court improperly utilized the “material breach doctrine”
in deciding whether plaintiff could invoke the forfeiture clause in the Lease. We agree.
“A contract must be interpreted according to its plain and ordinary meaning.” Alpha
Capital Mgt v Rentenbach, 287 Mich App 589, 611; 792 NW2d 344 (2010). When “contractual
language is unambiguous and no reasonable person could differ concerning application of the
term or phrase to undisputed material facts, summary disposition should be awarded to the
proper party.” Id. at 612.
The forfeiture clause is located in ¶ 26 of the Lease and provides as follows:
26. DEFAULT. Each of the following events shall be a default hereunder
by Tenant and a breach of this Lease.
* * *
D.
If Tenant shall fail to perform any of the agreements, terms,
covenants, or conditions hereof on Tenant’s part to be performed (other than
payment of rent) and such non-performance shall continue for a period within
which performance is required to be made by specific provision of this Lease, or
if no such period is so provided for, a period of thirty (30) days after notice
thereof by Landlord to Tenant, or if such performance cannot be reasonably had
within such thirty (30) day period, Tenant shall not in good faith have commenced
such performance within such thirty (30) day period and shall not diligently
proceed therewith to completion;
* * *
If any event specified above shall occur and be continuing, Landlord shall
have the right to cancel and terminate this Lease, as well as all of the right, title
and interest of Tenant hereunder.
Thus, according to the plain and unambiguous terms of the Lease, plaintiff could “cancel
and terminate” the Lease if defendant failed to comply with any obligation (with the exception of
the failure to pay rent) and that failure to perform continued for 30 days after defendant was
formally notified, pursuant to ¶ 31 of the Lease, of the failure to perform.
As we discuss later in this opinion when we discuss defendant’s cross-appeal, we
conclude that there is no question of fact that the October 7, 2008, letter complied with the notice
requirements of ¶ 31 of the Lease. Therefore, to avoid defaulting under the terms of the Lease,
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defendant had 30 days from October 8, 2008, to cure its non-performance. The record is clear
that defendant did not respond to plaintiff’s letter by November 7, 2008. Therefore, under the
plain language of ¶ 26, the default occurred on or about November 7, 2008. The trial court
correctly reached this conclusion.
Defendant, however, asserts that plaintiff breached the contract first when it recorded a
document in the Livingston County Register of Deeds in February 2008. But defendant does not
explain what covenant of the Lease plaintiff allegedly violated and also does not provide any
authority in support of why this alleged “breach” prevented plaintiff from adhering to other
aspects of the Lease. “An appellant may not merely announce his or her position and leave it to
this Court to discover and rationalize the basis for his or her claims.” In re Temple Marital
Trust, 278 Mich App 122, 139; 748 NW2d 265 (2008). Consequently, we decline to consider
defendant’s argument.
Even though the trial court correctly found that defendant breached the Lease, the trial
court refused to allow plaintiff to terminate the Lease because it concluded under the “material
breach doctrine” that forfeiture of a lease pursuant to a termination clause is not warranted when
the breaching party committed an immaterial breach. We hold that the trial court erred by not
applying the plain language of the contract.
This Court has not, in a published opinion, addressed the applicability of the material
breach doctrine when the contract at issue contains an express forfeiture clause. Before
addressing that question directly, we first note that there is a difference between “rescission,”
“termination,” and “forfeiture” of a contract. Rescission is an equitable remedy that is used to
avoid a contract. See Alibri v Detroit/Wayne Co Stadium Auth, 254 Mich App 545, 555; 658
NW2d 167 (2002), rev’d on other grounds 470 Mich 895 (2004); Black’s Law Dictionary (9th
ed).
Generally, to rescind a contract means to annul, abrogate, unmake, cancel,
or avoid it. More precisely, rescission amounts to the unmaking of a contract, or
an undoing of it from the beginning, and not merely a termination.
The word “termination” generally refers to an ending, usually before the
end of the anticipated term of the contract. Rescission of a contract constitutes
termination of that contract with restitution. On the other hand, a forfeiture,
properly exercised, terminates a contract without restitution. [17B CJS,
Contracts, § 585, pp 18-20 (footnotes omitted).]
In addition:
A forfeiture is that which is lost, or the right to which is alienated, by a
breach of contract. Unless there is a provision in a contract clearly and expressly
allowing forfeiture, breach of a covenant does not justify cancellation of the entire
contract, and courts will generally uphold a forfeiture only where a contract
expressly provides for it.
The declaration of a forfeiture for the breach of a condition of a contract,
in accordance with a stipulation therein, is to be distinguished from a rescission of
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the contact in that it is an assertion of a right growing out of the contract; if it puts
an end to the contract and extinguishes it in accordance with its terms similarly to
the manner in which it is extinguished by performance. Forfeiture terminates an
existing contract without restitution, while a rescission of a contract generally
terminates it with restitution and restores the parties to their original status. [17B
CJS, Contracts, § 612, p 48 (emphasis added, footnotes omitted).]
In sum, “rescission” terminates a contract and places the parties in their original position,
even if restitution is necessary, and “forfeiture” terminates a contract without restitution.
Because plaintiff in this case seeks to enforce the termination clause in the contract, we conclude
that the equitable remedy of rescission is not applicable. We further conclude that, by reading
the default provision of the Lease to include the term “material breach,” the trial court effectively
rewrote or reformed the contract. See Titan Ins Co v Hyten, 291 Mich App 445, 451-452; 805
NW2d 503 (2011) (noting that reformation allows a court to consider a contract to have different
terms than provided in the document when those terms fail to express the intentions of the party),
rev’d on other grounds 491 Mich 547 (2012).
Our view is supported by our Supreme Court’s consistent pronouncements that an
unambiguous contract must be enforced as written unless it violates the law, is contrary to public
policy, or is unenforceable under traditional contract defenses. Rory v Continental Ins Co, 473
Mich 457, 470; 703 NW2d 23 (2005); Wilkie v Auto-Owners Ins Co, 469 Mich 41, 51-52, 62-63;
664 NW2d 776 (2003); See also Quality Products & Concepts Co v Nagel Precision, Inc, 469
Mich 362, 375; 666 NW2d 251 (2003). In Rory, the Supreme Court stated:
This approach, where judges . . . rewrite the contract . . . is contrary to the
bedrock principle of American contract law that parties are free to contract as they
see fit, and the courts are to enforce the agreement as written absent some highly
unusual circumstance such as a contract in violation of law or public policy. This
Court has recently discussed, and reinforced, its fidelity to this understanding of
contract law . . . . The notion, that free men and women may reach agreements
regarding their affairs without government interference and that courts will
enforce those agreements, is ancient and irrefutable. It draws strength from
common-law roots and can be seen in our fundamental charter, the United States
Constitution, where government is forbidden from impairing the contracts of
citizens, art I, § 10, cl. 1. Our own state constitutions over the years of statehood
have similarly echoed this limitation on government power. It is, in short, an
unmistakable and ineradicable part of the legal fabric of our society. Few have
expressed the force of this venerable axiom better than the late Professor Arthur
Corbin, of Yale Law School, who wrote on this topic in his definitive study of
contract law, Corbin on Contracts, as follows:
“One does not have ‘liberty of contract’ unless organized society both
forbears and enforces, forbears to penalize him for making his bargain and
enforces it for him after it is made.” [Rory, 473 Mich at 469-470, quoting Wilkie,
469 Mich at 51-52, quoting 15 Corbin, Contracts (Interim ed), ch 79, § 1376, p 17
(footnotes omitted).]
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Although Rory did not expressly decide whether a contract forfeiture clause was
enforceable, it made clear that a court has no power to ignore a contract’s plain and unambiguous
term because the court holds the view that the term ostensibly was “unreasonable.” Rory, 473
Mich at 468-469. Rory is applicable here on this very point; this Court cannot refuse to enforce
the plain and unambiguous terms of the lease herein on the basis that the forfeiture clause is
“unfair.” Hence, we reiterate the Supreme Court’s holding that courts are not free to rewrite or
ignore the plain and unambiguous language of contracts except in exceptional circumstances. Id.
at 470.
Defendant has not established that the requisite exceptional circumstances exist in this
case sufficient to justify ignoring the plain language of its contract with plaintiff. First,
defendant makes no claim that the forfeiture provision violates the law. Likewise, we find that
the forfeiture clause is not contrary to public policy.
[T]he determination of Michigan’s public policy “is not merely the
equivalent of the personal preferences of a majority of [the Supreme] Court;
rather, such a policy must ultimately be clearly rooted in the law.” In ascertaining
the parameters of our public policy, we must look to “policies that, in fact, have
been adopted by the public through our various legal processes, and are reflected
in our state and federal constitutions, our statutes, and the common law.” [Id. at
470-471, quoting Terrien v Zwit, 467 Mich 56, 66-67; 648 NW2d 602 (2002).]
While the Legislature has limited the effectiveness of express forfeiture clauses in land contracts,
MCL 600.5726 (requiring the occurrence of a material breach as a precondition of forfeiture of a
land contract, regardless of whether the contract has an explicit termination or forfeiture clause),
the Legislature notably has not limited the operation of forfeiture clauses in other contexts.
Additionally, forfeiture clauses have existed in contracts in this state for more than 100 years.
See, e.g., Hamilton v Wickson, 131 Mich 7, 73-76; 90 NW 1032 (1902); Satterlee v Cronkhite,
114 Mich 634, 635-636; 72 NW 616 (1897). Thus, we cannot conclude that forfeiture clauses in
a contract that is not a land contract violate public policy.
As the Rory Court stated, “[o]nly recognized traditional contract defenses may be used to
avoid the enforcement of [legal] contract provision[s].” Rory, 473 Mich at 470. Such defenses
include duress, waiver, estoppel, fraud, and unconscionability. Id. at 470 n 23. The only
recognized defense that could possibly be relied on in this case, based on defendant’s pleadings,
is the doctrine of unconscionability. However, “[i]n order for a contract or contract provision to
be considered unconscionable, both procedural and substantive unconscionability must be
present.” Clark v DaimlerChrysler Corp, 268 Mich App 138, 143; 706 NW2d 471 (2005)
(emphasis added).
Procedural unconscionability exists where the weaker party had no
realistic alternative to acceptance of the term. If, under a fair appraisal of the
circumstances, the weaker party was free to accept or reject the term, there was no
procedural unconscionability. Substantive unconscionability exists where the
challenged term is not substantively reasonable. However, a contract or contract
provision is not invariably substantively unconscionable simply because it is
foolish for one party and very advantageous to the other. Instead, a term is
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substantively unreasonable where the inequity of the term is so extreme as to
shock the conscience. [Id. at 144 (citations omitted).]
Here, there was no evidence that defendant was in a weaker position than plaintiff and
was forced to accept the forfeiture term. Thus, defendant cannot establish any procedural
unconscionability. We also conclude that the forfeiture clause was not substantively
unconscionable. While the term undoubtedly favors plaintiff, the advantage given to plaintiff in
the contract does not shock the conscience. In addition, forfeiture did not occur immediately
upon defendant’s breach; the Lease allowed defendant 30 days to cure any breach before the
Lease would be terminated. Under these circumstances, the forfeiture clause was not
“substantively unreasonable.” Therefore, the forfeiture provision was not avoidable under the
unconscionability doctrine.
In sum, “a court may not revise or void the unambiguous language of [an] agreement to
achieve a result that it views as fairer or more reasonable.” Rory, 473 Mich at 489. As a result,
the trial court erred when it failed to enforce the forfeiture clause of the Lease based on
defendant’s breach not being a “material breach.” As a matter of law, plaintiff successfully
invoked the default provision of the Lease and terminated the Lease on November 24, 2008.
Under ¶ 17 of the Lease, the Lease’s termination also extinguished defendant’s option to
purchase. Hence, because the Lease was terminated on that date, defendant’s attempt to exercise
the Lease’s option-to-purchase provision on December 22, 2008, was void.
B. DEFENDANT’S CROSS-APPEAL
Defendant argues that it did not breach the contract when it failed to consent to the
easement agreement. Specifically, defendant argues that (1) the easement agreement was to be
finalized and executed at the conclusion of the merger negotiations, (2) the parties never reached
an agreement with respect to the terms of the easement, and (3) plaintiff’s October 7, 2008, letter
did not comply with the notice provision of ¶ 26. We conclude that defendant was not excused
from complying with its obligation under the Lease.
In pertinent part, Paragraph 22 of the Lease stated:
Tenant shall permit drainage and utility easements and road crossings to
be developed by Landlord on the Premises as required to permit development to
occur on Landlord’s Other Real Estate. [Emphasis added.]
Thus, defendant was required to consent to plaintiff’s Road Easement. The Lease, however, did
provide that the location of any easements must be “in areas mutually agreeable.” As such, the
only valid reason to withhold consent to the Road Easement would have been the failure to agree
on a location. However, there was no evidence to show that defendant’s refusal to consent was
based on an objection to the location. 3 We note that during the 30-day window that followed
3
In fact, the document that defendant provided to plaintiff in December 2008 used the same
location for the easement that plaintiff initially proposed.
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Crouse’s October 7, 2008, letter, defendant failed to make any objection or provide any rationale
for its refusal to consent. Defendant’s next communication was issued on November 10, 2008,
which was after the 30-day deadline expired. Therefore, defendant’s failure to consent to the
Road Easement was a breach of the plain and unambiguous terms of the Lease.
Defendant also argues that consent to the Road Easement was not required because it was
contingent upon finalization of the merger agreement. While the parties undoubtedly discussed
that consent would occur contemporaneous to a merger, there was no evidence that the parties
intended to amend, or did amend, the provision of the Lease that defendant give consent “as
required.”
Defendant further contends that the easement agreement was not ripe for its consent
because the agreement failed to capture other conditions, such as (1) noting that all costs were
plaintiff’s responsibility, (2) ensuring that the integrity of the golf course would not be disturbed,
and (3) ensuring that the golf course would be left in an equal or better condition when the work
was complete. Nothing in Paragraph 22 makes defendant’s requirements to grant an easement
contingent on these asserted conditions. 4 Thus, defendant’s insistence that the Lease required
these provisions in any easement agreement is without merit.
Last, defendant claims that plaintiff’s October 7, 2008, letter did not satisfy the notice
requirements spelled out in ¶ 31 of the Lease. We disagree. Paragraph 31 provides in pertinent
part,
Whenever it is provided herein that notice, demand, request, or other
communication shall or may be given to or served upon either of the parties by
the other, and whenever either of the parties shall desire to give or serve upon the
other any notice, demand, request, or other communication with respect hereto or
with respect to the Premises, each such notice, demand, request, or other
communication shall be in writing and, any law or statute to the contrary
notwithstanding, shall be effective for any purpose if given or served as follows:
A.
If by Landlord, by mailing the same to Tenant by registered mail,
postage prepaid, return receipt requested . . . .
Defendant claims that the October 7, 2008, letter was deficient in several ways: (1) it
was not sent via registered mail, (2) the letter did not provide any notice, and (3) the letter did
not indicate what consequences would happen if the 30-day deadline was not met.
Nothing in the record supports defendant’s claim that the letter was not sent via registered
mail. Defendant cites to the letter itself and cites to Crouse’s affidavit as evidence of the letter
not being sent via registered mail. However, the letter does not identify either way how it was
4
We note that if plaintiff were to have undermined the integrity or condition of the golf course
through construction or maintenance of easements, defendant would have been entitled to a
variety of possible contract remedies.
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mailed. And Crouse states in his affidavit that he mailed the letter “consistent with notice
provisions contained in the Lease.”
Defendant’s remaining claims of deficiencies are also without merit. The Lease does not
require the written notice to contain any specific words, such as “notice” or “default.” In this
case, the letter referred to defendant’s continuing obligation under ¶ 22 of the Lease to provide
the consent, explained that defendant has been delinquent for nearly a year, and established a 30day time period to cure the defect. This 30-day time period matches the 30-day time period of
¶ 26. Therefore, the trial court correctly concluded that the letter satisfied the notice
requirements of the Lease.
Defendant’s final issue on cross-appeal relates to whether its invoking of the option to
purchase was invalid. As already discussed, we conclude that plaintiff properly terminated the
Lease prior to defendant invoking the option, thereby making defendant’s attempt to purchase
void. Although the trial court concluded that defendant could not invoke the option to purchase
for different reasons, we will not reverse a trial court’s ruling when it reaches the right result for
the wrong reason. Coates v Bastian Bros, Inc, 276 Mich App 498, 508-509; 741 NW2d 539
(2007).
C. CONCLUSION
In conclusion, the trial court erred when it did not interpret the Lease according to its
plain and unambiguous terms. On remand, the trial court is to enter an order granting summary
disposition in favor of plaintiff on counts I, II, and V of its complaint.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction. Plaintiff, the prevailing party, may tax costs pursuant
to MCR 7.219.
/s/ Kurtis T. Wilder
/s/ Michael J. Talbot
/s/ Deborah A. Servitto
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