TECORP ENTERTAINMENT LTD V HEARTBREAKERS INC
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STATE OF MICHIGAN
COURT OF APPEALS
TECORP ENTERTAINMENT LIMITED,
UNPUBLISHED
February 9, 2001
Plaintiff/Third-Party DefendantAppellee/Cross-Appellant,
v
No. 209861
Wayne Circuit Court
LC No. 96-642169-CZ
HEARTBREAKERS, INC.,
Defendant-Appellant/CrossAppellee.
and
THOMAS PETTY, SUSAN PETTY, JOSEPH S.
GIORDANO, a/k/a JOE GIORDANO, and
CANDYCE GIORDANO,
Third-Party Defendants.
Before: Markey, P.J., and Murphy and Collins, JJ.
PER CURIAM.
Defendant appeals as of right from a judgment awarding plaintiff restitution for unjust
enrichment after the trial court found the parties’ agreements void ab initio. Plaintiff crossappeals the court’s denial of plaintiff’s request for specific performance, the court’s entry of
judgment against defendant instead of third-party defendants, and the court’s depreciation of
improvements in determining restitution. We affirm in part, reverse in part, and remand for
further proceedings.
Third-party defendants Joseph Giordano and Thomas Petty created defendant
Heartbreakers to operate a country western bar in Dearborn Heights. After financial difficulties
in 1995, defendant negotiated an agreement with plaintiff for the sale of the business. The
parties signed two agreements: an asset purchase agreement (hereinafter “purchase agreement”),
through which plaintiff purchased the business assets, and a participating and management
agreement (hereinafter “management agreement”) that allowed plaintiff to operate the business
pending the transfer of defendant’s liquor license to plaintiff. The management agreement was
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incorporated by reference into the purchase agreement through an addendum to the purchase
agreement. Paragraph 10(D) of the management agreement specifically provides as follows:
Nothing in this Agreement shall be construed in such a manner as to
violate federal, state or local law or the Michigan Liquor Control Act or General
Rules. In the event a determination is made that any provision hereof violates any
such laws or rules, it shall immediately be amended to comply therewith.
Plaintiff also signed a lease with third-party defendants for the building in which the bar was
located.
After the Michigan Liquor Control Commission (MLCC) approved the management
agreement, plaintiff renovated the building and began operation of a bar and billiard hall. In June
1996, the MLCC reversed its position and informed the parties that the management agreement
did not comply with its regulations. Specifically, the MLCC objected to two terms of the
agreement. First, the MLCC objected to the provision in the parties’ agreement that all sales
taxes shall be paid under plaintiff’s tax identification number and that defendant’s tax
identification number shall not be used for any reason. The MLCC stated that the payment of
sales taxes was an “incident of ownership” that must be retained by the owner of the liquor
license. Second, the MLCC objected to the provision that plaintiff would receive ten percent of
the gross sales of the business as compensation only if there were funds remaining after payment
of all expenses of the operation of the business. The MLCC noted that under such terms, it
would be possible that plaintiff would receive no remuneration for its services and labor, and that
this is a risk “customarily associated with ownership.”
Plaintiff prepared an amended management agreement and submitted it to the MLCC for
review. After the MLCC approved the amended management agreement, plaintiff presented the
agreement to defendant for signature. When defendant refused to sign the new agreement,
plaintiff filed suit for specific performance, breach of contract, and injunctive relief. The trial
court conducted an expedited bench trial in January 1997, after which the court concluded that
the asset purchase agreement, the management agreement, and the lease between plaintiff and
third-party defendants were void ab initio because there was no meeting of the minds on at least
two essential terms in the management agreement: (1) which party’s tax identification number
would be used and (2) the terms under which plaintiff would be paid for managing the business.
The court subsequently conducted a bench trial to determine a remedy. The court
determined that defendant had been unjustly enriched because plaintiff had made improvements
to the property at issue and that plaintiff was entitled to restitution measured by the difference
between the value of the improvements to the property and the rent owed by plaintiff to
defendant. The court entered a net judgment for plaintiff of $33,701.93 plus interest and
dismissed third-party defendants with prejudice.
Defendant argues on appeal that the trial court erred in determining that the purchase
agreement was void ab initio because the issues presented at trial involved only the management
agreement. Defendant does not challenge the trial court’s determination that the management
agreement was void ab initio, except to state that the evidence did not support the court’s
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conclusion that there was no meeting of the minds. We address first the issue whether the
management agreement was void ab initio to clarify the basis for the court’s conclusion.
Contract interpretation is a question of law that this Court reviews de novo. South
Macomb Disposal Authority v American Ins Co (On Remand), 225 Mich App 635, 653; 572
NW2d 686 (1997). One of the essential elements of a valid contract is mutuality of assent.
Eerdmans v Maki, 226 Mich App 360, 364; 573 NW2d 329 (1997). “Meeting of the minds,”
which is similar in meaning to mutual assent, is the express agreement reached by the parties.
Stark v Kent Products, Inc, 62 Mich App 546, 548; 233 NW2d 643 (1975). A meeting of the
minds must exist on all essential terms and material facts for the contract to be valid. Kamalnath
v Mercy Memorial Hosp Corp, 194 Mich App 543, 548; 487 NW2d 499 (1992). Whether there
was a meeting of the minds between the parties is a question of fact, which is reviewed for clear
error. Martin v DeYoung, 232 Mich 112, 118; 205 NW 142 (1925); Triple E Produce Corp v
Mastronardi Produce, 209 Mich App 165, 171; 530 NW2d 772 (1995). Clear error exists when
this Court is left with the firm conviction that a mistake was made. Id.
Here, although the parties appeared to mutually assent to the management agreement as
originally written, that agreement contained a clause providing that the agreement would be
amended if it were determined to be out of compliance with MLCC regulations. Essentially, the
contract contained an agreement to agree later to an amendment, if necessary. A contract to
make a subsequent contract is not per se unenforceable and may be just as valid as any other
contract. Heritage v Wilson, 170 Mich App 812, 819; 428 NW2d 784 (1988). However, to be
enforceable, a contract to enter into a future contract must specify all its material and essential
terms and leave none to be agreed upon as the result of future negotiations. Id. With regard to
agreements to contract, our Supreme Court has referenced the following:
“If all the conditions of the postponed agreement are specified in such agreement,
it is an agreement in praesenti. But where the conditions of the deferred contract
are not set out in the provisional one, or where material conditions are omitted, it
is not a contract in praesenti, because the minds have not met and may never
meet.” [Socony-Vacuum Oil Co, Inc v Waldo, 289 Mich 316, 322-323; 286 NW
630 (1939), quoting Peer v Hughes, 25 Ariz 105; 213 P 691 (1923). (Citations
omitted.)]
See also 17A Am Jur 2d, Contracts, § 35, p 64.
Here, no specifics regarding the manner in which the management agreement could be
amended were included in the clause providing for amendment, and, arguably, the management
agreement could have been amended in any number of ways to satisfy the MLCC requirements.
When the MLCC informed the parties that their agreement did not comply with its requirements,
plaintiff proposed an amendment that was approved by the MLCC, but rejected by defendant.
While the record shows that the parties subsequently engaged in some negotiations on
amendment of the agreement, ultimately they were not able to agree. Further, testimony showed
that the terms not yet agreed upon were essential to the parties’ agreement. Because the original
contract did not comply with the MLCC regulations, and the parties could not agree on an
amendment, there was no meeting of the minds and the contract was void. In other words,
because the parties failed to agree on an amendment required by the original management
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agreement, there was a failure of the agreement as a whole. Thus, the trial court properly found
the management agreement to be void ab initio.
Defendant argues that even if the trial court was correct in its decision to void the
management agreement, the asset purchase agreement was a valid contract that was capable of
enforcement. Generally, the failure of a distinct part of a contract does not void valid, severable
provisions. Samuel D Begola Services, Inc v Wild Bros, 210 Mich App 636, 641; 534 NW2d 217
(1995). The primary consideration in determining whether a contractual provision is severable is
the intent of the parties. Id. Our Supreme Court has explained as follows:
Two principal factors are considered: first, “whether the two or more promises or
parts of the contract are so interdependent or interwoven that the parties must be
deemed to have contracted only with a view to the performance of both, and
would not have entered into one without the other”; and second, whether the
consideration for the several promises can be apportioned among them without
doing violence to the contract or making a new contract for the parties. 3
Williston, Contracts (3d ed), § 532, p 764. However, “[e]ven though the
consideration for each agreement is distinct, if the agreements are interdependent
and the parties would not have entered into one in the absence of the other, the
contract will be regarded . . . as entire and not divisible.” Id., p 765. [Dumas v
Auto Club Ins Assoc, 437 Mich 521, 616-617, n 87; 473 NW2d 652 (1991).]
Here, the asset purchase agreement included a severability provision. Clearly, however,
without a management agreement that provided for plaintiff’s operation of the bar and billiard
hall under defendant’s liquor license, the business would be of little value to plaintiff. Testimony
at trial showed that the parties treated the agreements as a “package deal,” and that the
management agreement was added to the purchase agreement to facilitate operation of the
business that was the subject of the purchase agreement. Indeed, plaintiff’s agent testified the
management agreement was essential to the entire transaction. Thus, while the parties may have
intended that specific terms of the purchase agreement be severable under the severability
provision, because the management agreement and purchase agreement were “so interdependent
or interwoven that the parties must be deemed to have contracted only with a view to the
performance of both,” and the consideration paid by plaintiff could not be apportioned “without
doing violence to the contract or making a new contract for the parties,” Dumas, supra, the trial
court did not err in finding the purchase agreement, as well as the management agreement, void
ab initio.
Plaintiff argues in its cross-appeal that the trial court erred in not granting its request for
specific performance. However, because the parties’ agreements were void ab initio, the remedy
of specific performance is not available. See Bailey v Bailey, 321 Mich 166, 177; 32 NW2d 429
(1948).
Plaintiff argues next that the trial court erred by entering judgment for unjust enrichment
against defendant instead of against third-party defendants. We review a trial court’s conclusions
regarding equitable determinations de novo and review the court’s findings of fact for clear error.
Forest City Enterprises v Leemon Oil Co, 228 Mich App 57, 67; 577 NW2d 150 (1998).
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Even where no valid contract exists, a person who has been unjustly enriched at the
expense of another is required to make restitution to the other. Michigan Educational Employees
Mut Ins Co v Morris, 460 Mich 180, 198; 596 NW2d 142 (1999). The elements of a claim for
unjust enrichment are (1) receipt of a benefit by the defendant from the plaintiff, and (2) which
benefit it is inequitable that the defendant retain. B & M Die Co v Ford Motor Co, 167 Mich
App 176, 181; 421 NW2d 620 (1988). Although we review a trial court’s conclusions regarding
equitable relief de novo, this Court will not reverse the trial court’s determinations unless the
findings are clearly erroneous or this Court is convinced that it would have reached a different
result. Day v Lacchia, 175 Mich App 363, 372; 437 NW2d 400 (1989).
Defendant contends that neither defendant Heartbreakers, Inc. nor third-party defendants
Thomas and Susan Petty and Joseph and Candyce Giordano were unjustly enriched because none
of those parties received a benefit from plaintiff’s improvements to the property. However, the
fact that one or more of the parties was unjustly enriched is well supported by record evidence
that plaintiff expended considerable sums in remodeling the building and that some of those
renovations improved the value of the property, irrespective of its future use. See Pakulski v
Ludwiczewski, 291 Mich 502, 511; 289 NW 231 (1939).
The question is whether defendant benefited from the improvements to the property or
whether third-party defendants received the benefit. Review of the trial court’s findings indicates
that the court did not differentiate between the corporate defendant, Heartbreakers, Inc., and the
individual third-party defendants. For example, the court found that plaintiff owed rental
payments to “defendant,” and the court further noted that “defendant has possession and title to
the property.” However, the evidence presented showed that the lease for the premises was
between plaintiff and third-party defendants. Further, Joseph Giordano testified that defendant
corporation’s only business was operating a bar and, at the time of trial, defendant had no
business. In addition, the district court action for unpaid rent was filed by third-party defendant
Joseph Giordano against plaintiff, and defendant corporation was not a party to that action. Also,
defendant corporation did not submit any evidence that it had possession of the property after
plaintiff vacated the premises or intended to utilize the property in the future.
On this record, we conclude that the trial court erred in assuming that defendant
Heartbreakers, Inc. had some ownership or possessory interest in the property. Because it is not
possible to determine from the record whether defendant had sufficient interest in the property to
receive a benefit from plaintiff’s improvements, we reverse the portion of the trial court’s order
dismissing third-party defendants with prejudice and remand to the trial court for additional
proceedings to determine whether defendant Heartbreakers, Inc., or third-party defendants, the
Pettys and Giordanos, were unjustly enriched.
Plaintiff argues next that the trial court erred in determining the amount of restitution it
owed defendant when it depreciated plaintiff’s improvements to the property. A trial court
should be accorded considerable latitude in fashioning equitable remedies. Governdale v City of
Owosso, 59 Mich App 756, 762; 229 NW2d 918 (1975). The measure of compensation for
improvements on the property of another for the purpose of unjust enrichment is the amount the
property is enhanced by reason of the repairs and improvements. Pakulski, supra.
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Plaintiff challenges the trial court’s decision to reduce the amount of the value of
improvements to the property for “wear and tear.” According to plaintiff, this allows double
recovery by defendant against plaintiff: first for payment of rent, and again for wear and tear on
the property. Contrary to plaintiff’s assertion, we conclude that the court was not taking into
account normal wear and tear on the premises and was properly focusing only on wear and tear to
specific improvements that plaintiff made and used during the business operation. These
devaluations are supported by evidence introduced at trial and are not unreasonable or clearly
erroneous.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction.
/s/ Jane E.Markey
/s/ William B. Murphy
/s/ Jeffrey G. Collins
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