RYAN ROSETT V DAVID TREPECK
Annotate this Case
Download PDF
STATE OF MICHIGAN
COURT OF APPEALS
RYAN ROSETT,
UNPUBLISHED
June 20, 2006
Plaintiff-Appellant,
v
No. 258531
Oakland Circuit Court
LC No. 2004-058865-CZ
DAVID TREPECK,
Defendant-Appellee.
Before: Markey, P.J., and Schuette and Borrello, JJ.
SCHUETTE, J. (concurring in part and dissenting in part).
I concur in the majority’s opinion that because plaintiff prayed to have the settlement
agreement enforced, the trial court abused its discretion in concluding that plaintiff did not
adequately plead for $25,000, which defendant owed pursuant to their settlement agreement. I
would also note that even if plaintiff had not adequately plead for $25,000, the trial court should
have allowed plaintiff to amend his complaint. Here, plaintiff requested the opportunity to
amend its complaint at the motion for summary disposition. Generally, leave to amend a
complaint shall be freely granted where justice requires. MCR 2.118(A)(2); Tierney v Univ of
Michigan Regents, 257 Mich App 681, 687; 669 NW2d 575 (2003).
However, I respectfully dissent in the conclusion reached by my distinguished colleagues
in the majority that the contract between the parties, two apparently savvy business associates,
contained an unenforceable penalty clause.
I. FACTS
In this case, the parties are businessmen and have been acquainted for many years. This
dispute revolves around three, somewhat connected, related transactions between the parties.
In April of 1999, defendant purchased all of plaintiff’s shares in Lone Star Coffee Co. for
$350,000, with defendant promising to pay this sum over a three-year period. Lone Star
guaranteed defendant’s indebtedness in this transaction. Plaintiff obtained a security interest in
all of Lone Star’s assets and apparently perfected its interests as well with appropriate UCC
filings. A second transaction occurred in March of 2001, where an entity named JavaHutt Two,
promised to pay $140,000, with $65,000 due immediately, to plaintiff’s father. The agreement
provided that periodic payments were to be paid as follows:
-1-
2. Payments. Contemporaneously with the execution of this Note, Borrower
shall pay to Creditor the sum of Sixty Five Thousand and 00/100 Dollars
($65,000.00). The remaining principal and interest on this note shall be paid in
monthly installments pursuant to the attached amortization which is incorporated
herein by reference as Exhibit ‘A’. However, said payments will not commence
until [Robert] provides termination of UCC financing statements filed by James
R. Lites – File # D528942 and [plaintiff] – File # D507670 on the above
referenced lease address and equipment.
It is not fully clear from the record here, but it seems that this second transaction occurred
because JavaHutt Two purchased the assets of Lone Star.1
According to plaintiff, defendant failed to make proper payments on this second
agreement. As a result, negotiations between the parties were ongoing, with the specter of
defendant filing bankruptcy looming in the background. In August of 2001, the parties entered
into a settlement agreement. This third transaction was an effort to resolve the indebtedness of
defendant to plaintiff from the previous contracts. The settlement agreement contained the
following key provisions:
WHEREAS, on or about April 16, 1999, [defendant] executed as maker to
[plaintiff] as Payee its [sic] promissory note in the principal sum of Three
Hundred Fifty Thousand ($350,000) Dollars (the “Note”). A copy of the Note is
attached as Exhibit A . . . [Settlement agreement, ¶ 2.]
***
[Defendant] will, upon the execution of this Agreement, pay to [plaintiff] the sum
of $50,000 in United States Currency upon the execution of this Agreement. [sic]
[Settlement agreement, ¶ 2.]
Robert Rosett has assigned, without recourse, to Ryan [plaintiff], the Lone Star
Note, free and clear of any claims to payment thereon by Robert Rosett, and/or
any other party. A copy of the assignment is attached hereto as Exhibit C.
[Settlement agreement, ¶ 3]
***
If the Lone Star Note is paid in full to [plaintiff] during its term then, in that
event, [defendant] shall pay to [plaintiff] within thirty (30) days after the Lone
Star Note is paid in full the sum of $25,000. If [defendant] fails to pay said
1
This case involves factual issues that merit a dose of clarity to better sort out the contractual
relationships and obligations between the parties.
-2-
$25,000 as herein set forth, then he shall be liable for $100,000 for breach of this
covenant without further notice. [Settlement agreement, ¶ 19 [sic].2]
***
Pursuant to the Lonestar [sic] Note: (i) James Lites releases any and all claims
which he may have against Lonestar, including, without limitation, release of any
UCC filings in the State of Michigan, or otherwise, and (ii) Rosett releases any
and all claims against Lonestar, including, without limitation, release of any and
all UCCs filed in the State of Michigan, or elsewhere. The Releases are attached
hereto as Exhibit D. [Settlement agreement, ¶ 12 [sic].]
***
This agreement represents the entire agreement between the parties hereto
regarding the subject matter contained herein. There are no oral agreements
between the parties effecting this agreement, and this agreement supersedes and
cancels any and all previous negotiations, arrangements, agreements and
understandings, if any, between the parties respecting the subject matter contained
herein. . . . [Settlement agreement, ¶ 14 [sic].]
This third contract basically contained a $25,000/$100,000 provision, meaning that if the Lone
Star note was paid in full, then defendant had 30 days to pay plaintiff the sum of $25,000. If the
defendant failed to pay plaintiff $25,000, during the 30 day window, then defendant would owe
plaintiff $100,000.
II. STANDARD OF REVIEW
This Court reviews de novo a trial court's decision on a motion for summary disposition.
Spiek v Dep't of Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998). In reviewing the
motion, the pleadings, affidavits, depositions, admissions, and any other admissible evidence are
viewed in the light most favorable to the nonmoving party. Radtke v Everett, 442 Mich 368, 374,
501 NW2d 155 (1993). More importantly as applied to this case, questions involving the proper
interpretation of a contract or the legal effect of a contractual clause are also reviewed de novo.
Archambo v Lawyers Title Ins Corp, 466 Mich 402, 408, 646 NW2d 170 (2002); Bandit
Industries, Inc v Hobbs Int'l, Inc (After Remand), 463 Mich 504, 511, 620 NW2d 531 (2001). In
ascertaining the meaning of a contract, we give the words used in the contract their plain and
ordinary meaning that would be apparent to a reader of the instrument. Wilkie v Auto-Owners
Ins Co, 469 Mich 41, 47, 664 NW2d 776 (2003).
III. ANALYSIS
2
The paragraphs are not numbered sequentially as paragraph nineteen immediately follows
paragraph four.
-3-
The trial court and my distinguished colleagues in the majority conclude that this
$25,000/$100,000 provision is an unenforceable penalty, deeming it to be “unconscionable or
excessive”. I disagree.
The recent decision of our Michigan Supreme Court in Rory v Continental Ins Co, 473
Mich 457; 703 NW2d 23 (2005), establishes a framework of analysis for the case now before
this Court. Here, the parties appear to be experienced hands in business dealings or if not expert,
certainly not naïve or lacking the capacity to contract as mature adults. The contract between
these parties was unambiguous and should be given its plain meaning. As Justice Young stated
in Rory:
A fundamental tenet of our jurisprudence is that unambiguous contracts are not
open to judicial construction and must be enforced as written. Courts enforce
contracts according to their unambiguous terms because doing so respects the
freedom of individuals freely to arrange their affairs via contract. This Court has
previously noted that " '[t]he general rule [of contracts] is that competent persons
shall have the utmost liberty of contracting and that their agreements voluntarily
and fairly made shall be held valid and enforced in the courts.' " [Rory, supra at
468 (emphasis in original; footnotes omitted)].
It would be inappropriate for this Court to impose its judgment on the reasonableness of this
$25,00/$100,000. provision entered into by these businessmen. Their initial contract called for a
payment of $350,000. Assets were sold. Guarantees were made. Bankruptcy clouds were on
the horizon. A final contract was made, this settlement agreement was agreed upon by the
parties. The Michigan Legislature has not chosen to pass a statute prohibiting a liquidated
damages clause similar to the $25,000/$100,000 provision agreed upon by the parties in this
case. Again, as stated in the Rory decision, “[o]nly recognized traditional defenses may be used
to avoid the enforcement of the contract provision” Rory, supra at 470 (footnote omitted).
Examples of traditional defenses include duress, waiver, estoppel, fraud, or unconscionability.
Id.
I would conclude that the application of Rory is not limited to insurance cases. Rather
the closing section of Rory addresses contracts as a whole, and only subsequently addresses the
narrow aspect of insurance contracts:
Consistent with our prior jurisprudence, unambiguous contracts, including
insurance policies, are to be enforced as written unless a contractual provision
violates law or public policy. Judicial determinations of "reasonableness" are an
invalid basis upon which to refuse to enforce unambiguous contractual provisions.
[Rory, supra at 491].
Here, defendant appears to argue that the $25,000/$100,000 provision falls within the traditional
defense of unconscionability. I disagree. MCL 440.2302 provides:
(1) If the court as a matter of law finds the contract or any clause of the contract to
have been unconscionable at the time it was made the court may refuse to enforce
the contract, or it may enforce the remainder of the contract without the
-4-
unconscionable clause, or it may so limit the application of any unconscionable
clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause
thereof may be unconscionable the parties shall be afforded a reasonable
opportunity to present evidence as to its commercial setting, purpose and effect to
aid the court in making the determination.
Here, the subject matter of the agreement was defendant’s $350,000 debt to plaintiff. In
accordance with the agreement, defendant paid plaintiff $50,000 and JavaHutt paid plaintiff a
total of $75,000. Defendant was required to pay plaintiff $25,000 within 30 days after JavaHutt
made its final payment on April 3, 2004. If JavaHutt defaulted, plaintiff would have been
required to provide defendant with notice in accordance with paragraph four of the agreement.
However, JavaHutt did not default. No matter how unfair defendant finds the provision, the
provision did not require plaintiff to give defendant notice that JavaHutt made its final payment.
Because defendant failed to do so, he was required to pay plaintiff $100,000. However, the trial
court only reviewed the reasonableness of the liquidated damages provision, without examining
the rest of the agreement. Here, the sum of $100,000 must be viewed in connection with the
underlying obligation of $350,000. In addition, the incentive provision did not exceed the
contract sum. Therefore, the incentive provision is not excessive or unconscionable as the
parties were in the best position to determine an appropriate incentive in light of the underlying
circumstances. As a result, I would find that the agreement should be enforced as written.
I agree with plaintiff’s argument that based on defendant’s past conduct and threat to file
bankruptcy, plaintiff had no choice but to enter into a settlement agreement. Defendant’s
argument that he was a mere innocent bystander waiting for notice of JavaHutt’s final payment
so he could pay plaintiff is unconvincing. Defendant was aware when the final payment was due
as the amortization schedule was attached to the settlement agreement. Moreover, defendant
actually negotiated the schedule with JavaHutt. Therefore, defendant’s performance was
possible.
I would reverse the decision of the trial court and would hold that the contract provision
in this case should be enforced as written in favor of plaintiff.
/s/ Bill Schuette
-5-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.