MAIN STREET DINING LLC V CITIZENS FIRST SAVINGS BANK
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STATE OF MICHIGAN
COURT OF APPEALS
MAIN STREET DINING, L.L.C., f/k/a J.P.
PROPERTIES MANAGEMENT, L.L.C.,
UNPUBLISHED
February 12, 2009
Plaintiff-Appellant,
v
No. 282822
Oakland Circuit Court
LC No. 2007-085120-CK
CITIZENS FIRST SAVINGS BANK,
Defendant-Appellee.
Before: Wilder, P.J., and Cavanagh and Murray, JJ.
PER CURIAM.
Plaintiff appeals as of right the trial court’s order granting defendant’s motion for
summary disposition in this breach of contract case. We affirm.
I. Basic Facts
This case arises out of plaintiff’s attempt to seek specific performance of a purchase
agreement into which the parties entered on May 5, 2006, after defendant reneged on its promise
to purchase real property in Farmington Hills for $850,000. Pursuant to the agreement,
defendant placed a $10,000 deposit in escrow pending completion of conditions precedent prior
to closing. The conditions precedent included a due diligence period during which defendant
could inspect and assess the property to determine, in its sole discretion, whether to terminate the
agreement.
In the event of default, the purchase agreement provided as follows:
ARTICLE VII
DEFAULT
7.1 Default by Purchaser. In the event of a default by Purchaser, and after
expiration of the applicable Notice and Cure period, Seller shall be entitled to
terminate this Agreement. Seller further expressly acknowledges and agrees that
termination of their Agreement and retention of the Deposit shall be its sole and
exclusive remedy for default by Purchaser.
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7.2 Default by Seller. In the event of a default by Seller, and after expiration of
the applicable Notice and Cure period, Purchaser may, at its option, rescind this
Agreement or pursue any and all rights and remedies it may have under this
Agreement and applicable law, including, without limitation, claims for damages
and specific performance.
7.3 Notice and Cure. In the event of a default by either party, the non-defaulting
party must provide written notice, in accordance with the terms of this
Agreement. The defaulting party shall have thirty (30) days, or a longer period if
reasonably required to cure the default by diligent effort, to cure the default to the
reasonable satisfaction of the non-defaulting party.
The parties subsequently amended the purchase agreement twice. In the First
Amendment, the parties extended the due diligence period due to delays in removing a title
exemption and obtaining a survey. In the Second Amendment, the parties again extended the
due diligence period in order for defendant to request rezoning approval from the Farmington
Hills city council. Also in the Second Amendment, defendants waived all other conditions to
close. Both amendments specified that except for the amendment, “all terms and conditions of
the Purchase Agreement between the parties shall remain unchanged.”
Although the city council approved rezoning on February 12, 2007, defendant notified
plaintiff on February 20, 2007, that it was terminating its due diligence and the purchase
agreement and that it was releasing its deposit to plaintiff. Defendant withdrew its rezoning
approval request on February 26, 2007.
On August 14, 2007, plaintiff filed a complaint requesting specific performance of the
purchase agreement and noted it had sustained nearly $60,000 in damages due in part to a
probable drop in property value because of a soft real estate market. Defendant moved for
summary disposition on the grounds that plaintiff’s sole remedy was retention of the deposit. In
granting defendant’s motion for summary disposition, the trial court concluded that the contract
language clearly and unambiguously provided that plaintiff’s sole remedy was termination of the
agreement and retention of the deposit and that this contractual provision was not waived by the
Second Amendment, which left the terms and conditions of the purchase agreement unchanged
with the exception of the amendment.
II. Analysis
Plaintiff argues that the trial court erred in interpreting the liquidated damages clause as
permitting defendant to opt out of the purchase agreement. This Court reviews de novo an
appeal from an order granting a motion for summary disposition. Dressel v Ameribank, 468
Mich 557, 561; 664 NW2d 151 (2003). A motion for summary disposition pursuant to MCR
2.116(C)(10) should be granted when there is no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law. Maiden v Rozwood, 461 Mich 109, 120; 597
NW2d 817 (1999). A genuine issue of material fact exists when reasonable minds could differ
after drawing reasonable inferences from the record. West v Gen Motors Corp, 469 Mich 177,
183; 665 NW2d 468 (2003). In reviewing this issue, the Court must consider the pleadings,
affidavits, depositions, admissions, and other documentary evidence and construe them in the
light most favorable to the nonmoving party. Corley v Detroit Bd of Ed, 470 Mich 274, 278; 681
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NW2d 342 (2004). In addition, the Court reviews the proper effect of a contractual clause and
the determination of whether an equitable remedy is appropriate de novo. McDonald v Farm
Bureau Ins Co, 480 Mich 191, 197; 747 NW2d 811 (2008).
“[T]he primary goal of contract interpretation is to ascertain and effectuate the intent of
the contracting parties. The law presumes that the contracting parties’ intent is embodied in the
actual words used in the contract itself.” City of Grosse Pointe Park v Michigan Muni Liability
& Prop Pool, 473 Mich 188, 218-219; 702 NW2d 106 (2005). In interpreting a contract, courts
give contractual language its plain and ordinary meaning unless otherwise defined. English v
Blue Cross Blue Shield of Michigan, 263 Mich App 449, 471; 688 NW2d 523 (2004). When the
contractual language is plain and unambiguous, the contract must be enforced by its terms.
Burkhardt v Bailey, 260 Mich App 636, 656; 680 NW2d 453 (2004).
In this case, despite the purchase agreement’s clear and unambiguous language providing
that “termination of this Agreement and retention of the Deposit shall be [plaintiff’s] sole and
exclusive remedy for default by Purchaser[,]” (emphasis supplied) plaintiff claims that a proper
reading of the purchase agreement’s due diligence and Notice and Cure provisions precluded
application of this remedial provision. We conclude that such a reading misconstrues the
contractual language at issue and renders an incorrect interpretation of the contract.
Regarding the due diligence provision, plaintiff correctly observes that defendant waived
all conditions to close in the Second Amendment (with the exception of the amendment) and that
as the due diligence provision was a condition to close, defendant waived its right to terminate
the contract under this provision. However, while the due diligence provision specifically refers
to defendant’s right to terminate the contract in its sole discretion if it is not satisfied with the
results of its due diligence, that provision also provides that should defendant terminate the
contract under that provision, neither party would have any further obligations under the
agreement.1 Given that defendant released its deposit to plaintiff upon informing plaintiff it
would not purchase the property, it is clear defendant did not terminate the contract under this
provision. Furthermore, plaintiff’s argument ignores the remainder of the Second Amendment’s
language expressly providing that with the exception of the amendment, all terms and conditions
of the purchase agreement remain unchanged. Consequently, the remedial provision designating
termination of the agreement and retention of the deposit as plaintiff’s “sole and exclusive
remedy” was unaffected by the Second Amendment.
1
The due diligence section, Article VI, provides in part:
6.2 Results of Due Diligence: In the event Purchaser, in its sole discretion, is not
satisfied with the results of any studies, tests, or inspections conducted pursuant to
paragraph 6.1 of this Agreement, Purchaser may, by written notice to Seller prior
to expiration of the period set forth in paragraph 6.1, terminate this Agreement.
In the event this Agreement is terminated pursuant to this paragraph, Seller and
Purchaser shall have no further obligations to the other under this Agreement.
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With respect to the Notice and Cure provision (section 7.3), plaintiff maintains that a fair
reading of this section precludes summary disposition because 1) when read in tandem with the
remedial provision (section 7.1), the requirement that defendant attempt to cure a default by
diligent effort only triggers the remedial provision where defendant cannot timely complete the
transaction despite its best efforts and 2) defendant’s failure to use diligent effort precludes
defendant from availing itself of the remedial provision because the diligent effort clause
amounted to a constructive condition precedent. Both arguments fail.
First, although the Notice and Cure provision expressly allows a defaulting party 30 days
or other reasonable period to cure a default by diligent effort to the satisfaction of the nondefaulting party, the applicability of the remedial provision is not contingent upon the defaulting
party’s diligent effort to cure. Rather, the remedial provision only indicates that plaintiff may
not terminate the contract until the Notice and Cure period expires. Thus, that defendant failed
to diligently cure its default (i.e., the failure to close) within a reasonable period did not preclude
application of the remedial provision, but on the contrary, actually triggered it. In light of this,
the Notice and Cure provision merely allows a defaulting party time within which to cure a
default and does not preclude application of the remedial provision.
Second, assuming the diligent effort clause amounts to a constructive condition precedent
to application of the remedial provision, it is the failure to exercise such timely diligent effort
that would amount to a fulfillment of that condition rather than the positive exercise of diligent
effort to cure a default. Indeed, a condition precedent must occur before there is a right to
performance. Mikonczyk v Detroit Newspapers, Inc, 238 Mich App 347, 350; 605 N.2d 360
(1999). As noted above, the remedial provision here becomes applicable only after the Notice
and Cure period expires. In other words, if the party fails to cure a default by diligent effort
within 30 days or a reasonable time, plaintiff is entitled terminate the contract and retain the
deposit. The failure to cure a default by diligent effort is exactly what happened in this case as
defendant made no effort at all. Thus, even if defendant were affirmatively obligated to exercise
diligent effort to cure a default, the failure to do so rendered the remedial provision applicable.
Plaintiff attempts to distinguish breach of contract from default, asserting that because
defendant breached rather than defaulted on the contract, it may not avail itself of the remedial
provision. Initially we note that while plaintiff is correct in asserting that a breaching party to a
contractual agreement may not recover damages for a breach by the other party, Verran v
Blacklock, 60 Mich App 763, 768; 231 NW2d 544 (1975), defendant alleges no breach by
plaintiff and does not assert damages. On the contrary, defendant has complied with the
remedial provision and has released its deposit to plaintiff. In any event, Black’s Law Dictionary
(8th ed) defines “breach of contract” as a “[v]iolation of a contractual obligation by failing to
perform one’s own promise, by repudiating it, or by interfering with another party’s
performance[,]” and “default” as “[t]o be neglectful,; esp., to fail to perform a contractual
obligation.” See Morley v Automobile Club, 458 Mich 459, 470; 581 NW2d 237 (1998) (courts
may rely on dictionary definitions to find meanings of terms in contracts). The purchase
agreement only references remedies in the event of default and does not mention breach.
However, given that defendant failed to perform its promise to close on the property, plaintiff’s
contention concerning these terms is nothing more than a distinction without a difference.
Additionally, we note plaintiff’s reliance on Milner Hotels v Ehrman, 307 Mich 347; 11
NW2d 914 (1943), and Hendrick v Firke, 169 Mich 549; 135 NW2d 319 (1912), in support of
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the proposition that the purchase agreement did not entitle defendant to opt out of closing.
Neither case, however, is instructive. In Milner, the Court found specific performance
appropriate where the seller refused to close on the property and returned the deposit to the
purchaser because the return of a deposit does not constitute the payment of damages. Milner,
supra at 349-350, 357. In Hendrick, the Court found specific performance appropriate because
the parties’ contract did not give the purchaser the option to purchase the property or pay a
stipulated sum. Hendrick, supra at 554.
The instant case is distinguishable for two reasons. First, unlike Milner, the deposit here
is being forfeited rather than returned. Second, unlike both cases, the purchase agreement here
provides for termination of the contract and retention of the deposit as plaintiff’s “sole and
exclusive remedy.” In contrast, the purchase agreement’s remedial provision for defendant in
the event plaintiff were in default expressly delineates specific performance as a remedy. In light
of this, the purchase agreement clearly did not contemplate specific performance as a remedy for
plaintiff or contemplate defendant’s forfeiture of the deposit as a mere penalty. Thus, despite
plaintiff’s expectation that defendant would follow through with its promise, we must enforce the
clear and unambiguous language of this contract. Burkhardt, supra at 656. Indeed, “[t]he
judiciary may not rewrite contracts on the basis of discerned ‘reasonable expectations’ of the
parties . . . .” Id. at 656-657.
Finally, plaintiff argues that the remedial provision is void because its enforcement would
be unreasonable or unconscionable given the actual damages plaintiff would suffer and given
defendant’s superior bargaining power. This argument fails. A liquidated damages provision
fixes the amount of damages owed in the case of a breach of contract and is enforceable if the
amount is reasonable in relation to the injury suffered and is not unreasonable or unconscionable.
UAW-GM Human Resource Ctr v KSL Recreation Corp, 228 Mich App 486, 508; 579 NW2d
411 (1998). A liquidated damages provision is appropriate “where actual damages are uncertain
and difficult to ascertain or are of a purely speculative nature.” Saint Clair Medical, PC v
Borgiel, 270 Mich App 260, 271; 715 NW2d 914 (2006) (quotation and citation omitted). The
validity of a liquidated damages clause depends on the conditions existing when the contract was
signed rather than the time of the breach. Solomon v Dep’t of State Highways and
Transportation, 131 Mich App 479, 484; 345 NW2d 717 (1984).
In contesting plaintiff’s argument, defendant calls attention to Curran v Williams, 352
Mich 278; 89 NW2d 602 (1958), which is directly on point. In Curran, the purchase agreement
permitted the seller to retain the deposit of $1,000 as liquidated damages should the purchaser
fail to complete the purchase of the property at issue. Id. at 279-280. The Court held that even
though the seller claimed damages in excess of seven times the amount of the deposit, the
liquidated damages provision was enforceable because
at the time of the execution of this agreement it would have been difficult to
ascertain the damages the respective parties might suffer in the event of breach of
the agreement. It would certainly not be possible to assume at that time that in the
event the purchaser failed to go through with his contract that the seller might find
someone else to buy at approximately the same price. Other factors with
reference to the damages might be equally difficult to arrive at. Therefore, it
would appear that the facts in the instant case, at the time of the execution of the
agreement, were such that the damages were difficult to ascertain, and that the
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honest attempt of the parties themselves to compute the best they could the just
compensation from loss by breach of the contract justified the liquidated damage
provision. The parties themselves being more intimately associated with the
circumstances and therefore better able to compute the actual or probable
damages than might a court or jury after breach. [Id. at 286-287.]
Here, plaintiff estimates damages to be nearly $60,000. However, as in Curran, it would
have been difficult to ascertain the amount of damages the parties might suffer in the event of a
breach. While plaintiff contends the amount lost in light of the amount of the deposit renders the
remedial provision unconscionable and unreasonable, the amount claimed in damages is
proportionally less than the amount the seller claimed in Curran. Moreover, plaintiff’s claim
that it lost the benefit of the bargain due to a fluctuating real estate market actually cuts against
plaintiff’s cause. Indeed, the effects of a fluctuating real estate market would be difficult to
ascertain at the time the agreement was signed and the parties’ awareness of this uncertainty put
them in a better position than a court or jury to compute probable damages after a breach.
Certainly plaintiff could have bargained for a higher deposit if that were in its best interests.
However, that retention of the deposit seems unfair to plaintiff now is not a basis to interpret the
contract contrary to its plain meaning.
Lastly, we reject plaintiff’s contention that defendant had superior bargaining power
thereby rendering the purchase agreement unconscionable. Indeed, plaintiff was represented by
counsel while negotiating the purchase agreement and was under no obligation to enter into the
agreement. Clark v DaimlerChrysler Corp, 268 Mich App 138, 144; 706 NW2d 471 (2005)
(procedural unconscionability exists where the weaker party has no realistic alternative to the
acceptance of a term and no freedom to accept or reject a term). Thus, we conclude that the trial
court did not err in granting summary disposition.2
Affirmed.
/s/ Kurtis T. Wilder
/s/ Mark J. Cavanagh
/s/ Christopher M. Murray
2
While plaintiff argues that summary disposition is disfavored as a general rule, summary
disposition is appropriate here where there is no genuine issue of material fact regarding whether
the remedial provision provided plaintiff’s sole and exclusive remedy in the event of default.
Maiden, supra at 120. Despite plaintiff’s assertion to the contrary, plaintiff has failed to cite any
specific issue of fact, and it is not our responsibility to fashion and support plaintiff’s argument
on this score. Mudge v Macomb Co, 458 Mich 87, 105; 580 NW2d 845 (1998).
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