Chapeau Vert, Inc. v. Tel. Bistro

1

CHAPEAU VERT, INC., and GORDON H. LEE, Plaintiffs-Appellants, v. TELEGRAPH BISTRO, LLC, and 16650 TELEGRAPH ROAD, LLC, Defendants-Appellees.

No. 358350

Court of Appeals of Michigan

May 25, 2023

UNPUBLISHED

Wayne Circuit Court LC No. 20-003636-CB

Before: Rick, P.J., and Shapiro and O'Brien, JJ.

PER CURIAM

Plaintiffs Chapeau Vert, Inc., and Gordon H. Lee, appeal as of right the stipulated order granting summary disposition to defendants Telegraph Bistro, LLC, and 16650 Telegraph Road, LLC, under MCR 2.116(C)(10) (no genuine issue of material fact).^[1] We reverse and remand for further proceedings.

I. BACKGROUND

In November 2018, the parties entered into an agreement for the sale of plaintiffs' business and property to defendants. The sale was governed by a land contract, a promissory note, and a security agreement. Under the terms of the land contract, plaintiff Chapeau Vert agreed to sell its business interest and assets to defendant Telegraph Bistro for a purchase price of $160,000, plus a $2,500 down payment, for a total price of $162,500. The land contract stated that defendants were obligated to make $1,000 payments each month until the full balance was paid off. However, the contract also contained a provision indicating that defendants could alternatively satisfy their obligation under the land contract in full at any time by paying plaintiffs a lump sum equal to 50% of the remaining balance due on the land contract. If defendants defaulted and failed to cure the default within 90 days of receiving notice of forfeiture, plaintiffs were entitled to accelerate the debt and demand payment of the entire remaining balance. The land contract further stated that defendants were entitled to written notice of any claims of forfeiture before proceedings to recover possession of the land could move forward. Along with the land contract, the parties also entered into a noncompete agreement, under which plaintiff Gordon Lee agreed not to engage in any similar business within a five-mile radius of defendants' property for a period of five years in exchange for consideration of $50,000, due at closing.

On July 18, 2019, plaintiffs filed a notice of forfeiture, claiming that defendants were in default for failing to make monthly payments between April 2019 and July 2019. Plaintiffs sought $4,000 in principal and interest plus $400 in late fees. The notice stated that the default had to be cured within 90 days of service of the notice, and that the land contract would be forfeited if the balance remained unpaid. On July 30, 2019, defendants sent a check to plaintiffs for $4,500. On August 22, 2019, defendants sent another check for $46.65. On September 16, 2019, defendants sent two checks to plaintiffs, one for $5,000 and the other for $17,000. Thus, between July 2019 and September 2019, defendants paid plaintiffs a total of $26,546.65. It is undisputed that defendants cured the default arising from the July 2019 notice of forfeiture.

On October 22, 2019, plaintiffs filed a second forfeiture notice, claiming that defendants were in default for missing payments in September 2019 and October 2019. Plaintiffs sought $2,000 in principal and interest, plus $700 in late fees. In December 2019, defendants sent two checks to plaintiffs totaling $9,800, each dated December 19, 2019. Both checks stated that they were executed as "partial pay for noncompete." Plaintiffs applied both payments to the balance on the noncompete agreement. Notably, there is no evidence in the record that plaintiffs applied any of the funds from December 2019 to cure the October 2019 default.

In March 2020, plaintiffs filed a complaint asserting that defendants committed breach of contract and land contract forfeiture for failure to comply with the October 2019 notice of forfeiture. Plaintiffs further argued that defendants were in default for failure to make monthly payments between September 2019 and February 2020. In response, defendants generally denied plaintiffs' allegations, and pointed out that they never received notice of a forfeiture action arising out of the alleged late payments from September 2019 through February 2020. Defendants also stated that they believed they had made timely payments to cure the default arising from the October 2019 notice of forfeiture, and alleged that plaintiffs were manipulating the payments to manufacture a breach and default.

Defendants moved for summary disposition under MCR 2.116(C)(8) and asked for a declaratory judgment under MCR 2.605. Defendants asserted that the land contract, security agreement, and promissory note all permitted defendants to pay off the balance owed to plaintiffs at any time and receive a 50% discount on the balance regardless of whether defendants were in default. Defendants requested that the trial court enter an order calculating the 50% discount at $151,256, granting plaintiffs an additional $3,800 in late fees, and awarding defendants $8,500 in attorney fees.

In response, plaintiffs argued that defendants were not entitled to the 50% discount because the land contract expressly stated that plaintiffs had the right to declare the contract forfeited and accelerate payment of the entire amount owed once defendants defaulted on the contract. Plaintiffs further contended that because a default under the land contract constituted a default under both the security agreement and the promissory note, defendants were precluded from paying the balance at a discount under the security agreement and promissory note as well.

At a hearing on the motion, the trial court determined that $162,500 was owed under the land contract, and $145,000 was owed under the promissory note, for a total balance owed of $307,500. The trial court also listed the payments made by defendants, determining that they had already paid a total of $34,300 to plaintiffs. In reviewing the terms of the land contract, the trial court found that in order to commence forfeiture proceedings, defendants had to be in default for more than 90 days after written notice was given. However, the trial court found that any default arising out of the July 2019 and October 2019 notices of forfeiture had been cured because defendants made payments within 90 days of receiving each notice.

Regarding the default that occurred between September 2019 and February 2020, the trial court found that defendants could not be in default unless plaintiffs sent a notice of forfeiture before initiating forfeiture proceedings. It ruled that the complaint filed in March 2020 did not constitute proper notice of forfeiture. Finally, the trial court opined that the clear and unambiguous language of the contracts did not preclude defendants from exercising the option to pay off the remaining balances in a discounted lump sum. The trial court ultimately entered an order granting defendants' motion for summary disposition under MCR 2.116(C)(10), holding that the total balance owed by defendants to plaintiffs was $302,512, but that defendants were entitled to the 50% discount for lump-sum payments and thus owed only $151,256. The trial court further agreed with plaintiffs that they were owed $3,800 in late fees, bringing the total owed by defendants to $155,056. The trial court ordered defendants to pay the amount owed within seven days of the entry of the order, and that in exchange, plaintiffs would stipulate and agree to waive their right to file a motion for reconsideration or subsequent appeal once they cashed defendants' check.

Following the entry of the order, plaintiffs declined to cash defendants' check and instead moved for reconsideration. Plaintiffs claimed that the plain, unambiguous language of the land contract, security agreement, and promissory note entitled them to full payment of the remaining balance and barred defendants from any discount under the terms of the contract. The trial court denied plaintiffs' motion for reconsideration, finding that no palpable error occurred in the court's initial ruling. This appeal followed.

II. ANALYSIS

Plaintiffs argue that the trial court erred in granting defendants' motion for summary disposition because defendants defaulted under the terms of the contract and were not entitled to a discounted purchase price. We agree that defendants defaulted on the land contract in October 2019 and failed to cure the default. Further, we find that summary disposition was improper because a question of fact exists as to the correct interpretation of the documents governing the sale of the property.

"We review de novo a trial court's decision on a motion for summary disposition." El-Khalil v Oakwood Healthcare, Inc, 504 Mich. 152, 159; 934 N.W.2d 665 (2019). Plaintiffs claim the trial court erred in granting defendants summary disposition under MCR 2.116(C)(8), but the trial court indicated that it granted defendants' motion under MCR 2.116(C)(10). We will therefore analyze defendants' argument under MCR 2.116(C)(10). El-Khalil, 504 Mich. at 159. Motions brought under MCR 2.116(C)(10)

test[] the factual sufficiency of a claim. When considering such a motion, a trial court must consider all evidence submitted by the parties in the light most favorable to the party opposing the motion. A motion under MCR 2.116(C)(10) may only be granted when there is no genuine issue of material fact. A genuine issue of material fact exists when the record leaves open an issue upon which reasonable minds might differ. [Id. at 160 (quotation marks and citations omitted).]

The proper interpretation of a contract, as well as whether a contract is ambiguous, are questions of law that are also reviewed de novo. Able Demolition, Inc v City of Pontiac, 275 Mich.App. 577, 581; 739 N.W.2d 696 (2007). Finally, "[w]e review the trial...