Orley Enterprises, Inc v. Tri-Pointe, Inc
522 N.W.2d 896
Mich. Ct. App.
1994
Check Treatment

ORLEY ENTERPRISES, INC v TRI-POINTE, INC

Docket No. 147428

Court of Appeals of Michigan

September 6, 1994

206 Mich App 614

Submitted April 12, 1994, at Detroit.

Donald C. and Rudale W. Austin brought an action in the Wayne Circuit Court against Orley Enterprises, Inc., alleging breach of a lease agreement. Orley, which had assigned the lease and financed the sale of its business assets to Lyons & Company, Inc., pursuant to an asset purchase agreement and promissory note, brought a third-party action against Tri-Pointe, Inc., and othеrs who had succeeded Lyons & Company as assignees of the lease and purchasers of the business assets and who had returned the business assets to Orley following their default on the lease. Orley contended that it was entitled to both a return of the business assets and payment on the promissory note under the terms of the asset purchase agreement. The court, Michael L. Stacey, J., granted summary disposition for the third-party defendants, ruling that return of the business assets and payment on the promissory note were alternative, and not cumulative, remedies under the asset purchase agreement. Orley appealed.

The Court of Appeals held:

  1. The default provision of the asset purchase agreement provides for the rеmedy of return of the business assets or payment of the balance owed under the agreement, but not both.
  2. The promissory note and the asset purchase agreement were part of the same transaction. Orley may not pursue a separate action on the promissory note because to allow it to do so could result in double redress for a single injury, which would be contrary to the doctrine of election of remedies.

Affirmed.

TAYLOR, J., dissenting, stated that the default provision of the asset purchase agreement provides for the cumulative, and not mutually exclusive, remedies of return of the business assets and payment of the balance due, that the cumulative remedies do not violate the doсtrine of election of remedies because the remedies could have been intended for distinct injuries, and that other provisions in the asset purchase agreement and the promissory note precluded merger of the promissory note and asset purchase agreement.

Paskin, Nagi & Baxter, P.C. (by Jeannette A. Paskin and Daniel J. Seymour), for Orley Enterprises, Inс.

H. Nathan Resnick, for Tri-Pointe, Inc., Pamela Lyons, and Robert Marzolino.

Cresence C. Schwartz, for Michelle Lyons.

Before: SHEPHERD, P.J., and TAYLOR and R. D. GOTHAM, * JJ.

SHEPHERD, P.J. On February 8, 1991, Donald C. and Rudale W. Austin sued Orley Enterprises, Inc., and Lyons & Company, Inc., for breach of a lease and damages.1 On March 19, 1991, contemporaneous with its response to plaintiffs’ complaint, Orley filed a third-party complaint against the assignees of the lease, Tri-Pointe, Inc., Pamela Lyons, Michelle Lyons, and Robert Marzolino, alleging default on the lease and seeking indemnification, damages under an asset purchase agreement, and payment of a promissory note. The primary action was resolved on November 26, 1991, when the court entered consent judgments against Orley and Lyons & Company. On July 3, 1991, Orley moved for partial summary disposition in the third-party action, which the court denied. Subsequently, third-рarty defendants moved for summary disposition, arguing that by demanding return of the business, Orley had foreclosed the possibility of pursuing any other remedies for the default on the lease. In an order dated November 25, 1991, the trial court dismissed the third-party complaint. ‍​‌​‌​‌‌​‌‌‌​​‌‌‌​​‌‌​‌​​‌‌​​‌​​‌​​​‌‌​​​‌‌‌‌​‌‌​‍Orley appeals from that order as of right. We affirm.

The focal point of this case is an agreement bеtween Orley and Lyons & Company for the transfer of Orley‘s lease with the Austins, and the purchase of Orley‘s business assets. On March 17, 1990, before the lease was assigned to Lyons & Company, Orley and Lyons & Company entered into an asset purchase agreement. Pursuant to the terms of the agreement, Orley sold Lyons & Company the leasehold improvements, equipment, fixtures, supplies, business doсumentation, business name, goodwill, and telephone number for $85,000. The payment terms in the agreement provided that, at the time of the closing, Lyons & Company was to deliver to Orley a security agreement, a Uniform Commercial Code financing statement, and a promissory note in the amount of $70,000. Further, the agreement provided that in order to secure payment of the note, Lyons & Company‘s shareholders were required to personally and individually guarantee payment of the security agreement and promissory note. The asset purchase agreement was made contingent on Orley securing plaintiffs’ consent to assign the lease of the property to Lyons & Company. Orley assigned its lease to Lyons & Company on April 16, 1990. Subsequently, the asset purchase agreement was assigned to Tri-Pointe, Inc., a successor in interest to Lyons & Company.

On April 30, 1990, third-party defendants signed a promissory note, the terms of which paralleled those outlined in the asset purchase agreement, with a principal amount of $70,000. Pamela Lyons signed the note in her individual capacity and as president of Tri-Pointe, Inc. Michelle Lyоns and Robert Marzolino signed in their individual capacities.

After third-party defendants defaulted on the lease, they returned the business to Orley as demanded by Orley. Subsequently, Orley sought payment of the balance owing under the purchase agreement. Orley argued that it was a holder in due course of the promissory note and was entitled to payment on the notе. The trial court denied Orley‘s motion for summary disposition. Later, third-party defendants brought their own motion for summary disposition, arguing that Orley was precluded from demanding payments under the asset purchase agreement or the promissory note because Orley had elected to have the business returned. The trial court granted third-party defendants’ motion for summаry disposition.

On appeal, Orley argues that the trial court erred in dismissing its third-party complaint. Orley argues that it may maintain a separate action to recover principal and interest on the promissory note in addition to its recovery of the business under the terms of the purchase agreement. In response, third-party defendants argue that the trial court properly granted summary disposition in their favor. Third-party defendants argue that Orley is barred from seeking recovery under the promissory note because the business has been returned.

This Court interprets language in contracts according to its plain meaning. . Where written documents are unambiguous and unequivocal, their ‍​‌​‌​‌‌​‌‌‌​​‌‌‌​​‌‌​‌​​‌‌​​‌​​‌​​​‌‌​​​‌‌‌‌​‌‌​‍construction is for the court to decide as a matter of law. .2

In the present case, the default provision in the asset purchase agreement provided in relevant part as follows:

In the event of Default by the Purchaser in any material aspect of any of the terms of this Agreement, including but not limited to, failure to pay rent and failure to pay Seller for a period in exсess of sixty (60) days, Seller shall have the option of:

(a) Demanding payment of the total balance due under this Agreement;

(b) Requiring Purchaser to return ownership of the business to Seller, including the lease, all fixtures, furniture and equipment, existing on the date of closing and anything subsequently added by Purchaser up to the date of election of remedies by Seller. Upon this elеction by Seller, Purchaser shall execute any and all necessary documents to effect the total transfer of the business and the lease to Seller.

Our interpretation of the plain meaning of the default provision is that Orley could elect either to demand payment of the total balance due under the agreement or to require the return of the business. ; . Orley argues that the absence of the disjunctive term “or” between options a and b indicates that the remedies are concurrent rather than mutually exclusive. However, the language in the provision concerning the seller‘s “election of remedies” and the “option” of the two choices convinces us that Orley was required to сhoose one of the two remedies.

In the alternative, Orley argues that regardless of its remedies under the purchase agreement, it should be permitted to pursue a separate action as a holder in due course of the promissory note. We disagree with Orley‘s position. Here, the promissory note and the purchase agreement were clearly all part of the same transaction. Indeed, the purchase agreement dictated the terms of the promissory note. To allow Orley to pursue a separate action on the promissory note would run contrary to the doctrine of election of remedies. . In the present case, to allow a separate action on the promissory note would be logically inconsistent with Orley‘s prior election to have the business returned, and could result in double redress for a single injury. ; ; .

The cases cited by Orley on appeal, , and , are distinguishable from the situation in the present case because in each of those cases the Court found that separate agreements pertained to different property interеsts. In the present case, both the promissory note and the default provision in the purchase agreement provided security for the same business assets. Thus, McBride and Badour are inapposite to the case at bar.

Similarly, , is distinguishable from the present case. In that case, the plaintiff sought damages for breach of fiduciary duties, diversion of a corporate opportunity, and breach of an employment сontract. .

Although all of the claims therein arose out of the same course of conduct by the defendant, the counts sought different categories of damages, i.e., lost profits as opposed to bonuses. In the present case, both the promissory note and the default provision in the purchase agreement were intended to provide a remedy for the same underlying harm—breach of the purchase agreement. Thus, Production Finishing is also inapplicable to the present case.

Accordingly, the trial court properly granted summary disposition for third-party defendants ‍​‌​‌​‌‌​‌‌‌​​‌‌‌​​‌‌​‌​​‌‌​​‌​​‌​​​‌‌​​​‌‌‌‌​‌‌​‍because Orley has already been afforded a remedy through the return of the business. . We do not share the dissent‘s concern that this opinion will contribute to the drying up of venture capital in the case of small start-up businesses. This case is of much less significance than the dissent would imply. The case involves nothing more than an interpretation of a specific agreement. Other agreements exist under which it is clear that all remedies are cumulative. This was not such an agreement. In the grand scheme of American entrepreneurialism, frеe enterprise survives notwithstanding the inartful and unwise language of one transaction out of the thousands that are consummated every day.

Affirmed.

R. D. GOTHAM, J., concurred.

TAYLOR, J. (dissenting.) I respectfully dissent.

When contractual language is clear, its interpretation is a question of law for the court. When presented with a dispute, a court must determine what the parties’ agreement is and enforce it. Contractual language should be given its plain and ordinary meaning. . Our task, then, is to determine if the language at issue is ambiguous.

The parties in this case provided for default remedies in the purchase agreement as follows:

In the event of Default by the Purchaser in any material aspect of any of the terms of this Agreement... Seller shall have the option of:

(a) Demanding payment of the total balance due under this Agreement;

(b) Requiring Purchaser to return ownership of the business to Seller, including the lease, all fixtures, furniture and equipment, existing on the date of closing and anything subsequently added by Purchaser up to the date of election of remedies by Seller. Upon this election by Seller, Purchaser shall execute any and all necessаry documents to effect the total transfer of the business and the lease to Seller.

It is necessary to determine if clauses a and b are to be read conjunctively or disjunctively. Because the parties have used common English grammar, reference to the rules that control such punctuation is appropriate. Semicolons are commonly used to separate items in a list when the items themselves are lengthy or contain commas; when so used they act to join, not to contrast. If the choices are to be mutually exclusive, it is customary to place the word “or” after the semicolon. Simply stated, it is proper under these neutral grammatical principles to read an “and,” not an “or,” following the semicolon in clause a. Thus, the remedies in a and b are cumulative, i.e., the seller can use them both.

Much is made in the majority opinion of the doctrine of election of remedies. It is argued, in effect, that the election of remedies language in clause b requires the seller to elect between a and b, and possibly even the remedies in the promissory note. This is incorrect on all fronts.

First, underlying the majority‘s analysis is a misunderstanding of the doctrine of election of remedies. An election of remedies is not intended to prevent recourse to alternate remedies, but, rather, to prevent double redress for a single injury. . If the alternate remedies are consistent or сumulative, the doctrine never comes into play. ; . The majority‘s application of this doctrine depends on the unexplained assumption that “both the promissory note and the default provision in the purchase agreement were intended to provide a remedy for the same underlying harm.” It is not at all certain that this was the intent of the parties аnd, therefore, unless such intent is proved, the election of remedies is not required.

For example, the damages under clause a of the promissory note might have been intended to remedy unpaid property taxes or waste ‍​‌​‌​‌‌​‌‌‌​​‌‌‌​​‌‌​‌​​‌‌​​‌​​‌​​​‌‌​​​‌‌‌‌​‌‌​‍to the business realty or equipment. Such arrangements are permissible should parties choose to so contract. Indeed, in , this Court, interpreting the summary proceedings statute, MCL 600.5750; MSA 27A.5750, held that damages and forfeiture were both allowed. Similarly, in , a lessor brought a summary proceeding against a defaulting lessee and was awarded restitution of the premises and rent due. The lessor also kept the lessee‘s deposit of $1,250, which the lease provided would be retained as damages in the event of a default. Reversing the trial court‘s award of this amount to the lessee, the Supreme Court noted that the lessee‘s use of the property as a parking lot had required the demolition of buildings and the leveling of the land. . The lessor had small hope of leasing this property again without first making improvements. Thus, the lessor was entitled to retain the deposit to make him whole after the lessee‘s default, despite the successful summary proceedings.

There can be no question, then, that such provisions in a private contract to allow forfeiture and damages are permissible and in accord with public policy. The contract should be enforced as written to allow both remedies.

Further, the remedies under the promissory note should not be held to be mеrged into the purchase agreement because of the express antimerger language that the parties adopted. Section 13.07 of the purchase agreement clearly states:

This Agreement shall survive the closing and not merge in the documents delivered at the closing.

Section 2.3(d) of the agreement indicates that the promissory note wаs one of the documents that Lyons and Company was to deliver at the closing. This was done and the instruments should not be merged.

Moreover, the majority‘s assumption that double recovery would result from an award on the promissory note is contradicted by the parties’ stated intent in the note:

This Note made in the State of Michigan, shall be construed accоrding to the laws thereof, and if any provision[s] hereof are in conflict with any statute or rule of the law of the State of Michigan or are otherwise unenforceable for any reason whatsoever, then such provision(s) shall be deemed null and void to the extent of such conflict or unenforceability, but shall be deemed separable from and shall nоt invalidate any other provisions hereof.

This provision precludes a verdict for Orley on the promissory note only to the degree the factfinder determines that a double recovery would result and, even then, only if such recovery is not contemplated by the parties, as evidenced by the language of their contractual agreement.

In my view, then, both provisions in the purchase agreement are cumulatively enforceable and the promissory note was not merged into the purchase agreement and is independently enforceable. Thus, I would reverse the trial court‘s decision and remand this case for further proceedings consistent with this determination.

It is important, I believe, to сomment upon the unfortunate policy implications of the majority‘s handling of this matter. Many entrepreneurial endeavors are undertaken by financially precarious entities or individuals. It is axiomatic that we are all better off because of their efforts, for by such means are jobs, even whole industries, created. Yet, when one contracts with suсh a fledgling entity, the traditional safeguard for those who provide goods and products, or, as in this case, a building, has been to demand strong, financially secure individuals or entities to guarantee the payments of the entrepreneur. Without such assurances, there will be reasonable reluctance to contract with them. Because we wish to facilitate commerce with struggling, undercapitalized business ventures, the law should encourage arrangements such as the ones at issue. To not do so will only serve to dry up funds and services to start-up businesses.

Notes

1
Plaintiffs also sued Over the Rainbow, Inc., a prior lessee; however, a discussion of that party‘s interest is not necessary for purposes of this appeal.
2
The prior published opinion in Mt Carmel, supra, was vacated in part on other grounds on rehearing. See Mt Carmel Mercy Hosp v Allstate Ins Co, unpublished opinion per curiam of the Court of Appeals, decided March 22, 1993 (Docket No. 119978).
*
Circuit judge, sitting on the Court ‍​‌​‌​‌‌​‌‌‌​​‌‌‌​​‌‌​‌​​‌‌​​‌​​‌​​​‌‌​​​‌‌‌‌​‌‌​‍of Appeals by assignment.