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### STATE OF MICHIGAN

COURT OF APPEALS

FRANCIS & HIGH PROPERTIES, LLC,

Plaintiff-Appellee, UNPUBLISHED November 17, 2015

v No. 322678
Jackson Circuit Court HAPPY’S PIZZA FRANCHISE, LLC, LC No. 13-003627-AV

Defendant-Appellant,

and

HAPPY’S PIZZA #19, INC.,

Defendant.

Before: G ADOLA , P.J., and H OEKSTRA and M. J. K ELLY , JJ.

P ER C URIAM

.

This appeal arises from a lease involving plaintiff Francis & High Properties, LLC, the owner of the subject commercial property, and defendants Happy’ s Pizza #19, Inc. (Happy’s #19) and Happy’s Pizza Franchise, LLC (HPF). HPF is the franch isor of Happy’s Pizza #19. HPF appeals by leave granted 1 an order of the circuit court affirming the ruling of the dist rict court that the language of the commercial lease at issue unambi guously named HPF as cotenant under the lease. Because we conclude that the language at issu e is ambiguous such that further factual development is necessary to ascertain the intent of the parties, we reverse the circuit

court’s affirmation of the distr ict’s court’s ruling and remand the matter to the district court for further proceedings.

On November 21, 2006, plaintiff, HPF, and Happy’ s Pizza #19, e xecuted a lease whereby plaintiff agreed to lease an a pproximately 1600 square foot com mercial space located in Jackson to Happy’s #19 for five years at a monthly rent of $3,000, with an automatic renewal at increasing rates for 10 years thereafter. On June 28, 2013, pl aintiff initiated an action for nonpayment of rent in the district court. Plaintiff named both Happy’s #19 and HPF in its

1 Francis & High Props LLC v Happy’s Pizza Franchise, LLC , unpublished order of the Court of Appeals, entered December 16, 2014 (Docket No. 322678).-2- complaint, and alleged that they owed $15,000 in rent. Plainti ff also sought an award of money damages in the amount of $139,544.80 for “lease acceleration” d ue under the terms of the lease. HPF answered that it was not a p roper party to the suit because it did not have a possessory interest in the premises and was not “a guarantor of the obliga tions of Tenant Happy Pizza #19, Inc. . . .” Happy’s #19 did not answer the complaint or make a n appearance in the action. In contrast, plaintiff argued that HPF had been named as a “tenant ” in the lease, meaning that HPF could be held liable for nonpaymen t of rent and the accelerated rent damages.

The district court ultimately ruled in plaintiff’s favor. The district court found that the preamble to the lease clearly and unambiguous expressed the par ties’ intent to designate HPF as a cotenant under the lease. Consequently, the district court c oncluded that HPF was liable as a tenant, and the district court entered a money judgment in favo r of plaintiff against both defendant HPF and defendant Happy’s #19 for the court’s jurisdi ctional limit of $25,000, MCL 600.8301(1), plus interest. 2 The district court also issued a judgment of possession in fa vor of plaintiff.

Defendant HPF filed an untimely claim of appeal with the circu it court, MCR 4.201(N)(2), which nevertheless he ard the appeal pursuant to MC R 7.103(B)(1)(b). In an opinion and order dated May 12, 2014, the circuit court affirme d the ruling of the district court. The circuit court agreed with the district court’s determinatio n that HPF was unambiguously named as a cotenant in the introductory paragraph to the lease. Further, the circuit court

2 After the district court aw arded plaintiff $25,000, plaintiff attempted to seek additional damages in circuit court, but the circuit court dismissed plain tiff’s claims on the basis of res judicata. Plaintiff now argues on appeal that res judicata doe s not apply because the district court’s order is void for lack of jurisdiction given that the a mount in controversy, as set forth in plaintiff’s complaint, exceeded the court’s $25,000 jurisdictio nal limit. See MCL 600.8301(1); Moody v Home Owners Ins Co , 304 Mich App 415; 849 NW2d 31 (2014). Contrary to this argument, it is clear that the amount in controversy did not ex ceed $25,000 because plaintiff affirmatively abandoned any claim for damages in excess of the district court’s jurisdictional limit. That is, plaintiff originally joined a claim for money damages to its complaint for demand of possession, seeking $139,544.80 in accelerated rent under th e lease agreement. See MCR 600.5739(1); MCR 4.201(G)(1)(a)( i ). HPF challenged the district court’s jurisdiction based on the amount in controversy, at which time plaintiff’s counsel ex pressly stated that plaintiff was “only pursuing the amount of the jurisdictional limit of the Co urt, which is 25,000.” Plaintiff then filed a supplemental complaint, seeking only $25,000. Hav ing filed suit for accelerated rent damages under the lease and then affirmatively agreed to forego damages over $25,000, plaintiff abandoned any such claim for damages. See Braverman v Granger , 303 Mich App 587, 609; 844 NW2d 485 (2014). Consequently, the amount in controversy d id not exceed $25,000, and the district court had subject ma tter jurisdiction over plainti ff’s claim. See MCL 600.8301(1); MCL 600.8302(1) and (3); MCL 600.5739( 1). The district court’s order awarding money damages was thus a final order resolving the question of money damages arising from the lease and res judicata bars plaintiff’s efforts to seek additional da mages in circuit court. See Sewell v Clean Cut Mgt, Inc , 463 Mich 569, 575-577; 621 NW2d 222 (2001).-3- emphasized that language in the lease relating to HPF’s ability to assume the lease indicated that HPF would “remain[] liable” for the obligations under the lease , and the circuit court reasoned that HPF must already be liable as a cotenant if it were to “re main” liable. The circuit court

denied HPF’s motion for recons ideration. HPF now appeals as on leave granted.

On appeal, HPF argues that the lease is ambiguous with respect to whether HPF was a “tenant” under the lease. Specifically, HPF concedes that the introductory language indicates that HPF is a tenant, but HPF maintains that this categorizatio n is contrary to (1) the signatory line which identified HPF only as a “franchisor,” (2) an assign ment provision which allows HPF to “assume” a tenant’s rights a nd liability under the lease, an d (3) a rider to the agreement which distinguishes between a “tenant” and “franchisor” with respect to the right of first refusal. Because the terms of the lease at issue are ambiguous, HPF asse rts that the district court should have considered extrinsic evidence to determine the parties’ in tent at the time they entered into the lease. Additionally, HPF argues that, if the parties’ inte nt could not be determined using conventional interpretation met hods, the district court should have construed the lease against plaintiff because plaintiff was the drafter of the agreement. In contrast, plaintiff argues that the lower courts correctly recognized that the language of the prea mble clearly and unambiguously

identifies defendant HPF as a cotenant with Happy’s #19.

A lease is “a contract by which a rightful possessor of real pr operty conveys the right to use and occupy the property in exchange for consideration.” NACG Leasing v Dep't. of Treasury, 495 Mich 26, 29 n 10; 843 NW2d 891 (2014), quoting Black's Law Dictionary (10th ed). As a contract, a lease is subject to the ordinary rules o f contract interpretation. Sprik v Regents of Univ of Mich , 43 Mich App 178, 193; 204 NW2d 62 (1972). The primary goal w hen interpreting a contract is to honor the intent of the parties. Stone v Auto-Owners Ins Co , 307 Mich App 169, 174; 858 NW2d 765 (2014). The contract must be r ead as a whole, and terms must be accorded their plain and ordinary meaning. Scott v Farmers Ins Exch , 266 Mich App 557, 561; 702 NW2d 681 (2005). “If the contractual language is unambiguous, courts must interpret and enforce the contra ct as written because an unambi guous contract reflec ts the parties'

intent as a matter of law.” Hastings Mut Ins Co v Safety King, Inc , 286 Mich App 287, 292; 778 NW2d 275 (2009).

While unambiguous language must be enforced as written as a ma tter of law, the meaning of ambiguous contract lan guage poses a question of fact

. Holland v Trinity Health Care Corp , 287 Mich App 524, 527; 791 NW2d 724 (2010). “[A] contract is ambiguous when two provisions irreconcilably c onflict with each other, or when a term is equally susceptible to more than a single meaning.” Id. (citation and quotation marks omitted). “If the contract, although inartfully worded or clumsily arranged, fairly admits of but one interpretation, it is not ambiguous.” Holmes v Holmes , 281 Mich App 575, 594; 760 NW2d 300 (2008) (quotation omitted). However, “courts cannot simply ignore portions of a contract in order to avoid a finding of ambiguity or in order to declare an ambiguity.” Klapp v United Ins Group Agency,

Inc , 468 Mich 459, 467; 663 NW2d 447 (2003). Moreover, an ambigui ty in a contract may be either patent or latent. Shay v Aldrich , 487 Mich 648, 667; 790 NW2d 629 (2010). While a patent ambiguity is apparent on the face of the document, a lat ent ambiguity arises when the contract language appears clear b ut other facts, including extr insic evidence, necessitate a choice among two or more possible meanings. Id. at 668. Thus, extrinsic evidence may be admissible to prove the existence of an ambiguity, and to resolve any ambi guity that exists. Id. If there is a-4- “true ambiguity, and the parties’ intent cannot be discerned th rough all conventional meanings, including extrinsic evidence,” courts employ the common-law rul e of contra proferentem , which requires that the agreement be c onstrued against the drafter. Holland , 287 Mich App at 527.

In this case, under the contract in question, the “tenant” pla inly leased plaintiff’s commercial building in exchange for which the “tenant” agreed t o pay a specified sum of rent. At issue is whether the term “tenant” refers solely to Happy’s Pizza # 19 or whether it also encompasses HPF such that HPF is liable for rent and damages un der the lease as a cotentant. Relevant to this dispute, the lease preamble supports plaintiff ’s assertion that HPF is a tenant. This preamble states:

This lease made this 21 st day of NOVEMBER, 2006 by and between FRANCIS & HIGH PROPERTIES, LLC , 21745 W. Eight Mile Road, Detroit, MI 48219 the lessor, herein after desi gnated as the Landlord, and, HAPPY’S PIZZA #19

INC ., 29201 Telegraph Road suite 607, Southfield, Mi 48034, the le ssee and HAPPY’S PIZZA FRANCHISE, LLC. , a Michigan limited liability company (hereinafter referred to as “Fra nchisor”), herein after designa ted as the Tenant. [Boldface in original.]

This paragraph identifies defenda nt HPF as the “Franchisor” and it labels Happy’ s Pizza #19 as a “lessee.” The paragraph also appears to designate both Happy’s Pizza #19 and HPF as “the

Tenant.” In the remainder of t he contract, the term “lessee” a ppears only once more, in a paragraph relating to permits. The term “franchisor” appears n umerous times in apparent reference to HPF. In comparison, the term “tenant” appears num erous times in the agreement and, as set forth below, the term “tenant” is often used in app arent reference solely to Happy’s Pizza #19, which evinces an ambigu ity with respect to the meani ng of the term tenant.

Specifically, to begin with, the signature page of the rider t o the agreement is signed by plaintiff, Happy’s Pizza #19, and HPF. The signature page clea rly identifies plaintiff as “landlord,” Happy’s Pizza #19 as “t enant,” and HPF as “franchis or.” It does not denote HPF as a “tenant,” and yet it specifically employs the term “tenant” in reference to Happy’s Pizza #19 as opposed to employing the term “le ssee” to refer to Happy’s Pizz a #19. This categorization of the parties does not comport with the preamble’s identification of HPF as a “tenant.” Moreover, the rider’s caption clearly uses the term “tenant” solely in refere nce to Happy’s Pizza #19. It states:

RIDER ATTACHED TO AND MADE A PART OF

A CERTAIN LEASE BY AND BETWEEN FRANCIS & HIGH PROPERTIES, LLC, AS LANDLORD, HAPPY’S PIZZA #19, INC, AS TENANT AND HAPPY’S PIZZA FRANCHISE, LLC, AS FRANCHISOR

CONCERNING LEASED PREMISES LOCATED AT 1236 Francis Street JACKSON, MICHIGAN

Further, when examining clauses within the agreement and the r ider, there are numerous additional instances in which it appears that the term “tenant” has been used solely in reference to Happy’s Pizza #19 so as not to include HPF. For example, ¶ 8 of the lease states in relevant
part:-5- Notwithstanding the foregoing, Landlord and Tenant agree that w ithout Landlord’s consent, after a termination or expiration of the Te nant’s franchise, if applicable, all or any part of this Lease and th e right, title and in terest of Tenant may be assumed by Franchisor or its designee and that the assuming party may sublease the premises so long as the Franchisor remains liable for all obligations set forth [in] the Lease. Franchisor agrees to execute an appr opriate amendment to this Lease that shall require it to perform all obligations of the lease arising

after the effective date of the assignment. The provisions of this paragraph shall not apply to a termination for cause by Tenant of the Happy’s P izza franchise agreement, if so applicable.

Landlord and Tenant agree to provide Franchisor with thirty (30 ) days advance written notice of an assignment or sublease by either Landlord or Tenant of this Lease. [Emphasis added.]

Under this paragraph, the Franchi sor is granted the ability to assume “all or any part of this Lease and the right, title and interest of Tenant . . . .” The Franc hisor plainly refers to HPF, meaning that HPF has the ability to assume the tenant’s “right, title a nd interest” in the lease. But, if HPF

were a co-tenant under the leas e, it would already possess thes e rights and would have no need to assume these rights, suggesting that the term “tenant” does not encompass HPF, but instead refers to Happy’s Pizza #19. Sim ilarly, under this paragraph, the “landlord” and “tenant” agree to provide the franchisor, i.e., HPF, with 30 days written noti ce of an assignment or sublease, a provision which would be unnecessary if the term “tenant” inclu ded HPF. If HPF elects to assume the lease, it may sublease the premises so long as it “r emains liable” for all the lease obligations it has elected to assume. 3

Likewise, ¶ U of a rider to the agreement appears to distingui sh between Happy’s Pizza #19 as “tenant” and HPF as “franchisor.” It provides:

Provided that Tenant is not in default hereunder, Tenant shall have and is hereby given the Right of First Refusal to purchase the Property, together with all improvements thereon, if so exercised and in the absence of such exercise, Franchisor shall then have such right for the price and upon the terms and conditions as are received by a nd are acceptable to the Landlor d by way of a bona fide offer (“Outside Offer”) to purchase from a third party (“Third Party”). . . . [Emphasis added.]

3 Plaintiff and the circuit court emphasize the “remains liable” language, suggesting that HPF must have already been liable if it is to remain liable. But, fairly read, the paragraph suggests

that if the Franchisor or someone else assumes the tenant’s rights, it can sublease the property so long as HPF remains liable. In other words, the Franchisor mus t first assume liability and then having elected to do so, the sublease will continue while the F ranchisor remains liable. We do not read this language as indicating a liability that exists be fore the Franchisor elects to assume liability.-6- Again, the use of the term “tenant” in this paragraph does not appear to encompass HPF insofar as it creates an order in which a right of first refusal may be exercised under which the “tenant” has first rights and the “franc hisor” has a secondary option. If HPF were a “tenant” it would not need this secondary right, and if the parties merely intended t o distinguish between HPF and Happy’s Pizza #19 they would have employed the terms “lessee” a nd “franchisor.” Instead, the use of “tenant” in this context appears to refer solely to Happ y’s Pizza #19. Considering the contract as a whole, given that the term tenant is used repeate dly in the agreement to refer solely to Happy’s Pizza #19 and yet it also appears to encompass HPF i n the preamble, we conclude

that the term “tenant” as us ed in the lease is ambiguous.

Given that the term is ambiguous, the district court erred by failing to consider extrinsic evidence regarding the parties’ intent. For instance, HPF pres ented the affidavit of its managing member, Happy Asker, who averred that HPF “was not the Tenant n or a guarantor of the Lease.”

Asker maintained that HPF “executed the Lease in order to obtai n the right of first refusal to purchase the subject property and the right to enforce the Fran chise Agreement to have the Lease assigned to [HPF] in the event of a default for its franchisee [defendant Happy’s #19].” Further, the lower court record indicates that Happy’s Pizza #19 occupie d the premises to operate its pizza franchise and that Happy’s Pizza #19 paid rent (until the time of default). In contrast, HPF never occupied the premises or paid rent. In light of the cont ract ambiguity with respect to HPF’s status as a “tenant,” thes e extrinsic facts should have b een considered to determine the parties’ intent as a fact question. See Holland , 287 Mich App at 527. Further, if the parties’ intent cannot be ascertained through conventional means, includ ing the use of extrinsic evidence,

HPF is correct that the lease s hould be construed against plain tiff because plaintiff drafted the agreement. See id.

Reversed and remand for proceedings consistent with this opinio n. We do not retain jurisdiction.

/s/ Michael F. Gadola

/s/ Joel P. Hoekstra /s/ Michael J. Kelly