Title: BANDIT INDUSTRIES INC V HOBBS INTERNATIONAL INC
Citation: N/A
Docket Number: 116553
State: Michigan
Issuer: Michigan Supreme Court
Date: January 11, 2001

______________________________________________________________________________ 
_________________________________________________________________________________________________________ 
___________________ 
________________________________ 
 
Michigan Supreme Court 
Lansing, Michigan 48909 
C hief Justice 
Justices 
Maura D. Corrigan  
Michael F. Cavanagh 
Elizabeth A. Weaver 
Marilyn Kelly 
Clifford W. Taylor 
Robert P. Young, Jr. 
Opinion 
Stephen J. Markman 
FILED JANUARY 11, 2001  
BANDIT INDUSTRIES, INC.,  
Plaintiff-Appellee,  
v  
No. 116553  
HOBBS INTERNATIONAL, INC., 
a Connecticut Corporation, 
d/b/a HOBBS EQUIPMENT COMPANY,  
Defendant,  
and  
WILLIAM H. BAYLES, JR.,  
Defendant-Appellant.  
(AFTER REMAND)  
PER CURIAM  
The plaintiff and defendant corporations transacted  
business with each other.  When the latter failed to keep its  
account current, the plaintiff sought further assurance.  The  
response was treated by the circuit court as a personal  
guarantee from the president of the defendant corporation.  
The Court of Appeals twice affirmed, but we reverse.  A  
personal guarantee for the debt of another can arise only  
where such an intent is clearly manifested.  
I  
Plaintiff Bandit Industries, Inc., manufactures wood  
chipping equipment in Remus, Michigan.  Among its dealers was  
defendant Hobbs International, Inc., of Norwalk, Connecticut.  
When Hobbs began to fall behind in its financial obligations  
to Bandit, the two companies tried several means to continue  
the relationship.  Bandit sometimes required Hobbs to pay  
before shipment, or to pay cash on delivery.  Bandit and Hobbs  
also agreed on a payment schedule, but the problem of  
delinquency continued.  
As these events were taking place, Hobbs found itself in  
position to sell five specially manufactured wood chippers to  
the state of Connecticut.  Bandit agreed to manufacture the  
chippers for a price to Hobbs of $87,500.1
 However,  
discussions continued with regard to how Bandit’s financial  
1 From the materials at hand, it appears that the price 
for each of the five chippers was $17,694.  However, this case 
has proceeded on the basis that the total bill was $87,500, 
and there appears to be no present dispute regarding that 
figure.  
2  
 
stake in the transaction could be protected.  
Negotiating on behalf of Bandit was its sales manager and  
part owner, Dennis Tracy.  On Hobbs’ side were its sales  
manager, and also a financial consultant named Rosemarie  
Rourke.  They discussed various options, including having the  
state of Connecticut issue a two-party check, or having Hobbs’  
contractual obligation backed by a personal guarantee for the  
contract amount.  Ms. Rourke spoke with the president and  
owner of Hobbs, William H. Bayles, Jr.  Ms. Rourke and Mr.  
Bayles say that they agreed between themselves that a personal  
guarantee 
would 
be 
unwise. 
However, 
these 
various  
conversations led directly to the following letter, sent by  
facsimile transmission in October 1993. The letter, on Hobbs  
stationery, was faxed to Mr. Tracy. In full, it stated:  
Dear Dennis:  
Rosemarie just informed me of your great 
cooperation to work with us to retain the order 
from the State of Connecticut, and our commitment 
to pay you promptly when we get paid by the state. 
Please accept this fax as my assurance that you 
will be paid when we are. Thanks for working with 
us.  
Sincerely,  
Bill [handwritten]  
On receipt of that fax, Bandit shipped the chippers to  
the state of Connecticut and sent invoices to Hobbs.  
Connecticut paid Hobbs for the chippers, but Hobbs never sent  
the promised $87,500 to Bandit.  
3  
 
 
When it became clear that no payment would be  
forthcoming,2 Bandit sued Hobbs and Mr. Bayles. The present  
appeal concerns only Bandit’s claim that Mr. Bayles is  
personally liable as a guarantor of Hobbs’ obligation to pay  
for the chippers.3  
Mr. Bayles moved for summary disposition under MCR  
2.116(C)(10), arguing that, as a matter of law, the contents  
of the fax were insufficient to constitute his personal  
guarantee.4
 Bandit’s response to the motion included an  
2 The plaintiffs’ August 1995 complaint states that Hobbs 
“was under the protection of the United States Bankruptcy 
Court in the District of Connecticut from December 2, 1993 
until that case was dismissed on May 2, 1995, on a Voluntary 
Petition 
for 
reorganization under Chapter 11 of the Bankruptcy 
Code.” The complaint further states, “That pending case has 
been dismissed without discharge of debts.”  In his answer, 
Mr. Bayles admitted those portions of Bandit’s complaint.  
3 Hobbs did not answer, and was defaulted.  The affidavit  
in support of entry of the default listed damages of 
$110,019.18, plus interest and costs, in a total amount of 
$119,317.67.
 While Bandit has argued that Mr. Bayles 
guaranteed the whole amount, the circuit court later found him 
liable only for the $87,500 owed on the five custom-made 
chippers.
 At this stage, the proceedings concern that 
judgment amount, only.  
4 We should here say two things with regard to  
terminology.  First, the words "guarantee" and "guaranty" 
appear throughout this case.  As we shall explain, a person's 
guarantee can give rise to a "guaranty contract."  Second, 
with regard to the distinction between a "surety contract" and 
a "guaranty contract," we note the following passage from 23 
Michigan Civil Jurisprudence, Surety, § 14, p 50.  
While a contract of suretyship and of guaranty 
are not the same in all respects, they are similar 
in certain particulars. 
Each requires three  
parties, the principal, the obligee, and the surety  
4  
 
amended complaint, in which it alleged that it had relied on  
the fax to its detriment, enriching Hobbs by sending the  
chippers-
--which 
it 
would not have shipped without the fax-
--to  
Connecticut.  
The circuit court denied the motion, concluding that  
there were factual issues in the case and that it was not  
clear whether the “sloppily drafted” fax was a personal  
guarantee.  
Mr. Bayles later renewed his motion for summary  
disposition under MCR 2.116(C)(10), providing additional  
factual background concerning the events that preceded the  
fax.
 Bandit filed a cross-motion for summary disposition  
under the same paragraph of the rule.  
The circuit court again denied the motions “for the  
reason that there exist disputed issues of fact which preclude  
summary disposition at this time.”  
The circuit court then conducted a bench trial. After  
or guarantor. In both the contract of suretyship 
and guaranty, the surety and the guarantor promise 
to answer for the debt or default of another. The  
main distinction between a contract of suretyship 
and of guaranty, however, is that while the surety 
assumes liability as a regular party to the primary 
undertaking, the guarantor does not, as his or her 
liability depends on an independent collateral 
agreement by which he or she undertakes to pay the 
obligation if the primary payor fails to do so. 
Nevertheless, the authorities in discussing certain 
principles common to both forms of contract often 
use the terms surety and guarantor interchangeably.  
5  
 
hearing the evidence, the court directed the clerk to draft a  
judgment against Hobbs.  The court reserved its ruling with  
regard to the liability of Mr. Bayles.5  
About a month later, the circuit court issued a written  
opinion.  It said that "an assurance is a guarantee" and that  
the key issue was whether Mr. Bayles offered this guaranty  
contract in his capacity as president of Hobbs, or personally.  
Regarding that question, the court relied on St Joseph Valley  
Bank v Napoleon Motors Co, 230 Mich 498; 202 NW 933 (1925),  
for the distinction between a corporate signature and a  
personal signature.  The court then gave an example of the  
form of signature that would have indicated a corporate  
guarantee:  
Hobbs International, Inc. 
/s/ William Bayles 
President  
Because Mr. Bayles signed without the corporation name or his  
corporate title, the court concluded that "there is a personal  
guarantee made by Mr. Bayles."  The court entered judgment  
against Mr. Bayles in the amount of $87,500.6  
Mr. Bayles appealed, but the Court of Appeals affirmed.7  
5 
 It also reserved its ruling on Mr. Bayles’ midtrial 
motion for directed verdict.  
6 In a separate opinion, the court denied the motion for 
directed verdict.  
7 
 Unpublished opinion per curiam, issued June 9, 1998, 
reh den August 5, 1998 (Docket No. 201781).  
6  
In doing so, the Court said that "[g]eneral rules of  
construction 
apply 
in 
interpreting 
guaranty 
contracts," 
adding  
that 
"[t]he 
primary 
goal in the construction or interpretation  
of any contract is to honor the intent of the parties."  
Rasheed v Chrysler Corp, 445 Mich 109, 127, n 28; 517 NW2d 19  
(1994).
 Examining the language of the fax, the Court of  
Appeals then listed eight reasons why "the words and  
circumstances of this facsimile" demonstrate that the intent  
of the parties was that Mr. Bayles would personally guarantee  
payment for the five chippers.8  
Mr. Bayles applied to this Court for leave to appeal.  In  
lieu of granting leave, we remanded this case to the Court of  
8 The Court of Appeals noted these aspects of the case: 
(a) the fax used the word "assurance"; (b) though the fax 
spoke of "our commitment to pay you promptly when we get 
paid," it later referred to "my assurance that you will be 
paid when we are"; (c) though written informally, "the 
entirety of the facsimile reasonably appears to communicate a 
guarantee to pay plaintiff"; (d) the fax was simply signed, 
"Bill," without the name of the corporation or Mr. Bayles's 
title; (e) since the contract between the parties would have 
obligated Hobbs to pay Bandit for the five chippers in any 
event, interpreting the fax as a corporate guarantee would 
render it of no additional value to Bandit; (f) Mr. Tracy 
specifically asked for a personal guarantee from Mr. Bayles, 
and it is reasonable to construe the response in light of that 
request; (g) the assurance obviously was intended to (and did) 
induce reliance on the part of Bandit, which would not have 
shipped the chippers without the assurance; and (h) the fax 
was sent in response to the request for a personal guarantee. 
Mr. Bayles and Hobbs did not reject that request or make a 
counter proposal. Instead, Mr. Bayles simply sent the fax.  
7  
 
Appeals for further consideration.9  461 Mich 861 (1999).  In  
our order, we directed the attention of the Court of Appeals  
to the manner in which the word “assurance” is used in § 2-609  
of the Uniform Commercial Code, MCL 440.2609; MSA 19.2609, and  
in the United States Bankruptcy Code, 11 USC 365(b)(1)(C).  In  
each instance, it appears to refer to something less than a  
separate guarantee of payment. 
On remand, the Court of Appeals again affirmed.10  It 
found neither MCL 440.2609; MSA 19.2609 nor 11 USC 
365(b)(1)(C) applicable in the present case. 
Mr. Bayles has renewed his application to this Court for  
leave to appeal.  
II  
9  
In lieu of granting leave to appeal, the case 
is 
remanded 
to 
the 
Court 
of 
Appeals 
for  
reconsideration of arguments made by the defendant­
appellant which the Court of Appeals did not 
address. . . .  The defendant-appellant claimed 
that the circuit court erred as a matter of law in  
refusing to enter summary disposition or a directed 
verdict in his favor. Specifically, the panel did 
not address the defendant-appellant’s arguments 
that he was entitled to judgment as a matter of law 
because the use of the term “assurance” in the  
October 8, 1993, facsimile did not create a  
guaranty contract given that the definition of the 
critical term “assurance” as used in the Uniform  
Commercial Code, UCC 2-609, MCL 440.2609; MSA 
19.2609 and in the United States Bankruptcy Code, 
11 USC 365(b)(1)(C), contemplates something less 
than a “guaranty.” Jurisdiction is not retained.  
10 Unpublished opinion per curiam, issued November 30, 
1999, reh den March 2, 2000 (Docket No. 201781).  
8  
This 
case 
involves the interpretation of language that is  
said to form a contract. 
“The proper construction and  
interpretation of [a] contract is a question of law we review  
de novo. Morley v Automobile Club of Michigan, 458 Mich 459,  
465; 581 NW2d 237 (1998).” Perry v Sied, 461 Mich 680, 681, 
n 1; 611 NW2d 516 (2000). 
III 
As the Court of Appeals noted in its first opinion, the  
record contains facts from which one could conclude that  
Bandit wanted a personal guarantee from Mr. Bayles, and from  
which one could conclude that Bandit understood the fax to be  
that guarantee.  
However, 
a 
guaranty 
contract-
--like 
a 
surety 
contract-
--is  
a special kind of contract. As this Court stated in Ann Arbor  
v Massachusetts Bonding & Ins Co, 282 Mich 378, 380; 276 NW  
486 (1937),  
The undertaking of a surety is to receive a 
strict interpretation. The surety has a right to 
stand on the very terms of the contract. 
To the  
extent 
and 
in 
the 
manner 
and 
under 
the  
circumstances pointed out in his obligation, the 
surety is bound, and no further. The liability of 
a surety is not to be extended by implication 
beyond the terms of his contract. 
Miller v  
Steward, [22 US (9 Wheat) 680; 6 L Ed 189 (1824)]. 
A surety cannot be held beyond the precise terms of 
his agreement. 
Walsh v Bailie, 10 Johns 180 [NY  
Supp, 1813]. 
As said by Chancellor Kent, “The 
claim against a surety is strictissimi juris.”  
3 Kent’s Commentaries (14th Ed), p 217. See, also, 
Fellows v Prentiss, 3 Denio 512 (45 Am Dec 484) 
[NY, 1846].  
9  
 
 
 
It is evident that other jurisdictions likewise apply the  
principle 
of 
strict 
interpretation to the construction of such  
a contract.11  
For these reasons, a court must approach with caution a  
claim that the parties have formed a guaranty contract.  
Ordinary experience teaches that assumption of another’s debt  
is a substantial undertaking, and thus the courts will not  
assume such an obligation in the absence of a clearly  
expressed intention to do so. These principles have been in  
11  
In many jurisdictions a gratuitous surety-
--as  
distinguished from compensated sureties and surety 
companies-
--is said to be a favorite of the law.  
The contract is to be construed strictly in his 
favor 
under 
the 
rule 
generally 
known 
as  
“strictissimi juris.” The reason for this is that  
the surety is not the recipient of the full  
consideration which has accrued or may accrue to 
the recipient of the full consideration which has 
accrued or may accrue to the principal debtor, and 
further, his situation is comparatively a dependent 
one, since he does not enjoy the opportunity of 
protecting himself that belongs to the other  
parties to the contract.  
Where the rule of strict construction in favor  
of the surety is applied, he undertakes nothing 
that is not within the strict letter of his  
contract; he is bound to the extent, and in the 
manner, and under the circumstances, pointed out in 
his obligation and no further. 
Otherwise stated  
the rule means that the surety’s obligations cannot 
be 
extended 
by 
implication 
or 
enlarged 
by 
construction beyond the terms of the agreement 
entered into, so as to include any other subject, 
or other person, or other period of time than that 
expressed or necessarily included in the agreement. 
[74 Am Jur 2d, Suretyship, § 27, pp 29-30.]  
10  
 
 
 
place in Michigan for over a century. The Columbus Sewer Pipe  
Co v Ganser, 58 Mich 385; 25 NW 377 (1885).  
In Columbus Sewer Pipe, a man named August Ganser  
personally guaranteed up to $3,000 of the cost of purchasing  
pipe. The guaranty contract was executed in connection with  
a sewer project along First Street in Bay City. 
A dispute  
later arose regarding whether the guaranty contract was in  
force for other purchases, or just for the purchase of pipe  
used in the First Street project. This Court said that the  
intent of the parties was the controlling element in the  
interpretation of the guaranty contract and that, under the  
circumstances found in Columbus Sewer Pipe, Mr. Ganser’s  
guarantee was limited to the cost of the pipe for the First  
Street project. As the Court explained, “[a] guarantor is not  
liable beyond the express terms of his contract.” 
58 Mich  
391.  
These 
authorities 
confirm 
the 
principle 
enunciated 
by 
the  
Court of Appeals-
--that the intention of the parties must be  
given effect. 
However, the Court of Appeals has failed to  
apply a more fundamental principle of law. 
As this Court  
explained 115 years ago in Columbus Sewer Pipe, “[t]he rights  
of sureties are always favored in the law, and persons  
standing in that relation in this class of obligations will  
not be held, unless an intention to bind themselves is clearly  
manifested.” 58 Mich 391.  
11  
In the present case, the fax is insufficient, as a matter  
of law, to constitute a binding personal guarantee by Mr.  
Bayles.  The Court of Appeals is correct that the surrounding  
facts evidence Bandit’s desire for a personal guarantee, and  
even its hope or belief in that regard. 
However, such a  
belief cannot reasonably be maintained, nor can such an  
obligation lawfully be imposed, in the absence of an  
unambiguous expression of the guarantor’s intention to accept  
that responsibility.  
No specific form of language is necessary
--Columbus Sewer  
Pipe 
teaches 
that 
such documents “are frequently given without  
much care as to the language” and that “[t]echnical nicety  
should not, therefore, be applied in their construction.” 58  
Mich 391. The point, however, is that a personal guarantee  
cannot be implied from language that fails to clearly and  
unambiguously reflect an intention to assume such a  
responsibility.  
In the present case, the disputed fax speaks of “my  
assurance,” but it also mentions “our commitment.” Twice it  
recites Bandit’s cooperation in working “with us,” and twice  
it says that Bandit will be paid when “we” are. 
In  
particular, the assurance of being paid “when we are” reflects  
a commitment to pay plaintiff out of corporate funds rather  
than out of anyone’s personal funds. The informal signature  
on the fax (a handwritten “Bill”) implies neither a corporate  
12  
signature as officer nor a personal assumption of a grave  
responsibility (one would not sign a note of indebtedness for  
$87,500 with an unadorned “Bill”). And the term “assurance”  
has developed a commercial usage that is not synonymous with  
a guarantee or a guarantee contract.12  
As indicated above, the fax sent to Mr. Tracy could not,  
as a matter of law, have been a personal guarantee from Mr.  
Bayles, giving rise to a guaranty contract. Accordingly, it  
12 That was the point of our citation of MCL 440.2609; MSA 
19.2609 and 11 USC 365(b)(1)(C) in the remand order.  461 Mich  
861 (1999).  For instance, the state provision (§ 2-609 of the 
UCC) says this about “assurance”:  
(1) A contract for sale imposes an obligation  
on each party that the other's expectation of 
receiving due performance will not be impaired. 
When reasonable grounds for insecurity arise with 
respect to the performance of either party the 
other may in writing demand adequate assurance of 
due 
performance 
and 
until 
he 
receives 
such  
assurance may if commercially reasonable suspend 
any performance for which he has not already 
received the agreed return.  
(2) Between merchants the reasonableness of 
grounds for insecurity and the adequacy of any 
assurance offered shall be determined according to 
commercial standards.  
(3) Acceptance of any improper delivery or 
payment does not prejudice the aggrieved party's 
right to demand adequate assurance of future  
performance.  
(4) After receipt of a justified demand  
failure to provide within a reasonable time not 
exceeding 30 days such assurance of due performance 
as is adequate under the circumstances of the  
particular case is a repudiation of the contract.  
13  
 
was error for the circuit court to deny Mr. Bayles’ motions  
for summary disposition, and it was error to enter judgment  
against him for the $87,500 price of the five custom-made  
chippers.  
For these reasons, we reverse the judgments of the Court  
of Appeals and the circuit court, and we remand this case to  
the circuit court for entry of a judgment in favor of the  
individual defendant. MCR 7.302(F)(1).  
CORRIGAN, C.J., and WEAVER, TAYLOR, and YOUNG, JJ.,  
concurred.  
14  
 
 
________________________________ 
v 
S T A T E 
O F 
M I C H I G A N  
SUPREME COURT  
BANDIT INDUSTRIES, INC.,  
Plaintiff-Appellee,  
No. 116553  
HOBBS INTERNATIONAL, INC., 
a Connecticut Corporation, 
d/b/a HOBBS EQUIPMENT COMPANY,  
Defendant,  
and  
WILLIAM H. BAYLES, JR.,  
Defendant-Appellant.  
CAVANAGH, J.  
I would not decide this case by a per curiam opinion.  
Because this case offers the opportunity to address a  
jurisprudentially 
significant issue, I would grant leave so we  
might avail ourselves of full briefing and argument by the  
parties.  
KELLY, J., concurred with CAVANAGH, J.  
MARKMAN, J., took no part in the decision of this case.