Opinion ID: 1435286
Heading Depth: 4
Heading Rank: 2

Heading: The Youngs' Obligations Under This Guaranty Agreement

Text: The guarantor, through explicit language in the guaranty agreement, can assume additional and lasting obligations to the seller that continue past forfeiture. See Davis v. Yellow Mfg. Acceptance Corp., 242 F.2d 503, 505 (6th Cir.1957) (applying Michigan law and concluding that the appellant was not released from an obligation by discharge of the principal because the obligation was independent of and additional to his guarantee of the buyer's performance of the conditional sale contract). The question before us, and the locus of our principal disagreement with Judge Shadur, is whether the Youngs assumed such a lasting obligation. We conclude that they did not. At issue is Paragraph D of the guaranty agreement. The relevant portion of Paragraph D reads: The undersigned's obligations hereunder shall remain fully binding although Seller may have waived one or more defaults by Buyer, extended the term of performance by Buyer, released, returned or misapplied other collateral at any time given as additional security (including other guarantees), and/or released Buyer from the performance of its obligations under such Land Contract. J.A. at 18 (Guaranty ¶ D). If forfeiture is simply a fancy word for release, then Paragraph D would apply and would trump the default contract rules; that would leave the Youngs liable to Mazur despite the release of EBIS. It is our determination, however, that forfeiture did far more than simply release EBIS from the performance of its obligations under the land contract; forfeiture extinguished the land contract altogether, meaning that the Youngs as guarantors cannot be held liable for damages due to breach of the now-extinguished contract. As discussed earlier, when a seller elects to seek forfeiture under Michigan law, the seller retakes possession of the property as full satisfaction for the debt and no further obligations remain on either side. Thus, [f]undamentally, forfeiture is rescission. [2] Orzechowski v. Kolodziejski, 281 Mich. 657, 275 N.W. 722, 722 (1937). At the conclusion of a summary proceeding for possession after forfeiture, the seller recovers possession of the land, and the contract is effectively rescinded. There can be no liability for breach of contract under a contract that has been rescinded. [3] See RESTATEMENT (SECOND) OF CONTRACTS § 283. In other words, forfeiture is a full and complete remedy. Cote, 546 N.W.2d at 249 n. 4. Mazur has not identified any precedent to the contrary. In United States v. Beardslee, 562 F.2d 1016 (6th Cir.1977), cert. denied, 439 U.S. 833, 99 S.Ct. 113, 58 L.Ed.2d 128 (1978), and Leslie, we considered the liabilities of guarantors in the context of foreclosure actions, not forfeiture actions, see Beardslee, 562 F.2d at 1018; Leslie, 421 F.2d at 766, which, as explained above, is a dispositive distinction. In Davis, we concluded that the contract at issue in that case, unlike the contract at issue here, in clear terms imposed an obligation upon the appellant beyond a guaranty, specifically to repurchase the trucks in the event of default by the buyer and repossession by the seller. Davis, 242 F.2d at 505. Because we determine Paragraph D to be inapplicable, the general rule applies, and the guarantor cannot be liable for a principal's breach of a contract that has been rescinded. Judge Shadur, in his dissent, claims that our reading of Paragraph D essentially renders Paragraphs A and B as dead letter. [4] He claims that we are erroneously reading Paragraphs A and B as establishing the guarantor's obligations post-forfeiture. He is only partly correct; while we do conclude that a guarantor has no obligations post-forfeiture, we read Paragraphs A and B to establish obligations post-remedy. We need not adopt a pre-forfeiture reading of Paragraphs A and B for them to have meaning, as they will have effect when the seller opts for release or foreclosure instead of forfeiture. Therefore, Paragraphs A and B are quite forceful and intact  but they apply only when the seller has elected a remedy that is less than a full and complete remedy. The inapplicability of Paragraph D is further evident from a plain reading of its terms. Paragraph D maintains the guarantor's liability when the seller releases the buyer from the performance of its obligations under such Land Contract. J.A. at 18 (emphasis added) (Guaranty ¶ D). From the moment that EBIS and Mazur executed the land contract, EBIS held title over the property. Thus, a simple release of the buyer from its obligations would merely allow EBIS to stop paying while retaining title over the property. Forfeiture, in contrast, is far more than a simple release from obligations. Judge Shadur concludes  indeed, it is necessary for his argument to succeed-that the Youngs undert[ook] a greater liability than the buyer under the Land Contract. Dissent at 12. We respectfully disagree. Paragraph A, by a plain reading, says the exact opposite: [The guarantor] does hereby unconditionally guarantee to Seller the full and complete performance of all of the Buyer's covenants and obligations under such Land Contract to the same extent and with the same force and effect as though the undersigned was the primary debtor under the Land Contract. J.A. at 18 (emphasis added) (Guaranty ¶ A). In light of Michigan's precedent establishing that guaranty contracts shall be read narrowly and by only their plain meaning, Bandit Indus., 620 N.W.2d at 535 (declaring that courts should apply the principle of strict interpretation to the construction of [a guaranty] contract); Dillon v. DeNooyer Chevrolet Geo, 217 Mich.App. 163, 550 N.W.2d 846, 848 (1996) (Contractual language is construed according to its plain and ordinary meaning, and technical or constrained constructions are to be avoided.), we cannot conclude that the Youngs' guaranty contract created any additional liability that would survive forfeiture.