Court Opinion

ID: 9629414
Source: CourtListenerOpinion
Date Created: 2023-08-22 09:42:19.041148+00
Date Added: 2024-06-11T18:07:18.916496
License: Public Domain

SHADUR, District Judge,
dissenting.
With regret, I believe that the majority opinion has mistakenly looked to a generalized legal doctrine as somehow overriding the specific language of the contract between the parties — a near — classic exaltation of form over substance. Because there is of course no contention that the guaranty executed by Roi and Dyan Young (“Youngs”) is somehow contrary to public policy so as to render it unenforceable, I submit that no basis exists for such a failure to hold Youngs to the unambiguous language of their commitment under the guaranty. Hence I respectfully dissent.
Most troubling is that, as the majority opinion would have it, not all of the expressly-bargained-for provisions in the binding guaranty contract between Mazur and the Youngs are given effect. That result is particularly problematic, given the long-held principles that govern the interpretation of such a contract, under which the general rules of contract construction must be applied (First Nat’l Bank v. Redford Chevrolet Corp., 270 Mich.116, 258 N.W.221, 223 (1935)). As was explained there, quoting even earlier caselaw:
In construing a contract of guaranty the intention of the parties should govern. Where the language of the writing is not ambiguous the construction is a question of law for the court, on a consideration of the entire instrument.
For that purpose, of course, “the courts will not assume such an obligation [to assume another’s debts] in the absence of a clearly expressed intention to do so” (Bandit Indus., Inc. v. Hobbs, 463 Mich.504, 620 N.W.2d 531, 535 (2001)).
But before parsing out the terms of the guaranty contract that should be given their full force, it is critical to look at Mazur’s position vis-a-vis Equitable Benefit. It is undisputed that under Michigan law a land contract vendor who finds himself in Mazur’s position, confronting a purchaser in default, must choose between two enforcement options against the purchaser: (1) foreclose on the contract, sell the property and, after applying the proceeds, proceed against the purchaser for any deficiency (Mich. Comp. Laws *1024§§ 600.3101-600.3180)1 or (2) commence a summary proceeding in the district court for forfeiture of the land contract, obtain possession of the property and retain all payments made to date (Section § 600.5744). That second alternative brings into play Section 600.5750:
The remedy provided by summary proceedings is in addition to, and not exclusive of, other remedies, either legal, equitable or statutory. A judgment for possession under this chapter does not merge or bar any other claim for relief, except that a judgment for possession after forfeiture of an executory contract for the purchase of premises shall merge and bar any claim for money payments due or in arrears under the contract at the time of trial and that a judgment for possession after forfeiture of such an executory contract which results in the issuance of a writ of restitution shall also bar any claim for money payments which would have become due under the contract subsequent to the time of issuance of the writ.
And that, of course, meant that Mazur’s pursuit of that remedy let Equitable Benefit off the hook for any monetary liability, whether past or future. According to the majority opinion, letting Equitable Benefit off the hook also released the Youngs from any further obligation under the generalized theory that a land contract vendor in Mazur’s position must elect his remedies, in spite of the fact that the parties here— Mazur and the Youngs-had clearly and unambiguously expressed their contrary intentions vis-a-vis each other in the language of their separate and enforceable guaranty contract.
As the Michigan Court of Appeals rear-ticulated last year in Richard v. 380 Fair Assocs., Inc., No. 268299, 2006 WL 2355096, at *3 (Mich.App. Aug. 15)(per curiam), quoting from Mich. Nat'l Bank v. Cote, 451 Mich. 180, 546 N.W.2d 247, 249 n. 1 (1996), but with brackets inserted by the Richard opinion:
Section 5750 is, “in effect, a [modified] codification ... of the common-law rule that the forfeiture of an executory contract for purchase of land constitutes an election of remedies, precluding the vendor from later seeking damages for breach of contract.”
Like the guarantor in Richard, the Youngs contend that Mazur’s claim under their guaranty constitutes a “claim for money payments due or in arrears under the contract at the time of trial” as contemplated by Section 5750, so that Mazur’s claim under the guaranty was barred by his election to pursue forfeiture proceedings against the land contract purchaser.
But like the guarantor in Richard, the Youngs are wrong. To find in favor of the Youngs, both the district court and the majority opinions impermissibly conflate the Land Contract and the guaranty contract. As was held to be the case in Richard, Mazur’s claim against the Youngs stems from their obligations under the quite separate (albeit related) guaranty contract and “thus is simply not a post-forfeiture claim for ‘money payments due or in arrears under the [land] contract’ ” (Richard, 2006 WL 2355096, at *3, quoting Section § 5750). And as United States v. Leslie, 421 F.2d 763, 766 (6th Cir.1970) has emphasized in the similar context of a guaranteed mortgage, “[t]he guaranty is an obligation separate from the mortgage note.... [T]he obligation of guaranty is distinct from the debt” under the mortgage.
*1025It should be remembered that the Youngs were not themselves parties to the Land Contract. But they expressly entered into the separate guaranty contract, under which they obligated themselves to “unconditionally guarantee to Seller the full and complete performance of all of the Buyer’s covenants and obligations under such Land Contract.”
Indeed, there is a special irony — or perhaps a special degree of nerviness-in the Youngs’ effort to take advantage of a release of their corporation from liability to benefit themselves personally. After all, the original transaction was structured as it was solely at their behest, not Mazur’s, because they wanted to shoehorn Equitable Benefit into the picture to insulate themselves against potential personal liability to unknown future litigants by not taking title in their own names. Mazur accommodated their desire and now faces their effort to avoid liability to him. Truly no good deed goes unpunished.
What seems more remarkable is the refusal of the Youngs (and regrettably the failure of both the district court and the majority) to parse the Guaranty of Land Contract to see the basic illogic of the Youngs’ position. Here are Paragraph A and the opening sentence of Paragraph B of that guaranty contract:
A. The undersigned, in consideration of and to induce the Seller to enter into said Land Contract with the Buyer, 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. The liability hereunder of the undersigned to Seller shall be direct and absolute, and shall not be conditional upon the pursuit by Seller of whatsoever remedies that may at any time be available to Seller against Buyer.
B. By way of illustration, but without limitation, the undersigned hereby unconditionally guarantees to Seller the full and timely payment of the rent and all other charges to be paid by Buyer pursuant to the provisions of said Land Contract.
As the Youngs would have it, the forfeiture proceeding meant that the Buyer (Equitable Benefit) no longer had any obligation to make any payments or perform any other Land Contract obligations (true enough), but they then go on to contend that result deprives the quoted language from Paragraphs A and B of any further force.
But that position begs the question, for it rests on a premise that the guaranty language of Paragraphs A and B speaks in terms of the Buyer’s obligations — or lack of obligations — post forfeiture. And that premise is of course false, because it is flatly contradicted by this provision of Paragraph D of the Guaranty that expressly provides for the Youngs’ continuing obligations (emphasis added):
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.
Once the Seller has so released the Buyer, by definition the latter no longer has any Land Contract obligations — so what obligations of the Guarantor can then “remain fully binding”? In the Youngs’ (and the majority’s) eyes, none. But that would *1026render meaningless the guaranty provisions of Paragraphs A and B. It is obvious, then, that those latter provisions speak of what the Buyer’s obligations originally were under the Land Contract itself, unaffected by the later release of the Buyer that Paragraph D says does not diminish the Guarantor’s obligations. And that identical meaning of Paragraphs A and B plainly applies to a release of the Buyer through a forfeiture proceeding, just as it does to any other release.
In that respect the majority seeks to perform a feat worthy of a eonjurer-but not, I submit, of persuasive legal analysis. It begins innocently enough by identifying a “default rule”: a proposition that by definition (and as the label expressly denotes) operates only in the absence of an agreement between the parties. But then having done so, it impermissibly proceeds to use the “default rule” — which, it will be remembered, operates only in a contractual vacuum-to trump the clear meaning and thrust of the agreement that the parties have arrived at. To me that attempted transmutation is somewhat reminiscent of the imaginary “philosophers’ stone” by which the alchemists of the Middle Ages hoped to transmute base metal into gold.
In fact, the distinction set out in this dissent is directly fortified by a look at what the earlier-quoted forfeiture statute — Section 600.5750 — says and what it does not say. It says that a post-forfeiture judgment for possession or writ of restitution bars claims for money payments “under the contract” (the Land Contract)— claims that by definition could be made only against the party to that contract (here Equitable Benefit). It says nothing to negate claims against a third party (here the Youngs in their capacity as guarantors under a separate contract) who can choose, as the Youngs have, to undertake a greater liability than the buyer under the Land Contract. Neither the principles of statutory construction nor the principles of construing contracts permit a Procrustean alteration of the statute and guaranty contract to read them in a way that terminates that fundamental distinction.
This interaction of Mazur’s two separate contracts — the Land Contract with Equitable Benefit as Buyer and the Guaranty of Land Contract with the Youngs as guarantors' — contrasts sharply with the situation in VanElsacker v. Erzberger, 137 Mich.App. 552, 357 N.W.2d 891, 894 (1984), which barred a later suit on a promissory note because the parties there had elected “to treat the promissory note and land contract as a single contractual obligation in the summary proceedings for forfeiture and restitution.” Here, however, Section 600.5750 clearly supports the outcome under which Mazur may pursue the Youngs for damages based on the separate and independent guaranty contract, because it expressly states that the summary proceedings remedy “is in addition to, and not exclusive of, other remedies, either legal, equitable or statutory.” To the same effect, Paragraph A of the guaranty (emphasis added) specifically provides that the Youngs’ liability “shall be direct and absolute, and shall not be conditional upon the pursuit by Seller of whatsoever remedies that may at any time be available to Seller against Buyer.”

Statute of Limitations

That, then, calls for rejection of the district court’s decision and the majority’s affirmance in substantive terms, but I pause to address what had been the district court’s alternative ruling that Mazur’s claim was barred by Michigan’s six-year statute of limitations applicable to breach of contract claims-a period that begins to run as soon as the cause of action accrues (see Section 600.5807(8)). Cordova Chem. Co. v. Dep’t of Natural Resources, 212 Mich.App. 144, 536 N.W.2d 860, 865 (1995) explains that a breach of contract claim *1027“accrues when the promissor fails to perform under the contract” (accord, such cases as H.J. Tucker & Assocs., Inc. v. Allied Chucker & Eng’g Co., 234 Mich.App. 550, 595 N.W.2d 176, 183 (1999)). Mazur contends that his claim against the Youngs accrued either (1) on March 26, 2002, when the post-forfeiture sale to Fisher was completed and Mazur learned the extent of his damages, or (2) when the instant lawsuit was filed in October 2004, while the Youngs urge that Mazur’s claim accrued in June 1997, when they stopped making payments under the Land Contract.
Agreeing with the Youngs, the district court held that “there can be no question that Mazur’s claim accrued when [Equitable Benefit] defaulted on its monthly land contract payments and the guarantors failed to cure that default.” In taking that view that the breach occurred when Equitable Benefit defaulted on the Land Contract payments in 1997 because that event assertedly triggered the Youngs’ obligation under the guaranty agreement, the district court further held that Mazur’s 2004 lawsuit was time barred.
Again I respectfully disagree. United States v. Brown, 833 F.Supp. 625, 628 (E.D.Mich.1993), discussing a similar cause of action arising under identical federal law, stated that “[t]he point at which plaintiffs cause of action accrued is governed by the language of the guaranties,” and it held the cause of action against the guarantor did not accrue until the obligee had made a demand on the guarantor. Just so, in addition to the language quoted earlier from Paragraph B of the guaranty agreement, the same paragraph goes on to state (emphasis added):
The undersigned shall pay such indebtedness to Seller on demand inasmuch as the undersigned hereby agrees that such indebtedness constitutes the undersigned’s direct and primary obligation; and Seller shall not be obligated to first resort to any actions or remedies against the Buyer before proceeding against and collecting from the undersigned, or any of them.
' As stated earlier, Michigan courts have long held that guaranty contracts are subject to the same rules of interpretation and construction as any other contracts (see First Nat’l Bank, 258 N.W. at 223). And here it is undisputed that Mazur did not demand payment from the Youngs when Equitable Benefit stopped honoring its obligations in 1997.
As above, the district court’s and majority’s holding that the guaranty contract was breached back in 1997 has impermissibly conflated the Youngs’ obligations under the guaranty agreement with Equitable Benefit’s obligations under the Land Contract. Diversified Fin. Sys. v. Schanhals, 203 Mich.App. 589, 513 N.W.2d 210, 211 (1994) (per curiam) teaches that a guaranty is breached and the statute of limitations starts to run only when a demand is made to enforce the terms of the guaranty contract. Thus Diversified, id. held that “[defendants were in breach of the guaranty contracts when ... [plaintiff] brought suit ... to enforce the guaranty contracts.”
And that approach makes eminently good sense. It allows the obligee to forbear pursuit of the guarantor until he knows (1) that he has ultimately sustained damages as a result of the underlying breach or breaches and (2) what the extent of those damages has turned out to be.2 In this instance Mazur’s pursuit of the *1028forfeiture alternative, with its swifter entitlement to possession than foreclosure of the Land Contract would have provided, enabled Mazur to seek a new buyer at a favorable price (Mazur had actually listed the property for sale not long after Equitable Benefit stopped making payments under the Land Contract), and one offer was received but the deal fell through. Needless to say, Mazur (like any rational person in the same position) was looking to recoup his money (or to limit his mortgage obligation) rather than simply acquiring a cause of action-and if he had been successful in obtaining a favorable sale price as he sought to do, he would have sustained no damages and the Youngs would have had no liability as guarantors (for of course Mazur was not entitled to a double recovery).
In fact, even under the Youngs’ approach, when reasonably assessed, Mazur’s October 19, 2004 lawsuit was not a stale claim for limitations purposes. Six years earlier (on October 19, 1998) Mazur had listed the property for sale but had not yet obtained possession through forfeiture proceedings. It was not then known whether he would in fact sustain damages by reason of Equitable Benefits’ defaults — • damages that Paragraph B of the guaranty would have obligated the Youngs to pay “forthwith.”
In short, the Youngs’ limitations defense, like their substantive contention, fails as a matter of law. And that being so, I cannot join the majority opinion upholding the district court’s decision, which fails to take into account the parties’ intentions under the guaranty contract. As stated at the outset, I respectfully dissent.

. Further citations to the Michigan statutes will taire the form "Section — ,” omitting the prefatory "Mich. Comp. Laws.”

. As is true of the typical guaranty document, the Guaranty of Land Contract here is chock full of provisions that protect the remedies of the party guaranteed against breaches of the underlying obligor without stating when or how he must pursue any of those remedies. *1028What the text reflects is the most logical answer to that question.