Court Opinion

ID: 4577766
Source: CourtListenerOpinion
Date Created: 2020-10-16 09:06:32.475893+00
Date Added: 2024-06-11T13:38:19.587765
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                          STATE OF MICHIGAN

                           COURT OF APPEALS

LORI MARIE ELAM,                                                   UNPUBLISHED
                                                                   October 15, 2020
               Plaintiff-Appellant,

v                                                                  No. 348201
                                                                   Otsego Circuit Court
ROBERT T. ELAM,                                                    LC No. 04-010587-DO

               Defendant-Appellee.

Before: MURRAY, C.J., AND CAVANAGH AND CAMERON, JJ.

PER CURIAM.

        In this post-divorce proceeding, plaintiff appeals an order denying her requested
calculation of interest payments. We vacate and remand to the trial court for further proceedings.

                                       I. BACKGROUND

        Plaintiff and defendant were married in October 1994. Plaintiff filed for divorce on
February 4, 2004, and the trial court entered a consent judgment of divorce on January 5, 2005.
The judgment referenced a property settlement agreement, under which defendant was to pay
plaintiff a certain sum of money over the course of 12 years. The agreement contained a payment
schedule. In relevant part, the agreement provided as follows:

               Plaintiff is to be paid monthly installments of $1,000 dollars per month
       starting February 02, 2005 as principle [sic] and interest on the $175,000 balance
       which shall be accruing interest as a traditional mortgage note in the amount of
       3.75% effective January 03, 2005.

        The agreement also provided that the “installment payments” would “be secured by a
mortgage” on certain real property located in Gaylord, Michigan. Under the agreement, defendant
was required to sign a “mortgage note,” but defendant never did so. After the final payment to
plaintiff came due in January 2017, plaintiff argued that defendant owed over $50,000 in accrued

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amortized interest. To support this, plaintiff submitted an amortization schedule. In response,
defendant argued that a simple interest rate should apply and that he only owed $6,562.50 in
interest.

        The trial court held an evidentiary hearing to determine how interest accrued on a
“traditional mortgage note.” Both parties presented expert witnesses. Plaintiff’s expert, Michael
Kolasa, testified that a traditional mortgage note meant a bank mortgage calculated under an
amortized interest schedule. According to Kolasa, the agreement provided enough information for
him to calculate the amount of interest that defendant owed to plaintiff. Defendant’s expert,
Timothy Hall, testified that he could not determine the amount of interest that defendant owed
without a note. Both experts agreed that the trial court should not apply defendant’s proposed
interest calculation.

        The trial court found that, based on the plain language of the agreement and the testimony
of Kolasa and Hall, the parties “likely intended to enter into a private loan that was to be repaid in
the same way as a bank mortgage loan” and that the parties intended for interest to accrue “in the
same way as a bank mortgage loan.” The trial court further found that defendant’s proposed
calculation was inconsistent with the agreement and the testimony of the experts. However, the
trial court concluded that because both experts agreed that the interest rate could not be calculated
without a note, it was “impossible” for the trial court to calculate interest in the manner advocated
by plaintiff. The trial court further concluded that it was required “to apply simple interest to the
property settlement” because it was not permitted to “insert terms into a contract.” The trial court
also noted that “there [were] equitable reasons why th[e] Court should not enforce the Plaintiff’s
interpretation of the calculation of interest.” Specifically, the trial court concluded that because
plaintiff had not enforced the provision in the agreement that required defendant to execute a
mortgage note, it would be inequitable to adopt plaintiff’s interest calculation. The trial court
applied defendant’s calculation of interest. Thereafter, plaintiff filed a motion for reconsideration,
which was denied. This appeal followed.

                                          II. ANALYSIS

      Plaintiff first argues that the trial court erred by sua sponte applying the defense of laches.
We agree.

        “Equitable issues are [generally] reviewed de novo, including equitable defenses such as
laches.” Stock Bldg Supply, LLC v Crosswinds Communities, Inc, 317 Mich App 189, 199; 893
NW2d 165 (2016). However, because plaintiff failed to raise this issue any time before the trial
court, the argument is unpreserved. See Gen Motors Corp v Dep’t of Treasury, 290 Mich App
355, 386-387; 803 NW2d 698 (2010). We therefore review for plain error. Kern v Blethen-Coluni,
240 Mich App 333, 336; 612 NW2d 838 (2000). “To avoid forfeiture under the plain error rule,
three requirements must be met: 1) the error must have occurred, 2) the error was plain, i.e., clear
or obvious, 3) and the plain error affected substantial rights.” Id., quoting People v Carines, 460
Mich 750, 763; 597 NW2d 130 (1999). An error has affected a party’s substantial rights when
there is “a showing of prejudice, i.e., that the error affected the outcome of the lower court
proceedings.” Carines, 460 Mich at 763.

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       “Laches is an affirmative defense based primarily on circumstances that render it
inequitable to grant relief to a dilatory plaintiff.” Attorney General v PowerPick Club, 287 Mich
App 13, 51; 783 NW2d 515 (2010). We have explained:

               The doctrine of laches is triggered by the plaintiff’s failure to do something
       that should have been done under the circumstances or failure to claim or enforce
       a right at the proper time . . . . The defense, to be raised properly, must be
       accompanied by a finding that the delay caused some prejudice to the party
       asserting laches and that it would be inequitable to ignore the prejudice so created.
       The defendant bears the burden of proving this resultant prejudice. [Id. (quotation
       marks and citations omitted; emphasis added).]

        In this case, because defendant never argued before the trial court that laches applied,
defendant never established that he was prejudiced by plaintiff’s failure to ensure that defendant
signed a mortgage note. Rather, defendant essentially argued that plaintiff’s calculation of interest
was not consistent with the plain language of the agreement and that the trial court should therefore
rely on defendant’s interest calculation. Consequently, the trial court plainly erred by sua sponte
raising a defense on defendant’s behalf and by applying laches. Furthermore, the error affected
the outcome of the proceedings because the trial court’s decision not to adopt plaintiff’s theory
regarding the calculation of interest was based in part on its conclusion that laches applied.
Moreover, upon review of the record, we disagree with the trial court that it was appropriate to
apply the defense of laches under the facts of this case. Therefore, plaintiff has established plain
error affecting her substantial rights.

       Next, plaintiff argues that the trial court erred by holding that it was required to apply
defendant’s formula for calculating simple interest. We agree.

        “The primary goal in the construction or interpretation of any contract is to honor the intent
of the parties.” Klapp v United Ins Group Agency, Inc, 468 Mich 459, 473; 663 NW2d 447 (2003)
(citation omitted). “If no reasonable person could dispute the meaning of ordinary and plain
contract language, the Court must accept and enforce contractual language as written[.]” Laffin v
Laffin, 280 Mich App 513, 517; 760 NW2d 738 (2008). Thus, “[a]bsent an ambiguity or internal
inconsistency, contractual interpretation begins and ends with the actual words of a written
agreement.” Universal Underwriters Ins Co v Kneeland, 464 Mich 491, 496; 628 NW2d 491
(2001). “If the contractual language is clear and unambiguous, its meaning is a question of law.”
Brucker v McKinlay Transp, Inc, 225 Mich App 442, 448; 571 NW2d 548 (1997). However,
“[w]here the contractual language is unclear or susceptible to multiple meanings, interpretation is
a question of fact. Questions of law are reviewed de novo on appeal, while factual findings are
reviewed under the clearly erroneous standard of review.” Id. (quotation marks and citations
omitted). “A finding is said to be clearly erroneous when the reviewing court is left with a definite
and firm conviction that a mistake has been made.” In re Erickson Estate, 202 Mich App 329,
331; 508 NW2d 181 (1993).

       In this case, the plain language of the agreement provided that the $175,000 balance would
accrue “interest as a traditional mortgage note in the amount of 3.75%[.]” The agreement further
provided that plaintiff would be paid $1,000 each month “as principle [sic] and interest[.]” At the

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evidentiary hearing, Kolasa testified as follows:

                  [A] traditional mortgage or conventional mortgage would be you’re
          borrowing money and making, in most cases, monthly payments toward that
          amount, and those monthly payments represent both interest that’s accrued, and
          after interest is paid, any remaining balance of the payment is applied to the
          principal.

         Kolasa believed that another person in his field would interpret the phrase “traditional
mortgage” as requiring amortization.1 Kolasa commented that the concept of calculating payments
as part interest and part principal was “pretty plain vanilla” and that the same calculation could be
found on at least 50 different websites. Kolasa further testified as follows: “The language in the
Property Settlement read in context is clearly what we would call a conventional or traditional
mortgage[.]” Kolasa created an amortization schedule based on the language of the agreement,
and the schedule was admitted into evidence. Based on his calculations, Kolasa testified that
defendant owed a balance of $51,012.13 as of the date of the hearing.

         Kolasa testified that defendant’s proposed interest calculation was inconsistent with the
language in the agreement and was “inconsistent with the term ‘traditional mortgage’ or
‘traditional mortgage note.’ ” Specifically, Kolasa noted that defendant’s “one-time interest
calculation” was “not an accrual” and that the calculation was inconsistent with the agreement that
defendant would not be penalized for “early repayment.” According to Kolasa, with a fixed rate,
the amount of interest due would be the same regardless of when defendant made payments. In
contrast, when using the amortization schedule created by Kolasa, defendant would essentially be
rewarded for early repayment. Kolasa also noted that defendant appeared to have been paying
interest to plaintiff over the course of 12 years. Indeed, defendant acknowledged that he had
“overpaid” plaintiff.

        Hall testified that the reference to a “traditional mortgage note” in the agreement was
confusing because there is an array of notes and mortgages, and which one is used depends on the
nature of the transaction. Hall explained that a mortgage pledges real estate to secure a note and
that a note is a promise to pay back money. Hall testified that in order to interpret what the phrase
a “traditional mortgage note” meant, he would need to see a note with the exact terms and
conditions concerning payment and interest. However, Hall acknowledged that a note had not
been executed by defendant. Hall testified that an individual would have to make assumptions to
calculate the remaining balance of interest based on the agreement alone. On cross-examination,
however, Hall acknowledged that the bank he worked for had an online mortgage calculation tool
that allowed users to select “conventional” as a mortgage type. Hall further acknowledged that
the tool would generate an amortization schedule that was similar to the one that Kolasa had
created. Nonetheless, Hall testified that it was incorrect to draft an amortization schedule solely
from an agreement.

       The trial court found that, based on the plain language of the agreement and the testimony
of Kolasa and Hall, the parties likely intended to “enter into a private loan that was to be repaid in

1
    Kolasa is a trust and planning officer for a bank and has an LLM in taxation law.

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the same way as a bank mortgage loan” and that the parties intended for the interest to accrue “in
the same way as a bank mortgage loan.” The trial court then concluded, however, that it was
“impossible” for the court to calculate the amount of interest owed because defendant had not
executed a mortgage note. This conclusion was based on the trial court’s finding that both Kolasa
and Hall testified “that in a ‘traditional’ mortgage scenario, the parties sign a ‘promissory note’ or
a ‘mortgage note’ that creates the debt and defines how the debt will be repaid.” The trial court
concluded that “the rights and duties of the parties are derived from the terms of the agreement”
and that courts are not permitted to “modify or insert terms into a contract[.]” Consequently,
“[b]ecause there [was] no express agreement in the form of a mortgage note for the calculation of
interest,” the trial court concluded that it was obligated to “apply simple interest to the property
settlement.”

         In so holding, the trial court primarily relied on this Court’s decision in Norman v Norman,
201 Mich App 182; 506 NW2d 254 (1993). In Norman, the parties’ consent judgment of divorce
provided that the “plaintiff was to have a lien on the marital home in the amount of $14,000, which
was to accrue interest and was to become due and payable upon the happening of any of certain
listed events.” Id. at 183-184. “The consent judgment provided that the lien was to be ‘with
interest to accrue thereon at the rate of 8¾% per annum from the date of entry of th[e] judgment.’ ”
Id. at 184. After one of the “triggering events” occurred, the parties disputed “whether the interest
on the lien was to be calculated as simple or compound interest.” Id. The trial court concluded
that because “the judgment was not clear regarding how the interest should be calculated,” it was
proper to “exercise its equitable jurisdiction to make a discretionary decision” and to “calculate
the interest as being compounded annually” “in order to adequately compensate [the] plaintiff[.]”
Id. The defendant appealed. Id.

        On appeal, this Court concluded that the trial court erred by impliedly concluding that the
judgment was ambiguous. Id. Specifically, this Court held, “[i]t is true that the judgment did not
state explicitly whether the interest was to be simple or compound, but the analysis does not end
there. Silence does not equal ambiguity if the law provides a rule to be applied in the absence of
a provision to the contrary.” Id. After consulting multiple applicable authorities, the Norman
Court held as follows:

               In light of the general rule favoring simple interest over compound interest,
       and in light of the case law, we reach the conclusion that there is a rule to apply
       regarding simple versus compound interest. Namely, in the absence of a statute to
       the contrary, an explicit agreement of the parties, or some special circumstance
       dictating otherwise, the rule in this state is that interest shall be calculated on the
       basis of simple interest rather than compound interest. In the case at bar, there is
       no statute that specifically provides for the payment of compound interest, and the
       parties’ agreement, memorialized in the consent decree, does not explicitly provide
       for compound interest. This silence, rather than being ambiguous, means that the
       interest shall be calculated on the basis of simple interest rather than compound
       interest in the absence of some special circumstance dictating otherwise. [Id. at
       187.]

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        In this case, however, the language of the agreement specifically provided that the interest
would accrue “as a traditional mortgage note.” Kolasa was able to create an amortization schedule
based on his knowledge of what a “traditional mortgage” meant and based on the plain language
of the agreement, which he noted contained all of the necessary information. Specifically, the
agreement contained the amount “borrowed, the interest rate, and a maturity date.” Kolasa testified
that, based on his calculations, defendant owed plaintiff a balance of $51,012.13 under the
agreement. Kolasa explained in detail how he reached that amount and testified that, based on his
experience, the manner in which he calculated the interest was consistent with “all fixed rate
mortgages.” Kolasa acknowledged that defendant had not signed a mortgage note, but stated that
the agreement essentially acted as the note because private agreements do not require the same
amount of the detail as that of a loan issued by a bank. Kolasa testified that, because this was a
private transaction, the parties did not have to calculate the amount of interest to be paid. Rather,
Kolasa testified that such details “would be up to [defendant] and his counsel” and would likely
have been a topic considered during settlement negotiations. Furthermore, Kolasa opined that the
final amount of interest owed in 2017 would have been difficult to calculate in 2005 because late
or early payments would have affected the interest calculation.

       Thus, contrary to the trial court’s finding, both experts did not testify that it was
“impossible” to calculate the interest owed by defendant because a mortgage note was not
executed. Rather, Kolasa testified to the contrary. Although the trial court as the finder of fact
was permitted to conclude that Kolasa’s testimony was not credible or that it was proper to afford
more weight to Hall’s testimony, there is no indication that the trial court did so. Rather, in the
written opinion, the trial court found “both witnesses [to be] generally credible and unbiased.”
Consequently, the trial court clearly erred by finding that both experts concluded that it was
“impossible” to calculate interest without a mortgage note. Although plaintiff urges this Court to
apply her interest calculation and to hold that she is entitled to $51,012.13, this Court is not the
correct forum to resolve disputed factual questions such as these. Rather, such factual
determinations are properly left to the finder of fact. See MCR 2.613(C). Plaintiff may make this
argument before the trial court on remand.

         Next, plaintiff argues that, even if a simple interest rate does apply, the trial court’s finding
that plaintiff was only entitled to $6,562.50 in interest was clearly erroneous. We agree. Hall
testified that defendant’s method of multiplying interest by principal to find a flat charge of
$6,562.50 was “illogical” and did not “make sense.” According to Hall, a flat calculation of
principal times interest is not an accurate reflection of simple interest because time needs to be
taken into consideration. Nonetheless, after improperly concluding that both experts had agreed
that it was “impossible” to calculate interest without a mortgage note and that the defense of laches
applied, the trial court held that it was required “to apply simple interest to the property settlement.”
The trial court then adopted defendant’s interest calculation. Because the record establishes that
the manner in which defendant calculated simple interest is not the proper way to calculate simple
interest, the trial court’s finding was clearly erroneous.

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        Vacated and remanded for proceedings consistent with this opinion. We do not retain
jurisdiction.

                                                        /s/ Christopher M. Murray
                                                        /s/ Mark J. Cavanagh
                                                        /s/ Thomas C. Cameron

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