Court Opinion

ID: 3155803
Source: CourtListenerOpinion
Date Created: 2015-11-18 21:05:56.381479+00
Date Added: 2024-06-11T12:14:26.646471
License: Public Domain

STATE OF MICHIGAN

                            COURT OF APPEALS

FRANCIS & HIGH PROPERTIES, LLC,                                      UNPUBLISHED
                                                                     November 17, 2015
               Plaintiff-Appellee,

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: GADOLA, P.J., and HOEKSTRA and M. J. KELLY, JJ.

PER CURIAM.

        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 franchisor of Happy’s Pizza #19.
HPF appeals by leave granted1 an order of the circuit court affirming the ruling of the district
court that the language of the commercial lease at issue unambiguously named HPF as cotenant
under the lease. Because we conclude that the language at issue 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 district’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, executed a lease whereby
plaintiff agreed to lease an approximately 1600 square foot commercial 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, plaintiff 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 Francis & High Props LLC v Happy’s Pizza Franchise, LLC, unpublished order of the Court of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).

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complaint, and alleged that they owed $15,000 in rent. Plaintiff also sought an award of money
damages in the amount of $139,544.80 for “lease acceleration” due under the terms of the lease.
HPF answered that it was not a proper party to the suit because it did not have a possessory
interest in the premises and was not “a guarantor of the obligations of Tenant Happy Pizza #19,
Inc. . . .” Happy’s #19 did not answer the complaint or make an 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 nonpayment 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 parties’ intent to designate HPF as
a cotenant under the lease. Consequently, the district court concluded that HPF was liable as a
tenant, and the district court entered a money judgment in favor of plaintiff against both
defendant HPF and defendant Happy’s #19 for the court’s jurisdictional limit of $25,000, MCL
600.8301(1), plus interest.2 The district court also issued a judgment of possession in favor of
plaintiff.

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

2
  After the district court awarded plaintiff $25,000, plaintiff attempted to seek additional
damages in circuit court, but the circuit court dismissed plaintiff’s claims on the basis of res
judicata. Plaintiff now argues on appeal that res judicata does not apply because the district
court’s order is void for lack of jurisdiction given that the amount in controversy, as set forth in
plaintiff’s complaint, exceeded the court’s $25,000 jurisdictional 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 exceed $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 the 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 expressly stated that plaintiff was
“only pursuing the amount of the jurisdictional limit of the Court, which is 25,000.” Plaintiff
then filed a supplemental complaint, seeking only $25,000. Having 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 did not exceed $25,000, and
the district court had subject matter jurisdiction over plaintiff’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 damages in circuit court. See Sewell v
Clean Cut Mgt, Inc, 463 Mich. 569, 575-577; 621 NW2d 222 (2001).

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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 “remain” liable. The circuit court
denied HPF’s motion for reconsideration. 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 categorization is contrary to (1) the signatory
line which identified HPF only as a “franchisor,” (2) an assignment provision which allows HPF
to “assume” a tenant’s rights and liability under the lease, and (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 asserts that the district court should
have considered extrinsic evidence to determine the parties’ intent at the time they entered into
the lease. Additionally, HPF argues that, if the parties’ intent could not be determined using
conventional interpretation methods, 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 preamble 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 property 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 of contract interpretation. Sprik v
Regents of Univ of Mich, 43 Mich. App. 178, 193; 204 NW2d 62 (1972). The primary goal when
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 read 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 contract as written because an unambiguous contract reflects 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 matter of law, the
meaning of ambiguous contract language 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 conflict 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 ambiguity 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 latent ambiguity arises when the
contract language appears clear but other facts, including extrinsic 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 ambiguity that exists. Id. If there is a

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“true ambiguity, and the parties’ intent cannot be discerned through all conventional meanings,
including extrinsic evidence,” courts employ the common-law rule of contra proferentem, which
requires that the agreement be construed against the drafter. Holland, 287 Mich. App. at 527.

       In this case, under the contract in question, the “tenant” plainly leased plaintiff’s
commercial building in exchange for which the “tenant” agreed to 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 under 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 21st day of NOVEMBER, 2006 by and between FRANCIS
       & HIGH PROPERTIES, LLC, 21745 W. Eight Mile Road, Detroit, MI 48219
       the lessor, herein after designated as the Landlord, and, HAPPY’S PIZZA #19
       INC., 29201 Telegraph Road suite 607, Southfield, Mi 48034, the lessee and
       HAPPY’S PIZZA FRANCHISE, LLC., a Michigan limited liability company
       (hereinafter referred to as “Franchisor”), herein after designated as the Tenant.
       [Boldface in original.]

This paragraph identifies defendant 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 the contract, the term “lessee” appears only once more, in a
paragraph relating to permits. The term “franchisor” appears numerous times in apparent
reference to HPF. In comparison, the term “tenant” appears numerous times in the agreement
and, as set forth below, the term “tenant” is often used in apparent reference solely to Happy’s
Pizza #19, which evinces an ambiguity with respect to the meaning of the term tenant.

        Specifically, to begin with, the signature page of the rider to the agreement is signed by
plaintiff, Happy’s Pizza #19, and HPF. The signature page clearly identifies plaintiff as
“landlord,” Happy’s Pizza #19 as “tenant,” and HPF as “franchisor.” 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 “lessee” to refer to Happy’s Pizza #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 reference 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 rider, 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:

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       Notwithstanding the foregoing, Landlord and Tenant agree that without
       Landlord’s consent, after a termination or expiration of the Tenant’s franchise, if
       applicable, all or any part of this Lease and the right, title and interest 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 appropriate 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 Pizza 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 Franchisor is granted the ability to assume “all or any part of this Lease
and the right, title and interest of Tenant . . . .” The Franchisor plainly refers to HPF, meaning
that HPF has the ability to assume the tenant’s “right, title and interest” in the lease. But, if HPF
were a co-tenant under the lease, it would already possess these 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. Similarly, under this paragraph, the “landlord” and “tenant” agree
to provide the franchisor, i.e., HPF, with 30 days written notice of an assignment or sublease, a
provision which would be unnecessary if the term “tenant” included HPF. If HPF elects to
assume the lease, it may sublease the premises so long as it “remains liable” for all the lease
obligations it has elected to assume.3

       Likewise, ¶ U of a rider to the agreement appears to distinguish 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 and are acceptable to the Landlord 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 must first assume liability and then
having elected to do so, the sublease will continue while the Franchisor remains liable. We do
not read this language as indicating a liability that exists before the Franchisor elects to assume
liability.

                                                -5-
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 “franchisor” has a secondary option. If HPF were a “tenant” it would not
need this secondary right, and if the parties merely intended to distinguish between HPF and
Happy’s Pizza #19 they would have employed the terms “lessee” and “franchisor.” Instead, the
use of “tenant” in this context appears to refer solely to Happy’s Pizza #19. Considering the
contract as a whole, given that the term tenant is used repeatedly in the agreement to refer solely
to Happy’s Pizza #19 and yet it also appears to encompass HPF in the preamble, we conclude
that the term “tenant” as used 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 presented the affidavit of its managing
member, Happy Asker, who averred that HPF “was not the Tenant nor a guarantor of the Lease.”
Asker maintained that HPF “executed the Lease in order to obtain the right of first refusal to
purchase the subject property and the right to enforce the Franchise 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 occupied 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 contract ambiguity with respect to
HPF’s status as a “tenant,” these extrinsic facts should have been 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, including the use of extrinsic evidence,
HPF is correct that the lease should be construed against plaintiff because plaintiff drafted the
agreement. See id.

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

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

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