Court Opinion

ID: 7959461
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:30:22.199044+00
Date Added: 2024-06-11T16:34:23.128984
License: Public Domain

Mackenzie, J.
(dissenting). I respectfully dis*367sent. I cannot agree that the leases are void or that plaintiffs should be afforded an additional opportunity to develop their claim of misrepresentation on remand.
Plaintiffs’ first argument is that the leases were void ab initio for lack of consideration. Plaintiffs contend that they never received the "$TEN AND MORE” recited in paragraph 1 of the leases as consideration for their allowing defendants the right to drill for oil and gas. Plaintiffs maintain that this was a condition precedent to their executing the leases. Additionally, plaintiffs argue that the trial court erred in construing paragraph 7 of the leases as granting defendants the right to cure any default.
Paragraphs 1 and 7 of the leases provided in pertinent part:
"1. Lessor, for and in consideration of $TEN AND MORE, the receipt of which is hereby acknowledged, and the covenants and agreements of the Lessee hereinafter contained, does hereby grant, lease and let unto Lessee, exclusively, for the purposes of exploring by geophysical and other methods, drilling, mining, operating for and producing oil and/or gas, * * * all that certain tract of land situated in the County of Osceola, State of Michigan, described as follows, * * *.
"7. In the event Lessor shall claim a default in the performance of any express or implied covenant of this lease, Lessor shall give notice in writing by certified United States mail, addressed to Lessee at his principal office, specifying the facts relied upon as constituting a breach hereof. Lessee shall have 60 days from receipt of such notice to commence and thereafter pursue with reasonable diligence such action as may be necessary or proper to satisfy such obligation of Lessee, if any, with respect to Lessor’s notice. No judicial action may be commenced by Lessor for forfeiture of this lease or for damages until after said 60 day period. Lessee shall be *368given a reasonable opportunity after judicial ascertainment to prevent forfeiture by discharging its express or implied obligation as established by the court.”
The trial court held that the defendants’ promises to pay, as evidenced by the sight drafts, satisfied the consideration requirement of paragraph 1. Further, the court found that the consideration obligation created by paragraph 1 was an express covenant and that paragraph 7 granted defendants the right to cure any default of such a provision. The trial court held that defendants’ tender of payment of the sight drafts on January 7, 1981, was a proper attempt to cure the default.
I do not agree with plaintiffs’ arguments or with the trial court’s interpretation of paragraph 7. Paragraph 7 does not apply because defendants’ obligation to pay plaintiffs consideration of "$TEN AND MORE” in exchange for their execution of the leases was not an "express or implied covenant of this lease” within the meaning of paragraph 7. The 30-day sight drafts given by defendants were not part of the leases, since the parties did not expressly refer to the sight drafts in the leases.
I do agree with the trial court’s conclusion that the sight drafts constituted valid consideration for the leases. MCL 440.3802(l)(b); MSA 19.3802(l)(b) provides in pertinent part:
"(1) Unless otherwise agreed where an instrument is taken for an underlying obligation
"(b) * * * the obligation is suspended pro tanto until the instrument is due or if it is payable on demand until its presentment. If the instrument is dishonored action may be maintained on either the instrument or the obligation * * *.”
The sight drafts here were dishonored by defen*369dants’ bank 30 days after presentment. At that time, pursuant to MCL 440.3802(l)(b), plaintiffs had the option of suing either on the drafts themselves or on the underlying obligations.
In contrast, had defendants agreed to pay plaintiffs in cash, instead of with 30-day sight drafts, and had defendants thereafter failed to make the agreed-upon payments, plaintiffs could have maintained an action only on the underlying obligation. The issue, then, becomes whether plaintiffs’ right under the UCC to maintain an action on either the drafts or on the underlying obligations, at their option, constituted valid consideration for the oil and gas leases. I would hold that it did and that, therefore, plaintiffs are bound by the terms of their leases with defendants.
Valid consideration for a contract requires a bargained-for exchange, i.e., there must be a legal detriment that has been bargained for and exchanged for a promise. Higgins v Monroe Evening News, 404 Mich 1, 20; 272 NW2d 537 (1978). As part of the bargain, plaintiffs here agreed to accept sight drafts from defendants instead of cash. By accepting drafts in exchange for the use of their property, plaintiffs received the right to sue on the instruments themselves, a right they would not have otherwise had. Defendants, in return, by issuing the sight drafts, made themselves vulnerable to an action by plaintiffs on the drafts in the event they were later dishonored, a legal detriment beyond the liability they might have otherwise incurred on the underlying leases.
Consequently, I would reject plaintiffs’ argument that the leases were void ab initio for lack of consideration. Plaintiffs were not entitled to rescission or cancellation of the leases on this theory.
Plaintiffs also argue that the trial court erred in failing to grant rescission based on their claim of *370misrepresentation. In the alternative, plaintiffs maintain that material issues of fact precluded a grant of summary judgment on this claim.
I would find that plaintiffs failed to properly plead misrepresentation and that they are not entitled to a remand to develop this issue further. The Supreme Court set forth the elements of misrepresentation or fraud as follows in Hi-Way Motor Co v International Harvester Co, 398 Mich 330, 336; 247 NW2d 813 (1976):
" 'The general rule is that to constitute actionable fraud it must appear: (1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery.’ ” Quoting Candler v Heigho, 208 Mich 115, 121; 175 NW 141 (1919).
In the case at bar, plaintiffs did not claim misrepresentation in their original complaint filed March 4, 1981. In their first amended complaint, filed July 2, 1981, plaintiffs set forth a count labeled "Fraud”. In this count plaintiffs alleged that (1) defendant Schumacher represented to them that the sight drafts would be paid within 30 days, (2) plaintiffs relied on this representation in leasing the premises, and would not have entered into the leases had the representation not been made, and (3) contrary to the representation, defendants did not pay the drafts within 30 days.
Plaintiffs’ first amended complaint failed to allege that defendants made the representation *371knowing that it was false, or made it recklessly without any knowledge of its truth. In addition, plaintiffs did not allege that defendants made the representation with the intention that plaintiff act on it. Consequently, the allegations in the first amended complaint were insufficient to properly plead fraud or misrepresentation.
On appeal plaintiffs argue that their complaint was sufficient for a claim of innocent misrepresentation. United States Fidelity & Guaranty Co v Black, 412 Mich 99; 313 NW2d 77 (1981). However, in the circuit court plaintiffs did not put forth such a theory. Their claim was one of fraud, i.e., traditional misrepresentation. Since plaintiffs failed to seek relief on a claim of innocent misrepresentation in the trial court, this theory is not properly before this Court on appeal. See Reed v St Clair Rubber Co, 118 Mich App 1, 10; 324 NW2d 512 (1982).
The trial court gave plaintiffs more than one opportunity to properly plead and argue their case. In denying plaintiffs’ motion for summary judgment on November 4, 1982, the court granted plaintiffs ten days to present arguments why the court should not grant summary judgment for defendants. In response, plaintiffs filed a motion for rehearing which essentially raised the same points made earlier.
Two months later, on January 28, 1983, plaintiffs filed a motion to amend their complaint. Plaintiffs proposed amended complaint alleged fraud and misrepresentation (as before), lack of consideration, and unconscionability. The unconscionability claim did not identify any specific portion or clause of the leases as unconscionable and did not state any legal reason why plaintiffs believed the leases to be unconscionable.
The trial court denied the motion to amend, *372finding that the claim of fraud was insufficiently pled and that on this and the breach of contract claim plaintiffs had alleged nothing to avoid the court’s earlier ruling. The court also determined that plaintiffs’ allegations of unconscionability were so general as to be legally insufficient.
In denying plaintiffs’ motion to amend, the trial court granted plaintiffs another ten days to draft a sufficiently specific claim that the leases were unconscionable. Plaintiffs did not file any further amendments in response to this ruling.
In this situation I can see no reason to afford plaintiffs yet another opportunity to develop their claim for misrepresentation (or unconscionability) on remand. I would affirm the trial court’s order granting summary judgment to defendants.