Court Opinion

ID: 9695068
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:05:33.899895+00
Date Added: 2024-06-11T18:20:08.046468
License: Public Domain

Murphy, P.J.
Plaintiff appeals as of right from a judgment granting defendant Capitol Indemnity Corporation’s motion for summary disposition, which was brought pursuant to MCR 2.116(C)(7)(release) and (10), in this action involving a construction project and a performance bond. We affirm.
Plaintiff was the general contractor for a government Job Corps construction project, and defendant Ace Masonry was a subcontractor providing cement and masonry work on the project. The construction project required that Ace furnish a performance bond intended to protect plaintiff, and one was issued by Capitol. Subsequently, a dispute arose between plaintiff and Ace concerning the masonry work, and the project was not fully completed.
The complaint filed by plaintiff alleged breach of contract, fraud, and misrepresentation with respect to Ace. The complaint also included a claim against Capitol seeking recovery on the performance bond. Ace filed a counterclaim against plaintiff alleging breach of contract, and a third-party complaint against plaintiff’s surety United States Fidelity & Guaranty Company.
The trial court granted Capitol’s motion for directed verdict during a jury trial in regard to the performance bond claim. The trial court granted the directed *225verdict, finding a “failure of proof regarding compliance with conditions precedent, including failure to declare default.” Immediately after the trial court granted the directed verdict, plaintiff requested and obtained a brief recess to discuss a possible settlement with Ace. Following the recess, and on the record, plaintiff and Ace stipulated the release and dismissal of any claims the parties had against each other.1 The following colloquy took place regarding the settlement:
Plaintiff’s Counsel: [W]e have had an opportunity to [discuss] this matter amongst ourselves, in light of the [court] . .. granting Capitol Indemnity’s motion for directed verdict, the remaining parties in the case have discussed this matter and they’re willing to settle this case by mutual release of all claims against each other.
Judge: All right, Mr. Schaffer [counsel for Ace], do you wish to be heard on this?
Ace’s Counsel: I would just concur in that settlement— my client is here I just would ask that, on the record, he indicate that is his wish to do that. . . .
Ace’s representative proceeded to approve the settlement and release. The record does not reflect any statements by counsel for Capitol during discussion of the settlement. Further, the record does not indicate whether Capitol’s counsel remained in the courtroom after the directed verdict was granted and when the settlement and release were placed on the *226record.2 Subsequently, plaintiff pursued an appeal of the directed verdict to this Court.
This Court, in an unpublished per curiam opinion, reversed the trial court’s order granting the directed verdict, holding:
Viewing [the] evidence in a light most favorable to plaintiff, we conclude that a reasonable factfinder could find that defendant received notice that the subcontractor committed a material breach, that plaintiff regarded the subcontractor to have failed to meet its contractual duties, and that plaintiff was asking defendant to perform under the terms of the bond.
To the extent the trial court found plaintiffs notice to defendant untimely, we note that the only time frame provided in the performance bond is the two-year limitations period for filing a lawsuit. Where the time of performance is indefinite, performance may be required to be rendered within a reasonable time. The question regarding the reasonableness of plaintiff’s claim, which was filed less than three months after Ace walked off the job, should have been submitted to the jury. [Hall & Son, Inc v Capitol Indemnity Corp, unpublished opinion per curiam of the Court of Appeals, issued June 15, 2001 (Docket No. 222262) (citations omitted).]
On remand, Capitol filed a motion for summary disposition, arguing that, in light of plaintiff’s decision to dismiss the action against Ace, an action on the performance bond could no longer be maintained. Capitol claimed that the release of the principal, Ace, by plaintiff, the obligee, acted as a discharge of Capitol, the surety. On the basis of Capitol’s argument, the *227trial court granted the motion for summary disposition and dismissed the action. Plaintiff appealed.
Plaintiff argues on appeal that principles of res judicata require that a party raise in an initial appeal all issues that were then present and could have and should have been raised. Therefore, because Capitol did not raise in the previous appeal the issue that plaintiff stipulated the release and dismissal of Ace, thereby arguably denying this Court the opportunity to reject plaintiffs first appeal, Capitol effectively waived the issue on remand. We disagree.
Plaintiff relies on VanderWall v Midkiff, 186 Mich App 191; 463 NW2d 219 (1990). The VanderWall panel ruled:
[W]e conclude that the principles of res judicata require that a party bring in the initial appeal all issues which were then present and could have and should have been raised. That is, just as plaintiff was required in the initial appeal to present all arguments why the trial court had erred in granting judgment notwithstanding the verdict, defendants were also required to bring their challenges to the underlying judgment, whether it had been by way of argument in the appellee’s brief defending the trial court’s action or by way of cross appeal raising issues separate from the issue of the granting of judgment notwithstanding the verdict. [Id. at 201.]
Here, there is a distinction because Capitol was not able to validly argue in the first appeal that the trial court properly granted its motion for directed verdict on the alternative basis that Ace had been dismissed as a party. Considering the sequence of events, the settlement had not yet occurred when the trial court directed a verdict in Capitol’s favor, and was thus not part of an argument made by Capitol in support of *228the motion for directed verdict. Whether as part of an argument in Capitol’s appellee brief or in a cross-appeal, there was no “ruling” on which the argument could be predicated with respect to the effect of the settlement and release on the performance bond claim. We acknowledge that Capitol technically had the ability to argue anything it pleased in the first appeal and could have argued that, in light of the settlement and release, no action on the bond could be maintained. However, it is likely that this Court, if faced with such an argument, would have declined to address the issue because there had been no ruling by the trial court on the subject and no arguments by the parties to the trial court on the issue. Moreover, considering that the trial court had already granted a directed verdict, it would not have entertained, in all likelihood, additional arguments as to why plaintiff’s action on the bond should be rejected; the settlement was premised on the directed verdict. We conclude that Capitol was not required to raise the issue in the first appeal.
Plaintiff next argues that although the general rule in Michigan is that the discharge of the principal serves as a discharge of the surety, there is an exception where the surety consents to the release of the principal. Plaintiff further argues that there were genuine issues of material fact concerning whether Capitol consented to the release of Ace, where the parties placed the settlement on the record with Capitol’s counsel present.
A suretyship contract requires three parties; a principal, an obligee, and a surety. In re Forfeiture of $8,141 of United States Currency, 172 Mich App 790, 792; 432 NW2d 442 (1988). A surety is one who under*229takes to pay money or take any other action if the principal fails therein. Id. “The liability of a surety is limited by the scope of the liability of its principal and the precise terms of the surety agreement.” Bd of Governors of Wayne State Univ v Building Systems Housing Corp, 62 Mich App 77, 85; 233 NW2d 195 (1975) (citation omitted). In general, a surety may plead any defense available to the principal, and the liability of the surety is coextensive with the liability of the principal in the bond and can be extended no further. In re MacDonald Estate, 341 Mich 382, 387; 67 NW2d 227 (1954).
Plaintiff relies on Westveer v Landwehr, 276 Mich 326; 267 NW 849 (1936), for its proposition that there is an exception to the general rule of discharge where the surety consents to the release of the principal. In Westveer, a bank loaned money to a country club on multiple occasions, and the club’s directors acted as sureties to guarantee payments on the loan through the execution of two bonds; the bonds being continuing guarantees. Id. at 327-329. One of the sureties who executed the bonds died and additional promissory notes were issued after his death. Id. at 328. Our Supreme Court held that in regards to the renewal notes, issued by the bank after the surety’s death and after notice of his death, the deceased’s estate was discharged from any liability based on the bond or guaranty. Id. at 329. The Court also held, however, that the release of the deceased surety’s estate did not discharge the surviving sureties on the renewal notes, where those sureties did not exercise the option to be released from further liability at the time of the deceased surety’s death and thus acquiesced in remaining on the guaranty thereafter. Id. at 329-330.
*230Westveer did not involve the release of a principal by the obligee as occurred in the case at bar.3 Westveer only dealt with a situation where sureties had the opportunity to be discharged on a debt pursuant to an agreement but failed to exercise the steps necessary to be discharged and acquiesced in continuing liability. Here, Capitol was not required by any agreement to take affirmative steps to be discharged; therefore, it cannot be said that Capitol acquiesced in being held liable on the performance bond. Westveer does not stand for the proposition, as argued by plaintiff, that surety liability is continuing where the surety consents to the release of the principal. Even in the context of the facts in Westveer, whether the surviving sureties consented to the release of the deceased surety was not an issue and did not play into the Supreme Court’s analysis and holding.
Plaintiff also relies on Greenlee v Lowing, 35 Mich 63 (1876). In Greenlee, the plaintiff brought an action to recover on a replevin bond. A judgment in replevin had been previously entered against the principal obligor by the plaintiff; however, the plaintiff and the principal had a private arrangement whereby the principal was released for consideration with the plaintiff being left at liberty to recover what he could from the sureties. Our Supreme Court stated:
If an agreement was made releasing Mrs. Ridell [principal obligor] from liability in the judgment rendered against her in the replevin suit, the effect thereof undoubtedly would be to discharge the sureties unless they consented to the agreement, which is not claimed. [Id. at 66.]
*231The above quote was part of the Court’s discussion concerning the propriety of a jury charge, not a substantive discussion on suretyship. Regardless, the case does not support plaintiff’s position because the release agreement there allowed the plaintiff to pursue sureties. Therefore, when the Court discussed the matter of the sureties’ consent to the agreement, which was not claimed, the consent would necessarily relate to not only the release but also to the sureties continuing potential liability. Here, the record in regards to the settlement and release reveals no agreement by plaintiff and Ace that plaintiff could continue to pursue Capitol. Moreover, the record does not indicate that Capitol consented to the release and its own continuing liability.
Michigan case law is minimal concerning sureties, and there are no cases, of which we are aware, that directly, substantively, and fully address the effect on a surety’s liability following the obligee’s release of any and all claims against the principal. However, we find guidance in Restatement Suretyship and Guaranty, 3d, § 39 (Release of Underlying Obligation),4 which provides in relevant part:
To the extent that the obligee releases the principal obli-gor from its duties pursuant to the underlying obligation:
*232(b) the secondary obligor (surety) is discharged from any unperformed duties pursuant to the secondary obligation unless:
(i) the terms of the release effect a preservation of the secondary obligor’s recourse . . or
(ii) the language or circumstances of the release otherwise show the obligee’s intent to retain its claim against the secondary obligor[.]
See also Axess Int’l, Ltd v Intercargo Ins Co, 183 F3d 935, 939 (CA 9, 1999); Amtote Int’l, Inc v Pngi Charles Town Gaming Ltd Liability Co, 66 F Supp 2d 782, 793-794 (ND W Va, 1999).
In Axess Int’l, supra at 939-940, a case involving a $50,000 surety bond covering damages arising from transportation-related activities, the United States Ninth Circuit Court of Appeals held that, pursuant to § 39(b) of Restatement Suretyship and Guaranty, 3d, the surety was not discharged from liability where a clause in the release specifically reserved the obli-gee’s right to claim or take any proceedings against any other party, which clearly reflected an intent to release only the principal. The federal court cited comment d to § 39 of the Restatement in support of the position that the surety is not discharged when the release is intended to only discharge the principal obligor, and this intent can be manifested by a provision in the release. Axess Int’l, supra at 939.5 The *233Axess Int’l court cited several state and federal decisions that were consistent with its position and the Restatements. Id. at 938-939.
Here, there is no evidence indicating that Capitol consented to remain liable notwithstanding the release, no language or circumstances indicating that plaintiff reserved the right to pursue Capitol, and no release terms effecting a preservation of Capitol’s recourse against Ace. Because the release was broad, open-ended, and all-encompassing, it cannot be said that plaintiff intended to retain a claim against Capitol. We note illustration 4 to Restatement Suretyship and Guaranty, 3d, § 39, which provides:
D agrees to construct a building for C for $1,000,000. S issues a performance bond for D’s obligation. Soon after starting construction, D abandons the project. Investigation reveals that D is insolvent and has essentially no assets other than equipment left at C’s work site. Realizing the futility of pursuing D, C agrees to release D from its obligations pursuant to the construction contract in exchange for title to the abandoned equipment. The circumstances indicate that C intended to retain its claim against S. S is not discharged pursuant to paragraph (b), but is discharged to *234the extent provided in paragraph (c) [value of the consideration for the release].
Here, there was no documentary evidence presented by plaintiff in response to Capitol’s motion for summary disposition showing that plaintiff could not recover its damages from Ace, or that the reason for the settlement and release was the insolvency of Ace. It is just as likely that plaintiff settled the case with Ace in order to avoid any potential liability on Ace’s counterclaim. In fact, it is apparent that plaintiff was not focusing at all on the future liability of Capitol when placing the settlement on the record, considering that Capitol had already been relieved of liability on the basis of the directed verdict. We conclude that plaintiff has failed to submit documentary evidence sufficient to create an issue of fact with respect to, and in support of, plaintiff’s proposition that it intended to retain its claim against Capitol. MCR 2.116(C)(10). In placing the settlement on the record, plaintiff failed to appreciate the possibility that an appeal and a reversal could reinstate its action against Capitol.6
*235Plaintiffs assertion that Capitol implicitly agreed to remain liable where it did not object to the stipulated dismissal is without merit. Capitol, having been relieved of liability pursuant to the directed verdict and, assuming that Capitol’s counsel was present when the settlement was placed on the record, having heard no statements on the record by counsel for plaintiff and Ace that Capitol would somehow remain liable, had no reason to object to the settlement and release. Once again, the consent of the surety regards consenting to remain liable notwithstanding the release. We will not presume Capitol’s consent to remain liable from its silence, assuming that Capitol’s counsel was present at the time of settlement.* ****7
In a recent legal article discussing the effect of a release on a surety under Restatement Suretyship and Guaranty, 3d, the authors stated that “[i]f the obligee [plaintiff] releases the principal [Ace] without more, (a) both the principal and surety [Capitol] are discharged from duties to the obligee, and (b) the principal is discharged from all duties to the surety.” Mungall8 & Arena, Effect on surety of obligee’s release of principal: A critical look at the rules in the restatement, 70 Def Couns J 328 (2003) (emphasis added). Capitol submitted the transcript of the settlement and *236the amended order of dismissal for consideration in its motion for summary disposition, and plaintiff failed to submit evidence showing anything to the contrary. Therefore, without more, Capitol and Ace were completely released.
The fact that Capitol was a paid or compensated surety does not alter our conclusion. In Grinnell Realty Co v Gen Cas & Surety Co, 253 Mich 16, 21-22; 234 NW 125 (1931), our Supreme Court, providing an in-depth discussion distinguishing gratuitous sureties and paid sureties, stated:
[T]he liability of a gratuitous surety will not be extended to a contract which in the slightest degree varies from the one for the performance of which he became bound. The risk he runs will not be increased in any manner without Ms consent, nor will the possibility of Ms immediately protecting himself in the event of default be lessened. Strict rules of law, wMch sometimes almost seemed harsh, frequently relieved Mm from Ms obligation on account of some very slight deviation from the contract by the obligee. The surety’s liability was limited in all cases to the strict letter of Ms bond. In time, however, sureties began to exact compensation, commensurate with the risk they assumed, and surety compames were orgamzed for profit. They charged premiums so as to make their business a profitable one. They drafted their own bonds and inserted therein such conditions as they thought necessary to properly protect themselves. The law thereupon recogMzed the difference between gratmtous and paid sureties and required that paid sureties, in order to be released from the obligations of their bond must show that they were damaged by some slight deviation from the contract by the obligee. Their bond was looked upon as one of insurance or indeirmity instead of one of suretysMp. There is no presumption that a paid surety was harmed, nor is the suggestion of mere contingencies or possibilities sufficient. It is not relieved from its obligations except when it is shown that there is a mate*237rial departure from the contract which resulted in some injury to the surety. [Citations omitted. ][9]
Here, there is no dispute about deviations or changes in the underlying contract between plaintiff and Ace that might have affected Capitol’s obligations under the performance bond. The matter presented to us is merely whether plaintiff’s unconditional and broad release, without limitation, and without any consent by Capitol to remain liable, reheves Capitol of liability. Moreover, under Restatement Suretyship and Guaranty, 3d, § 39(a), Capitol would be harmed or prejudiced if plaintiff were allowed to pursue its action on the performance bond because Capitol would have no recourse against Ace. Section 39(a) provides that “[t]o the extent that the obligee [plaintiff] releases the principal obligor [Ace] from its duties pursuant to the underlying obligation: the principal obligor is also discharged from any corresponding duties of performance and reimbursement owed to the secondary obligor [Capitol] unless the terms of the release effect a preservation of the secondary obligor’s recourse[.]” Because the terms of the release here do not effect a preservation of Capitol’s recourse, and because plaintiff presented no documentary evidence showing Ace to be insolvent or uncollectible, Capitol would be prejudiced and harmed should plaintiff be allowed to pursue the action and recover on the performance bond.
The dissent, quoting Restatement Suretyship and Guaranty, 3d, pp 157, 175, argues that, under the *238Restatement, a release discharges a secondary obli-gor, Capitol, only to the extent that it suffers a loss. The Restatement provision concerning the dissent’s argument is found in § 39. We have already concluded, on the basis of the documentary evidence, that Capitol would suffer a loss if it became liable to plaintiff. Moreover, we disagree with the dissent’s interpretation of the Restatement. Section 39 of the Restatement provides:
(c) if the secondary obligor is not discharged from its unperformed duties pursuant to the secondary obligation by operation of paragraph (b) [quoted above], the secondary obligor is discharged from those duties to the extent:
(i) of the value of the consideration for the release;
(ii) that the release of a duty to pay money pursuant to the underlying obligation would otherwise cause the secondary obligor a loss; and
(iii) that the release discharges a duty of the principal obligor other than the payment of money[.]
Plaintiff failed to present documentary evidence showing that Capitol was not discharged under subsection b of § 39 (terms of the release effect a preservation of the secondary obligor’s recourse, or language or circumstances of the release otherwise show the obligee’s intent to retain its claim against the secondary obligor). Thus, subsection c was not triggered. Assuming subsection c was triggered, there still would be a discharge under the Restatement because Ace’s duty or obligation was one other than the payment of money, i.e., providing cement and masonry work. The reason for this distinction is explained in comment g to § 39, pp 173-174:
*239When the underlying obligation is performance other than the payment of money, a release of the principal obligor has an effect on the secondary obligor that is particularly difficult to quantify. First, as in all releases, the ability of the principal obligor to perform had there been no release must be considered. Yet the ability of a principal obligor to perform a nonmonetary obligation is typically not susceptible of reliable determination. Second, a factor not present when the underlying obligation is the payment of money— the relative cost of performance by the principal obligor and secondary obligor — complicates matters further. The cost of performance by the secondary obligor may be different than it would have been for the principal obligor. . . . Third, a principal obligor who has been released from the underlying obligation may be uncooperative in assisting the secondary obligor to establish defenses to the secondary obligation. These factual difficulties, combined with the fact that the secondary obligor’s bargain contemplated the existence of a continuing obligation of the principal obligor to perform, make it inequitable to place on the secondary obli-gor any burden of demonstrating the existence and amount of the loss resulting from the release of the principal obli-gor when the underlying obligation is not the payment of money. Accordingly, this section discharges the secondary obligor to the extent of a release of nonmonetary obligations of the principal obligor.
Because it is unnecessary to our resolution of this case, we decline to decide today whether to adopt the exception in § 39(c) regarding nonmonetary obligations.
Affirmed.
Cooper, J., concurred.

 An order of dismissal of plaintiff's claims and Ace’s counterclaim was subsequently entered by the trial court. The order contained the signatures of plaintiffs and Ace’s counsel but not that of Capitol’s counsel.

 Capitol’s appellate counsel, who was also trial counsel, told this panel at oral argument, as an officer of the court, that he left the courtroom with his client after the directed verdict was granted but before the settlement and release were placed on the record. Ultimately, our decision does not rest on counsel’s presence, or lack of presence, in the courtroom.

 The country club was the principal obligor in Westveer, with the bank being the obligee.

 See also Restatement Security, § 122 (1941), wherein it is stated that “[w]here the creditor releases a principal, the surety is discharged, unless (a) the surety consents to remain liable notwithstanding the release, or (b) the creditor in the release reserves his rights against the surety.” We note that this Restatement has now been superseded by Restatement Suretyship and Guaranty, 3d.

 The Ninth Circuit Court also relied on Restatement Security, § 122 (1941) (cited by us above at note 4). Axess Int’l, supra at 939 n 3. Comment d to Restatement Suretyship and Guaranty, 3d, § 39, provides:
An obligee may release the principal obligor from its duties pursuant to the underlying obligation in a number of different circumstances. In some cases, such as an accord and satisfaction, the *233release is intended to discharge all claims of the obligee (including claims against other obligors) with respect to those duties. In those cases, the secondary obligor is discharged by the release. In other cases, however, the release is intended to discharge only the obli-gee’s claim against the principal obligor, leaving the obligee free to pursue the secondary obligor. Paragraph (b) [of § 39 of Restatement] does not discharge the secondary obligor when the release is intended to discharge only the principal obligor. This intent can be manifested in a provision of the release effecting a preservation of recourse of the secondary obligor or otherwise indicating that the secondary obligor remains liable, or inferred from circumstances that indicate such intent. In the absence of such a provision or such circumstances, of course, the secondary obligor is discharged.

 We respectfully disagree with the dissent’s contention that genuine issues of material fact remain, which preclude summary disposition, where Capitol had the burden of persuasion to establish a release, and where Capitol failed to submit relevant documentary evidence in support of its position. We agree that release is an affirmative defense, MCR 2.111(F)(3)(a), and that Capitol had the burden of proof with respect to release. This case, however, must be viewed in the context of a motion for summary disposition. Capitol submitted documentary evidence with its motion for summary disposition, brought under MCR 2.116(C)(7) and (10), in the form of a transcript of pages from the jury trial that contained the settlement that was placed on the record and the amended order of dismissal. It was incumbent on plaintiff to submit documentary evidence to show that an issue of fact existed concerning release in the face of Capitol’s evidence in order to survive summary disposition. MCR 2.116(G)(4) (“[A]n adverse party may not rest upon the mere allegations *235or denials of his or her pleading, but must, by affidavits or as otherwise provided in this rule, set forth specific facts showing that there is a genuine issue for trial.”); Smith v Globe Life Ins Co, 460 Mich 446, 454-455; 597 NW2d 28 (1999); Quinto v Cross & Peters Co, 451 Mich 358, 362-363; 547 NW2d 314 (1996).

 Any reliance on* The President, Directors & Co of the Farmers & Mechanics' Bank of Michigan v Kingsley, 2 Doug 378 (Mich, 1846), is misplaced for the reason that here, there was a lack of evidence establishing consent to continuing liability by Capitol.

 Daniel Mungall, Jr., served as associate reporter on Restatement Suretyship and Guaranty, 3d.

 A prejudicial change or modification in duties or obligations is necessary to discharge a paid surety from liability. Hunters Pointe Partners Ltd Partnership v United States Fidelity & Guaranty Co, 177 Mich App 745, 749; 442 NW2d 778 (1989).