Angelo Iafrate Co. v. Detroit and Northern Sav. and Loan Ass'n, Docket No. 31408

• Decision Date: 04 January 1978
• Docket Number: Docket No. 31408
• Citation: 80 Mich.App. 508,264 N.W.2d 45
• Parties: ANGELO IAFRATE COMPANY, Plaintiff-Appellant, v. DETROIT AND NORTHERN SAVINGS AND LOAN ASSOCIATION, Defendant-Appellee. *
• Court: Court of Appeal of Michigan — District of US

Page 45

264 N.W.2d 45

80 Mich.App. 508

ANGELO IAFRATE COMPANY, Plaintiff-Appellant, v. DETROIT AND NORTHERN SAVINGS AND LOAN ASSOCIATION Defendant-Appellee. ^*

Docket No. 31408.

Court of Appeals of Michigan.

Jan. 4, 1978.

Released for Publication April 6, 1978.

Bodman, Longley, Bogle & Dahling by Andrew J. Broder, Troy, for plaintiff-appellant.

John C. Auld, Detroit, for Detroit & Northern Sav. and Loan Ass'n.

Jay L. Cooke, Lathrup Village, for defendant-appellee.

Before WALSH, P. J., and V. J. BRENNAN and BEASLEY, JJ.

V. J. BRENNAN, Judge.

Plaintiff Angelo Iafrate Company (hereafter Iafrate) appeals from the grant of directed verdict for defendant Detroit and Northern Savings and Loan Association (hereafter Detroit and Northern), and the denial of plaintiff's motion for new trial, entered by District Judge Carl F. Ingraham, sitting as Wayne County Circuit Court Judge. Plaintiff appeals as of right pursuant to GCR 1963, 806.1.

The facts relating to this appeal bear repetition. During the times in question here, codefendant M & K Development Company (hereafter M & K) was the owner and general contractor of property located in Inkster, Michigan, including the Cherry Plaza Condominium project. Detroit & Northern was the holder of a mortgage on the property. Philip F. Greco Title Company (hereafter Greco) was appointed escrow agent to handle the disbursement of the construction loan from defendant Detroit and Northern to M & K.

In April, 1973, plaintiff contracted with M & K for the construction of a sanitary storm and water system in the project. Plaintiff constructed the system according to the contract, but as a result of the financial condition of M & K, plaintiff was not timely paid the amounts due under the terms of the agreement. The contract required payment of 80% Of the obligation when plaintiff's work was finished and the remaining 20% When the job was accepted by the City of Inkster. On July 2, 1973, plaintiff submitted an invoice to M & K for $63,119.52, due and owing on work completed at the time. M & K paid plaintiff $50,000 on August 1, 1973 and another $12,000 approximately 3 months later. Plaintiff was still owed $1,119.52.

Shortly afterward, construction on the project was halted while engineering plans were revised. Plaintiff discontinued work for the space of approximately one year, July, 1973, to July, 1974. Plan revisions were completed May 15, 1974, but plaintiff did not return to work at the time because of dissatisfaction with M & K's failure to pay according to the contract. At that point, plaintiff would not return to work unless some form of guarantee were forthcoming that when plaintiff completed the job payment would be made. Albert Poole of M & K told plaintiff that Detroit & Northern would be contacted in order to arrange some kind of letter assuring plaintiff of payment. Plaintiff then returned to work.

Poole spoke with Detroit & Northern's representative who agreed to write a letter to plaintiff. However, upon inspection, the first letter sent by Detroit & Northern was unacceptable to plaintiff. Consequently, a second letter issued from Detroit & Northern more specifically stating exactly what monies were owed to plaintiff and noting that, upon successful completion of plaintiff's obligations, "disbursements will be made to the Philip F. Greco Title Company for verification of title, free and clear of any encumbrances in respect to that work completed".

Plaintiff subsequently completed the sanitary storm and water system and obtained the approval of the City of Inkster. A final billing was submitted to M & K in the amount of $36,512.28. Neither M & K nor Detroit & Northern made any payments to plaintiff. Plaintiff then commenced suit against M & K for the amount due and against Detroit & Northern for $32,787.77 on the theory that Detroit & Northern by its letter guaranteed to plaintiff payment of this amount upon successful completion of the work.

The cause was tried before the court upon the narrow issue whether Detroit & Northern guaranteed payment to plaintiff and, if so, whether plaintiff could recover the amount specified in Detroit & Northern's letter. The trial court granted Detroit & Northern's motion for directed verdict after plaintiff's proofs, indicating in its findings of fact the second letter was not a guarantee the money would be paid to plaintiff but only indication the funds would be paid to Greco, which the court indicated had been done. The trial court thus concluded that Detroit & Northern was not a guarantor and did not make such a representation to plaintiff. Plaintiff made a motion for new trial on grounds that the court's finding the money had been paid by Detroit & Northern to Greco was not substantiated by evidence. Plaintiff argued that such erroneous findings materially affected its substantial rights. The trial court held hearing on the motion, and acknowledged that contrary evidence appeared in the record to indicate no money had actually been paid by Detroit & Northern to Greco. However, the court denied plaintiff's motion on grounds that the mistake was not a material error which prevented a proper disposition of the case.

On appeal, plaintiff raises several allegations of error. We need address only the major complaint.

The principal question we would address is whether there was a binding promise to plaintiff by Detroit & Northern to pay monies to the title company, and, if so, whether this promise constituted a guarantee contract as a matter of law.

We might observe at the outset that Detroit & Northern's motion for directed verdict should properly have been made as a motion to dismiss. ¹ However, no prejudice resulted to plaintiff by virtue of this procedural mistake and so we will not disturb the determination below on this account. Further, we note that the question of the guarantee contract can be raised on appeal, given that the pretrial results and Detroit & Northern's own trial brief address both the misrepresentation and breach of guarantee contract issues. We believe that "the function of the pleadings is to act as a guide rope, not as a snare or a hangman's noose". Olson v. Dahlen, 3 Mich.App. 63, 72, 706, 141 N.W.2d 702 (1966). See also Nicholson v. Han, 12 Mich.App. 35, 42, 43, 162 N.W.2d 313 (1968); Seaboard Finance Co. v. Barnes, 378 Mich. 627, 633, 148 N.W.2d 756 (1967).

Turning now to the principal consideration, we must determine whether the second letter, sent July 17, 1974, constituted a guarantee contract. ² For purposes of this appeal, a guarantee contract will be understood as an enforceable undertaking or promise by one person collateral to a primary or principal obligation of another which binds the person making the promise to performance of the primary obligation in the event of nonperformance; the secondary party thus becomes primarily responsible for performance. See 38 Am.Jur.2d, Guaranty, § 2, pp. 997-998. See also Moore v. Capital National Bank of Lansing, 274 Mich. 56, 61-62, 264 N.W. 288 (1936), In Re Kelley's Estate, 173 Mich. 492, 498, 139 N.W. 250 (1913). The trial court found that the second letter of July 17, 1974, was not a guarantee that the money would be paid to plaintiff by Detroit & Northern but merely a promise that the funds would be paid to Greco. We find the trial court committed a reversible error of law.

We do not dispute that the trial court properly resolved matters surrounding the extrinsic facts involved in this dispute. Generally, its findings are supported by the evidence and not clearly erroneous. GRP, Ltd. v. United States Aviation Underwriters, Inc., 70 Mich.App. 671, 677-678, 247 N.W.2d 583 (1976), Warren v. June's Mobile Home Village and Sales, Inc., 66 Mich.App. 386, 389-390, 239 N.W.2d 380 (1976). However, the matter of whether Detroit & Northern's second letter constituted a guarantee contract is a question involving the intention of the parties and the nature of the promise and so is a question of law. Griffin Manufacturing Co. v. Mitshkun, 233 Mich. 640, 642, 207 N.W. 814 (1926).

This question of law must be tested by whether an objective manifestation of mutual assent appeared. Stark v. Kent Products, Inc., 62 Mich.App. 546, 548, 233 N.W.2d 643 (1975). Did the bank's assurances of availability of funds to pay plaintiff upon completion of the project reasonably lead plaintiff to believe that Detroit & Northern was promising to guarantee payment in case of M & K's default on its contract. We find the second letter did constitute such a promise.

Often, the language used in commercial guarantees does not reflect the care and precision associated with other written instruments of a more formal character. Consequently, in determining the intention of the parties, greater flexibility must be employed in their interpretation. Farmers and Mechanics Bank v. Kercheval, 2 Mich. 505, 509 (1853). We believe in this case the circumstances and form of the second letter so strongly indicate guarantee that failure to so determine would raise an...