Bandit Industries, Inc. v. Hobbs Intern., Inc., Docket No. 116553.
| Citation | 463 Mich. 504,620 N.W.2d 531 |
| Decision Date | 11 January 2001 |
| Docket Number | Docket No. 116553. |
| Parties | BANDIT INDUSTRIES, INC., Plaintiff-Appellee, v. HOBBS INTERNATIONAL, INC., a Connecticut Corporation, d/b/a Hobbs Equipment Company, Defendant, and William H. Bayles, Jr., Defendant-Appellant. |
| Court | Supreme Court of Michigan |
Hughes & Hoerauf, P.C. (by Jaynie Smith Hoerauf), Clare, MI, for the plaintiff.
Lambert, Leser, Cook, Guinta & Smith, P.C. (by David L. Powers), Bay City, MI, for the defendant.
The plaintiff and defendant corporations transacted business with each other. When the latter failed to keep its account current, the plaintiff sought further assurance. The response was treated by the circuit court as a personal guarantee from the president of the defendant corporation. The Court of Appeals twice affirmed, but we reverse. A personal guarantee for the debt of another can arise only where such an intent is clearly manifested.
Plaintiff Bandit Industries, Inc., manufactures wood chipping equipment in Remus, Michigan. Among its dealers was defendant Hobbs International, Inc., of Norwalk, Connecticut. When Hobbs began to fall behind in its financial obligations to Bandit, the two companies tried several means to continue the relationship. Bandit sometimes required Hobbs to pay before shipment, or to pay cash on delivery. Bandit and Hobbs also agreed on a payment schedule, but the problem of delinquency continued.
As these events were taking place, Hobbs found itself in position to sell five specially manufactured wood chippers to the state of Connecticut. Bandit agreed to manufacture the chippers for a price to Hobbs of $87,500.1 However, discussions continued with regard to how Bandit's financial stake in the transaction could be protected.
Negotiating on behalf of Bandit was its sales manager and part owner, Dennis Tracy. On Hobbs' side were its sales manager, and also a financial consultant named Rosemarie Rourke. They discussed various options, including having the state of Connecticut issue a two-party check, or having Hobbs' contractual obligation backed by a personal guarantee for the contract amount. Ms. Rourke spoke with the president and owner of Hobbs, William H. Bayles, Jr, Ms. Rourke and Mr. Bayles say that they agreed between themselves that a personal guarantee would be unwise. However, these various conversations led directly to the following letter, sent by facsimile transmission in October 1993. The letter, on Hobbs stationery, was faxed to Mr. Tracy. In full, it stated:
Dear Dennis:
Bill [handwritten]
On receipt of that fax, Bandit shipped the chippers to the state of Connecticut and sent invoices to Hobbs. Connecticut paid Hobbs for the chippers, but Hobbs never sent the promised $87,500 to Bandit.
When it became clear that no payment would be forthcoming,2 Bandit sued Hobbs and Mr. Bayles. The present appeal concerns only Bandit's claim that Mr. Bayles is personally liable as a guarantor of Hobbs' obligation to pay for the chippers.3 Mr. Bayles moved for summary disposition under MCR 2.116(C)(10), arguing that, as a matter of law, the contents of the fax were insufficient to constitute his personal guarantee.4 Bandit's response to the motion included an amended complaint, in which it alleged that it had relied on the fax to its detriment, enriching Hobbs by sending the chippers—which it would not have shipped without the fax—to Connecticut.
The circuit court denied the motion, concluding that there were factual issues in the case and that it was not clear whether the "sloppily drafted" fax was a personal guarantee.
Mr. Bayles later renewed his motion for summary disposition under MCR 2.116(C)(10), providing additional factual background concerning the events that preceded the fax. Bandit filed a crossmotion for summary disposition under the same paragraph of the rule.
The circuit court again denied the motions "for the reason that there exist disputed issues of fact which preclude summary disposition at this time."
The circuit court then conducted a bench trial. After hearing the evidence, the court directed the clerk to draft a judgment against Hobbs. The court reserved its ruling with regard to the liability of Mr. Bayles.5
About a month later, the circuit court issued a written opinion. It said that "an assurance is a guarantee" and that the key issue was whether Mr. Bayles offered this guaranty contract in his capacity as president of Hobbs, or personally. Regarding that question, the court relied on St. Joseph Valley Bank v. Napoleon Motors Co., 230 Mich. 498, 202 N.W. 933 (1925), for the distinction between a corporate signature and a personal signature. The court then gave an example of the form of signature that would have indicated a corporate guarantee:
/s/ William Bayles
Because Mr. Bayles signed without the corporation name or his corporate title, the court concluded that "there is a personal guarantee made by Mr. Bayles." The court entered judgment against Mr. Bayles in the amount of $87,500.6
Mr. Bayles appealed, but the Court of Appeals affirmed.7 In doing so, the Court said that "[g]eneral rules of construction apply in interpreting guaranty contracts," adding that "[t]he primary goal in the construction or interpretation of any contract is to honor the intent of the parties." Rasheed v. Chrysler Corp., 445 Mich. 109, 127, n. 28, 517 N.W.2d 19 (1994). Examining the language of the fax, the Court of Appeals then listed eight reasons why "the words and circumstances of this facsimile" demonstrate that the intent of the parties was that Mr. Bayles would personally guarantee payment for the five chippers.8
Mr. Bayles applied to this Court for leave to appeal. In lieu of granting leave, we remanded this case to the Court of Appeals for further consideration.9 Bandit Industries, Inc. v. Hobbs Intern., Inc., 461 Mich. 861, 602 N.W.2d 576 (1999). In our order, we directed the attention of the Court of Appeals to the manner in which the word "assurance" is used in § 2-609 of the Uniform Commercial Code, M.C.L. § 440.2609; MSA 19.2609, and in the United States Bankruptcy Code, 11 USC 365(b)(1)(C). In each instance, it appears to refer to something less than a separate guarantee of payment.
On remand, the Court of Appeals again affirmed.10 It found neither M.C.L. § 440.2609; MSA 19.2609 nor 11 USC 365(b)(1)(C) applicable in the present case.
Mr. Bayles has renewed his application to this Court for leave to appeal.
This case involves the interpretation of language that is said to form a contract. Perry v. Sied, 461 Mich. 680, 681, n. 1, 611 N.W.2d 516 (2000).
As the Court of Appeals noted in its first opinion, the record contains facts from which one could conclude that Bandit wanted a personal guarantee from Mr. Bayles, and from which one could conclude that Bandit understood the fax to be that guarantee.
However, a guaranty contract—like a surety contract—is a special kind of contract. As this Court stated in Ann Arbor v. Massachusetts Bonding & Ins. Co., 282 Mich. 378, 380, 276 N.W. 486 (1937),
The undertaking of a surety is to receive a strict interpretation. The surety has a right to stand on the very terms of the contract. To the extent and in the manner and under the circumstances pointed out in his obligation, the surety is bound, and no further. The liability of a surety is not to be extended by implication beyond the terms of his contract. Miller v. Steward, [22 U.S. (9 Wheat) 680, 6 L. Ed. 189 (1824) ]. A surety cannot be held beyond the precise terms of his agreement. Walsh v. Bailie, 10 Johns 180 [N.Y. Sup., 1813]. As said by Chancellor Kent, "The claim against a surety is strictissimi juris." 3 Kent's Commentaries (14th Ed.), p. 217. See, also, Fellows v. Prentiss, 3 Denio 512 (45 Am.Dec. 484) [N.Y., 1846].
It is evident that other jurisdictions likewise apply the principle of strict interpretation to the construction of such a contract.11
For these reasons, a court must approach with caution a claim that the parties have formed a guaranty contract. Ordinary experience teaches that assumption of another's debt is a substantial undertaking, and thus the courts will not assume such an obligation in the absence of a clearly expressed intention to do so. These principles have been in place in Michigan for over a century. The Columbus Sewer Pipe Co. v. Ganser, 58 Mich. 385, 25 N.W. 377 (1885).
In Columbus Sewer Pipe, a man named August Ganser personally guaranteed up to $3,000 of the cost of purchasing pipe. The guaranty contract was executed in connection with a sewer project along First Street in Bay City. A dispute later arose regarding whether the guaranty contract was in force for other purchases, or just for the purchase of pipe used in the First Street project. This Court said that the intent of the parties was the controlling element in the interpretation of the guaranty contract and that, under the circumstances found in Columbus Sewer Pipe, Mr. Ganser's guarantee was limited to the cost of the pipe for the First Street project. As the Court explained, "[a] guarantor is not liable beyond the express terms of his contract." 58 Mich. at 391, 25 N.W. 377.
These authorities confirm the principle enunciated by the Court of Appeals—that the intention of the parties must be given effect. However, the Court of Appeals has failed to apply a more fundamental principle of law. As this Court explained 115 years...
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