Fodale v. Waste Mgt. of Mich.

• Decision Date: 02 May 2006
• Docket Number: Docket No. 253446.
• Citation: 271 Mich. App. 11,718 N.W.2d 827
• Parties: Samuel FODALE, Plaintiff-Appellant, v. WASTE MANAGEMENT OF MICHIGAN, INC., Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

718 N.W.2d 827

271 Mich. App. 11

Samuel FODALE, Plaintiff-Appellant, v. WASTE MANAGEMENT OF MICHIGAN, INC., Defendant-Appellee.

Docket No. 253446.

Court of Appeals of Michigan.

Submitted May 10, 2005, at Detroit.

Decided May 2, 2006, at 9:05 a.m.

Released for Publication July 25, 2006.

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Honigman Miller Schwartz & Cohn LLP (by Grant R. Trigger and Jennifer Zbytowski Belveal), Detroit, for the plaintiff.

Williams Acosta, PLLC (by Victor J. Torres), Detroit, for the defendant.

Before: SAAD, P.J., and ZAHRA and SCHUETTE, JJ.

PER CURIAM.

Plaintiff Samuel Fodale appeals as of right the trial court's grant of summary disposition in favor of defendant Waste Management of Michigan, Inc., on his claims of violation of Article 9 of the Uniform Commercial Code (UCC), breach of contract, and unjust enrichment. We affirm.

I. Facts

This case arises from a series of interrelated agreements between the parties and their predecessors in interest. In 1983, defendant¹ and Eagle Valley, Ltd., of which plaintiff was a shareholder, entered into an agreement (1983 assignment) whereby Eagle Valley, Ltd., assigned all its rights in a proposed landfill to defendant; in return, defendant assigned to Eagle Valley, Ltd., a right to 50 percent of the landfill's future profits. In 1984, Eagle Valley, Ltd., entered a redemption agreement (1984 redemption agreement) whereby it assigned all its assets and liabilities to its shareholders in proportion to their shares of ownership. Plaintiff was entitled to ten percent of the assets of Eagle Valley, Ltd., under this agreement, and thus was entitled to five percent of defendant's total profits from the Eagle Valley Landfill pursuant to the 1983 Assignment.

In 1987, defendant loaned $250,000 to plaintiff. The loan agreement had three parts: an agreement (1987 agreement), a note (1987 note), and a collateral assignment (1987 collateral assignment) (collectively, the 1987 loan agreements). The 1987 loan agreements gave defendant two options for recovering on the loan in the event of plaintiff's default. First, the 1987 loan agreements provided that, if plaintiff defaulted, defendant received an option to buy plaintiff's interest in the 1984 redemption agreement² for $350,000, less the amount plaintiff owed defendant at the time of default; in the event defendant exercised this option, plaintiff's remaining obligations to defendant would be satisfied. Second, the 1987 collateral assignment offered plaintiff's "interest" in Eagle Valley Landfill itself as collateral.

Between December 1987 and August 1992, plaintiff failed to pay on the loan six times, but the parties were able to amend the agreement, each time increasing the amount plaintiff owed defendant.³ On July 30, 1998, apparently after many attempts to contact plaintiff about a seventh default, defendant notified plaintiff by letter that it was exercising its option to purchase his "interest" in Eagle Valley and that this satisfied plaintiff's obligations under the note to defendant.

In 2002, plaintiff sued defendant, claiming (1) violation of Article 9 of the UCC, MCL 440.9601 et seq.; (2) breach of contract (breach of implied covenant of good faith and fair dealing); and (3) unjust enrichment. The trial court granted summary disposition in favor of defendant pursuant to MCR 2.116(C)(8) and (10) on all three counts. This appeal ensued. Before evaluating plaintiff's assignments of error, this Court requested supplementary briefs to determine whether Article 9 of the UCC (secured transactions) controlled the parties' agreement.

II. Standard of Review

A trial court's decision granting summary disposition is reviewed de novo to determine whether the prevailing party was entitled to judgment as a matter of law. Allen v. Keating, 205 Mich.App. 560, 562, 517 N.W.2d 830 (1994). When reviewing a motion under MCR 2.116(C)(10), the Court must examine the documentary evidence presented below and, drawing all reasonable inferences in favor of the nonmoving party, determine whether a genuine issue of material fact exists. Quinto v. Cross & Peters Co., 451 Mich. 358, 362, 547 N.W.2d 314 (1996). A question of fact exists when reasonable minds could differ regarding the conclusions to be drawn from the evidence. Glittenberg v. Doughboy Recreational Industries (On Rehearing ), 441 Mich. 379, 398-399, 491 N.W.2d 208 (1992).

Questions of statutory interpretation are also reviewed de novo. Heinz v. Chicago Rd. Investment Co., 216 Mich.App. 289, 295, 549 N.W.2d 47 (1996). Questions involving the proper interpretation of a contract or the legal effect of a contractual clause are likewise reviewed de novo. Rory v. Continental Ins. Co., 473 Mich. 457, 464, 703 N.W.2d 23 (2005).

III. Applicability of the Uniform Commercial Code

Threshold issues regarding the applicability of the UCC must be addressed before this Court considers plaintiff's assignments of error regarding waiver of UCC debtor's rights, as well as his actions for breach of contract and unjust enrichment, which depend on the applicability of the UCC.

A. Controlling Version of Article 9

Plaintiff argues that the trial court erred in dismissing his claims based on Article 9 of the UCC, MCL 440.9101 et seq., governing secured transactions. While both parties refer to part six of Article 9, MCL 440.9601 et seq., that part did not become effective until July 1, 2001, nearly three years after defendant's challenged purchase of plaintiff's collateral occurred. Before July 2001, defaults were governed by part five of Article 9, 1978 PA 369; MCL 440.9501 et seq.⁴ Those sections were in effect in 1987, when the parties' contract was executed, and in 1998, when the contested transaction took place. Therefore, the former part five controls this case. We occasionally refer to current provisions in our analysis because the pertinent provisions of the former UCC and the current UCC are similar in substance, if not organization.

B. Subject Matter of the Collateral

At oral argument, this Court asked the parties to file supplemental briefs to answer whether former Article 9 of the UCC applies to the 1987 loan agreements. Plaintiff answered that Article 9 applies. We agree.

As an initial matter, the parties and the trial court misidentified the pertinent collateral in the 1987 loan agreements when determining whether Article 9 applied to the transaction. While they both argue that plaintiff's interest in the 1984 redemption agreement was the pertinent collateral, the option to purchase plaintiff's interest in the 1984 redemption agreement was also collateral. Indeed, because defendant actually disposed of this latter collateral,⁵ this option, rather than the collateral specified in the 1987 collateral assignment, is the salient collateral when determining whether the 1987 loan agreements fall within the scope of Article 9.

Throughout the litigation, the parties have referred to the 1987 loan agreements as one document, although it actually has three complexly interacting components: the 1987 agreement, the 1987 note, and the 1987 collateral assignment. Though the provisions may be located in particular components, their location is not as important as their substance when the 1987 loan agreements documents are read as a whole. See Brown v. Yousif, 445 Mich. 222, 231, 517 N.W.2d 727 (1994). Although the 1987 collateral agreement, if read in isolation, seems to give plaintiff's interest in the 1984 redemption agreement as the sole security for the loan, the 1987 loan agreements, when read as a whole, actually give defendant additional collateral: an option to buy plaintiff's interest in the 1984 redemption agreement at a fixed price. Paragraph 4 of the 1987 agreement states:

As further consideration and inducement for the loan . . . [plaintiff] hereby agrees that if he should default . . . [defendant] may elect, as full satisfaction of the Note, to purchase his entire right, title and interest in and to the Agreement for $350,000.00 less the unpaid balance of the Note and any interest then due thereunder.... [Emphasis added.]

Although not labeled as such, this clause effectively operates as a collateral assignment, and this Court has ruled that Article 9 applies to any transaction—regardless of form—that is intended to create a security interest in personal property. Yamaha Motor Corp., USA v. Tri-City Motors & Sports, Inc., 171 Mich.App. 260, 276-277, 429 N.W.2d 871 (1988) (even when an original security interest fell under Article 2 of UCC, it could evolve into an Article 9 interest); Nickell v. Lambrecht, 29 Mich. App. 191, 194, 185 N.W.2d 155 (1970) (despite the form of a lease, the agreement was a conditional sale and a secured transaction). When parties create a security interest, they intend to empower the secured party to recover at least part of the debtor's obligations. The parties created the Paragraph 4 option with precisely this intent: to provide a means by which defendant might recover plaintiff's obligations should he default.

Not only did the option fulfill the purpose of collateral, it also functioned as collateral. Typically, collateral remains in the possession of the debtor;⁶ only the condition precedent of the debtor's default forces relinquishing possession so that the secured party may dispose of the collateral. Both plaintiff's interest in the 1984 Redemption Agreement and the option created by Paragraph 4 of the 1987 agreement followed this rule: plaintiff's default was a condition precedent to defendant's ability to access them in an effort to satisfy plaintiff's outstanding debt. Moreover, once plaintiff defaulted under the 1987 agreement, defendant could have disposed of the option by exercising or alienating it.⁷ This ability to purchase or alienate is similar to the rights afforded defendant in the 1987 collateral assignment, as it invokes the rights given a secured party by the UCC in the event of a default....