Old Kent Bank v. KAL KUSTOM

• Decision Date: 06 May 2003
• Docket Number: Docket No. 231915.
• Citation: 255 Mich. App. 524,660 N.W.2d 384
• Parties: OLD KENT BANK, assignee of J & M Marine, Inc., Plaintiff-Appellant, v. KAL KUSTOM, Inc., and Kal Kustom ENTERPRISES, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

660 N.W.2d 384

255 Mich. App. 524

OLD KENT BANK, assignee of J & M Marine, Inc., Plaintiff-Appellant, v. KAL KUSTOM, Inc., and Kal Kustom ENTERPRISES, Defendants-Appellees.

Docket No. 231915.

Court of Appeals of Michigan.

Submitted December 3, 2002, at Grand Rapids.

Decided February 28, 2003, at 9:10 a.m.

Released for Publication May 6, 2003.

Steven E. Bratschie & Associates, PC (by Steven E. Bratschie), Grand Rapids, for the plaintiff.

Britton & Bossenbroek, P.C. (by David L. Bossenbroek), Muskegon, for the defendant.

Before: SAWYER, P.J., and GAGE and TALBOT, JJ.

PER CURIAM.

Plaintiff Old Kent Bank (Old Kent) filed suit in this action as an assignee of J & M Marine, Inc.'s rights against defendant Kal Kustom Enterprises (Kal Kustom).¹ The trial court granted summary disposition to Kal Kustom. We reverse and remand.

I. Factual Background

The factual and procedural history of this case is somewhat complex. In February 1997, Daniel Popp purchased a powerboat through J & M Marine. Old Kent financed the sale, with J & M Marine acting as guarantor. J & M Marine contracted directly with Kal Kustom to provide the boat, which was manufactured by Magic Powerboat Sales, Inc. The transfer of the boat occurred sometime in the summer of 1997, and the boat did not conform to Popp's specifications. These defects resulted in correspondence from J & M Marine's attorney to Kal Kustom, dated August 20, 1997, notifying it of the defects in the boat. On September 11, 1997, Kal Kustom's attorney sent a response letter requesting "whatever documentation you have regarding the alleged deficiencies in the boat so we will have specific information to work from." On September 17, 1997, Old Kent's attorney sent a letter promising pertinent information, but it is unclear whether any further correspondence was sent to Kal Kustom.

Meanwhile, in November 1997, Old Kent filed suit (the 1997 suit) against Popp and J & M Marine for the balance due on the installment sales contract for the boat. Popp filed a counterclaim against Old Kent, and a cross-claim against J & M Marine, alleging misrepresentation/fraud, breach of contract, violation of the Michigan Consumer Protection Act, M.C.L. § 445.901 et seq., and seeking indemnification. In August 1998, Popp, J & M Marine, and Old Kent entered into a stipulated order permitting Old Kent to sell the boat and apply the proceeds to the balance of the sales contract. Popp and J & M Marine waived their rights to notice with regard to the sale, and J & M Marine assigned Old Kent all the rights and claims it had against Magic Powerboat Sales, Inc., and Kal Kustom. In October 1998, J & M Marine and Popp entered into a settlement agreement and general release of all claims under which Popp was released from all further liability for the boat, and J & M Marine agreed to pay Popp $4,800. Old Kent sold the boat for $40,500, leaving a deficiency of $26,436.05. Popp refused to pay the deficiency and was released from that lawsuit in March 2000. However, Old Kent's claim against J & M Marine remained.

In April 1999, Old Kent, as assignee of J & M Marine, filed the instant action against Magic Powerboat Sales, Inc., and Kal Kustom.² In its complaint, Old Kent alleged Kal Kustom breached its contract and warranty of sale with J & M Marine with regard to the boat. Both parties thereafter filed cross-motions for summary disposition. Kal Kustom asserted that Old Kent has no right to assert claims against it because Old Kent failed to provide proper notice of the previous 1997 litigation involving Old Kent, Popp, and J & M Marine. According to Kal Kustom, J & M Marine was required to have placed Kal Kustom on notice of the previous lawsuit, and because it did not, Old Kent was precluded from bringing the instant action. Further, Kal Kustom contended that J & M Marine's liability to Old Kent was based on the retail installment sales contract between Popp and J & M Marine, and because Kal Kustom was not a party to that contract, J & M Marine has no liability in excess of the $4,800 settlement amount.

Old Kent insisted that Kal Kustom had multiple opportunities to step forward and defend the previous case but chose not to defend. Further, Old Kent claimed that Kal Kustom was made aware of the defects in the boat through the August 1997 letter. Old Kent, however, admitted that while Kal Kustom was on notice of the defects, it did not become aware of the previous litigation until the instant action was filed in 1999, and did not have written notice or tender of J & M Marine's defenses until May and July 2000, when Old Kent's attorney wrote to Kal Kustom advising it of the suit against J & M Marine, and asking whether it wished to vouch in with regard to that lawsuit.

The trial court granted summary disposition to Kal Kustom pursuant to MCR 2.116(C)(10). In its opinion, the court focused its decision on the notice provision in M.C.L. § 440.2607(5)(a), finding that Kal Kustom did not receive proper notice of the 1997 lawsuit. Further, the court held that the notices given in May and July 2000 were not timely:

The only notification consisting of the opportunity to "vouch in" the 1997 lawsuit arrived with the May 18 and July 6 [2000] letter to KKE. However, the posture of the 1997 lawsuit since its inception has fundamentally changed. A partial list of fundamental changes would include sale of the boat, waiver of Popp and J & M is [sic] rights under the UCC, waiver of public notice of the sale of the boat, inability to bid on the boat during its public sale, among others. All these events prejudice KKE. Accordingly, the Court finds that the May and July letters offering KKE an opportunity to defend J & M were not seasonable receipt of notice within the meaning of M.C.L. § 440.2607(5). KKE was entitled to timely notice so that its interests could be protected. No timely notice was given here.

Therefore, because Kal Kustom did not receive proper notice of the 1997 suit, the court found there were no genuine issues of material fact in dispute, and granted summary disposition to Kal Kustom.³

Old Kent now argues that the trial court erred in granting Kal Kustom summary disposition. Old Kent contends that, although Kal Kustom did receive notice of the 1997 litigation, M.C.L. § 440.2607(5)(a) does not require that notice be given.

II. Standard of Review

A trial court's decision regarding a motion for summary disposition is reviewed de novo. Singerman v. Municipal Service Bureau, Inc., 455 Mich. 135, 139, 565 N.W.2d 383 (1997). Summary disposition may be granted pursuant to MCR 2.116(C)(10) when, except with regard to the amount of damages, there is no genuine issue about any material fact. When deciding a motion for summary disposition pursuant to MCR 2.116(C)(10), a court must consider all pleadings, affidavits, depositions, and other documentary evidence in the light most favorable to the non-moving party. Ritchie-Gamester v. Berkley, 461 Mich. 73, 76, 597 N.W.2d 517 (1999). The nonmoving party has the burden of rebutting the motion by showing, through evidentiary materials, that a genuine issue of disputed fact does exist. Smith v. Globe Life Ins. Co., 460 Mich. 446, 455, 597 N.W.2d 28 (1999).

Questions regarding the interpretation and construction of statutes are questions of law, which this Court also reviews de novo. Stozicki v. Allied Paper Co., 464 Mich. 257, 263, 627 N.W.2d 293 (2001).

III. Analysis

In granting Kal Kustom's motion for summary disposition, the trial court focused its decision on M.C.L. § 440.2607(5)(a), which provides for the giving of notice by a buyer to a seller of an action against the buyer for an obligation for which the seller is liable. The trial court summarily decided that the notice of the 1997 lawsuit given by Old Kent to Kal Kustom was not timely and, thus, granted summary disposition to Kal Kustom in the present suit. In deciding that the notice was not timely, the trial court implicitly found that notice was required to have been given. However, it is important to note that in the current proceedings, Old Kent is not attempting to bind Kal Kustom to the 1997 proceedings. Further, there is no authority suggesting that "vouching in" is the only method of recovery from a party potentially liable for a nonconforming sale. Thus, our analysis rests with the statutory language in M.C.L. § 440.2607(5)(a), and we must determine whether the statute required notice to have been given to Kal Kustom, and the possible effect of the failure to give that notice.

We begin by addressing plaintiff's argument that M.C.L. § 440.2607(5)(a) is inapplicable because the buyer of the defective boat did not accept the boat. Plaintiff claims that M.C.L. § 440.2607 applies only to buyers who accept goods, not to buyers who reject them. According to plaintiff, Popp and J & M Marine clearly rejected the defective boat. We decline to address the issue whether M.C.L. § 440.2607(5)(a) applies to a buyer who rejects the goods because the issue whether M.C.L. § 440.2607(5)(a) required notice to be given is controlling.⁴

MCL 440.2607(5)(a) states:

(5) Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over

(a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the 2 litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.

MCL 440.2607(5)(a) is Michigan's Uniform Commercial Code, M.C.L. § 440.1101 et seq., codification of the common-law practice of vouching in parties to a lawsuit who may ultimately be liable for a nonconforming sale. Ford Motor Co. v. Bendix Corp., 83 Mich.App. 108, 111-112, 268 N.W.2d 305 (1978). By its terms, this statute applies to force a seller, who receives proper notice,...