Starboard Tack Corp. v. Meister

• Decision Date: 04 February 1981
• Docket Number: Docket No. 50444
• Parties: The STARBOARD TACK CORPORATION, a Michigan Corporation; and The Starboard Tack of Farmington, a Michigan limited partnership, Plaintiffs-Appellees, v. George E. MEISTER, Defendant, and A. Jerome Allen, individually, jointly and severally, Defendant-Appellant. 103 Mich.App. 557, 303 N.W.2d 38
• Court: Court of Appeal of Michigan — District of US

Page 38

303 N.W.2d 38

The STARBOARD TACK CORPORATION, a Michigan Corporation; and

The Starboard Tack of Farmington, a Michigan

limited partnership, Plaintiffs-Appellees, v. George E. MEISTER, Defendant, and A. Jerome Allen, individually, jointly and severally,

Defendant-Appellant.

Docket No. 50444.

103 Mich.App. 557, 303 N.W.2d 38

Court of Appeals of Michigan.

Feb. 4, 1981.

Released for Publication March 23, 1981.

[103 MICHAPP 559] Gilbert E. Metry, Detroit, for defendant-appellant.

Paul Edward Fregolle, Southfield, for plaintiffs-appellees.

[103 MICHAPP 560] Before BRONSON, P. J., and GILLIS and CYNAR, JJ.

BRONSON, Presiding Judge.

Plaintiffs filed a complaint in the Oakland County Circuit Court alleging that defendant, A. Jerome Allen, breached the terms of an escrow agreement. ¹ The escrow agreement arose out of negotiations concerning the sale of the Starboard Tack Restaurant in Farmington Hills. George Meister and plaintiffs agreed on December 12, 1977, to the terms of an offer to purchase, including a provision that Meister would deposit $35,000 in escrow with Northwood Business Brokers. In a subsequent written agreement dated December 15, 1977, ² the parties agreed to have Meister's attorney, defendant, hold and retain the deposit.

By the terms of the escrow agreement, if Meister defaulted on the contract of sale, defendant was required to deliver the balance to the plaintiffs on demand. The agreement provided in relevant part:

"A. JEROME ALLEN, hereby acknowledges that he has received the sum of THIRTY FIVE THOUSAND DOLLARS ($35,000.00) from GEORGE MEISTER, the purchaser named and set forth in a certain Offer to Purchase between MEISTER and THE STARBOARD TACK OF FARMINGTON, dated December 12, 1977, and that same is on deposit in an account maintained by ALLEN at City National Bank , being Account No. ______.

"Further, that a copy of MEISTER'S check, or payment, is attached hereto and made a part hereof."

[103 MICHAPP 561] Plaintiffs alleged that prior to January 28, 1978, they became aware that Meister, while acting as manager of the Starboard Tack of Farmington, mismanaged and misappropriated funds and also failed to comply with the agreements between the parties. As a result, plaintiffs declared Meister in default. A default judgment was entered against him on May 16, 1979. Thereafter, plaintiffs demanded payment of the funds "on deposit" with defendant. Defendant refused to pay, and the instant action was instituted.

In his answer, Allen alleged as an affirmative defense that he was only under an obligation to tender Meister's check to the bank. He further averred that he complied with this duty, but that the check was not accepted because Meister did not have sufficient funds in his account at Security Bank and Trust Company, upon whom the check was drawn. Attached to his affirmative defenses, he included a copy of the check purportedly given to him by Meister, dated January 29, 1978. If this was, in fact, a copy of the check given him by Meister when the escrow agreement was executed, all parties to the contract would have known that the $35,000 was not "on deposit". In his response to plaintiffs' interrogatories, defendant specifically stated that they knew the $35,000 was not "on deposit" when the escrow agreement was executed.

On January 9, 1980, the circuit court granted plaintiffs' motion for summary judgment on the bases that there was no genuine issue as to any material fact and that defendant had failed to state a valid defense. GCR 1963, 117.2(2), (3). An order to that effect was entered on January 23, 1980. Defendant's motion for a rehearing was denied, and he appeals as of right.

The question we must resolve is, assuming that [103 MICHAPP 562] defendant can prove the plaintiffs knew the money in dispute was not on deposit at the time the escrow agreement was executed, has he stated a valid defense to the action pursuant to GCR 1963, 117.2(2)? We answer this question of first impression in Michigan in the affirmative.

The duties and liabilities imposed upon an escrow agent are those set forth in the escrow agreement. 30A C.J.S. Escrows § 8, p. 991. See also, City Bank & Trust Co. v. Kwaske Brothers Construction Co., 69 Mich.App. 271, 244 N.W.2d 443 (1976). The trial court concluded that the representation in the escrow agreement that $35,000 was "on deposit" in the City National Bank created a contractual obligation to pay over this amount to plaintiffs in case of Meister's default.

In this case there is an ambiguity in the escrow contract in that it also provides that "a copy of Meister's check" is attached to the agreement and made a part thereof. All contracts must be construed with the object of effecting the intent of the parties. Piasecki v. Fidelity Corp. of Michigan, 339 Mich. 328, 337, 63 N.W.2d 671 (1954), Burland, Reiss, Murphy & Mosher, Inc. v. Schmidt, 78 Mich.App. 670, 674, 261 N.W.2d 540 (1977). Furthermore, where the contract is ambiguous, surrounding facts and circumstances may be considered for purposes of aiding construction. Shirey v. Camden, 314 Mich. 128, 130, 22 N.W.2d 98 (1946), Wistrand v. Bese, 23 Mich.App. 423, 428, 178 N.W.2d 826 (1970), lv. den. 383 Mich. 816 (1970).

While the phrase that money is "on deposit" in an escrow agreement, by itself, is properly construed to mean that the funds are available to be withdrawn, this conclusion is not as readily apparent where the parties have explicitly made a reputedly post-dated check part of the contract. The [103 MICHAPP 563] term "is on deposit" refers to a current state of affairs which, if Allen is believed, was not in fact true and was known by the plaintiffs not to be true. Had the parties actually intended defendant to be the guarantor of the check we would have expected language far better designed to express this intention than a false recital of fact. ³ The idea that the money was "on account" is directly rebutted by the copy of Meister's check made part of the agreement. In our opinion, the agreement merely made Allen an escrow agent, not an escrow agent and guarantor of Meister's check.

The decisions relied on by plaintiffs from our sister states are all distinguishable.

In Mefford v. Security Title Ins. Co., 199 Cal.App.2d 578, 18 Cal.Rptr. 877 (1962), defendant escrow agent accepted a $10,000 check as the corpus of the escrow payment. This fact was unbeknown to plaintiffs. Thereafter, defendant informed plaintiffs that the $10,000 was "on deposit". The Court held that defendant was estopped to deny...