UAW-GM Human Resource Center v. KSL Recreation Corp.

Decision Date06 March 1998
Docket NumberUAW-GM,Docket No. 189693
PartiesHUMAN RESOURCE CENTER, Plaintiff-Appellee, v. KSL RECREATION CORPORATION and KSL Hotel Corporation, Defendants-Appellants.
CourtCourt of Appeal of Michigan — District of US

Butzel Long by Bruce L. Sendek, Detroit, for Plaintiff-Appellee.

Kerr, Russell and Weber, P.L.C. by James E. DeLine, Detroit, for Defendants-Appellants.

Before MARKMAN, P.J., and HOLBROOK, and O'CONNELL, JJ.

MARKMAN, Presiding Judge.

Defendants appeal as of right a trial court order granting summary disposition to plaintiff on its claims of breach of contract, conversion, and fraud. Defendants also appeal as of right the trial court's denial of their motion for summary disposition. We reverse and remand for determination of damages pursuant to the liquidated damages formula set forth in the contract.

Facts

In December 1993, plaintiff entered into a contract with Carol Management Corporation (CMC) for the use of its property, Doral Resort and Country Club, for a convention scheduled in October 1994. The "letter of agreement" included a merger clause that stated that such agreement constituted "a merger of all proposals, negotiations and representations with reference to the subject matter and provisions." The letter of agreement did not contain any provision requiring that Doral Resort employees be union-represented. However, plaintiff contends in its appellate brief that it signed the letter of agreement in reliance on an "independent, collateral promise to provide [plaintiff] with a union-represented hotel." Plaintiff provided the affidavits of Herschel Nix, plaintiff's agent, and Barbara Roush, CMC's agent, who negotiated the contract. In his affidavit, Nix states that during the contract negotiation he and Roush discussed plaintiff's requirement that the hotel employees be union-represented and that Roush agreed to this requirement. In her affidavit, Roush states that "prior to and at the time" the contract at issue was negotiated she "was well aware" of plaintiff's requirement that the hotel employees be union-represented and that "that there is no doubt that I agreed on behalf of the Doral Resort to provide a union hotel." 1 The letter of agreement also included a liquidated damages clause in the event plaintiff canceled the reservation "for any reason other than the following: Acts of God, Government Regulation, Disaster, Civil Disorders or other emergencies making it illegal to hold the meeting/convention."

Later in December 1993, the hotel was sold to defendants, who subsequently replaced the resort's union employees with a nonunionized work force. 2 In June 1994, when plaintiff learned that the hotel no longer had union employees, it canceled the contract and demanded a refund of its down payment. Defendants refused to refund the down payment, retaining it as a portion of the liquidated damages allegedly owed to them pursuant to the contract. Plaintiff filed suit for return of the down payment and asserted claims of breach of contract, conversion of the deposit, and fraud. Defendants filed a counterclaim and moved for summary disposition and enforcement of the liquidated damages clause. Plaintiff filed a cross-motion for summary disposition. The trial court granted plaintiff's motion for summary disposition regarding the breach of contract count on the basis of its determination that there was a separate agreement requiring that the hotel employees be union-represented. It also granted plaintiff's motion for summary disposition on the conversion and fraud counts.

This Court reviews decisions on motions for summary disposition de novo to determine if the moving party was entitled to judgment as a matter of law. Stehlik v. Johnson (On Rehearing), 206 Mich.App. 83, 85, 520 N.W.2d 633 (1994).

MCR 2.116(C)(8) permits summary disposition when the opposing party has failed to state a claim upon which relief can be granted. A motion under this subsection determines whether the opposing party's pleadings allege a prima facie case. The court must accept as true all well-pleaded facts. Only if the allegations fail to state a legal claim is summary disposition pursuant to MCR 2.116(C)(8) valid.... MCR 2.116(C)(10) permits summary disposition when, except for the amount of damages, there is no genuine issue concerning any material fact and the moving party is entitled to [judgment] as a matter of law. A court reviewing such a motion must consider the pleadings, affidavits, depositions, admissions, and any other evidence in favor of the opposing party and grant the benefit of any reasonable doubt to the opposing party. [Id.]

Merger Clause

Defendants claim that the trial court erred in granting plaintiff's motion for summary disposition and in denying defendants' motion for summary disposition. Regarding the breach of contract count, they specifically contend that parol evidence of a separate agreement providing that the hotel would have union employees at the time of the convention was inadmissible because the letter of agreement included an express merger clause.

We begin by reiterating the basic rules regarding contract interpretation. "The 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).

"We must look for the intent of the parties in the words used in the instrument. This court does not have the right to make a different contract for the parties or to look to extrinsic testimony to determine their intent when the words used by them are clear and unambiguous and have a definite meaning." [Sheldon-Seatz, Inc. v. Coles, 319 Mich. 401, 406-407, 29 N.W.2d 832 (1947), quoting Michigan Chandelier Co. v. Morse, 297 Mich. 41, 49, 297 N.W. 64 (1941).]

In Port Huron Ed. Ass'n v. Port Huron Area School Dist., 452 Mich. 309, 323, 550 N.W.2d 228 (1996), the Court stated:

The initial question whether contract language is ambiguous is a question of law. If the contract language is clear and unambiguous, its meaning is a question of law. Where the contract language is unclear or susceptible to multiple meanings, interpretation becomes a question of fact. [Citations omitted.]

A contract is ambiguous if "its words may reasonably be understood in different ways." Raska v. Farm Bureau Ins. Co., 412 Mich. 355, 362, 314 N.W.2d 440 (1982). Courts are not to create ambiguity where none exists. Smith v. Physicians Health Plan, Inc., 444 Mich. 743, 759, 514 N.W.2d 150 (1994). "Contractual language is construed according to its plain and ordinary meaning, and technical or constrained constructions are to be avoided." Dillon v. DeNooyer Chevrolet Geo, 217 Mich.App. 163, 166, 550 N.W.2d 846 (1996). If the meaning of an agreement is ambiguous or unclear, the trier of fact is to determine the intent of the parties. Chrysler Corp. v. Brencal Contractors, Inc., 146 Mich.App. 766, 775, 381 N.W.2d 814 (1985).

The parol evidence rule may be summarized as follows: "[p]arol evidence of contract negotiations, or of prior or contemporaneous agreements that contradict or vary the written contract, is not admissible to vary the terms of a contract which is clear and unambiguous." Schmude Oil Co. v. Omar Operating Co., 184 Mich.App. 574, 580, 458 N.W.2d 659 (1990). This rule recognizes that in "[b]ack of nearly every written instrument lies a parol agreement, merged therein." Lee State Bank v. McElheny, 227 Mich. 322, 327, 198 N.W. 928 (1924). "The practical justification for the rule lies in the stability that it gives to written contracts; for otherwise either party might avoid his obligation by testifying that a contemporaneous oral agreement released him from the duties that he had simultaneously assumed in writing." 4 Williston, Contracts, § 631. In other words, the parol evidence rule addresses the fact that "disappointed parties will have a great incentive to describe circumstances in ways that escape the explicit terms of their contracts." Fried, Contract as Promise (Cambridge: Harvard University Press, 1981) at 60.

However, parol evidence of prior or contemporaneous agreements or negotiations is admissible on the threshold question whether a written contract is an integrated instrument that is a complete expression of the parties' agreement. In re Skotzke Estate, 216 Mich.App. 247, 251-252, 548 N.W.2d 695 (1996); NAG Enterprises, Inc. v. All State Industries, Inc., 407 Mich. 407, 410-411, 285 N.W.2d 770 (1979). The NAG Court noted four exceptions to the parol evidence rule, stating that extrinsic evidence is admissible to show (1) that the writing was a sham, not intended to create legal relations, (2) that the contract has no efficacy or effect because of fraud, illegality, or mistake, (3) that the parties did not integrate their agreement or assent to it as the final embodiment of their understanding, or (4) that the agreement was only partially integrated because essential elements were not reduced to writing. NAG, supra at 410-411, 285 N.W.2d 770. See also 4 Williston, Contracts, § 631. Importantly, neither NAG nor Skotzke involved a contract with an explicit integration clause.

The first issue before us is whether parol evidence is admissible with regard to the threshold question of integration even when the written agreement includes an explicit merger or integration clause. In other words, the issue is whether NAG applies to allow parol evidence regarding this threshold issue when a contract includes an explicit merger clause. While this issue is one of first impression, its answer turns on well-established principles of contract law. Williston on Contracts and Corbin on Contracts offer specific guidance regarding this issue. 4 Williston, Contracts, § 633, p. 1014 states in pertinent part:

Since it is only the intention of the parties to adopt a...

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