Opinion Date: 07/10/2012
Issues: Applicability of the "material breach" doctrine where the contract contains an express forfeiture clause; Contract interpretation; Alpha Capital Mgmt. v. Rentenbach; Rory v. Continental Ins.; Difference between "rescission," "termination," and "forfeiture" of a contract; Alibri v. Detroit/Wayne Cnty. Stadium Auth.; Rewriting or reforming the contract; Titan Ins. Co. v. Hyten; Whether the forfeiture clause was contrary to public policy; Terrien v. Zwit; Applicability of the doctrine of "unconscionability"; Clark v. DaimlerChrysler Corp.; Whether the defendant-tenant was excused from complying with its lease obligation to agree to the easement agreement; Whether consent to the easement was contingent on finalization of a merger agreement; Whether the easement agreement was "ripe" for defendant's consent; Whether the plaintiff satisfied the notice requirements spelled out in the lease
Court: Michigan Court of Appeals (Published)
Case Name: Majestic Golf, L.L.C v. Lake Walden Country Club, Inc.
e-Journal Number: 52128
Judge(s): Wilder, Talbot, and Servitto
In an issue of first impression (the applicability of the material breach doctrine where the contract contains an express forfeiture clause), the court held that the trial court erred in failing to enforce the forfeiture clause in the parties' lease based on the defendant-tenant's breach not being a "material breach." The court could not refuse to enforce the plain and unambiguous terms of the lease on the basis that the forfeiture clause was "unfair." Further, the court could not conclude that forfeiture clauses in a contract that is not a land contract violate public policy, and the forfeiture provision here was not avoidable under the unconscionability doctrine. Non-party WPL, the only member of the plaintiff-LLC, planned a golf course-real estate development on land it owned. It planned to lease the land for the golf course to a different entity that would be responsible for constructing and operating the golf course. In 1992, WPL, as landlord, entered into the lease with defendant. Defendant complied with its lease obligation to construct the 27-hole golf course. In 2003, defendant and WPL (and later plaintiff, as WPL's successor in interest) began merger negotiations, which continued until this case began. WPL (and later plaintiff) unsuccessfully sought defendant's consent to a proposed "Road Easement" that was needed for final approval of WPL's "Master Plan" for development. The trial court determined that defendant defaulted under the terms of the lease because the lease obligated defendant to agree to the easements requested by plaintiff. However, the trial court concluded that termination of the lease was not proper under principles of equity because defendant's breach was not material. Plaintiff argued on appeal that the trial court improperly used the material breach doctrine in deciding whether plaintiff could invoke the forfeiture clause in the lease. The court agreed, concluding that the trial court erred by not applying the plain language of the contract and that "by reading the default provision to include the term 'material breach,' the trial court effectively rewrote or reformed the contract." While Rory "did not expressly decide whether a contract forfeiture clause was enforceable, it made clear that a court has no power to ignore a contract's plain and unambiguous term because the court holds the view that the term ostensibly was 'unreasonable.'" Further, defendant did not show that "the requisite exceptional circumstances exist in this case, sufficient to ignore the plain language of its contract with plaintiff." Noting that defendant did not claim the forfeiture provision violated the law, the court concluded that the forfeiture clause was not contrary to public policy. The only recognized traditional contract defense that defendant could possibly rely on, based on its pleadings, was the doctrine of unconscionability. However, the court concluded that defendant could not establish any procedural unconscionability, and that the forfeiture clause was not substantively unconscionable. As to defendant's cross-appeal, the court concluded that the trial court correctly found that defendant breached the lease, and the court held that defendant was not excused from complying with its obligation under the lease. Affirmed in part, reversed in part, and remanded. The court instructed the trial court on remand to enter an order granting plaintiff summary disposition.
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