Michigan Supreme Court
Lansing, Michigan 48909
______________________________________________________________________________
C hief Justice Justices
Maura D. Cor rigan Michael F. Cavanagh
Opinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman
_________________________________________________________________________________________________________
___________________
FILED JANUARY 11, 2001
BANDIT INDUSTRIES, INC.,
Plaintiff-Appellee,
v No. 116553
HOBBS INTERNATIONAL, INC.,
a Connecticut Corporation,
d/b/a HOBBS EQUIPMENT COMPANY,
Defendant,
and
WILLIAM H. BAYLES, JR.,
Defendant-Appellant.
________________________________
(AFTER REMAND)
PER CURIAM
The plaintiff and defendant corporations transacted
business with each other. When the latter failed to keep its
account current, the plaintiff sought further assurance. The
response was treated by the circuit court as a personal
guarantee from the president of the defendant corporation.
The Court of Appeals twice affirmed, but we reverse. A
personal guarantee for the debt of another can arise only
where such an intent is clearly manifested.
I
Plaintiff Bandit Industries, Inc., manufactures wood
chipping equipment in Remus, Michigan. Among its dealers was
defendant Hobbs International, Inc., of Norwalk, Connecticut.
When Hobbs began to fall behind in its financial obligations
to Bandit, the two companies tried several means to continue
the relationship. Bandit sometimes required Hobbs to pay
before shipment, or to pay cash on delivery. Bandit and Hobbs
also agreed on a payment schedule, but the problem of
delinquency continued.
As these events were taking place, Hobbs found itself in
position to sell five specially manufactured wood chippers to
the state of Connecticut. Bandit agreed to manufacture the
chippers for a price to Hobbs of $87,500.1 However,
discussions continued with regard to how Bandit’s financial
1
From the materials at hand, it appears that the price
for each of the five chippers was $17,694. However, this case
has proceeded on the basis that the total bill was $87,500,
and there appears to be no present dispute regarding that
figure.
2
stake in the transaction could be protected.
Negotiating on behalf of Bandit was its sales manager and
part owner, Dennis Tracy. On Hobbs’ side were its sales
manager, and also a financial consultant named Rosemarie
Rourke. They discussed various options, including having the
state of Connecticut issue a two-party check, or having Hobbs’
contractual obligation backed by a personal guarantee for the
contract amount. Ms. Rourke spoke with the president and
owner of Hobbs, William H. Bayles, Jr. Ms. Rourke and Mr.
Bayles say that they agreed between themselves that a personal
guarantee would be unwise. However, these various
conversations led directly to the following letter, sent by
facsimile transmission in October 1993. The letter, on Hobbs
stationery, was faxed to Mr. Tracy. In full, it stated:
Dear Dennis:
Rosemarie just informed me of your great
cooperation to work with us to retain the order
from the State of Connecticut, and our commitment
to pay you promptly when we get paid by the state.
Please accept this fax as my assurance that you
will be paid when we are. Thanks for working with
us.
Sincerely,
Bill [handwritten]
On receipt of that fax, Bandit shipped the chippers to
the state of Connecticut and sent invoices to Hobbs.
Connecticut paid Hobbs for the chippers, but Hobbs never sent
the promised $87,500 to Bandit.
3
When it became clear that no payment would be
forthcoming,2 Bandit sued Hobbs and Mr. Bayles. The present
appeal concerns only Bandit’s claim that Mr. Bayles is
personally liable as a guarantor of Hobbs’ obligation to pay
for the chippers.3
Mr. Bayles moved for summary disposition under MCR
2.116(C)(10), arguing that, as a matter of law, the contents
of the fax were insufficient to constitute his personal
guarantee.4 Bandit’s response to the motion included an
2
The plaintiffs’ August 1995 complaint states that Hobbs
“was under the protection of the United States Bankruptcy
Court in the District of Connecticut from December 2, 1993
until that case was dismissed on May 2, 1995, on a Voluntary
Petition for reorganization under Chapter 11 of the Bankruptcy
Code.” The complaint further states, “That pending case has
been dismissed without discharge of debts.” In his answer,
Mr. Bayles admitted those portions of Bandit’s complaint.
3
Hobbs did not answer, and was defaulted. The affidavit
in support of entry of the default listed damages of
$110,019.18, plus interest and costs, in a total amount of
$119,317.67. While Bandit has argued that Mr. Bayles
guaranteed the whole amount, the circuit court later found him
liable only for the $87,500 owed on the five custom-made
chippers. At this stage, the proceedings concern that
judgment amount, only.
4
We should here say two things with regard to
terminology. First, the words "guarantee" and "guaranty"
appear throughout this case. As we shall explain, a person's
guarantee can give rise to a "guaranty contract." Second,
with regard to the distinction between a "surety contract" and
a "guaranty contract," we note the following passage from 23
Michigan Civil Jurisprudence, Surety, § 14, p 50.
While a contract of suretyship and of guaranty
are not the same in all respects, they are similar
in certain particulars. Each requires three
parties, the principal, the obligee, and the surety
4
amended complaint, in which it alleged that it had relied on
the fax to its detriment, enriching Hobbs by sending the
chippers--
--which it would not have shipped without the fax--
--to
Connecticut.
The circuit court denied the motion, concluding that
there were factual issues in the case and that it was not
clear whether the “sloppily drafted” fax was a personal
guarantee.
Mr. Bayles later renewed his motion for summary
disposition under MCR 2.116(C)(10), providing additional
factual background concerning the events that preceded the
fax. Bandit filed a cross-motion for summary disposition
under the same paragraph of the rule.
The circuit court again denied the motions “for the
reason that there exist disputed issues of fact which preclude
summary disposition at this time.”
The circuit court then conducted a bench trial. After
or guarantor. In both the contract of suretyship
and guaranty, the surety and the guarantor promise
to answer for the debt or default of another. The
main distinction between a contract of suretyship
and of guaranty, however, is that while the surety
assumes liability as a regular party to the primary
undertaking, the guarantor does not, as his or her
liability depends on an independent collateral
agreement by which he or she undertakes to pay the
obligation if the primary payor fails to do so.
Nevertheless, the authorities in discussing certain
principles common to both forms of contract often
use the terms surety and guarantor interchangeably.
5
hearing the evidence, the court directed the clerk to draft a
judgment against Hobbs. The court reserved its ruling with
regard to the liability of Mr. Bayles.5
About a month later, the circuit court issued a written
opinion. It said that "an assurance is a guarantee" and that
the key issue was whether Mr. Bayles offered this guaranty
contract in his capacity as president of Hobbs, or personally.
Regarding that question, the court relied on St Joseph Valley
Bank v Napoleon Motors Co, 230 Mich 498; 202 NW 933 (1925),
for the distinction between a corporate signature and a
personal signature. The court then gave an example of the
form of signature that would have indicated a corporate
guarantee:
Hobbs International, Inc.
/s/ William Bayles
President
Because Mr. Bayles signed without the corporation name or his
corporate title, the court concluded that "there is a personal
guarantee made by Mr. Bayles." The court entered judgment
against Mr. Bayles in the amount of $87,500.6
Mr. Bayles appealed, but the Court of Appeals affirmed.7
5
It also reserved its ruling on Mr. Bayles’ midtrial
motion for directed verdict.
6
In a separate opinion, the court denied the motion for
directed verdict.
7
Unpublished opinion per curiam, issued June 9, 1998,
reh den August 5, 1998 (Docket No. 201781).
6
In doing so, the Court said that "[g]eneral rules of
construction apply in interpreting guaranty contracts," adding
that "[t]he 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 NW2d 19
(1994). Examining the language of the fax, the Court of
Appeals then listed eight reasons why "the words and
circumstances of this facsimile" demonstrate that the intent
of the parties was that Mr. Bayles would personally guarantee
payment for the five chippers.8
Mr. Bayles applied to this Court for leave to appeal. In
lieu of granting leave, we remanded this case to the Court of
8
The Court of Appeals noted these aspects of the case:
(a) the fax used the word "assurance"; (b) though the fax
spoke of "our commitment to pay you promptly when we get
paid," it later referred to "my assurance that you will be
paid when we are"; (c) though written informally, "the
entirety of the facsimile reasonably appears to communicate a
guarantee to pay plaintiff"; (d) the fax was simply signed,
"Bill," without the name of the corporation or Mr. Bayles's
title; (e) since the contract between the parties would have
obligated Hobbs to pay Bandit for the five chippers in any
event, interpreting the fax as a corporate guarantee would
render it of no additional value to Bandit; (f) Mr. Tracy
specifically asked for a personal guarantee from Mr. Bayles,
and it is reasonable to construe the response in light of that
request; (g) the assurance obviously was intended to (and did)
induce reliance on the part of Bandit, which would not have
shipped the chippers without the assurance; and (h) the fax
was sent in response to the request for a personal guarantee.
Mr. Bayles and Hobbs did not reject that request or make a
counter proposal. Instead, Mr. Bayles simply sent the fax.
7
Appeals for further consideration.9 461 Mich 861 (1999). In
our order, we directed the attention of the Court of Appeals
to the manner in which the word “assurance” is used in § 2-609
of the Uniform Commercial Code, MCL 440.2609; MSA 19.2609, and
in the United States Bankruptcy Code, 11 USC 365(b)(1)(C). In
each instance, it appears to refer to something less than a
separate guarantee of payment.
On remand, the Court of Appeals again affirmed.10 It
found neither MCL 440.2609; MSA 19.2609 nor 11 USC
365(b)(1)(C) applicable in the present case.
Mr. Bayles has renewed his application to this Court for
leave to appeal.
II
9
In lieu of granting leave to appeal, the case
is remanded to the Court of Appeals for
reconsideration of arguments made by the defendant
appellant which the Court of Appeals did not
address. . . . The defendant-appellant claimed
that the circuit court erred as a matter of law in
refusing to enter summary disposition or a directed
verdict in his favor. Specifically, the panel did
not address the defendant-appellant’s arguments
that he was entitled to judgment as a matter of law
because the use of the term “assurance” in the
October 8, 1993, facsimile did not create a
guaranty contract given that the definition of the
critical term “assurance” as used in the Uniform
Commercial Code, UCC 2-609, MCL 440.2609; MSA
19.2609 and in the United States Bankruptcy Code,
11 USC 365(b)(1)(C), contemplates something less
than a “guaranty.” Jurisdiction is not retained.
10
Unpublished opinion per curiam, issued November 30,
1999, reh den March 2, 2000 (Docket No. 201781).
8
This case involves the interpretation of language that is
said to form a contract. “The proper construction and
interpretation of [a] contract is a question of law we review
de novo. Morley v Automobile Club of Michigan, 458 Mich 459,
465; 581 NW2d 237 (1998).” Perry v Sied, 461 Mich 680, 681,
n 1; 611 NW2d 516 (2000).
III
As the Court of Appeals noted in its first opinion, the
record contains facts from which one could conclude that
Bandit wanted a personal guarantee from Mr. Bayles, and from
which one could conclude that Bandit understood the fax to be
that guarantee.
However, a guaranty contract--
--like a surety contract--
--is
a special kind of contract. As this Court stated in Ann Arbor
v Massachusetts Bonding & Ins Co, 282 Mich 378, 380; 276 NW
486 (1937),
The undertaking of a surety is to receive a
strict interpretation. The surety has a right to
stand on the very terms of the contract. To the
extent and in the manner and under the
circumstances pointed out in his obligation, the
surety is bound, and no further. The liability of
a surety is not to be extended by implication
beyond the terms of his contract. Miller v
Steward, [22 US (9 Wheat) 680; 6 L Ed 189 (1824)].
A surety cannot be held beyond the precise terms of
his agreement. Walsh v Bailie, 10 Johns 180 [NY
Supp, 1813]. As said by Chancellor Kent, “The
claim against a surety is strictissimi juris.”
3 Kent’s Commentaries (14th Ed), p 217. See, also,
Fellows v Prentiss, 3 Denio 512 (45 Am Dec 484)
[NY, 1846].
9
It is evident that other jurisdictions likewise apply the
principle of strict interpretation to the construction of such
a contract.11
For these reasons, a court must approach with caution a
claim that the parties have formed a guaranty contract.
Ordinary experience teaches that assumption of another’s debt
is a substantial undertaking, and thus the courts will not
assume such an obligation in the absence of a clearly
expressed intention to do so. These principles have been in
11
In many jurisdictions a gratuitous surety--
--as
distinguished from compensated sureties and surety
companies----is said to be a favorite of the law.
The contract is to be construed strictly in his
favor under the rule generally known as
“strictissimi juris.” The reason for this is that
the surety is not the recipient of the full
consideration which has accrued or may accrue to
the recipient of the full consideration which has
accrued or may accrue to the principal debtor, and
further, his situation is comparatively a dependent
one, since he does not enjoy the opportunity of
protecting himself that belongs to the other
parties to the contract.
Where the rule of strict construction in favor
of the surety is applied, he undertakes nothing
that is not within the strict letter of his
contract; he is bound to the extent, and in the
manner, and under the circumstances, pointed out in
his obligation and no further. Otherwise stated
the rule means that the surety’s obligations cannot
be extended by implication or enlarged by
construction beyond the terms of the agreement
entered into, so as to include any other subject,
or other person, or other period of time than that
expressed or necessarily included in the agreement.
[74 Am Jur 2d, Suretyship, § 27, pp 29-30.]
10
place in Michigan for over a century. The Columbus Sewer Pipe
Co v Ganser, 58 Mich 385; 25 NW 377 (1885).
In Columbus Sewer Pipe, a man named August Ganser
personally guaranteed up to $3,000 of the cost of purchasing
pipe. The guaranty contract was executed in connection with
a sewer project along First Street in Bay City. A dispute
later arose regarding whether the guaranty contract was in
force for other purchases, or just for the purchase of pipe
used in the First Street project. This Court said that the
intent of the parties was the controlling element in the
interpretation of the guaranty contract and that, under the
circumstances found in Columbus Sewer Pipe, Mr. Ganser’s
guarantee was limited to the cost of the pipe for the First
Street project. As the Court explained, “[a] guarantor is not
liable beyond the express terms of his contract.” 58 Mich
391.
These authorities confirm the principle enunciated by the
Court of Appeals--
--that the intention of the parties must be
given effect. However, the Court of Appeals has failed to
apply a more fundamental principle of law. As this Court
explained 115 years ago in Columbus Sewer Pipe, “[t]he rights
of sureties are always favored in the law, and persons
standing in that relation in this class of obligations will
not be held, unless an intention to bind themselves is clearly
manifested.” 58 Mich 391.
11
In the present case, the fax is insufficient, as a matter
of law, to constitute a binding personal guarantee by Mr.
Bayles. The Court of Appeals is correct that the surrounding
facts evidence Bandit’s desire for a personal guarantee, and
even its hope or belief in that regard. However, such a
belief cannot reasonably be maintained, nor can such an
obligation lawfully be imposed, in the absence of an
unambiguous expression of the guarantor’s intention to accept
that responsibility.
No specific form of language is necessary-
--Columbus Sewer
Pipe teaches that such documents “are frequently given without
much care as to the language” and that “[t]echnical nicety
should not, therefore, be applied in their construction.” 58
Mich 391. The point, however, is that a personal guarantee
cannot be implied from language that fails to clearly and
unambiguously reflect an intention to assume such a
responsibility.
In the present case, the disputed fax speaks of “my
assurance,” but it also mentions “our commitment.” Twice it
recites Bandit’s cooperation in working “with us,” and twice
it says that Bandit will be paid when “we” are. In
particular, the assurance of being paid “when we are” reflects
a commitment to pay plaintiff out of corporate funds rather
than out of anyone’s personal funds. The informal signature
on the fax (a handwritten “Bill”) implies neither a corporate
12
signature as officer nor a personal assumption of a grave
responsibility (one would not sign a note of indebtedness for
$87,500 with an unadorned “Bill”). And the term “assurance”
has developed a commercial usage that is not synonymous with
a guarantee or a guarantee contract.12
As indicated above, the fax sent to Mr. Tracy could not,
as a matter of law, have been a personal guarantee from Mr.
Bayles, giving rise to a guaranty contract. Accordingly, it
12
That was the point of our citation of MCL 440.2609; MSA
19.2609 and 11 USC 365(b)(1)(C) in the remand order. 461 Mich
861 (1999). For instance, the state provision (§ 2-609 of the
UCC) says this about “assurance”:
(1) A contract for sale imposes an obligation
on each party that the other's expectation of
receiving due performance will not be impaired.
When reasonable grounds for insecurity arise with
respect to the performance of either party the
other may in writing demand adequate assurance of
due performance and until he receives such
assurance may if commercially reasonable suspend
any performance for which he has not already
received the agreed return.
(2) Between merchants the reasonableness of
grounds for insecurity and the adequacy of any
assurance offered shall be determined according to
commercial standards.
(3) Acceptance of any improper delivery or
payment does not prejudice the aggrieved party's
right to demand adequate assurance of future
performance.
(4) After receipt of a justified demand
failure to provide within a reasonable time not
exceeding 30 days such assurance of due performance
as is adequate under the circumstances of the
particular case is a repudiation of the contract.
13
was error for the circuit court to deny Mr. Bayles’ motions
for summary disposition, and it was error to enter judgment
against him for the $87,500 price of the five custom-made
chippers.
For these reasons, we reverse the judgments of the Court
of Appeals and the circuit court, and we remand this case to
the circuit court for entry of a judgment in favor of the
individual defendant. MCR 7.302(F)(1).
CORRIGAN , C.J., and WEAVER , TAYLOR , and YOUNG , JJ.,
concurred.
14
S T A T E O F M I C H I G A N
SUPREME COURT
BANDIT INDUSTRIES, INC.,
Plaintiff-Appellee,
v No. 116553
HOBBS INTERNATIONAL, INC.,
a Connecticut Corporation,
d/b/a HOBBS EQUIPMENT COMPANY,
Defendant,
and
WILLIAM H. BAYLES, JR.,
Defendant-Appellant.
________________________________
CAVANAGH, J.
I would not decide this case by a per curiam opinion.
Because this case offers the opportunity to address a
jurisprudentially significant issue, I would grant leave so we
might avail ourselves of full briefing and argument by the
parties.
KELLY , J., concurred with CAVANAGH , J.
MARKMAN , J., took no part in the decision of this case.