Get Lifted LLC v. on Site Management Inc ( 2020 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
GET LIFTED, LLC, UNPUBLISHED
August 6, 2020
Plaintiff/Counterdefendant-Appellant,
v No. 349345
Macomb Circuit Court
ON-SITE MANAGEMENT, INC., LC No. 2018-000793-CB
Defendant/Counterplaintiff-Appellee,
and
MEADOWS ASSISTED LIVING, INC., BANK
UNITED, N.A., and THEUT PRODUCTS, INC.,
Defendants.
Before: BECKERING, P.J., AND FORT HOOD AND SHAPIRO, JJ.
PER CURIAM.
Plaintiff Get Lifted, LLC (GL), appeals the dismissal of its breach-of-contract case against
defendant On-Site Management, Inc (OSM). The trial court dismissed the case on the grounds
that GL first substantially breached the parties’ contracts by failing to procure general liability
insurance and was thus precluded from maintaining an action for breach of contract. We affirm.
I. BACKGROUND
OSM was the general contractor for the construction of an assisted living facility. OSM
hired GL as a subcontractor to perform concrete work on the project. The parties entered into three
separate contracts relating to foundational work, the installation of a parking lot, and the pouring
of the concrete floor. In December 2017, OSM advised GL in writing that it had “elected to
terminate all contracts with [GL].” The stated reason for termination was subpar and untimely
work by GL. At that time, GL had completed work on one of the contracts and started work on
another. GL brought suit for breach of contract, and OSM countersued for breach of contract.
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OSM subsequently paid GL for its completed work. Thus, all that remained of the complaint was
GL’s claim for lost profits based on the two contracts that it did not complete before termination.
OSM maintained that its termination of the contracts was not actionable because
termination was undertaken after, and in response to, GL’s breach of the contracts’ quality and
time demands. In addition, while the case was pending, OSM learned that GL had not had procured
general liability insurance as required by the three contracts. Specifically, three months after GL
filed suit, OSM discovered water and mold damage that it attributed to GL’s work. OSM’s project
manager stated that she contacted the insurance carrier listed on the certificate of insurance
provided by GL, but was informed by the carrier that the policy did not cover GL. OSM filed an
amended counterclaim asserting breach of contract and fraud based on the lack of insurance. OSM
later moved for summary disposition under MCR 2.116(C)(10) asserting that GL had committed
two “prior breaches”: (1) untimely and inadequate work; and (2) the failure to obtain insurance.
The trial court determined that there were questions of fact whether the quality and
timeliness of GL’s work breached the contracts and OSM does not appeal that ruling. However,
the court granted OSM summary disposition of GL’s complaint on the grounds that GL first
substantially breached the contract by failing to procure and maintain general liability insurance.
For the same reason, the court granted OSM summary disposition on its breach-of-contract
counterclaim relating to the lack of insurance. The court denied summary disposition of OSM’s
fraud claim, and the parties later stipulated to dismiss the counterclaim in its entirety.
II. ANALYSIS
On appeal, GL argues that the trial court erred in granting summary disposition for three
reasons. First, GL argues that its failure to procure general liability insurance was not a substantial
breach or that there is at least a question of fact on that matter. Second, GL contends that OSM
waived enforcement of the insurance provision. Third, GL suggests that the first-breach rule
should not apply in this case because OSM did not know of GL’s failure to obtain insurance at the
time the contracts were terminated. We conclude that the trial court did not err in granting OSM
summary disposition.1
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A trial court’s decision on a motion for summary disposition is reviewed de novo. Spiek v Dep’t
of Transp, 456 Mich. 331, 337; 572 NW2d 201 (1998). A motion under MCR 2.116(C)(10) tests
the factual support for a claim. A court must consider the pleadings, affidavits, depositions,
admissions, and any other documentary evidence submitted by the parties, and view that evidence
in the light most favorable to the nonmoving party to determine if a genuine issue of material fact
exists. MCR 2.116(G)(5); Maiden v Rozwood, 461 Mich. 109, 118-120; 597 NW2d 817 (1999),
reh den 461 Mich. 1205 (1999). Summary disposition should be granted if, except as to the amount
of damages, there is no genuine issue of material fact and the moving party is entitled to judgment
as a matter of law. Babula v Robertson, 212 Mich. App. 45, 48; 536 NW2d 834 (1995). We agree
with GL that whether a substantial breach occurred is a question of fact. However, questions of
fact can be decided by courts at the summary-disposition stage when reasonable minds could not
differ on the conclusion. See e.g., Brigs v Oakland Co, 276 Mich. App. 369, 374; 742 NW2d 136
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A. SUBSTANTIAL BREACH2
“The rule in Michigan is that one who first breaches a contract cannot maintain an action
against the other contracting party for his subsequent breach or failure to perform.” Michaels v
Amway Corp, 206 Mich. App. 644, 650; 522 NW2d 703 (1994) (quotation marks and citation
omitted). This rule only applies when the initial breach is substantial. Id. at 650. In determining
whether a breach is substantial or material, “the court should consider whether the nonbreaching
party obtained the benefit it reasonably expected to receive.” Omnicom of Mich v Gianetti Inv Co,
221 Mich. App. 341, 348; 561 NW2d 138 (1997).
This case is analogous to Able Demolition v Pontiac, 275 Mich. App. 577, 578; 739 NW2d
696 (2007), in which the plaintiff-contractor was required to obtain pre-approval letters from the
defendant-city’s legal department before demolishing buildings. The contractor demolished
several buildings but failed to obtain the letters to proceed as required by the contract. The city
declined to make payment and the contractor brought suit. Id. at 580. We held, in part, that the
contractor’s failure to obtain pre-approval letters was a substantial breach that precluded the
contractor from recovering breach-of-contract damages. In reaching that conclusion, we reasoned
as follows:
Though the contract contemplated that [the contractor] would perform demolition
services for the city, the contract here is more than a mere services contract. Rather,
the contract is a “legal protocol,” and, as such, the critical aspect of the agreement
is that any demolition be accomplished in strict compliance with the procedures
designated by [the city’s] legal department to minimize the risk of legal liability
and the serious violation of citizens’ property rights. A demolition company must
ask the city for a letter on the day of each demolition because, in some cases, a
property owner may obtain a last-minute temporary restraining order to prevent
destruction of a building. Clearly, the city insists on the clause to avoid liability for
demolitions that should not, legally, go forward. . . . Because this step is in the
contract to protect property rights and to protect the city from exposure to liability,
the letter-to-proceed provision is an essential term of the contract and not a mere
technicality. Indeed, the term goes to the heart of the agreement and reflects that
the parties understood that the underlying action—the demolition of property—
carries with it serious legal implications for all parties. [Id. at 585-586.]
Similar to the plaintiff in Able, GL argues that OSM received the benefit of the bargain
because GL performed the work required by the contracts until termination. As the trial court
(2007). See also 1300 LaFayette Eat Coop, Inc v Savoy 284 Mich. App. 522, 525; 773 NW2d 57
(2009) (“A question of fact exists when reasonable minds can differ on the conclusions to be drawn
from the evidence.”).
2
While the first-breach rule refers to a prior “substantial” breach, this Court has looked to factors
used to determine a “material” breach in applying the rule. See e.g., Able Demolition v Pontiac,
275 Mich. App. 577, 585; 739 NW2d 696 (2007). For purposes of this appeal, we will assume that
the terms are interchangeable but will use the word “substantial.”
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reasoned, however, OSM expected satisfactory work and “the added protections that insurance
provides against significant loss.” In other words, the requirement that GL obtain general liability
insurance served the same purpose as the pre-approval letters in Able, i.e., it protected OSM from
liability. GL also argues that OSM did not actually suffer loss because OSM’s insurance carrier
covered a claim allegedly caused by GL’s work. But there is no indication that the defendant in
Able actually faced liability because of the contractor’s failure to obtain pre-approval letters. We
read Able as standing for the proposition that a breach that exposes a party to potential and
significant liability is a substantial breach regardless of whether any damages occur. Further, the
contracts required GL to submit a certificate of insurance to OSM, and it is undisputed that GL
would not have been hired for the project had OSM known that GL did not have general liability
insurance.
Consideration of the other factors used to determine materiality does not persuade us that
a question of fact exists as to whether GL’s breach was substantial. Those factors “include the
extent to which the injured party may be adequately compensated for damages for lack of complete
performance, the extent to which the breaching party has partly performed, the comparative
hardship on the breaching party in terminating the contract, the willfulness of the breaching party’s
conduct, and the greater or lesser uncertainty that the party failing to perform will perform the
remainder of the contract.” Omnicom, 221 Mich. App. at 348, citing Walker & Co v Harrison, 347
Mich. 630, 635; 81 NW2d 352 (1957).
In theory, a damages award against GL could compensate OSM for any liability it might
have incurred due to the lack of insurance. The purpose of insurance policies, however, is to insure
that the loss, which may be substantial, will be covered. We read the next two factors—partial
performance and comparative hardship—as essentially asking whether GL will suffer what
amounts to forfeiture if the breach is deemed substantial. Because GL has now been paid for its
completed work, it is no longer at risk of forfeiture. Next, there is a question of fact whether GL’s
failure to obtain insurance was willful. GL’s owner’s testimony indicates that his other
construction company was insured and that the certificate of insurance related to that policy. Thus,
GL characterizes its failure to procure insurance as an “administrative error.” At best, however,
GL’s breach was negligent. Lastly, we do not view GL’s ability to perform the remainder of the
contracts as being relevant to whether the failure to maintain general liability insurance was a
substantial breach.
Considering the totality of the circumstances, the trial court correctly determined that GL’s
prior breach was substantial and that reasonable minds could not differ on that conclusion.
B. WAIVER
GL next argues that OSM waived enforcement of the insurance provision.3 “[A] waiver is
a voluntary and intentional abandonment of a known right.” Quality Prod and Concepts Co v
3
This issue is unpreserved because it was not raised before the trial court. See Detroit Leasing Co
v Detroit, 269 Mich. App. 233, 237; 713 NW2d 269 (2005). Unpreserved issues are reviewed for
plain error effecting substantial rights. Rental Props Owners Ass’n of Kent Co v Kent Co
Treasurer, 308 Mich. App. 498, 531; 866 NW2d 817 (2014).
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Nagel Precision, Inc, 469 Mich. 362, 374; 666 NW2d 251 (2003). “[A] party alleging waiver or
modification must establish a mutual intention of the parties to waive or modify the original
contract.” Id. at 372. Because there is no express agreement to waive or modify the insurance
provision in this case, the question is whether the parties waived the insurance provision through
their course of conduct. See id. at 373-374. To establish waiver on those grounds, there must be
“clear and convincing evidence” that the parties “knowingly waived enforcement” of a term. See
id. at 374.
GL fails to show by clear and convincing evidence that OSM voluntarily and intentionally
waived the insurance provision. It is undisputed that OSM did not have knowledge of GL’s failure
to procure and maintain insurance at the time of termination. GL suggests that OSM’s failure to
make a claim under the insurance policy before termination of the contracts shows an intent to
waive that provision. As OSM points out, however, there was no known damage at that time and
when it learned of property damage allegedly attributable to GL’s work, it attempted to make a
claim under the policy. Thus, GL’s waiver argument is without merit.
C. APPLICATION OF THE FIRST-BREACH RULE
Finally, GL emphasizes that OSM did not discover the lack of insurance until after the
contracts were terminated. However, GL does not identify, and we could not find, any authority
supporting its view that the first-breach rule does not apply when the prior breach was unknown
at the time of the other party’s subsequent breach. There is some support for GL’s argument that
the breaching party should be given an opportunity to cure the first breach. See Restatement
Contracts, 2d, § 237, p 215 (“[I]t is a condition of each party’s remaining duties to render
performances to be exchanged under an exchange of promises that there be no uncured material
failure by the other party to render any such performance due at an earlier time.”). But it has never
been held in Michigan that the first-breach rule applies only when there is an opportunity to cure.
Further, even accepting GL’s position that the lack of insurance was due to an administrative error,
we find it difficult to conclude that GL did not have an opportunity to cure its failure to obtain
insurance. And GL does not contend that it could have obtained a “written back” policy to cover
the period before termination.
That said, we are concerned by the prospect of allowing contracting parties to justify
nonperformance on the basis of later discovered reasons. Specifically, this may encourage a
defendant to use discovery to search for prior unknown breaches instead of focusing on the merits
of the plaintiff’s claims. In certain circumstances, we believe it would be equitable to apply the
mend-the-hold doctrine to estop a party from asserting a new reason for nonperformance:
‘Where a party gives a reason for his conduct and decision touching anything
involved in a controversy, he cannot, after litigation has begun, change his ground,
and put his conduct upon another and a different consideration. He is not permitted
thus to mend his hold. He is estopped from doing it by a settled principle of law.’
[CE Tackels, Inc v Fantin, 341 Mich. 119, 124; 67 NW2d 71 (1954), quoting Ralway
Co v McCarthy, 96 U.S. 258, 267-268; 24 L. Ed. 693 (1877).]
CE Tackels involved a subcontractor-general contractor dispute. There, the subcontractor
failed to perform and later argued that the general contractor did not accept the offer in a reasonable
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time and so there was no contract. CE Tackels, 341 Mich. at 121. The Supreme Court disagreed
with the subcontractor’s argument on the merits, but in doing so relied on the fact that the
subcontractor did not cite lack of acceptance at the time of nonperformance. Id.at 124.
However, we see no grounds to apply the mend-the-hold doctrine in this case. GL
affirmatively represented to OSM that it obtained general liability insurance, and GL does not
dispute that OSM was acting in good faith when it attempted to make a claim under the policy
while litigation was pending. Further, after suit was brought OSM paid GL for its completed work
and thus all that remained was GL’s claim for lost profits. Those considerations, as well as the
substantial nature of GL’s breach, convince us that estoppel is not required here.
Affirmed.
/s/ Jane M. Beckering
/s/ Karen M. Fort Hood
/s/ Douglas B. Shapiro
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