Sprague v. Buhagiar

213 Mich. App. 310 (1995) 539 N.W.2d 587

SPRAGUE
v.
BUHAGIAR

Docket No. 169853.

Michigan Court of Appeals.

Submitted May 16, 1995, at Detroit. Decided September 8, 1995, at 9:15 A.M.

Jerry M. Seay, P.C. (by Jerry M. Seay), for the plaintiff.

Neale & Nader (by Lewis R. Thumm) for the defendants.

Before: TAYLOR, P.J., and MARILYN KELLY and J.R. COOPER,^[*] JJ.

TAYLOR, P.J.

Defendants appeal as of right from a judgment granting rescission of a land contract and damages in the amount of $6,000 for plaintiff. We reverse and remand.

Plaintiff entered into a land contract with defendants for the purchase of six rental units. The land contract was in the amount of $49,000, with a $6,000 down payment, and the balance of $43,000 to be paid at the rate of $600 a month for ten years.

After plaintiff took possession, she learned that two units had been condemned by the City of Port Huron. Unable to make the land contract payments, she stopped her monthly payments. Defendants filed in the district court an action for summary possession, to which plaintiff did not respond. The land contract was forfeited by order of the district court, and a writ of restitution was issued conveying the property back to defendants.

Plaintiff then filed this cause of action in the St. Clair Circuit Court, seeking rescission of the land contract on the basis of fraud, misrepresentation, and innocent misrepresentation. In particular, plaintiff alleged that defendants had not informed her that a portion of the premises had been condemned because of code violations.

Defendants filed a motion for summary disposition pursuant to MCR 2.116(C)(10), arguing that the circuit court action was barred pursuant to the doctrine of res judicata inasmuch as plaintiff's claims of fraud and misrepresentation could have been raised in the district court action as a counterclaim for rescission. Accordingly, defendants asserted that plaintiff's failure to raise those issues barred her circuit court litigation. Plaintiff responded, claiming that because this suit was based upon fraud and misrepresentation, it survived the forfeiture lawsuit. The trial court denied defendants' motion, and the matter proceeded to trial. Following the presentation of proofs, the court entered a judgment for plaintiff.

On appeal, defendants argue that the trial court erred in failing to grant their motion for summary disposition. We agree.

The alleged fraud and misrepresentation clearly could have been raised as a counterclaim to the summary possession proceedings in the district court. MCR 4.201(G)(1)(a)(ii). Further, as defenses or affirmative defenses, plaintiff's claims must have been raised in the earlier proceeding or are waived. MCR 2.111(F)(2) and (F)(3)(a). Thus, under this state's broad rule of res judicata, plaintiff's claims are barred. As this Court stated in Courtney v Feldstein, 147 Mich. App. 70, 75; 382 NW2d 734 (1985):

Michigan follows a broad rule of res judicata which bars not only claims actually litigated in the prior action, but every claim arising out of the same transaction which the parties, exercising reasonable diligence, could have raised but did not. Gose v Monroe Auto Equipment Co, 409 Mich. 147, 160; 294 NW2d 165 (1980); Curry v Detroit, 394 Mich. 327, 332; 231 NW2d 57 (1975); Gursten v Kenney, 375 Mich. 330, 333-335; 134 NW2d 764 (1965).

However, plaintiff asserts that this general rule of res judicata does not apply when fraud is pleaded. In part, plaintiff is correct, but this exception is drawn more narrowly than plaintiff acknowledges. The fraud exception to res judicata pertains only if the fraud is characterized as extrinsic fraud. Extrinsic fraud is fraud outside the facts of the case: "fraud which actually prevents the losing party from having an adversarial trial on a significant issue." Rogoski v Muskegon, 107 Mich. App. 730, 736; 309 NW2d 718 (1981). An example of such fraud would be fraud with regard to filing a return of service.

Extrinsic fraud must be distinguished from intrinsic fraud, which is a fraud within the cause of action itself. An example of intrinsic fraud would be perjury, id. at 737, discovery fraud, fraud in inducing a settlement, or fraud in the inducement or execution of the underlying contract. In Triplett v St Amour, 444 Mich. 170, 175-176; 507 NW2d 194 (1993), our Supreme Court declined to recognize an independent action at law to recover damages for intrinsic fraud. The Court held that the remedy in the intrinsic fraud circumstance is exclusively in a motion for relief from judgment pursuant to MCR 2.612(C). Triplett, supra. As Justice LEVIN pointed out in his concurring opinion, this state is committed to the rule stated in Pomeroy's Equitable Remedies (2d ed), § 656, published as Pomeroy's Equity Jurisprudence (4th ed), § 2077, id. at 184, citing Columbia Casualty Co v Klettke, 259 Mich. 564, 566; 244 N.W. 164 (1932):

[T]he fraud which warrants equity in interfering with such a solemn thing as a judgment must be fraud in obtaining the judgment, and must be such as prevents the losing party from having an adversary trial of the issue.

Because plaintiff alleges only intrinsic fraud in this case, she cannot seek relief by independent action. Rogoski, supra at 737. There is not a separate cause of action. Plaintiff's remedy is to move to reopen the judgment pursuant to MCR 2.612(C). Nederlander v Nederlander, 205 Mich. App. 123, 126; 517 NW2d 768 (1994).

Therefore, we conclude that plaintiff's claim is barred and that summary disposition should have been granted pursuant to MCR 2.116(C)(7).

Reversed and remanded for the entry of an order of dismissal. We do not retain jurisdiction.

MARILYN KELLY, J., concurred.

J.R. COOPER, J. (concurring).

I concur in the result but would rely on St John v Richard, 272 Mich. 670; 262 N.W. 437 (1935). In that case, the plaintiff and the defendant entered into a land contract. The plaintiff filed a suit alleging that the defendant failed to pay pursuant to the agreement. The defendant filed an answer to the declaration, claiming the land contract should be set aside on grounds of fraud. Despite his answer to the complaint, a default judgment was entered because of the defendant's failure to file a bond to restrain the prosecution of the action. The defendant did not appeal the entry of the default judgment.

When the defendant attempted to raise the issue of fraud in a subsequent action, the circuit court held that the prior judgment in the action for payments on the land contract was res judicata with respect to the issue of any alleged fraud committed by the plaintiff-vendor. The circuit court noted that the defendant had caused his own dilemma by failing to present the defense in the prior proceeding. The circuit court stated:

"Plaintiff and defendant were both in a court of competent jurisdiction. That court decided defendant owed certain installments on a land contract. If the contract was obtained by fraud, then defendant did not owe the installments. Defendant did not appeal. The decision stands. Under such circumstances, it is idle to ask another court, with the same parties before it, to declare the same contract to be of no binding force because of fraud." [Id. at 674.]

In the case presently before this Court, defendants entered into a land contract with plaintiff, who subsequently stopped making payments. Defendants filed suit in the district court and obtained a judgment of land contract forfeiture by default on the basis of plaintiff's failure to respond. Plaintiff did not appeal the district court's decision, but instead filed an action in the circuit court that is the basis of this appeal. In the circuit court action, plaintiff sought rescission of the land contract on the basis of fraud. Pursuant to the holding in St John, plaintiff was obligated to raise the defense of fraud in the district court action, because res judicata operates as a bar to the maintenance of the circuit court action. Accordingly, I concur with the majority's conclusion that it was error to deny the motion for summary disposition pursuant to MCR 2.116(C)(7).

NOTES

[*] Circuit judge, sitting on the Court of Appeals by assignment.