Business Law #3: DQDUE DATE: March 20th (21:00 EST)!!PROMPT:Attached are some excerpts from the decision of the Michigan Court of Appeals in Able Demolition v. City of Pontiac. After you have read and

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ABLE DEMOLITION, Inc., Plaintiff-Appellant, v. City of PONTIAC, Defendant-Appellee

Court of Appeals of Michigan

Docket No. 273295

Decided: May 17, 2007

Before:  SMOLENSKI, P.J., and SAAD and WILDER, JJ.

Able Demolition, Inc., appeals the trial court's grant of summary disposition to the city of Pontiac. For the reasons set forth below, we affirm the trial court's ruling.

I. Facts and Procedural History

On July 1, 2004, Able Demolition contracted with Pontiac to tear down certain abandoned homes. As the below-quoted provisions of the contract make clear, Able was required to obtain specific written permission to proceed before demolishing any building:

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V. PRE-DEMOLITION APPROVAL

5.01 Prior to any performance of services by the Contractor under the terms of this contract and pursuant to a successful bid, the Contractor must, on the date that the anticipated services will be performed (mandatory), contact the Director of Law or their designee to secure written approval to proceed with said services. Upon request for approval by the Contractor, the Director of Law or their designee will provide said Contractor with a “Letter to Proceed” which will specifically grant the Contractor written approval to proceed with said specified services. Prior to any payment under the terms of this contract (Section VI. Compensation), the Contractor must present the “Letter to Proceed” (Director of Law's-City Attorney's approval documentation) to the Director of Finance of the City verifying that approval to proceed was granted. If the Contractor proceeds without the approval specifically granted in the “Letter to Proceed”, the Contractor shall forfeit any payment for unauthorized services performed as a result of his failure to get said pre-approval “Letter to Proceed”.

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VII. COMPENSATION

7.01 The City agrees to pay the Contractor for the Demolition Services performed pursuant to Paragraph 4.02 in the amount of ---- Thousand ----Hundred and ----/100 Dollars ($ ----.----),  itemization required), not to exceed a maximum of One Hundred Thousand and 00/100 Dollars ($100,000.00) for the entire one (1) year contract. If the “Letter to Proceed” for each demolished property is not provided, the Contractor forfeits any payment under the terms of this contract.

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Able maintains that it demolished numerous buildings under the contract, but that Pontiac refused to pay $42,299 for 11 of the demolitions that Able completed. Able filed a complaint against Pontiac on May 10, 2006, and alleged claims of breach of contract, promissory estoppel, unjust enrichment, and quantum meruit.

In lieu of an answer, Pontiac filed a motion for summary disposition under MCR 2.116(C)(10), and argued that Able is not entitled to payment because it did not comply with the material terms of the contract. Specifically, Pontiac asserted that Able failed to obtain letters to proceed as required by § 5.01 for 11 of the houses it demolished and that, therefore, Able forfeited its right to payment for those demolitions. In response, Able asserted that it substantially performed under the contract and it did not materially breach the agreement when it failed to obtain letters to proceed. Following oral argument, the trial court ruled that the contract language clearly and explicitly states that a letter to proceed is required before Able performs a demolition and before Able is entitled to payment. For that reason, the trial court granted summary disposition to Pontiac.

II. Analysis

A. Standard of Review

This Court explained in Hamade v. Sunoco Inc. (R & M), 271 Mich.App. 145, 165-166, 721 N.W.2d 233 (2006):

This Court reviews de novo the proper interpretation of a contract. Clark v. DaimlerChrysler Corp., 268 Mich.App. 138, 141, 706 N.W.2d 471 (2005).   Likewise, whether a contract's terms are ambiguous is a question of law this Court reviews de novo. Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41, 47, 664 N.W.2d 776 (2003). When a contract is unambiguous, it must be enforced according to its terms.  DaimlerChrysler Corp. v. G-Tech Professional Staffing, Inc., 260 Mich.App. 183, 185, 678 N.W.2d 647 (2003).[[1]

B. Contract Interpretation

Section 5.01 of Able's contract with Pontiac unambiguously requires that, on the day of each demolition, Able must obtain written assurance from Pontiac's director of law before Able may go forward with the destruction of a building. Sections 5.01, 7.01, and 8.01 also plainly state that, to be paid, Able must submit the letters to proceed to the city and various city representatives. The contract also provides that, if a contractor fails to submit the letters, the company forfeits its right to payment.

As our Supreme Court explained in Quality Products Concepts Co. v. Nagel Precision, Inc., 469 Mich. 362, 375, 666 N.W.2d 251 (2003):

In interpreting a contract, our obligation is to determine the intent of the contracting parties.  Sobczak v. Kotwicki, 347 Mich. 242, 249, 79 N.W.2d 471 (1956). If the language of the contract is unambiguous, we construe and enforce the contract as written.  Farm Bureau Mut. Ins. Co. of Michigan v. Nikkel, 460 Mich. 558, 570, 596 N.W.2d 915 (1999). Thus, an unambiguous contractual provision is reflective of the parties' intent as a matter of law. Once discerned, the intent of the parties will be enforced unless it is contrary to public policy.  Id.

Here, the language of the contract is clear:  the contractor, Able Demolition, must obtain a letter to proceed from the city's legal department before it can proceed.2  The question here is what is the legal consequence of the contractor's failure to comply with this unambiguous contractual obligation.

C. Condition Precedent 

Because the contractual language is clear, we need not interpret this contract. Instead, we address the question of the legal consequences of plaintiff's failure to comply with its straightforward obligation. We hold that the contract provision that required Able to obtain letters to proceed is a condition precedent and that Able's failure to comply with this provision means that it was not entitled to performance by Pontiac, i.e., payment for demolition services. A condition precedent ‘is a fact or event that the parties intend must take place before there is a right to performance.’  Mikonczyk v. Detroit Newspapers, Inc., 238 Mich.App. 347, 350, 605 N.W.2d 360 (1999), quoting Reed v. Citizens Ins. Co. of America, 198 Mich.App. 443, 447, 499 N.W.2d 22 (1993).  “Failure to satisfy a condition precedent prevents a cause of action for failure of performance.”  Berkel Co. Contractors v. Christman Co., 210 Mich.App. 416, 420, 533 N.W.2d 838 (1995).

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D. Substantial Breach

Were we to conclude that the letter to proceed provision constitutes a duty or a promise rather than a condition precedent, Able would not be entitled to recover under the contract. Again, Able concedes that it failed to comply with the terms of the agreement when it failed to obtain preapproval letters before it demolished the buildings for which it now seeks compensation.  ‘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 N.W.2d 703 (1994), quoting Flamm v. Scherer, 40 Mich.App. 1, 8-9, 198 N.W.2d 702 (1972). However, the rule only applies if the initial breach was substantial. Id. To determine whether a substantial breach occurred, a trial court considers “whether the nonbreaching party obtained the benefit which he or she reasonably expected to receive.” Holtzlander v. Brownell, 182 Mich.App. 716, 722, 453 N.W.2d 295 (1990). Able maintains that it demolished buildings, which was the central purpose of the agreement, and that, therefore, its failure to obtain and submit the preapproval letters should not excuse Pontiac's obligation to pay for its services.

We disagree with Able's assertion for several reasons. Though the contract contemplated that Able 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 Pontiac'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. This intent is clear because the contract language makes the letter to proceed mandatory on the date the demolition is performed, and this preapproval letter must be issued by the city's director of law. 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. If the parties were not bound by this term, the legal safeguards set forth in the agreement would be rendered meaningless. Thus, we hold that Able's breach was substantial and that Able may not maintain an action for damages against Pontiac as a matter of law.

Affirmed.