Hill v. General Motors Acceptance Corp. , 207 Mich. App. 504 ( 1994 )

Michael J. Kelly, P.J.

Plaintiffs appeal as of right an order of the circuit court granting defendant General Motors Acceptance Corporation’s motion for summary disposition under MCR 2.116(C) (10). We reverse._

I

On October 31, 1985, Rodderick Toliver entered into a signed or forged lease agreement with gmac for a 1986 Buick Skylark. The sixty-month agreement required Toliver to purchase insurance and contained an option to buy, which could be exercised before or at the end of the lease term. The agreement also contained a provision enabling Toliver to continue the lease in the event the Skylark was destroyed by substituting a comparable vehicle. Ownership of the vehicle was registered in gmac’s name.

On August 29, 1987, the Skylark was totaled in a collision. On September 17, 1987, Toliver exercised the option of substitution contained in the lease and obtained a 1986 Buick Somerset. On June 5, 1989, the Somerset collided with a car driven by plaintiff Beatrice Hill. Plaintiff Beatrice Strozier was a passenger in Hill’s car. At the time of the accident, James Smith, Jr., was driving the Somerset with Toliver’s consent. On the basis of gmac’s status as titleholder of the vehicle, plaintiffs sued gmac for damages sustained as a result of the collision. On November 22, 1991, the trial court granted gmac’s motion for summary disposition on the ground that gmac did not qualify as "owner” of the Somerset for purposes of the owner liability provisions of the Vehicle Code, MCL 257.401; MSA 9.2101.

ii

A motion for summary disposition under MCR 2.116(0(10) tests whether a genuine issue of material fact exists for the trier of fact to resolve. In reviewing such a motion, this Court construes all relevant affidavits, depositions, admissions, and other documentary evidence in favor of the non-moving party. Summary disposition is inappropriate where the evidence presents a genuine issue of material fact upon which reasonable minds could differ. Farm Bureau Mutual Ins Co v Stark, 437 Mich 175, 184-185; 468 NW2d 498 (1991).

in

The issue on appeal is whether the trial court erred in granting gmac’s motion for summary disposition under the owner liability provisions of the Vehicle Code, which exempt lessor-owners from liability under special circumstances. These provisions were amended by 1988 PA 125.

Section 401 of the preamendment code imposed liability on owners of negligently operated motor vehicles. MCL 257.401; MSA 9.2101. Section 37 of the code defined "owner” as follows:

"Owner” means: (a) Any person, firm, association, or corporation renting a motor vehicle or having the exclusive use thereof, under a lease or otherwise, for a period of greater than 30 days.

(b) A person who holds the legal title of a vehicle or in the event a vehicle is the subject of an agreement for the conditional sale or lease thereof with the right of purchase upon performance of the conditions stated in the agreement and with an immediate right of possession vested in the conditional vendee or lessee or in the event a mortgagor of a vehicle is entitled to possession, then such conditional vendee or lessee or mortgagor shall be deemed the owner. [MCL 257.37; MSA 9.1837.]

In Barksdale v Natl Bank of Detroit, 186 Mich App 286; 463 NW2d 258 (1990), this Court held that § 37(b) did not deem both the lessee and lessor "owners” of a vehicle leased under an agreement granting the lessee an option to purchase and an immediate right to possession; rather, § 37 excepted the lessor from the definition of "owner” and deemed the lessee "owner.” Id. at 289-290, citing Moore v Ford Motor Credit Co, 166 Mich App 100, 104; 420 NW2d 577 (1988).

The amended code now provides in pertinent part:

"Owner” means any of the following:

(a) Any person, firm, association, or corporation renting a motor vehicle or having the exclusive use thereof, under a lease or otherwise, for a period that is greater than 30 days.

(b) Except as otherwise provided in section 401a, a person who holds the legal title of a vehicle.

(c) A person who has the immediate right of possession of a vehicle under an installment sale contract. [MCL 257.37; MSA 9.1837.]

Section 401a provides:

As used in this chapter, "owner” does not include a person engaged in the business of leasing motor vehicles who is the lessor of a motor vehicle pursuant to a lease providing for the use of the motor vehicle by the lessee for a period that is greater than 30 days. [MCL 257.401a; MSA 9.2101(1).]

While § 401 still imposes liability on "owners” of negligently operated vehicles, paragraph 2 reinforces § 401a by exempting from liability lessors who meet the criteria set forth in § 401a. MCL 257.401(2); MSA 9.2101(2).

Under the terms of the original lease agreement between gmac and Toliver, gmac does not qualify as an "owner” for purposes of both the pre-1988 and post-1988 versions of the Vehicle Code. With respect to the preamendment provisions, it is undisputed that the agreement granted the lessee immediate possession and an option to purchase. With respect to the amended provisions, it is undisputed that gmac is engaged in the business of leasing motor vehicles and that the original lease agreement extended well beyond thirty days.

However, plaintiffs challenge the validity of the original lease agreement and the substitution agreement, alleging that the former contains a forgery and that the latter lacks a signature by a proper gmac agent and fails to incorporate the original lease agreement. In response, gmac contends that these arguments arise under the statute of frauds, which plaintiffs, as nonparties to the lease and substitution agreements, may not invoke. gmac also argues that the lease agreement does not fall under the statute of frauds because it is capable of being performed within one year.

The statute of frauds, MCL 566.132; MSA 26.922, provides in pertinent part:

In the following cases an agreement, contract, or promise is void unless that agreement, contract, or promise, or a note or memorandum of the agreement, contract, or promise is in writing and signed with an authorized signature by the party to be charged with the agreement, contract, or promise:

(a) An agreement that, by its terms, is not to be performed within 1 year of the making of the agreement.

This Court has' construed the one-year rule strictly:

[I]f there is any possibility that an oral contract is capable of being completed within a year, it is not within the statute of frauds, even though it is clear that the parties may have intended and thought it probable that it would extend over a longer period and even though it does so extend. [Drummey v Henry, 115 Mich App 107, 111; 320 NW2d 309 (1982). Emphasis added.]

Gmac is correct in asserting that the statute of frauds does not apply to the original lease agreement because the agreement was capable of being performed within one year of its making. Although it was a five-year lease, Toliver had the option to purchase the car and was entitled to exercise this option within the first year of the lease. This alone is sufficient to remove the agreement from the scope of the statute of frauds.

Even assuming that the lease agreement had to be in writing, gmac is also correct in asserting that plaintiffs, as third parties to the lease and substitution agreements, may not assert the statute of frauds in an effort to have the agreement declared void. This Court held in Hoehner v Western Casualty & Surety Co, 8 Mich App 708, 714-715; 155 NW2d 231 (1967), that the statute of frauds is a personal defense available only to parties to a contract.

However, gmac’s arguments do not preclude plaintiffs from challenging the content of the lease agreement between gmac and Toliver. The owner liability provisions of the Vehicle Code grant an injured party recourse to the lessor-owner of a vehicle under special circumstances that are determined in part by the terms of the lease agreement. The statute of frauds declares void an unwritten agreement that cannot be performed within one year. The condition precedent to the application of the statute of frauds is the existence of such an agreement. Nothing in the statute of frauds or in the case law concerning a third party’s standing to invoke the statute prohibits that party from challenging the content of the underlying agreement and thereby defining rights under the owner liability provisions of the Vehicle Code. Cf. Hoehner, supra at 713-714 (treating as separate issues the defendant’s arguments, first, that there was insufficient evidence to infer the existence of a contract between the plaintiff and a third party and, second, that the statute of frauds invalidated that contract).

iv

Plaintiffs argue that the terms of the original lease do not automatically apply to the Somerset. We agree. The only document mentioning the Somerset is the substitution agreement. That document contains no lease terms of its own. Although it purports to incorporate by reference "the conditional sale contract (chattel mortgage) in the original amount of $_ dated 10 31 85 19_between said Rodderick Toliver (Buyer) and John Rogin Buick Inc (Dealer),” no conditional sale contract or chattel mortgage exists in the record. The substitution agreement makes no reference to a prior lease agreement. Apparently the dealer reached in its form drawer and pulled out an obsolete form.

Gmac urges this Court to deem the lease agreement the equivalent of a conditional sale or chattel mortgage. We cannot do so. Under Michigan law, leases, conditional sales, and chattel mortgages are separate and distinct transactions.¹ A chattel mortgage is "merely a security, the essentials of which are the existence of a debt, legal liability or obligation, and an intention to secure the same by some form of conveyance” of personal property. 5 Michigan Law & Practice, Chattel Mortgages, § 1, p 251, citing Lynch v Natl Acceptance Co of Chicago, 329 Mich 615; 46 NW2d 403 (1951), and Wasey v Whitcomb, 167 Mich 58; 132 NW 572 (1911). A chattel mortgage is distinct from a conditional sale in that, in the former, the seller has a lien on the property with the right to reclaim, resell it, and sue for the deficiency, and in the latter, the seller may retake the property on default and rescind the sale. 5 Michigan Law & Practice, p 254, citing Flint Furniture Mart v Beckley, 342 Mich 122; 68 NW2d 782 (1955), among other cases. The essential distinction is whether the parties intend the condition relevant to the transfer of title to be precedent (conditional sale) or subsequent (chattel mortgage). 5 Michigan Law & Practice, p 254, citing Burroughs Adding Machine Co v Wieselberg, 230 Mich 15; 203 NW 160 (1925). Both of these transactions are distinct from a lease with an option to purchase.² Where a contract provides that a person receiving certain goods is the lessee of those goods, has an obligation to pay a stipulated rental without obtaining title, and has an option to purchase the property at the end of the lease, the contract may not be deemed one of sale.³ See Hickey v Lundy, 168 Mich 336; 134 NW 4 (1912)._

Accordingly, we decline to deem the terms "conditional sale” and "chattel mortgage” interchangeable with the term "lease.” As a result, the substitution agreement for the Somerset incorporates no lease terms. This analysis strictly construes the plain language of the substitution agreement against gmac, which drafted it.

v

Although there is no signed lease agreement concerning the Somerset, Toliver received it from gmac to replace the Skylark and paid for it monthly. Obviously, there was a voluntary arrangement, and the task remains to determine the factual nature of that arrangement and its legal effect. More precisely, the task is to determine whether a genuine issue of material fact exists regarding the terms or existence of a lease agreement for the Somerset.

A

Depending on the terms of the agreement, gmac’s status as "owner” of the Somerset may be different under the pre-1988 and post-1988 versions of the Vehicle Code. Thus, in order to determine whether any issues of fact are material, we must also determine which owner liability provisions apply in this case although this issue was not addressed by the trial court.

The lease and substitution agreements were executed before the effective date of the 1988 amendments, whereas the automobile collision occurred after the effective date. Michigan courts have followed the general rule that the relevant inquiry in determining the applicability of a statute is the date on which the cause of action arose. See In re Certified Questions, 416 Mich 558, 573; 331 NW2d 456 (1982); Franklin v Ford Motor Co, 197 Mich App 367, 368-369; 495 NW2d 802 (1992). In this case, plaintiffs’ causes of action are not based on the lease or substitution agreements between To-liver and gmac. These agreements did not involve plaintiffs in any way; rather, plaintiffs’ causes of actions are tort claims against the owner of the Somerset for negligent operation of the vehicle. These claims did not arise until the date of the accident on June 5, 1989, after the 1988 amendments took effect. No party obtained any vested rights under the code until that date. Accordingly, the postamendment provisions on owner liability apply in this case.

B

With respect to the nature of the Somerset lease arrangement, the record reveals no evidence of a "meeting of the minds” between Toliver and gmac on all the material facts. Groulx v Carlson, 176 Mich App 484, 491; 440 NW2d 644 (1989). While it might be inferred that the parties intended to follow the terms of the original lease agreement, plaintiffs have claimed and produced evidence that Toliver’s signature on the original lease agreement was forged. Toliver testified that he never signed the agreement because he had bargained for a forty-eight-month lease, not the sixty-month term in the written agreement. The parties never reached agreement on a vital contract provision for owner liability purposes: the term of the lease. Gmac has presented no evidence that a specific term was discussed with Toliver, let alone that one was agreed upon.⁴ Instead, gmac’s arguments focus on the statute of frauds and rely on the content of documents that, as we have concluded, do not in themselves provide any lease terms for the Somerset.

In the absence of an agreement between gmac and Toliver, we must look to the practice of the parties to determine the nature of the lease arrangement. In this case, Toliver received a Somerset registered in gmac’s name and paid gmac on a monthly basis. We therefore infer a month-to-month term, terminable at will by either party on one month’s notice.⁵ Cf. Swart v Western Union Telegraph Co, 142 Mich 21, 23; 105 NW 74 (1905).⁶ This brings the lease within the thirty-day rule of § 401a and makes gmac "owner” of the Somerset for purposes of the owner liability provisions.⁷

Accordingly, the trial court erred in ordering summary disposition for gmac on the basis that it does not qualify as the "owner” of the Somerset under the Vehicle Code.

Reversed.

C. D. Corwin, J., concurred.

1 The enactment of the Uniform Commercial Code has modified much of the law concerning conditional sales, chattel mortgages, and leases. Conditional sales are now governed by Article 9 of the ucc on secured transactions, MCL 440.9101 et seq.; MSA 19.9101 et seq. The same article also governs chattel mortgages and leases intended as security. However, while the ucc may have rendered some of the distinctions between these transactions irrelevant by treating them all as "security interests,” it does not alter the basic definitions of these transactions. Their identities remain separate for terminological purposes.

2 In general, leases are governed by Article 2A of the ucc, MCL 440.2A101 et seq.; MSA 19.2A101 et seq., not Article 9, which governs security interests in the form of chattel mortgages, conditional sales, and leases intended as security interests.

3 Whether a lease is intended as security and therefore governed by Article 9 of the ucc depends on a number of factors outlined in the definition of "security interest” found in § 1-201(37) of the ucc, MCL 440.1201(37); MSA Í9.1201(37). Under this provision, the original lease agreement between Toliver and gmac does not qualify as a lease intended as security and may not be deemed the equivalent of other transactions that qualify as security interests under Article 9 of the ucc, such as conditional sales and chattel mortgages.

4 Gmac’s argument that Toliver ratified the original lease agreement by making payments in accordance with that agreement and exercising his right to substitute applies only as an exception to the application of the statute of frauds, which, as we have concluded, is not at issue here. Ratification makes enforceable agreements that are otherwise void or invalid, whether for fraud, lack of authority, incompetency, or some other reason. See Black’s Law Dictionary (6th ed). Ratification may be express or implied, but an understanding of all the material facts necessary to an intelligent assent is essential. Apfelblat v Nat’l Bank Wyandotte-Taylor, 158 Mich App 258, 262; 404 NW2d 725 (1987).

5 Gmac concedes that, "even if the written five year lease is disregarded, the undisputed facts of record establish that Tolliver [sic] and gmac were, at least, operating under, and fully complying with, an implied agreement for a lease of an indefinite term of less than one year . . . .” (Emphasis added.) Gmac does not state what the exact term of such an implied agreement would be, but we do not believe that the circumstances support a term of "less than one year” unless that term is month to month. While gmac makes this concession only in the event that the written agreement is declared void under the statute of frauds, our holding that there was no "meeting of the minds” upon which to find an agreement at all places us in the like position of determining the nature of the arrangement where no lease agreement exists.

6 The Swart Court held that where the parties to a lease concerning office space agreed to a five-year lease at a certain sum per year, payable monthly, but failed to execute a written lease and to agree upon the lessor’s franking privilege and the office hours, there was no meeting of the minds that would constitute a valid parol lease by which the' rights of the parties could be determined during the occupancy of the space, and the occupancy was under a tenancy at will, terminable upon a month’s notice.

7 While some months have thirty-one days, and § 401a clearly defines "owner” in terms of lease terms that are greater or less than thirty days, we decline to interpret this statutory provision in such a way as to deem gmac the "owner” in February, April, June, September, and November but not in the remaining months. Notwithstanding the plain language of § 401, we are not obliged to apply such language where, as here, it would lead to an absurd result. People v Bewersdorf, 438 Mich 55, 68; 475 NW2d 231 (1991); Wallace v Consolidated Freightways, 199 Mich App 141, 146; 500 NW2d 752 (1993). Because a thirty-one-day month borders on the short lease term contemplated by the Legislature in deeming a lessor of a motor vehicle the "owner” for civil liability purposes, we conclude that a "month-to-month” lease arrangement makes the lessor an "owner” in all months of the year.