City of Detroit v. Mistele Co. , 146 Mich. App. 145 ( 1985 )

Per Curiam:.

Defendant Mistele Company operated a business on property condemned by the city as part of the Central Industrial Park Project. This case proceeded to trial for a determination of the just compensation which the city owed the defendant for the condemnation of the land. The jury returned a verdict in favor of Mistele Company in the amount of $5.2 million. Mistele also had other claims against the city. In an attempt to settle all these disputes, the city and Mistele entered into negotiations, which lasted at least three months. The result of these negotiations was a stipulation and settlement agreement which stated in part:

"Within thirty (30) days of March 15, 1983, the City shall turn over to the attorney for Mistele the amount of Four Million Two Hundred Thousand ($4,200,000.00) Dollars. This payment shall be in addition to the sums already paid to Mistele by the City in the condemnation proceeding. If payment is not made within thirty (30) days of March 15, 1983, interest shall be calculated upon and added to said sum at the statutory rate from March 15, 1983, through the date of payment.”

The city tendered payment of $4,198,783.24 exactly one day late on April 15, 1983. The city deducted $1,216.76 from the amount stated in the stipulation because it claimed that Mistele was liable for delinquent taxes. Mistele then brought a motion to enforce the stipulation agreement claiming that the city improperly deducted the alleged deficiency for delinquent taxes and that it should receive interest calculated upon and added to the total amount due at the statutory rate from March 15, 1983, since the city was late in paying it. This amount was approximately $57,000. The city however claimed that it was only liable for one day’s interest since it was only one day late in payment. This amount would only be $1,841. The trial court determined that the city improperly deducted the alleged delinquent taxes from the $4,200,000 payment. The court also found that the city was late in payment, but that the interest provision in the stipulation agreement was a penalty provision and, therefore, the trial court only granted one day’s interest. Mistele appeals as of right, claiming that the lower court erred in not enforcing the stipulation agreement.

On appeal, the city claims that Guardian Detroit Bank v Peckham, 261 Mich 52; 245 NW 567 (1932), is directly on point. In that case, the plaintiff bank loaned $1,500 to the defendants for a period of 60 days. The parties agreed, however, that if the $1,500 was not paid within 60 days, the defendants would pay an additional $1,000 to the plaintiffs. The defendants were six days late in paying the $1,500 and the bank refused their tender and sued for $2,500. The Supreme Court found that it would be inequitable to enforce the $1,000 penalty for late payment. The instant case, however, is distinguishable. Mistele Company did not loan the city $4,200,000 for a period of 30 days. The city’s liability to Mistele arose out of the condemnation of Mistele’s land, which occurred long before the stipulation agreement was entered. This case, therefore, does not involve a normal debt situation. Flanders v Chamberlain, 24 Mich 305, 315 (1872), is therefore applicable. At the time the parties entered into the stipulation agreement, Mistele had a judgment against the city in the amount of $5,200,000 and could have demanded interest on that judgment. MCL 213.65; MSA 8.265(15). As in Flanders, the city and Mistele were not obligated to enter into the stipulation agreement and were free to negotiate over its terms. The city and Mistele in fact negotiated for at least three months over the terms of this stipulation agreement. Considering the fact that the city could have been liable for almost two years’ interest on a larger amount, we are unable to say that 31 days’ interest on the amount stipulated to is a penalty. The trial court erred in failing to consider the circumstances surrounding the stipulation agreement. When these circumstances are considered it becomes clear that the interest provision in the stipulation is not a penalty to the city but in fact substantially limits the city’s liability for interest. The lower court, therefore, incorrectly awarded Mistele $1,814 in interest. We therefore reverse and remand this case. On remand, the lower court shall award Mistele interest for 31 days as provided for in the stipulation agreement.

Reversed and remanded.