Trillium Cyber Inc v. Canbushack 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
TRILLIUM CYBER, INC., UNPUBLISHED
April 23, 2020
Plaintiff/Counterdefendant-Appellant,
v No. 345494
Oakland Circuit Court
CANBUSHACK, INC., and ROBERT LEALE, LC No. 2017-161732-CB
Defendants/Counterplaintiffs-
Appellees.
Before: GADOLA, P.J., and STEPHENS and SHAPIRO, JJ.
PER CURIAM.
In July 2017, the parties entered into an agreement for plaintiff to purchase the assets of
defendant CanBusHack, Inc. (“CBH”), whose chief executive officer is defendant Robert Leale.
When plaintiff failed to pay CBH the agreed amount on the specified effective date, or within two
weeks thereafter, defendants rescinded the agreement. Plaintiff subsequently filed this action to
enforce the agreement. After the parties filed cross-motions for summary disposition, the trial
court denied plaintiff’s motion and granted defendants’ motion pursuant to MCR 2.116(C)(10).
Plaintiff appeals as of right. We affirm.
Plaintiff and defendants entered into an Asset Purchase Agreement with a stated effective
date of July 26, 2017. Leale also signed an agreement to act as a consultant for plaintiff (“the
Consulting Agreement”), which was incorporated into the Asset Purchase Agreement. Paragraph
3 of the Asset Purchase Agreement states:
3. Payment. On the Effective Date, [Plaintiff] will submit to CBH by wire
transfer the sum of twenty-two thousand United States dollars (USD22,000).
At the time the agreement was executed, Leale was in Las Vegas, Nevada, organizing a conference
for CBH. It is undisputed that plaintiff did not make the required payment on the specified
effective date of the Asset Purchase Agreement. On July 30, 2017, Kenneth McDonnell, the chief
operating officer of plaintiff’s parent company, informed Leale that he needed to open a bank
account in the United States to enable plaintiff to make the $22,000 payment, which he intended
to do on “Tuesday,” August 1, 2017. Leale simply responded, “Great.” When payment still had
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not been received by August 9, 2017, defendants notified plaintiff that they were rescinding the
agreement. Plaintiff later filed this action to enforce the agreement.
After the parties filed cross-motions for summary disposition, the trial court denied
plaintiff’s motion and granted defendants’ motion. The trial court ruled that “[p]laintiff’s
obligation to pay the purchase price is a substantial term . . . of the Purchase Agreement” and that
“[p]laintiff’s failure to pay the purchase price when required is a material failure of
performance . . . and acts as a bar to Plaintiff’s lawsuit for any alleged Defendant non-
performance.”
I. SUBSTANTIAL BREACH
Plaintiff argues that the trial court erred by granting summary disposition for defendants
on the ground that plaintiff’s failure to make the required $22,000 payment as specified in the
Asset Purchase Agreement was a substantial breach of the agreement that precluded it from
enforcing the agreement. We disagree.
The trial court granted defendants’ motion for summary disposition under MCR
2.116(C)(10). 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). 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).
A party claiming breach of contract must prove by a preponderance of the evidence that
(1) there was a contract, (2) the other party breached the contract, and (3) damages resulted to the
party claiming a breach. Miller-Davis Co v Ahrens Constr, Inc, 495 Mich. 161, 178; 848 NW2d
95 (2014). A party who first breaches a contract cannot maintain an action against the other party
for his subsequent breach or failure to perform. Michaels v Amway Corp, 206 Mich. App. 644, 650;
522 NW2d 703 (1994). This rule only applies when the initial breach is substantial. Id.
Whether a breach is substantial depends on “whether the nonbreaching party obtained the
benefit which he or she reasonably expected to receive.” Able Demolition, Inc v City of Pontiac,
275 Mich. App. 577, 585; 739 NW2d 696 (2007) (citation omitted). A substantial breach is one
that “effect[s] such a change in essential operative elements of the contract that further
performance by the other party is thereby rendered ineffective or impossible, such as the causing
of a complete failure of consideration or the prevention of further performance by the other party.”
McCarty v Mercury Metalcraft Co, 372 Mich. 567, 574; 127 NW2d 340 (1964) (citations omitted).
“[R]escission is permissible when there is failure to perform a substantial part of the
contract or one of its essential items, or where ‘the contract would not have been made if default
in that particular had been expected or contemplated.’ ” Adell Broadcasting Corp v Apex Media
Sales, Inc, 269 Mich. App. 6, 13-14; 708 NW2d 778 (2005).
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This Court reviews de novo, as a question of law, the proper interpretation of a contract.
Innovation Ventures v Liquid Mfg, 499 Mich. 491, 507; 885 NW2d 861 (2016).
“Absent an ambiguity or internal inconsistency, contractual interpretation begins
and ends with the actual words of a written agreement.” Universal Underwriters
Ins Co v Kneeland, 464 Mich. 491, 496; 628 NW2d 491 (2001). When interpreting
a contract, our primary obligation “is to give effect to the parties’ intention at the
time they entered into the contract.” Miller-Davis Co, 495 Mich. at 174. To do so,
we examine “the language of the contract according to its plain and ordinary
meaning.” Id. “If the contractual language is unambiguous, courts must interpret
and enforce the contract as written . . . .” In re Egbert R Smith Trust, 480 Mich. 19,
24; 745 NW2d 754 (2008). [Innovation Ventures, 499 Mich. at 507.]
If the contractual language is unambiguous and reasonable minds could not differ concerning the
application of the terms or conditions to undisputed material facts, summary disposition should be
granted to the proper party. Alpha Capital Mgt, Inc v Rentenbach, 287 Mich. App. 589, 612; 792
NW2d 344 (2010).
The Asset Purchase Agreement provides, in pertinent part:
This Asset Purchase Agreement (“Agreement”) is effective as of July 26,
2017 (“Effective Date”), and is made by and between CanBusHack, Inc., a
Michigan corporation, . . . and Trillium Cyber, Inc., a Delaware corporation, . . . .
The agreement further requires that “[o]n the Effective Date, [plaintiff] will submit to CBH by
wire transfer the sum of twenty-two thousand United States dollars (USD22,000).” It is undisputed
that the specified $22,000 payment was not made on the agreement’s effective date, or at any time
before defendants rescinded the agreement more than two weeks later. The parties’ agreement is
not ambiguous with regard to when payment was due.
Despite the clear and unambiguous language of § 3 of the Asset Purchase Agreement,
plaintiff argues that the timing of the specified payment was not crucial. However, it is also
undisputed that plaintiff had not established a bank account in this country to enable it to wire the
money to CBH before defendants rescinded the agreement. Even if plaintiff’s failure to pay the
specified $22,000 amount on the stated effective date is not considered a substantial breach, there
is no genuine issue of material fact that plaintiff substantially breached the agreement by failing to
make any effort to make the specified payment for at least two weeks after the agreement’s stated
effective date. While plaintiff indicated that it would follow through with payment days after the
agreement was signed, there was no progress toward making that payment. Defendants waited
more than two weeks for plaintiff to make the necessary arrangements to make the required
payment, but no payment was made.
Under the Asset Purchase Agreement, plaintiff’s performance consisted primarily of
paying for the assets it was acquiring from CBH. More than two weeks had passed since the
payment was due before defendants opted to rescind the agreement. The agreement also required
that CBH, within 30 days of the effective date of the agreement, either dissolve or “remove
CanBusHack and any derivations thereof from its name.” Given that CBH had a limited period in
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which it was obligated to perform, the trial court did not err by finding that plaintiff’s failure to
make the required payment on the specified effective date, or at any point in the following two
weeks, qualified as a substantial breach of the parties’ agreement. Because plaintiff substantially
breached the agreement, it was not entitled to maintain this action against defendants for breach of
contract and defendants were entitled to rescind the contract. Adell Broadcasting, 269 Mich. App.
at 13-14; Michaels, 206 Mich. App. at 650. Accordingly, the trial court did not err by granting
defendants’ motion on the basis that plaintiff substantially breached the parties’ agreement by
failing to make the required payment.
II. FRUSTRATION OF PERFORMANCE
Plaintiff argues that it should not be prohibited from maintaining this action for breach of
contract because defendants did not provide the necessary banking information to enable plaintiff
to complete the wire transfer, thereby frustrating or preventing plaintiff from satisfying its
performance obligation under the Asset Purchase Agreement. We disagree.
In Kiff Contractors, Inc v Beeman, 10 Mich. App. 207, 210; 159 NW2d 144 (1968), this
Court stated:
The general rule is that a party to a contract cannot prevent, or render
impossible, performance by the other party and still recover damages for
nonperformance. See 17A, CJS, Contracts § 468, at pp 638-642; and 5 Williston
on Contracts (3d ed) § 677, p 224. In Barton v Gray (1885), 57 Mich. 622, 636, the
Supreme Court cited a long line of venerable precedents in support of the principle
that “no one who causes or sanctions the breach of an agreement can recover
damages for its non-performance.”
The Asset Purchase Agreement required plaintiff to make the specified $22,000 payment
by wire transfer. Leale acknowledged that he did not provide anyone associated with plaintiff a
bank account number or routing number for the wire transfer to be made. However, nothing in the
parties’ agreement required defendants to act to assist plaintiff in meeting its payment obligation.
Moreover, plaintiff did not present any evidence that it requested CBH’s banking information to
enable it to make the required payment, or that defendants refused to provide that information.
Indeed, it is undisputed that plaintiff was not prepared to make the specified wire transfer because
it had not yet set up a bank account in this country to enable it to make the transfer.
Plaintiff argues that defendants had an obligation to provide the necessary banking
information as a condition precedent to plaintiff’s performance obligation to wire transfer the
$22,000 amount. A condition precedent “is a fact or event that the parties intend must take place
before there is a right to performance.” Able Demolition, 275 Mich. App. at 583 (citations omitted).
“Failure to satisfy a condition precedent prevents a cause of action for failure of performance.” Id.
(citation omitted).
Plaintiff failed to show that it was defendants who prevented it from performing its
obligation to pay the $22,000 by wire transfer. Even if it can be implied that defendant would
have to provide plaintiff with the necessary information to permit plaintiff to make a wire transfer,
plaintiff did not submit any evidence that it requested this information and defendant refused to
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provide it. Rather, the record indicates that plaintiff was not in a position to make a wire transfer
because it did not have a bank account set up to make the transfer. There is no basis for a jury to
find that defendants either were obligated to act before plaintiff could transfer the money, or that
plaintiff was ready to perform as specified in the parties’ agreement, but were hindered from doing
so by defendants. Accordingly, the trial court did not err by rejecting plaintiff’s argument that it
should be excused from its nonperformance because defendants prevented that performance.
III. MODIFICATION OR WAIVER
Plaintiff also argues that the trial court erred by rejecting its argument that the parties
waived or modified plaintiff’s performance obligation under the Asset Purchase Agreement. We
disagree. The trial court rejected this argument because the Asset Purchase Agreement provided,
in pertinent part:
(a) This Agreement constitutes the entire agreement between the parties
hereto with respect to the transactions contemplated herein. The parties hereto
expressly agree that this Agreement supersedes and rescinds any prior written
agreement between them pertaining to the sale of the Assets. This Agreement may
not be amended, modified or discharged orally or otherwise than in writing
executed by the Seller and Buyer.
* * *
(e) No amendment or waiver of any provision of this Agreement shall be
binding on either party unless consented to in writing by such party. No waiver of
any provision of this Agreement will constitute a waiver of any other provision, nor
shall any waiver constitute a continuing waiver unless otherwise provided.
In Quality Prod & Concepts Co v Nagel Precision, Inc, 469 Mich. 362, 364-365; 666 NW2d
251 (2003), the Court explained:
[P]arties to a contract are free to mutually waive or modify their contract
notwithstanding a written modification or anti-waiver clause because of the
freedom to contract. However, with or without restrictive amendment clauses, the
principle of freedom to contract does not permit a party unilaterally to alter the
original contract. Accordingly, mutuality is the centerpiece to waiving or
modifying a contract, just as mutuality is the centerpiece to forming any contract.
This mutuality requirement is satisfied where a waiver or modification is
established through clear and convincing evidence of a written agreement, oral
agreement, or affirmative conduct establishing mutual agreement to modify or
waive the particular original contract. In cases where a party relies on a course of
conduct to establish waiver or modification, the law of waiver directs our inquiry
and the significance of written modification and anti-waiver provisions regarding
the parties’ intent is increased. [Emphasis in original.]
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As explained in Quality Prod, 469 Mich. at 374-375, when a party relies on a course of
conduct to demonstrate modification of an agreement containing an antiwaiver clause, rather than
an express agreement, there must be clear and convincing evidence of a waiver:
As we have stated in other contexts, a waiver is a voluntary and intentional
abandonment of a known right. Roberts v Mecosta Co Hosp, 466 Mich. 57, 64 n 4;
642 NW2d 663 (2002); People v Carines, 460 Mich. 750, 762 n 7; 597 NW2d 130
(1999). This waiver principle is analytically relevant to a case in which a course of
conduct is asserted as a basis for amendment of an existing contract because it
supports the mutuality requirement. Stated otherwise, when a course of conduct
establishes by clear and convincing evidence that a contracting party, relying on the
terms of the prior contract, knowingly waived enforcement of those terms, the
requirement of mutual agreement has been satisfied.
Further, whereas an original contract’s written modification or anti-waiver
clauses do not serve as barriers to subsequent modification by express mutual
agreement, the significance of such clauses regarding the parties’ intent to amend
is heightened where a party relies on a course of conduct to establish modification.
This is because such restrictive amendment clauses are an express mutual statement
regarding the parties’ expectations regarding amendments.
Accordingly, in assessing the intent of the parties where the intent to modify
is not express, such restrictive amendment provisions are not necessarily
dispositive, but are highly relevant in assessing a claim of amendment by course of
conduct. Any clear and convincing evidence of conduct must overcome not only
the substantive portions of the previous contract allegedly amended, but also the
parties’ express statements regarding their own ground rules for modification or
waiver as reflected in any restrictive amendment clauses.
Mere silence is not proof of a waiver. As explained in Quality Prod, 469 Mich. at 379,
silence only establishes forfeiture, not a waiver:
This is not to say that waiver requires an oral or written expression of
amendment. It is well settled that a course of affirmative conduct, particularly
coupled with oral or written representations, can amount to waiver. Minkus v
Sarge, 348 Mich. 415, 421-422; 83 NW2d 310 (1957) (holding that an oral request
and statement that the request was an “extra” to the contract, coupled with the fact
that the disputed matters were “matters of frequent conversation” between the
plaintiff and the defendant, was inconsistent with a claim that there was no waiver).
However, we note that waiver and forfeiture are related, but distinct, concepts.
Roberts, supra. While waiver requires an intentional and voluntary relinquishment
of a known right, a forfeiture is the failure to assert a right in a timely fashion. Id.
at 69. In the present case, plaintiff’s alleged facts amount only to forfeiture, which
is insufficient to establish clear and convincing evidence of a mutual assent to
modify or waive an express contract as a matter of law.
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Plaintiff argues that the parties mutually agreed to modify the terms of their agreement
with respect to when payment was due. In support of this argument, plaintiff relies on the
following text-message exchange between McDonnell and Leale on July 30, 2017:
[McDonnell:] I am working on the process to pay your $22K and $12K.
To do so, we need to open a bank account for Trillium Cyber, Inc. I will commence
that when I land in CA on Tuesday.
[Leale:] Great.
July 30, 2017, was a Sunday. Therefore, the following Tuesday would have been August
1, 2017. To the extent that this exchange establishes a question of fact whether there was a mutual
modification of the parties’ agreement to extend the time when payment was due, it does not
support a finding that the payment period was extended to August 9, when defendants rescinded
the agreement. Leale’s response cannot be construed as demonstrating his assent to extending the
payment date indefinitely. Rather, Leale’s response of “Great” must be understood in the context
of McDonnell’s message, which referred to “Tuesday” as the date when McDonnell intended to
open a bank account, enabling plaintiff to pay the $22,000. The following Tuesday would have
been August 1. Thus, Leale’s response cannot be construed as demonstrating his mutual assent to
an extension period beyond that date. Plaintiffs still had not opened a bank account or made the
required payment more than a week later, by August 9, 2017, when defendants elected to rescind
the agreement. Thus, even if defendants agreed to some modification of the time for plaintiff’s
performance, there is no genuine issue of material fact that plaintiff did not meet any revised
deadline on which the parties may have mutually agreed.
Plaintiff alternatively argues that defendants waived any breach with regard to timely
payment. However, plaintiff does not offer any additional evidence in support of this argument,
but rather again relies on Leale’s alleged concurrence in McDonnel’s July 30 text message. The
text exchange does not demonstrate by clear and convincing evidence that the parties mutually
agreed to waive plaintiff’s obligation to timely make the $22,000 payment required under the terms
of the Asset Purchase Agreement. Leale’s response to McDonnell’s text message at most
expressed his satisfaction that plaintiff would establish a bank account on August 1st to facilitate
the required $22,000 payment, a promise that plaintiff never fulfilled.
Plaintiff also argues that there were other issues that needed to be resolved before it could
make the specified payment to defendants. Despite the $22,000 payment amount clearly specified
in the Asset Purchase Agreement, plaintiff contends that the parties agreed that this amount would
be adjusted by certain setoffs based on revenue from the Las Vegas conference, which was in
progress when the Asset Purchase Agreement was signed. This argument also lacks merit.
The Asset Purchase Agreement clearly and unambiguously specifies a payment amount of
$22,000, and does not contain any provision allowing for any setoffs or other adjustments to that
amount. Further, there is no evidence that the parties mutually agreed to modify the $22,000
payment amount specified in the Asset Purchase Agreement. Plaintiff relies on an affidavit from
McDonnell to support its position that, at the closing, the parties agreed “to offset profits owed by
Mr. Leale to Trillium on . . . product sales against the $22,000 purchase price.” However, plaintiff
did not produce any evidence that defendants consented in writing to any such change to the Asset
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Purchase Agreement. Moreover, in McDonnell’s July 30 text message to Leale, he referenced the
specified $22,000 payment amount without mentioning any adjustments to be made to that figure.
McDonnell’s unsupported affidavit does not constitute clear and convincing evidence that the
parties mutually agreed to (1) modify the $22,000 payment amount specified in the Asset Purchase
Agreement, and (2) delay plaintiff’s payment obligation under the Asset Purchase Agreement until
the profits from the Las Vegas convention could be calculated. To the extent that the parties may
have had a separate agreement for plaintiff to share in the revenue from the Las Vegas convention,
plaintiff’s remedy would have been to seek repayment from CBH pursuant to that separate
agreement.
In sum, the trial court did not err by finding that plaintiff failed to establish a genuine issue
of material fact to support its argument that the parties mutually waived or modified plaintiff’s
payment obligation under the Asset Purchase Agreement, and thereby relieved plaintiff of its
performance obligation before defendants rescinded the agreement. For these reasons, the trial
court did not err by granting defendants’ motion for summary disposition pursuant to MCR
2.116(C)(10). Therefore, it is unnecessary to consider defendant’s alternative ground for
affirmance under MCR 2.116(C)(5), on the basis that plaintiff lacked the legal capacity to bring
this action because it was not a duly organized corporation at the time the Asset Purchase
Agreement was executed.
Affirmed.
/s/ Michael F. Gadola
/s/ Cynthia Diane Stephens
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