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Archive for April, 2015

Business Case Law Update: Personal Guaranty…a “Special Kind of Contract”

April 30, 2015 1 comment

Over the last few years I’ve posted a few articles on Personal Guarantees in a business transaction. I’ve noticed recently people coming across my articles while searching for “enforceability of a personal guarantee” – so this article, and the new case law I just reviewed is timely.

To summarize – 

Yes – a personal guaranty is enforceable

No –  a personal guaranty is not enforceable in EVERY CIRCUMSTANCE.

The case:

Stone Crest Building Co v Chicago Title (Unpublished) Michigan Court of Appeals, No. 319842

I. Facts: 

  • Stone Crest (General Contractor) contracted to build several condo projects.
  • Stone Creek  hired Stock Building (Subcontractor) to provide labor and material to the projects under an Agreement.
  • Stone Creek rain into financial problems, so it couldn’t pay its Subcontractor.
  • Stone Creek entered a new agreement (Note) with Subcontractor which included a Personal Guaranty from its President, Richard Sable.
  • The Personal Guaranty unconditionally and absolutely guaranteed full payment of all sums under the Note ($39,000).
  • Stone Creek breached the agreement and Personal Note.

II. Issue:

  • Stone Crest agreed, the Personal Guaranty was enforceable; but
  • Stone Crest argued that its scope was limited.
  • Chicago Title claimed Stone Crest was not liable for $39,000, but all amounts due under the original Agreement, $9 million dollars! (You can see why this case didn’t settle – being personally liable for $39,000 v.s $9 Million – the two sides were pretty far apart in their settlement numbers)

III. Law: A Personal Guaranty is a “Special Kind” of Contract.

The Court of Appeals explained that Personal Guarantees are like any other contracts, in that “the intent of the parties” is to be reviewed from reading the “whole instrument” citing Comerica Bank v Cohen, 291 Mich App 40, 46 (2010).

However, the Court went on to state that Guarantees are somewhat different than typical Contracts:

“a guaranty contract…is a special kind of contract” and “must be strictly interpreted”. (Emphasis added) citing Bandit Indus, Inc v Hobbs Int’l, Inc 463 Mich 504 (2001).  Further,

a court must approach with caution a claim that the parties have formed a guaranty contract.” Id.

“[A]ssumption of another’s debt is a substantial undertaking, and thus the courts will not assume such an obligation in the absence of a clearly express intention to do so.” Id. (Emphasis added)

The result:

The Court held that the personal guaranty of Stonecrest’s President was ambiguous. There were  two reasonable interpretations of the guaranty. Therefore, the Court reversed the Trial Court decision’s interpretation of the guaranty and sent it back for a trial on that issue.

Lessons to be Learned:

According to the Court of Appeals, Guarantees are “special contracts”  – that will be strictly construed. It is important for business owners to:

1. Understand the consequences of entering a personal guaranty. Here, Stonecrest’s president presumed he was, worst case scenario, putting himself on the hook for $40,000. Because of this ruling, he could be on the hook for $9,000,000. 

2. Understand that your personal guaranty must clear on its face. If not, it is subject to being attached as “ambiguous”.

Questions? Comments?

Email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Grand Rapids Church Lawsuit and Messy Church Property Law

April 24, 2015 Leave a comment

Happy Friday!

I’ve previously posted articles about the messy nature of Church Property Law – who owns the church property in disputes?

You can review a previous article for some of the legal considerations under Michigan law here

Different jurisdictions come out with different rules. Michigan does things a little differently than most of the country.

Today, an article came out about a Grand Rapids church lawsuit that’s gone through the circuit court up to the Court of Appeals, and it looks like it’s going right back to the Circuit Court:

“MI Appeals Ct: Local judge to decide who controls GR church”

Check out the link here.

Messy Church Politics

According to the article, the split in the Grand Rapids baptist church was over a Pastor who allegedly embezzled funds. This caused a split in the congregation, and a transfer of board power that lead to the ultimate question:

who is in control – old church board or new church board?

When a lawsuit was filed, it looks like the Circuit Court wanted to stay out of the fray.

Courts traditionally stay out of issues of “church polity”.

Congregational v Hierarchical

Here, the Court stayed out of the fray, citing that it had no authority to get involved with issues of church polity. The Michigan Court of Appeals  apparently just sent it back in a recent decision.

Although I haven’t read the opinion, I’m guessing the Court of Appeal’s decision had something to do with the fact that the Grand Rapids church at issue was a “congregational” church. In that instance, Michigan law would look to “neutral principles of law” to decide legally who controls the church.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Deutsche Bank’s Subsidiary Pleads Guilty

April 23, 2015 Leave a comment

More news on big banks….

The DOJ entered into a settlement agreement with Deutsche Bank subsidiary – check out the press release here

The headline is: “DEUTSCHE BANK’S LONDON SUBSIDIARY AGREES TO PLEAD GUILTY IN CONNECTION WITH LONG-RUNNING MANIPULATION OF LIBOR”

Yeah, that is pretty bad news…

According to the Press Release: “Deutsche Bank entered into a deferred prosecution agreement today and admitted its role in manipulating LIBOR and participating in a price-fixing conspiracy in violation of the Sherman Act by rigging Yen LIBOR contributions with other banks”

deferred prosecution” =  at the of this, so long as the settlement is abided by, Deutsche Bank isn’t going to have a criminal record.  How you throw a bank in jail for violating a settlement agreement is beyond me…

It appears that the Bank will be paying approx $775 Million in penalties.

In other news: 

The Consumer Financial Protection Bureau, “the agency established by the 2010 overhaul of financial regulations to enforce laws aimed at protecting consumers from unfair or illegal practices by banks, mortgage lenders and other financial services providers”  looks to having its budget restricted some. Check out the article here

By the  numbers:

The measure would cap the agency’s budget at $655 million in 2020 and $720 million in 2025. This year’s budget is $582 million.”

That’s a lot of money spent on holding banks accountable.

Question:

Is it working? 

If the DOJ keeps assessing large fines and slapping banks with criminal records, maybe…

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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Social Entrepreneurship at its finest: Cascade Engineering.

April 20, 2015 Leave a comment

The Governor’s Office last week posted an article on its “reinvention blog” highlighting a company doing amazing work in West Michigan and around the globe: Cascade Engineering.

According to the State’s Blog Post: “When Fred Keller founded Cascade Engineering in 1973, he was focused not only on building a successful company but also on creating a great place for people to work.”

– Signs of a great visionary and social entrepreneur.

“Keller’s one of a kind program called “Welfare to Career,” in partnership with the state of Michigan, aims to knock down barriers that keep his employees from succeeding.” Check out the article here.

Eradicating Employment Barriers…

Cascade Engineering has always been at the forefront of eradicating barriers to employment. The story of Ms. Valderas, a single mother with small children, and how Cascade Engineering provided her the support and opportunities she needed to succeed is a great testimony of how Cascade Engineering values its workers at a fundamental level.

Cascade Engineering was also in the news today – two of its employees won national awards in manufacturing.

Cascade Engineering and the legacy that Fred Keller has created is certainly living up to its B-Corp designation.

B-Corp Designation

Cascade Engineering maintains a B-Corp Designation. Check out the link for more information on B-Corps.

27 states (excluding Michigan) allow for the formation of “B-Corporations”  Essentially, B-Corps have two purposes:

1..to create profit and

2.  “create a material positive impact on society and the environment”

B-Corps also Impose heightened fiduciary duties on their board of directors – to  consider social/environmental consequences for board decisions.

Not in Michigan…

Bills that would authorize the formation of B-Corps have been proposed, but never enacted.

The closest business entities that exist under Michigan are Low-profit Limited Liability Companies (L3Cs) – the legislature authorized the formation of these “hybrid” business entities in 2009.  L3Cs are formed fundamentally for a charitable/socially beneficial purpose, but unlike non-profit corporations, members can own equity in these L3Cs.
L3Cs – Viable Tools for Social Entrepreneurs…

I’ve said this before- L3Cs are a viable tool for social entrepreneurs – they tell the whole world that your company exists, fundamentally to do good.   Same can be said for “B-Corps”.

To those at Cascade Engineering – keep up the good work!

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Update on Michigan Intrastate Equity Crowdfunding (MILE Act)

April 15, 2015 Leave a comment

A quick update on Michigan’s MILE Act – Intrastate Equity Crowdfunding….

I have written about previously that the State of Michigan has been slow to propose and implement rules to provide guidance on the practical application of Intrastate Crowdfunding.

Today, Michigan’s Department of Licensing and Regulatory Affairs (LARA) issued a posting on its website: “LARA Offers Tips on Intrastate Equity Crowdfunding; 2013 PA 264 streamlines process for Michigan investors to invest in Michigan’s small businesses” check out the press release here

The posting acknowledges the advantages of this new legislation, indicating that it allows local Michigan businesses  “to sell an interest in its business to non-accredited investors without having to register these interests as securities. The new law provides a streamlined procedure to allow Michigan investors to invest in Michigan small businesses; in turn, allowing these businesses to raise capital.

However, the posting doesn’t so much seem to provide any additional guidance, but merely caution to prospective investors and issuers.

Small businesses must be aware of the requirements for qualifying for the exemption from registration so they don’t run afoul of federal and state securities laws.

LARA’s posting seems to point to the fact that Michigan and the Federal government are waiting for clarity.

As the post goes on to state:

“The Jumpstart Our Business Startups Act of 2012 (JOBS Act) requires the SEC to promulgate rules on crowdfunding. The SEC published its proposed rules on October 23, 2013 for public comment, but have not yet been finalized.”

Looks like to some degree we are all waiting on the SEC for guidance….

News in Local Crowdfunding…

Local West Michigan Investment Company Loquidity‘s CEO Jesse Clem will be speaking on Crowdfunding: “Community Impact Investing” here

It’s great to see local Social Entrepreneurs at work!

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Michigan Business Update for Social Entrepreneurs and Business Owners

April 13, 2015 Leave a comment

Happy Monday, all!

A quick update – I recently posted on social entrepreneurship and crowdfunding in Michigan. Check that post here. By way of update, Today, the Michigan Economic Development Corporation (MEDC) posted a press release  about a crowdfunding campaign launched by a Ypsilanti non-profit –  “Cultivate Coffee and Tap House.”  As I’ve mentioned in a prior post, the MEDC has a matching grant program “Public Spaces Community Places Initiative”  to match local crowdfunding projects.

According to the press release:

“Cultivate Coffee & Tap House is a non-profit in Depot Town, Ypsilanti that provides sustainable solutions for hunger relief through local and global gardening programs. Cultivate is in the process of renovating a half acre of land into an outdoor gathering space and community garden with a 2,100 square-foot coffee and tap house.”

This is a great example of social entrepreneurship utilizing crowdfunding to “do good” in a local community. Although it hasn’t been widely implemented yet, I believe Michigan’s MILE Act will be useful for social entrepreneurs to begin equity crowdfunding. Only time will tell.

In other news…

I’ve previously posted on new Michigan laws aimed at removing employment barriers. See prior post here

The Michigan Small Business Association has put together a nice article summarizing the three new Michigan Bills intending to reducing employment barriers for felons. Business owners may want to get familiar with these laws.

questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com