A Default Is A Default, No Matter The Size?

In an 11 page opinion issued January 30, 2015 in the TPOP bankruptcy (13-11831), Judge Shannon held that GM did not lose the ability to enforce its contracted right to repayment just because the default was "immaterial" according to the Debtor. The Opinion is available here.

Background

The Debtor, Metavation (the case name was later changed to TPOP), borrowed a significant sum of money from GM under a Sale Support Agreement ("SSA") that provided for GM to forego repayment of the loan if the Debtor complied with the obligations under the SSA. Opinion at *2.

As is clear from the issuance of this opinion, the Debtor defaulted and GM sued for payment of its loan, which was secured by valid properly perfected first priority liens on all of TPOP's assets and proceeds. Opinion at *4. The Debtor argued that it complied with all material obligations of the SSA, and because its defaults were minor and did not cause GM any damages, GM should not be entitled to repayment.

The Opinion

Judge Shannon cited to Rory v. Continental Ins. Co., 703 N.W.2d 23 (Mich. 2005) for the principle that "the judiciary is without authority to modify unambiguous contracts or rebalance the contractual equities struck by the contracting parties because fundamental principles of contract law preclude such subjective post hoc judicial determinations of 'reasonableness'..." Opinion at *5. Judge Shannon then inserted the entire disputed contract provision, holding that it was not ambiguous, and he was therefore unable...