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Michigan Supreme Court Lansing, Michigan 48909 ____________________________________________________________________________________________
C hief Justice Justices

Maura D. Cor rigan

Opinion
UNIVERSAL UNDERWRITERS INSURANCE
COMPANY, as Subrogee of Betten
Toyota and BETTEN TOYOTA,
Plaintiffs-Appellees,
v NANCY KNEELAND,
Defendant-Appellant.
____________________________________ BEFORE THE ENTIRE BENCH
CORRIGAN, C.J.


Michael F. Cavanagh Elizabeth A. Weaver Marilyn Kelly Clifford W. Taylor Robert P. Young, Jr. Stephen J. Markman

____________________________________________________________________________________________________________________________

FILED JULY 3, 2001


No.

114900


We granted leave to determine whether a contractual
provision that assigned "all responsibility for damages" to
defendant while she rented a vehicle contravenes our no-fault
act, MCL 500.3101 et seq., and thereby voids the parties'
contract. We hold that the no-fault act does not prevent


contracting parties from voluntarily allocating liability for
collision damage to a rented vehicle. judgment of the Court of Appeals.
I. Underlying facts and procedural history
While repairing defendant's vehicle, plaintiff Betten
Toyota loaned her a vehicle. Defendant and a Betten employee
We thus affirm the


signed a "courtesy car agreement" that stated:
2. Renter agrees to replace gasoline used.
3. Renter agrees to pay cash for rental charge.
4. Renter agrees to assume all responsibility
for damages while vehicle is in his possession.
5. Renter agrees not to sublet or loan the car
to anyone. [Emphasis added.]
While driving the rented vehicle, plaintiff was involved
in an accident. Total collision damages amounted to


$3,738.49.

Betten Toyota absorbed $1,000 as a deductible;


plaintiff Universal Underwriters Insurance Company, Betten's
insurer, paid the remainder.
Betten and Universal sought recovery from defendant, but
she refused to pay. Plaintiffs then commenced this action
Universal


alleging breach of the courtesy car agreement.

seeks recovery as Betten's subrogee of the $2,738.49 it paid
to repair the rented vehicle; Betten demands payment of the
$1,000 deductible.
Plaintiffs moved for summary disposition under MCR


2


2.116(C)(10), arguing that no genuine issue of material fact
existed district regarding court defendant's contractual summary liability. disposition The
for


instead

granted

defendant under MCR 2.116(I)(2).1 It relied on an unpublished
Court of Appeals opinion to conclude that the no-fault act
does not allow contractual allocation of liability for


collision damages. unpublished opinion

Universal Underwriters Ins Co v Stout,
per curiam, issued February 2, 1996


(Docket No. 171069).

The circuit court affirmed.


The Court of Appeals reversed and remanded for entry of
a judgment in plaintiffs' favor unless the district court
"determines that defendant has defenses that have not yet been
addressed, in which case the court shall conduct proceedings
consistent with" the Court of Appeals opinion. 646, 662; 599 NW2d 519 (1999). 235 Mich App


It noted that while the no

fault act abrogated tort liability arising from the ownership,
maintenance, or use of a motor vehicle (except in certain
circumstances),2 it did not abolish contractual liability.
See Kinnunen v Bohlinger, 128 Mich App 635, 638; 341 NW2d 167
(1983); Nat'l Ben Franklin Ins Co v Bakhaus Contractors, Inc,
124 Mich App 510, 513; 335 NW2d 70 (1983).


The rule provides: "If it appears that the opposing
party, rather than the moving party, is entitled to judgment,
the court may render judgment in favor of the opposing party."

2

1

MCL 500.3135(2).
3

The

Court

of

Appeals

distinguished

this

Court's


peremptory order in Universal Underwriters Ins Co v Vallejo,
436 Mich 873; 461 NW2d 364 (1989). Vallejo held that the


defendant-renter was entitled to summary disposition on the
insurer's claim for collision damages to a rented vehicle:
Although the trial court gave the plaintiff
insurer numerous opportunities to explain, with
specific factual allegations, how its conclusory
allegation of an express or implied contract of
bailment differentiated this case from any other
situation in which a permissive user of a car is
involved in a collision and therefore cannot return
the car to its owner in an undamaged condition, the
plaintiff repeatedly failed to do so. Under these
circumstances, the trial court correctly granted
the defendant's motion for summary disposition. By
operation of the pertinent insurance statutes,
e.g., MCL 257.520(b)(2); MSA 9.2220(b)(2) and MCL
500.3009; MSA 24.13009, the defendant appears to
have been insured by the plaintiff against the very
loss at issue in this case, since a standard
automobile policy typically insures such a
permissive driver "against loss from the liability
imposed by law for damages arising out of the
ownership, maintenance or use of" a motor vehicle.
[Id.]
The Court of Appeals noted that, while the plaintiff in
Vallejo relied on a common-law bailment theory, plaintiff here
seeks recovery under the express terms of a written agreement.
The Court did not read Vallejo "as a blanket rejection of all
contract claims seeking to hold a permissive user responsible
for damage to a borrowed vehicle. Rather, we understand the


order as rejecting the insurer's effort to convert a simple,
permissive-user, tort liability case into a contract case by


4


alleging an express or implied contract of bailment, without
providing specific factual allegations that would support such
a distinction." Kneeland, supra at 659. The Court reasoned


that Vallejo suggested the possibility of a different result
where there is proof of an express contract.
II. Standard of Review
We review de novo a grant of summary disposition under
MCR 2.116(C)(10). Smith v Globe Life Ins Co, 460 Mich 446,
The issue under review is a question


454; 597 NW2d 28 (1999).

of law, i.e., whether the no-fault act prevents contractual
assignment of liability for collision damages. questions of law de novo. We review


Cardinal Mooney High School v


Michigan High School Athletic Ass'n, 437 Mich 75, 80; 467 NW2d
21 (1991).
III. Contractual Interpretation
Before deciding whether the courtesy car agreement


contravenes public policy, we must determine what the contract
says. Absent an ambiguity or internal inconsistency,


contractual interpretation begins and ends with the actual
words of a written agreement. Henderson v State Farm Fire &
A


Casualty Co, 460 Mich 348, 354; 596 NW2d 190 (1999).

contract is ambiguous if its provisions may reasonably be
understood in different ways. Farm Bureau Ins Co v Nikkel,


460 Mich 558, 566; 596 NW2d 915 (1999).


5


The states:

fourth "Renter

provision agrees to

of

the

courtesy all

car

agreement
for


assume

responsibility

damages while vehicle is in his possession." clearly unclear, imposes liability on defendant. the extent The of

This language
contract shift is
of


however,

regarding

the

liability.

The provision refers to "damages," but does not


explicate precisely the categories of damages that defendant
has agreed to pay.
The general term "damages" could refer to any harm caused
to a third party's person or property, i.e., it could reach
damages for which no-fault insurance coverage is mandatory.
See, e.g., MCL 500.3107, 500.3121. A shift of liability to


that extent might contravene the no-fault act. Cf. State Farm
v Enterprise Leasing, 452 Mich 25, 36; 549 NW2d 345 (1996).3
Another reasonable interpretation of the contract is
available, however. Black's Law Dictionary (6th ed) defines


"damages" as "[a] pecuniary compensation or indemnity, which
may be recovered in the courts by any person who has suffered
a loss, detriment, or injury, whether to his person, property,
or rights . . . ." The parties may reasonably have intended


We express no view regarding whether State Farm would
control the legality of the contract here. This agreement and
the one addressed in State Farm are arguably different in
scope and effect. We merely observe that an argument is
available that the parties' agreement, if it reaches beyond
optional collision damages, is illegal.
6


3

to limit the meaning of the word "damages" to losses for which
a legal right of recovery is available.
An ambiguity arises also because the contract shifts
liability for damages "while [the] vehicle is in [defendant's]
possession." Damages to the vehicle itself are likely to


occur while the renter possesses the vehicle. But other types
of damages, including wage loss and medical expenses, often
arise after the rental period has ended. The contract does


not clearly shift liability for the latter kinds of damages.
We thus conclude that the words of the contract may
reasonably be understood in different ways. This ambiguity


requires us to assume that the parties knew the law and wished
to comply with it. 171:
[I]t is very commonly stated that when the
terms of agreement have two possible
interpretations, by one of which the agreement
would create a valid contract and by the other it
would be void or illegal, the former will be
preferred. This is an advisory rule of
interpretation, since it is believed that the
parties intend their agreement to be valid rather
than invalid, lawful rather than unlawful, and
honest and effective rather than fraudulent and
voidable.
See also Walsh v Schlecht, 429 US 401, 408; 97 S Ct 679; 50 L
Ed 2d 641 (1977) ("Since a general rule of construction
presumes the legality and enforceability of contracts, . . .
ambiguously worded contracts should not be interpreted to
See 3 Corbin, Contracts,

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