Court Opinion

ID: 4019320
Source: CourtListenerOpinion
Date Created: 2016-07-27 18:01:03.326532+00
Date Added: 2024-06-11T12:18:52.974528
License: Public Domain

Case: 16-30001      Document: 00513611359         Page: 1    Date Filed: 07/27/2016

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                        United States Court of Appeals

                                    No. 16-30001
                                                                                 Fifth Circuit

                                                                               FILED
                                  Summary Calendar                         July 27, 2016
                                                                          Lyle W. Cayce
SHELTER PRODUCTS, INCORPORATED,                                                Clerk

              Plaintiff - Appellee

v.

AMERICAN CONSTRUCTION HOTEL CORPORATION,

              Defendant - Appellant

                   Appeal from the United States District Court
                      for the Western District of Louisiana
                             USDC No. 5:12-CV-2533

Before WIENER, HIGGINSON, and COSTA, Circuit Judges.
PER CURIAM:*
       American Construction Hotel Corporation served as general contractor
for the construction of a hotel in Bossier City, Louisiana.                         American
subcontracted with Cratus Development, LLC, to perform the framing work
for the project. Cratus then entered into a bid acceptance agreement with

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                    No. 16-30001
Shelter Products, Incorporated, wherein Shelter agreed to sell Cratus the
building materials for the project.
      In connection with the bid acceptance agreement, Shelter, Cratus, and
American signed a joint check agreement. “Joint checks are often used in the
construction industry to ensure that material suppliers get paid and to manage
potential lien claims.” Michael B. Lubic and Jennifer M. Phelps, Contractors’
Joint-Check Agreements: Use at Your Peril, 20 AM. BANKR. INST. J. 16, 16
(March 2001). As with most such agreements, American agreed that it would
make payment to Shelter and Cratus by joint check for the materials Shelter
supplied for the project. But unlike the typical joint check agreement, this one
also stated:
      If Cratus Development does not start or complete work on this
      project, and/or becomes past due with Shelter Products, Inc. to the
      extent that Shelter Products, Inc. can no longer extend credit to
      Cratus Development[,] American Construction will make
      payments directly to Shelter Products, Inc. for all outstanding and
      unpaid invoices for materials delivered to the jobsite, and;
      1) American Construction agrees to purchase remaining
      unshipped material at the prices agreed upon by Cratus
      Development. Should this item become necessary, a copy of the
      original Bid Acceptance will be provided to American Construction
      by Shelter Products, Inc.
      Shelter and Cratus executed the joint check agreement on October 3,
2011. The next day, American’s president hand-wrote “NOT TO EXCEED
$92,291” 1 at the bottom of the document and signed it, and another American
employee returned the fully executed agreement to Cratus. The record is
unclear as to when Shelter received the fully executed agreement.
Presumably, Shelter got the document soon after American executed it because

      1  The bid acceptance agreement provided that the amount of materials Shelter was
selling Cratus for the project totaled $92,291.
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Shelter began shipping materials to the project the next week. In any case,
the parties agree that Shelter had the fully executed document in its files no
later than mid-December. 2 Shelter received its first and only joint check from
American on November 17, 2011 in the amount of $20,352.
      Shelter notified American and the project’s owner in February 2012 that
there was an outstanding balance of $129,770.83 for the materials it supplied
but neither party paid up. Shelter later filed this lawsuit against American,
Cratus, and the project’s owner. Shelter alleged, in pertinent part, that Cratus
did not pay for all the supplies it ordered and that American breached the joint
check agreement by failing to pay Cratus’s outstanding debts.
      American and Shelter filed cross motions for summary judgment. The
district court ruled that the joint check agreement constituted a suretyship
agreement in which American guaranteed the debt of Cratus in favor of Shelter
up to $92,291. Rather than proceed to trial, Shelter and American stipulated
as to the unpaid invoice balance, and the district court entered a consent
judgment against American and in favor of Shelter for $71,939, which is the
amount of the suretyship ($92,291) less the undisputed single payment by
American to Shelter ($20,352). 3
      In this appeal, American challenges the district court’s legal basis for
determining its liability as a surety. We review “the legal determinations in a
district court’s decision to grant summary judgment de novo, applying the
same legal standards as the district court to determine whether summary

      2  Shelter says it became aware of the “not to exceed” language on December 19, 2011
when Barbara Graves (an American employee) asked Michelle Moore (a Shelter employee)
about some details on an invoice. Graves explained that they wanted to be sure everyone
was on the same page because the invoices exceeded the $92,291 limitation American had
placed on the joint check agreement. Moore then looked at the joint check agreement (which
was apparently in Shelter’s files) and saw the handwritten notation.
       3 Shelter voluntary dismissed with prejudice its claims against the property owner,

Ganga, LLC. A default judgment was entered against Cratus.
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                                      No. 16-30001
judgment was appropriate.” Gonzalez v. Denning, 394 F.3d 388, 391 (5th Cir.
2004) (citation omitted). Interpretation of a contract is a purely legal matter,
which we also review de novo. See Sentry Ins. v. R.J. Weber Co., 2 F.3d 554,
556 (5th Cir. 1993). Because this case arises under diversity jurisdiction, the
substantive law of the forum state applies. Learmonth v. Sears, Roebuck and
Co., 710 F.3d 249, 258 (5th Cir. 2013).
       Under Louisiana law, suretyship is “an accessory contract by which a
person binds himself to a creditor to fulfill the obligation of another upon the
failure of the latter to do so.” LA. CIV. CODE ANN. art. 3035. A “contract is
accessory when it is made to provide security for the performance of an
obligation.” Id. at 1913. When the secured obligation arises from a contract,
that contract is the principal contract. Id.
       Here, the principal contract is the bid acceptance agreement between
Shelter and Cratus. Shelter, Cratus, and American then entered into an
accessory contract (that is, the joint check agreement) which sought to ensure
that Shelter was paid for the materials it supplied pursuant to the principal
contract.    American guaranteed payment “for all outstanding and unpaid
invoices for materials delivered to the jobsite” and for “remaining unshipped
material at the prices agreed upon by” Cratus.
       The joint check agreement meets all the formal requirements of
suretyship: it is express and in writing. See LA. CIV. CODE ANN. art. 3038. The
fact that American’s president added the “not to exceed” language before
signing the contract does not render it invalid. It simply limits American’s
liability to that amount. 4 Shelter’s acceptance of the contract is presumed, and

       4 Shelter argued below that the joint check agreement should be treated as a contract
for the sale of movables. It claimed that, under Louisiana sales law, the limiting language
American added to the contract was a material alteration that did not become part of the
agreement and, therefore, the agreement is enforceable to the full extent of the debt. The
district court rejected this argument and found that under the governing suretyship rules,
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suretyship was established when Shelter received the executed document. See
id. at 3039. We find, therefore, that the district court correctly held that the
joint check agreement created a binding suretyship contract.
      Based on this legal finding and the parties’ stipulated facts, the district
court issued a consent judgment. American argues in its brief that (1) based
on the language in the joint check agreement, it is only obligated to pay Cratus’
debts if Cratus is past due to the extent Shelter can no longer extend credit to
Cratus; and (2) there is no evidence in the record establishing that Shelter
could not extend further credit to Cratus. Because American did not raise this
argument before the district court, it is forfeited. See, e.g., FDIC v. Mijalis, 15
F.3d 1314, 1327 (5th Cir. 1994). We note, however, that the argument is
unpersuasive, as there appears to be no genuine dispute that Cratus
consistently failed to pay its debts such that Shelter could no longer extend
credit on its behalf.
                                        ***
      We thus AFFIRM the judgment of the district court.

Shelter cannot enforce the agreement for more than the amount American expressly agreed
to in writing. We agree.
                                          5