Court Opinion

ID: 2824106
Source: CourtListenerOpinion
Date Created: 2015-08-11 04:27:16.806242+00
Date Added: 2024-06-11T13:39:21.836161
License: Public Domain

Aug 06 2015, 8:30 am

      ATTORNEY FOR APPELLANT                                     ATTORNEY FOR APPELLEE
      Chad J. Sullivan                                           Lincoln A. Baker
      Jackson Kelly PLLC                                         Lincoln A. Baker, PC
      Evansville, Indiana                                        Petersburg, Indiana

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      David Smith,                                              August 6, 2015

      Appellant-Defendant,                                      Court of Appeals Cause No.
                                                                28A01-1502-CC-57
              v.
                                                                Appeal from the Green Circuit Court
      M&M Pump & Supply, Inc.,                                  The Honorable Erik Allen, Judge
                                                                Case No. 28C01-1212-CC-330
      Appellee-Plaintiff

      Robb, Judge.

                                Case Summary and Issues
[1]   David Smith appeals the trial court’s award of summary judgment in favor of

      M & M Pump & Supply, Inc. Smith raises several issues concerning the court’s

      summary judgment: (1) whether Smith’s status as a guarantor is invalid; (2)

      whether the trial court erred by granting summary judgment to M & M when it

      is listed as a creditor of Smith’s co-debtor in bankruptcy; (3) whether a failure

      by M & M to perfect a security interest in collateral limits Smith’s contractual

      Court of Appeals of Indiana | Opinion 28A01-1502-CC-57 | August 6, 2015                   Page 1 of 9
      liability; and (4) whether the trial court erred by concluding that Smith was

      liable for attorney fees and prejudgment interest. Concluding the trial court did

      not err by awarding summary judgment to M & M, we affirm.

                             Facts and Procedural History
[2]   Smith was once employed at Lily Group, Inc., as a coal mine superintendent.

      On August 23, 2011, on behalf of Lily Group, Smith signed a credit agreement

      with M & M. Smith also signed a section of the agreement that stated he would

      act as a guarantor in the event of a breach of contract by Lily Group. That

      portion of the agreement stated:

                                          GUARANTEE
                 (Preferably owner of Business Organization with largest ownership
                                              interest)
              The individual who signs below personally guarantees to M & M
              Pump & Supply Company, Inc. that if the Business Organization
              identified above fails to pay any of the amounts owed either under an
              invoice or under this Agreement, the individual will pay to M & M
              Pump & Supply Company, Inc. that amount owed within 30 days after
              written demand is received from M & M Pump & Supply Company,
              Inc. The individual who signs below understands that credit would
              not be extended without this guarantee and waives any right to notice
              of default or presentment.
      Appellant’s Appendix at 23. After execution of the agreement, M & M began

      furnishing mining equipment to Lily Group.

[3]   Lily Group eventually defaulted on payment to M & M, and M & M filed suit

      against Lily Group and Smith on December 6, 2012. Lily Group entered into

      an agreed judgment with M & M and subsequently filed for bankruptcy. On

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      September 27, 2013, M & M requested summary judgment against Smith, and

      Smith filed a cross-motion for summary judgment on October 23, 2013. The

      trial court granted summary judgment to M & M on July 1, 2014. On January

      14, 2015, the trial court entered a corrected judgment, again in favor of M & M.

      The judgment concluded that Smith is liable to M & M in the amount of

      $63,913.26, which includes attorney fees, costs, and prejudgment interest. This

      appeal followed. Additional facts will be provided as necessary.

                                  Discussion and Decision
                                       I. Standard of Review
[4]   When reviewing a trial court’s ruling on summary judgment, we apply the same

      standard as the trial court. Manley v. Sherer, 992 N.E.2d 670, 673 (Ind. 2013).

      Summary judgment is appropriate where there is no genuine issue of material

      fact and the moving party is entitled to judgment as a matter of law. Ind. Trial

      Rule 56(C). “The fact that the parties have filed cross-motions for summary

      judgment does not alter our standard for review. We consider each motion

      separately to determine whether the moving party is entitled to judgment as a

      matter of law.” Asklar v. Gilb, 9 N.E.3d 165, 167 (Ind. 2014) (citation omitted).

      The appellant has the burden of demonstrating that the summary judgment

      ruling was erroneous. Amaya v. Brater, 981 N.E.2d 1235, 1239 (Ind. Ct. App.

      2013), trans. denied.

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                     II. Validity of Smith’s Guarantor Status
[5]   First, Smith claims that he is not contractually bound by the terms of the

      contract’s guarantee provision because he did not receive adequate

      consideration to make him a valid guarantor. Indeed, adequate consideration is

      necessary for the creation of a valid contract. See Conwell v. Gray Loon Outdoor

      Mktg. Grp., Inc., 906 N.E.2d 805, 812-13 (Ind. 2009) (“The basic requirements

      for a contract are offer, acceptance, consideration, and a meeting of the minds

      of the contracting parties.”). However, there is no dispute that Lily Group

      received adequate consideration for entering into this agreement with M & M,

      and no additional consideration is necessary to enforce Smith’s guarantee under

      these circumstances. If a guarantee is made contemporaneously with the

      principal contract, then consideration sufficient to create the contract is also

      sufficient to support the guarantee. Jackson v. Luellen Farms, Inc., 877 N.E.2d
848, 858-59 (Ind. Ct. App. 2007). “[I]t is not necessary for a guarantor to derive

      any benefit from the principal contract or the guarantee for consideration to

      exist.” Id. at 858 (citation omitted).

[6]   Smith also argues that the trial court improperly decided a genuine issue of fact

      where its order stated that “[t]he Court rejects Defendant Smith’s argument that

      he did not know he was signing a Guarantee.” Appellant’s App. at 75.

      However, Smith’s argument on this point cannot create a genuine issue of fact.

      “Under Indiana law, a person is presumed to understand the documents which

      he signs and cannot be released from the terms of a contract due to his failure to

      read it.” Clanton v. United Skates of America, 686 N.E.2d 896, 899-900 (Ind. Ct.

      Court of Appeals of Indiana | Opinion 28A01-1502-CC-57 | August 6, 2015     Page 4 of 9
Ohio App. 1997). Therefore, even if it were true that Smith did not know what he

      was signing or did not read the Guarantee, which is unambiguously a personal

      guarantee clause, his mistake would not preclude summary judgment.

                       III. Pending Bankruptcy of Co-Debtor
[7]   Next, Smith claims that it was improper for the trial court to enter summary

      judgment against Smith while M & M is listed as a creditor in Lily Group’s

      pending bankruptcy proceedings. Specifically, Smith argues that this was

      improper because it has not yet been determined that Lily Group, as the

      primary debtor, will not pay the amount owed.

[8]   The Guarantee was triggered when Lily Group defaulted under the contract.

      M & M was not required to wait until completion of Lily Group’s bankruptcy

      proceedings to pursue the contract’s guarantor. Further, Smith directs us to no

      legal barrier that prevents a creditor from pursuing a guarantor when the

      principal debtor has filed for bankruptcy. We find no legal error in the trial

      court’s award of summary judgment during the pendency of the primary

      debtor’s bankruptcy proceedings.

                                IV. Impairment of Collateral
[9]   Smith contends that the court’s summary judgment order was erroneous

      because M & M failed to perfect a security interest in the equipment sold to Lily

      Group and impaired the value of collateral that could have mitigated the debt.

      “In Indiana, the guarantor of a debt may seek to avoid personal liability in a

      suit by a creditor by asserting the impairment of collateral defense.” Cole v.

      Court of Appeals of Indiana | Opinion 28A01-1502-CC-57 | August 6, 2015   Page 5 of 9
       Loman & Gray, Inc., 713 N.E.2d 901, 904 (Ind. Ct. App. 1999). A creditor’s

       failure to perfect a security interest constitutes an impairment of collateral. Id.

       Smith argues that M & M failed to perfect a purchase money security interest.

       See Ind. Code § 26-1-9.1-103. M & M counters that no security interest or

       collateral existed in this case.

[10]            [A] security interest is enforceable against the debtor and third parties
                with respect to the collateral only if:
                         (1) value has been given;
                         (2) the debtor has rights in the collateral or the power to
                             transfer rights in the collateral to a secured party; and
                         (3) one (1) of the following conditions is met:
                                  (A) The debtor has authenticated a security agreement
                                     that provides a description of the collateral . . .
                                  (B) The collateral is not a certificated security and is in
                                      the possession of the secured party under IC 26-1-
                                      9.1-313 pursuant to the debtor’s security agreement.
                                  (C) The collateral is a certificated security in registered
                                      form and the security certificate has been delivered
                                      to the secured party under IC 26-1-8.1-301 pursuant
                                      to the debtor’s security agreement.
                                  (D) The collateral is deposit accounts, electronic chattel
                                     paper, investment property, letter-of-credit rights, or
                                     electronic documents, and the secured party has
                                     control . . . pursuant to the debtor’s security
                                     agreement.
       Ind. Code § 26-1-9.1-203(b).1 Here, the credit agreement signed by Smith does

       not reference “collateral,” a “security interest,” or any “secured party,” and

       1
         Subsection (b) of Indiana Code section 26-1-9.1-203 is subject to several caveats, see Ind. Code §26-1-9.1-
       203(c)-(i), none of which are applicable in this case.

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       Smith does not direct this court to a security agreement executed by the parties.

       Accordingly, no security interest was created in or attached to the equipment

       sold to Lily Group. M & M cannot have impaired the value of collateral where

       no security interest existed for M & M to perfect.

                     V.Attorney Fees and Prejudgment Interest
[11]   Finally, Smith argues that the trial court erred by holding him liable for

       attorney fees and prejudgment interest. He claims that the Guarantee does not

       specifically hold the guarantor liable for those costs, and that the agreement

       only allows M & M to collect attorney fees or prejudgment interest from Lily

       Group.

[12]   The rules governing the interpretation of a guaranty clause are generally the

       same as those that control the construction of an ordinary contract. S-Mart, Inc.

       v. Sweetwater Coffee Co., Ltd., 744 N.E.2d 580, 585-86 (Ind. Ct. App. 2001), trans.

       denied. We attempt to give effect to the intentions of the contracting parties.

       Bruno v. Wells Fargo Bank, N.A., 850 N.E.2d 940, 945 (Ind. Ct. App. 2006).

       “Generally, the nature and extent of a guarantor’s liability depends upon the

       terms of the contract, and a guarantor cannot be made liable beyond the terms

       of the guaranty.” Id. “The terms of a guaranty should neither be so narrowly

       interpreted as to frustrate the obvious intent of the parties, nor so loosely

       interpreted as to relieve the guarantor of a liability fairly within its terms.” S-

       Mart, Inc., 744 N.E.2d at 585-86.

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[13]   The agreement signed by Smith provides: “M & M Pump & Supply Company,

       Inc. shall be entitled to recover all costs of collection from the Business

       Organization [Lily Group] including but not limited to court costs, lawyers fees

       [sic] and expert’s fees, if the Business Organization [Lily Group] fails to pay or

       breaches the Agreement.” Appellant’s App. at 23. As for the Guarantee signed

       by Smith, it states that, if Lily Group fails to pay, Smith is personally liable for

       “any of the amounts owed either under an invoice or under this Agreement

       . . . .” Id.

[14]   In Smith v. Ostermeyer Realty Co., 102 Ind. App. 164, 197 N.E. 743, 747 (1935),

       this court held that a guarantor was liable for attorney fees where the contract

       contemplated payment of attorney fees, despite the fact that the guarantee

       clause did not specifically reference attorney fees but agreed to pay any money

       owed under the contract. Smith has not persuaded us to deviate from the result

       in Ostermeyer Realty.2 The agreement that Smith signed included a provision

       entitling M & M to recover attorney fees, costs, and interest, and Smith’s

       Guarantee requires him to “pay any of the amounts owed . . . under [the]

       Agreement.” Appellant’s App. at 23. We conclude that the trial court did not

       err by holding Smith liable for those amounts.

       2
         Smith’s brief is sparse on this issue, presenting us with no real legal support for his argument, and M & M’s
       brief similarly lacks relevant legal authority.

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                                                Conclusion
[15]   Concluding the trial court did not err in its award of summary judgment, we

       affirm.

[16]   Affirmed.

       May, J., and Mathias, J., concur.

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