41 N.E.3d 1026
Ind. Ct. App.2015Background
- David Smith, superintendent at Lily Group, signed a credit agreement with M & M Pump & Supply on Aug. 23, 2011 that included a personal guarantee for Lily Group’s debts.
- M & M supplied mining equipment to Lily Group; Lily Group defaulted and later entered into an agreed judgment with M & M and filed for bankruptcy.
- M & M sued Lily Group and Smith on Dec. 6, 2012; it moved for summary judgment against Smith while Lily Group’s bankruptcy remained pending.
- The trial court granted summary judgment for M & M and entered judgment against Smith for $63,913.26, including principal, attorney fees, costs, and prejudgment interest.
- Smith appealed, raising four principal challenges: lack of consideration/knowledge for the guarantee, improper entry of judgment while co-debtor bankruptcy pending, impairment of collateral due to failure to perfect a security interest, and liability for attorney fees and prejudgment interest.
Issues
| Issue | Plaintiff's Argument (M & M) | Defendant's Argument (Smith) | Held |
|---|---|---|---|
| 1. Validity of guaranty (consideration/knowledge) | Guarantee was contemporaneous with principal contract; consideration for principal contract suffices for guaranty | No adequate consideration; Smith did not know he was signing a guarantee | Court: Guarantee valid — contemporaneous consideration suffices; signer presumed to understand docs |
| 2. Proceeding while co-debtor in bankruptcy | Creditor may pursue guarantor despite co-debtor’s pending bankruptcy | Summary judgment premature because Lily Group’s bankruptcy might resolve debt | Court: No legal bar to suing guarantor during principal debtor’s bankruptcy; summary judgment permissible |
| 3. Impairment/perfection of collateral | No security interest or collateral was created in contract, so nothing to perfect or impair | M & M failed to perfect a purchase-money security interest, impairing collateral and reducing guarantor liability | Court: No security agreement or collateral description existed; therefore no security interest to perfect or impair |
| 4. Attorney fees & prejudgment interest | Guaranty obligates guarantor to pay amounts owed under the agreement, which includes costs, attorney fees, interest | Guarantee does not expressly mention fees/interest; fees limited to primary debtor (Lily Group) | Court: Guarantor liable for fees and prejudgment interest because guaranty covers amounts owed under the contract, which included collection costs |
Key Cases Cited
- Manley v. Sherer, 992 N.E.2d 670 (Ind. 2013) (summary judgment standard)
- Conwell v. Gray Loon Outdoor Mktg. Grp., Inc., 906 N.E.2d 805 (Ind. 2009) (contract formation elements)
- Jackson v. Luellen Farms, Inc., 877 N.E.2d 848 (Ind. Ct. App. 2007) (contemporaneous guaranty supported by principal-contract consideration)
- Clanton v. United Skates of America, 686 N.E.2d 896 (Ind. Ct. App. 1997) (presumption that signatory understands written documents)
- Cole v. Loman & Gray, Inc., 713 N.E.2d 901 (Ind. Ct. App. 1999) (impairment-of-collateral defense by guarantor)
- Smith v. Ostermeyer Realty Co., 197 N.E. 743 (Ind. Ct. App. 1935) (guarantor liable for attorney fees when guaranty covers amounts owed under contract)