Smith v. Bethlehem Sand & Gravel Co., LLC
2011 Ky. App. LEXIS 74
| Ky. Ct. App. | 2011Background
- Guaranty by Hollis Smith for $500,000 note Brooks Sand & Gravel, LLC to Bethlehem; note dated Sept 15, 2005 and maturing Sept 15, 2010; Brooks filed for bankruptcy Feb 9, 2006; Bethlehem did not participate in Brooks' bankruptcy but sued Hollis on the guaranty in Jefferson Circuit Court; circuit court granted summary judgment upholding the guaranty on Feb 26, 2009; Hollis appeals contending guaranty invalid/unenforceable; Schedule 1 references and KRS 371.065 relevance are central; court addresses validity, consideration, and estoppel arguments; decision affirmed; record includes note, guaranty, and Schedule 1 indicating the guaranteed instrument.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| KRS 371.065 applicability to guaranty | Hollis—statute applies due to lack of writing/ref to instrument | Bethlehem—Schedule 1 and guaranty reference instrument; termination date issue | Guaranty effectively referenced instrument; 371.065 not triggered or termination date required |
| Consideration for the guaranty | Brooks' debt lacked consideration; or need for new consideration for guaranty | There was consideration; guaranty induced the original debt | Record supports consideration; delay between note and guaranty immaterial; sufficient to sustain guaranty |
| Equitable estoppel to enforce guaranty | Bethlehem should be estopped for not pursuing Brooks' bankruptcy | Guaranty terms waiver of collection actions bars estoppel; no reliance shown | Equitable estoppel does not bar enforcement; contract language controls |
Key Cases Cited
- Wheeler & Clevenger Oil Co., Inc. v. Washburn, 127 S.W.3d 609 (Ky. 2004) (KRS 371.065 purpose to protect guarantors; references to Schedule 1 acceptable)
- Alliant Tax Credit Fund 31-A, Ltd. v. Nicholasville Community Housing, LLC, 663 F. Supp. 2d 575 (E.D. Ky. 2009) (Statutory protections apply to guaranty phrasing)
- Scifres v. Kraft, 916 S.W.2d 779 (Ky. App. 1996) (summary judgment de novo standard; contract interpretation is legal)
- Goldsmith v. Allied Building Components, Inc., 833 S.W.2d 378 (Ky. 1992) (interpretation of contract terms; de novo review)
- Phillips v. Phillips, 294 Ky. 323, 171 S.W.2d 458 (1943) (definition of consideration; general contract principle)
- O.P. Link Handle Co. v. Wright, 429 S.W.2d 842 (Ky. 1968) (consideration requisite for contract formation)
- Snowden v. Leight, 5 Ky. L. Rptr. 121 (1883) (guaranty consideration principles; early authority cited)
- Spreen v. Ruth, 19 S.W. 583 (1892) (treating related documents as one transaction for consideration)