MAXX PARTS AND EQUIPMENT-KENTUCKY, INC. v. MSD MINING COMPANY, INC. AND WILLIAM S. DETHERAGE
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RENDERED:
AUGUST 19, 2005; 10:00 a.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-002189-MR
MAXX PARTS AND EQUIPMENT-KENTUCKY, INC.
APPELLANT
APPEAL FROM KNOX CIRCUIT COURT
HONORABLE RODERICK MESSER, JUDGE
ACTION NO. 03-CI-00012
v.
MSD MINING COMPANY, INC. AND
WILLIAM S. DETHERAGE
APPELLEES
OPINION
REVERSING AND
REMANDING
** ** ** ** **
BEFORE:
MINTON AND SCHRODER, JUDGES; EMBERTON, SENIOR JUDGE.1
SCHRODER, JUDGE:
This appeal considers the validity of a
guaranty agreement pursuant to KRS 371.065.
As the guaranty
agreement was written on the credit application being
guaranteed, it was not required to contain language specifying
maximum aggregate liability and termination date.
Accordingly,
we reverse the summary judgment granted to appellee William S.
1
Senior Judge Thomas D. Emberton sitting as Special Judge by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution
and KRS 21.580.
Detherage and remand for proceedings consistent with this
opinion.
Appellant, Maxx Parts and Equipment – Kentucky, Inc.,
(hereinafter “Maxx Parts”) is a business engaged in the sale at
retail of parts and supplies for the repair and maintenance of
heavy construction and mining equipment.
Appellee MSD Mining
Company, Inc. (hereinafter “MSD”) is engaged in the coal mining
business.
Appellee William S. Detherage (hereinafter
“Detherage”) is the principal owner of MSD.
On or about May 31, 2002, Detherage, acting on behalf
of MSD, applied for credit with Maxx Parts for the purpose of
purchasing parts and supplies on account.
The credit
application provided that Maxx Parts was authorized to collect
interest at the rate of 1½% per month on invoice amounts not
paid by the end of the next calendar month following the month
of purchase.
The credit application also included a section
entitled “INDIVIDUAL PERSONAL GUARANTY”, which states:
I, Bill Detherage, residing at Hazard, KY
for and in consideration for your extending
credit at my request to MSD Mining Co.
(hereinafter referred to as the “Company”),
of which I am owner, hereby personally
guarantee to you the payment at ___________
in the State of Kentucky of any obligation
of the Company and I hereby agree to bind
myself to pay upon demand any sum which may
become due to you by the Company whenever
the Company shall fail to pay the same. It
is understood that this guaranty shall be a
continuing and irrevocable guaranty and the
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indemnity for such indebtedness of the
Company. I do hereby waive notice of
default, non-payment and notice thereof and
consent to any modification or renewal of
the credit agreement hereby guaranteed.
On January, 6, 2003, Maxx Parts filed suit against MSD
and Detherage for an unpaid account balance totaling $24,245.35
(representing the price of goods sold to MSD) plus interest at
the contract rate of 18% per annum.
moved for summary judgment.
Maxx Parts subsequently
Detherage filed a cross-motion for
summary judgment, contending that he is not personally liable
for any debt of MSD because the guaranty agreement was not
enforceable per KRS 371.065 as it did not specify maximum
aggregate liability nor set forth a termination date.
On
September 17, 2003, the trial court granted Detherage’s motion
for summary judgment (the sole issue on appeal) finding that,
pursuant to KRS 371.065, Detherage’s guaranty was unenforceable.2
KRS 371.065, “Requirements for valid, enforceable
guaranty”, provides:
(1) No guaranty of an indebtedness which
either is not written on, or does not
expressly refer to, the instrument or
instruments being guaranteed shall be valid
or enforceable unless it is in writing
signed by the guarantor and contains
provisions specifying the amount of the
maximum aggregate liability of the guarantor
thereunder, and the date on which the
guaranty terminates. Termination of the
2
In the same order the trial court denied Maxx Parts’ motion for summary
judgment, finding that issues of material fact existed as to liens and
amounts owed. This issue was not appealed.
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guaranty on that date shall not affect the
liability of the guarantor with respect to:
(a) Obligations created or incurred prior
to the date; or
(b) Extensions or renewals of, interest
accruing on, or fees, costs or expenses
incurred with respect to, the obligations on
or after the date.
(2) Notwithstanding any other provision of
this section, a guaranty may, in addition to
the maximum aggregate liability of the
guarantor specified therein, guarantee
payment of interest accruing on the
guaranteed indebtedness, and fees, charges
and costs of collecting the guaranteed
indebtedness, including reasonable
attorneys’ fees, without specifying the
amount of the interest, fees, charges and
costs.
In its September 17, 2003, order, the trial court
found, in pertinent part:
Pursuant to K.R.S. §371.065(1), a valid
enforceable guaranty requires that the
instrument be in writing signed by the
guarantor; contain provisions specifying the
amount of the maximum aggregate liability of
the guarantor; and the date on which the
guaranty terminates. It is undisputed that
the guaranty at issue does not contain a
stated maximum aggregate liability of the
guarantor. The guaranty merely includes the
terms “any obligation” and “any sum.”
Therefore, the guaranty is unenforceable and
summary judgment for Defendant Detherage is
proper.
Detherage contends that the Individual
Personal Guaranty is also unenforceable
because it fails to state a date of
termination. The Court finding summary
judgment proper on the above grounds, it
need not address this later contention.
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Subsequent to the trial court’s order, our Supreme
Court decided the case of Wheeler & Clevenger Oil Co., Inc. v.
Washburn, 127 S.W.3d 609 (Ky. 2004), factually similar to the
present case, and which we agree with appellant is dispositive
of the issue presented in this appeal.
In Wheeler, the
appellee, Washburn, was the president of HICO Transport.
Washburn submitted to the appellant an “Application for Credit”
on behalf of HICO for the purpose of establishing a line of
credit to purchase fuel and other merchandise.
The application
contained two guaranty agreements (one on the front and one on
the back), both of which Washburn signed as a guarantor of any
credit extended to HICO.
When the appellant sought enforcement
of the guaranties, Washburn claimed that the guaranty agreements
he signed were invalid and unenforceable under KRS 371.065
because they did not specify a maximum amount of liability and a
termination date.
Wheeler, at 611-612.
Our Supreme Court held, per the plain language of KRS
371.065, that a guaranty agreement which is written on the
document being guaranteed is not required to state either
maximum aggregate liability or a termination date.
The Court
explained:
KRS 371.065’s requirement that a guaranty
state the guarantor’s maximum liability and
the guaranty’s termination date is a
consumer-protection provision designed to
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protect the guarantor by reducing the risk
of a guarantor agreeing to guarantee an
unknown obligation. When the guaranty
agreement is found on the document being
guaranteed, however, that risk is
negligible, which KRS 371.065 recognizes by
exempting such guaranty agreements from its
heightened requirements. Here, the guaranty
agreement is “written on” the credit
application in two places. Thus, in
accordance with the plain-meaning rule of
statutory interpretation, we hold that,
although KRS 371.065 otherwise applies to
the guaranty agreements, e.g., the
agreements may “guarantee payment of
interest accruing on the guaranteed
indebtedness, and fees, charges and costs of
collecting the guaranteed indebtedness,
including reasonable attorneys’ fees,
without specifying the amount of the
interest, fees, charges and costs,”[KRS
371.065(2)] the agreements were not required
to state either Appellee’s maximum liability
or a termination date.
Wheeler, at 615.
Similarly, in the present case, the “INDIVIDUAL
PERSONAL GUARANTY” at issue was written on the credit
application.
Therefore, per Wheeler, the guaranty agreement was
not required to state either Detherage’s maximum aggregate
liability or a termination date.
For the aforementioned reasons, the summary judgment
in favor of appellee William S. Detherage is reversed and the
matter remanded to the Knox Circuit Court.
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ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEES:
Ralph W. Hoskins
Corbin, Kentucky
John T. Aubrey
Manchester, Kentucky
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