DIFFICULTY IN DEFENDING RENTAL SUPPLIER’S CLAIM UNDER CREDIT APPLICATION

Posted on September 19, 2021September 19, 2021 by Edward Garber

In construction, one of the easiest claims to prove from a burden of proof standpoint is that of a supplier, particularly a rental equipment supplier. Oftentimes, these claims are more in the realm of a collection claim because a rental supplier will generally be able to establish that a party opened an account with them, signed a credit application and personal guaranty, and equipment was rented and even delivered to a specific jobsite during set dates. Defending these claims is not so easy. And even if there is a defense as it relates to some amounts, there needs to be an upside challenging those amounts when factoring in the attorney’s fees, costs, and interest on the other amounts and on continuing the dispute.

An example of the difficulty in defending these claims from rental suppliers can be found in the recent case of Custom Design Expo, Inc. v. Synergy Rents, Inc., 2021 WL 4125806 (Fla. 2d DCA 2021). Here, a contractor rented equipment (e.g, forklifts) from a supplier. The equipment was rented on an open account and the contractor signed a personal guaranty. The supplier sued the contractor for about $81,000 that remained unpaid. The supplier appeared to waste no time and moved for summary judgment with an affidavit from its credit manager. The credit manager affirmed that the contractor executed a credit application for purposes of renting equipment on an open account, the application contained a personal guaranty, and the credit application formed the basis of a contract. The credit manager authenticated the credit application and affirmed that the contractor owed it about $81,000 in unpaid amounts for rental equipment that was furnished under the credit application.

The contractor opposed the credit manager’s affidavit with an affidavit from the contractor’s customer, which was the owner. The dispute concerned three invoices (which were relatively small considering the balance) where overages were claimed. With the first two invoices, the argument was the invoices included a two-week rental period when the rental period should have been only one week. With the third invoice, the dispute concerned that the invoice included amounts which did not accurately reflect the amount of time the equipment was on the jobsite. Nevertheless, the trial court granted summary judgment in favor of the supplier.

On appeal, the contractor argued that its affidavit from the owner in response created a genuine issue of material fact. The appellate court disagreed.

The supplier’s affidavit included the credit application and invoices of rental equipment (forklifts) furnished on an open account and the $81,000 amount owed. The affidavit the contractor furnished was from its customer–the owner. However, the customer was NOT a party to the credit application and did not enter into any agreement with the supplier. The owner “did not have personal knowledge of any agreements between [the supplier] and the [contractor and its personal guarantor], and any information he could offer regarding those agreements—including how long the rental periods were ‘supposed to be’—would necessarily have to be inadmissible hearsay.” Custom Design Expo, supra, at *3 (explaining hearsay cannot create genuine issue of material fact to preclude the entry of summary judgment). Furthermore, the court noted that the owner’s affidavit really only created a question of fact as to whether the contractor used the equipment during the rental period, but it did NOT create a question of fact as to when the equipment was received and when it was returned to the supplier. In other words, the affidavit would have created a question of fact on a non-issue or a non-material fact! As the appellate court maintained:

To preclude summary judgment, “the ‘issue’ must be one of material fact. Issues of nonmaterial facts are irrelevant to the summary judgment determination.” “A material fact, for summary judgment purposes, is a fact that is essential to the resolution of the legal questions raised in the case.” Here, although the question of where the equipment was used may be a material fact as to the construction lien count against [the owner], it is not a material fact in the determination of whether [the contractor and personal guarantor] took possession of [the supplier’s] rental equipment pursuant to their contract with [the supplier] and failed to pay the cost of the rental in accordance with their contractual obligation.

Custom Design Expo, supra, at *4 (internal citations omitted).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PERSONAL GUARANTOR CANNOT ESCAPE A PERSONAL GUARANTEE BY…

Posted on May 20, 2016November 8, 2024 by Edward Garber

In a prior article, I discussed the point that a personal guarantor cannot escape a contractual requirement of a personal guarantee merely by executing the guarantee as a corporate officer.

The recent decision Frieri v. Capital Investment Services, Inc., 41 Fla. L. Weekly D1189a (Fla. 3d DCA 2016) illustrates this point. In this case, a company hired an individual to help grow that company’s business. The contract required the individual to invest $6 Million into a trust in consideration of the company’s president transferring substantial shares of the company into the trust. The objective was that the trust would own the controlling shares of the company. The money was transferred. However, the shares were never placed in the trust and the trust never received controlling interest in the company.

The individual sued the company and the company’s president. A judgment was entered against the company’s president and he appealed arguing there was no evidence to hold him personally liable. The appellate court disagreed because the contract between the company and the individual imposed a personal obligation on the company’s president to actually place controlling shares into the trust and he failed to do so. Although the company’s president signed the contract as a corporate officer of the company, his “official designation does not shield him from personal liability because the contract’s clear language shows that he assumed personal obligations [through the obligation to place the shares in the trust].” Fireri, supra.

Remember, affixing a corporate title to a signature will not shield you as a personal guarantor if the contract clearly indicates language requiring a personal guarantee / personal liability. And, as demonstrated in Frieri, personal liability can be assumed if the contract imposes an obligation on you to do something in a personal capacity, such as the obligation of the company’s president to specifically place shares in the trust.

BECOMING A PERSONAL GUARANTOR BY EXECUTING THE PERSONAL GUARANTEE

Posted on May 29, 2015November 8, 2024 by Edward Garber

Suppliers are not ill advised. When they have a contractor execute a credit application so the contractor can procure materials on credit, they generally include a personal guarantee in the credit application. This way they have both the company that ordered the materials and the personal guarantor jointly and severally liable in the event they are not paid for the materials. Suppliers want this personal guarantee as added security because they oftentimes supply materials on credit (to a job site) through an ongoing account so that their contractor customer can have the materials ordered to perform a scope of work.

Personal guarantors sometimes try to be clever with the way they sign the personal guarantee in order to avoid any personal liability through the personal guarantee. But, not so fast…“Florida law is clear that an individual who executes a guarantee as an officer of a corporation by inserting his corporate title after his name on a document cannot defeat the purpose of the guarantee when, by its terms, the document contains provisions for individual liability.” Great Lakes Products, Inc. v. Wojciechowski, 878 So.2d 418, 419 (Fla. 3d DCA 2004); see also Nelson v. Ameriquest Technologies, Inc., 739 So.2d 161, 164 (Fla. 3d DCA 1999) (“The fact that Nelson added the letters “V.P.” after his signature could not defeat the obvious and clear purpose of the guaranty agreement; that is, to impose individual liability upon him as the signor.”).

When signing a personal guarantee, make sure you understand its implications, particularly that of personal liability in the event the company does not pay or otherwise honor the terms of the agreement. You are agreeing to become jointly and severally liable with the company to pay for any potential outstanding debt.