Kelso Oil v. East West Truck Stop ( 2002 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
September 27, 2002 Session
KELSO OIL COMPANY, INC. v.
EAST WEST TRUCK STOP, INC., ET AL.
Appeal from the Chancery Court for Knox County
No. 143908-3 Sharon Bell, Chancellor
FILED NOVEMBER 14, 2002
No. E2001-02090-COA-R3-CV
This main issue in this appeal involves an Unconditional Guaranty signed by Frank Webb (“Webb”),
the president and owner of East West Truck Stop, Inc. In this document, Webb guaranteed the debt
of the “buyer”, which was identified as “Frank Webb d/b/a East West Truck Stop.” The “buyer”,
however, was the corporate entity, East West Truck Stop, Inc. The Trial Court concluded the parties
intended for the document to state the “buyer” was the corporate entity and entered judgment against
Webb personally. Webb appeals, claiming the Trial Court improperly used parol evidence to supply
an essential term of the Unconditional Guaranty (i.e. the identity of the “buyer”) in violation of the
Statute of Frauds. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the
Chancery Court Affirmed; Case Remanded
D. MICHAEL SWINEY, J., delivered the opinion of the court, in which HOUSTON M. GODDARD , P.J.,
and CHARLES D. SUSANO, JR., J., joined.
Gary D. Copas, Nashville, Tennessee, for the Appellants East West Truck Stop, Inc., and Frank
Webb.
Robert S. Stone and Katherine M. Hamilton, Knoxville, Tennessee, for the Appellee Kelso Oil
Company, Inc.
OPINION
Background
Kelso Oil Company, Inc., (“Kelso”) filed a complaint alleging it supplied fuel from
August 1997 through July 1998, to East West Truck Stop, Inc., pursuant to an open account which
required payment within ten days from the date of the invoice. After East West Truck Stop, Inc., fell
behind in its payments, Webb signed an “Unconditional Guaranty” on March 4, 1998, which
provides, in relevant part, as follows:
IN CONSIDERATION OF THE SALE OF GOODS BY KELSO OIL
COMPANY (“KELSO”) TO FRANK WEBB, DBA EAST WEST
TRUCK STOP (“BUYER”) AND OTHER GOOD AND
VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED,
THE UNDERSIGNED, AS A DIRECT AND PRIMARY
OBLIGATION, GUARANTEES TO KELSO AND ANY
ASSIGNEE OF KELSO THE PROMPT PAYMENT OF ALL SUMS
OWED BY BUYER TO KELSO, FOR WHATEVER REASON OR
FROM WHATEVER SOURCE. THE UNDERSIGNED PROMISES
TO PAY ALL OF . . . [KELSO’S EXPENSES], INCLUDING
ATTORNEY’S FEES, INCURRED BY KELSO IN ENFORCING
THIS GUARANTY.
The Unconditional Guaranty was signed by Frank Webb d/b/a East West Truck Stop. Plaintiff sued
East West Truck Stop, Inc., on the open account and also sued Webb personally on the
Unconditional Guaranty.
Defendants filed an answer to the Complaint, essentially denying any liability on their
part. Defendants asserted several defenses, including a defense that enforcement of the
Unconditional Guaranty was prohibited by the Statute of Frauds. Defendants also filed a
counterclaim asserting the interest rate charged by Plaintiff was usurious.
Plaintiff filed a motion for summary judgment on its claims against both Defendants.
The Trial Court granted the motion with respect to East West Truck Stop, Inc., and entered judgment
for Plaintiff in the amount of $119,241.19, exclusive of late charges and/or attorney’s fees. No
appeal has been taken from this portion of the judgment entered against East West Truck Stop, Inc.
After this partial summary judgment was granted, the only issues remaining for trial were whether
Webb was personally liable for the outstanding balance and for attorney’s fees pursuant to the
Unconditional Guaranty, whether both Defendants were liable for “late charges,” and Defendants’
counterclaim asserting the interest rate was usurious.
Webb testified via deposition. Webb is the President and owner of East West Truck
Stop, Inc. Webb worked at different jobs over the course of the years, some of which involved banks
and other lending institutions. Webb admitted that while operating businesses prior to owning East
West Truck Stop, Inc., he “at some time or another” had to sign a personal guarantee in order for his
business to receive a loan. He is aware of the meaning of “personal guaranty.” According to Webb,
East West Truck Stop, Inc., conducted business as East West Truck Stop. When asked in what
capacity he signed the Unconditional Guaranty, Webb stated:
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Probably the way it looks as Frank Webb doing business as East West
Truck Stop that Frank Webb is the main entity. But East West Truck
Stop is a corporation, and I’m signing this as the president of the
corporation. That was my understanding.
Webb went on to add he did not sign the Unconditional Guarantee in a personal capacity and did not
intend to guarantee personally the corporate debt to Plaintiff. When asked why he signed the
Unconditional Guarantee and other documents, Webb stated he did not want Kelso to put any
“pressure” on him. Kelso indicated if he would sign the documents, “that would kind of take the
pressure off.” After he signed the documents, Webb admitted this took the pressure off as he had
hoped.
James Newcomb (“Newcomb”) testified. Newcomb is a salesperson for Kelso and
has worked for that company for twenty-one years. Newcomb testified to problems Kelso
encountered when trying to get paid for the fuel it supplied to East West Truck Stop, Inc. Newcomb
and other Kelso employees contacted Webb many times and Webb kept promising to pay the
balance. Newcomb presented Webb with a promissory note and the Unconditional Guaranty and
went over the terms of these documents with Webb, who agreed to sign them. These documents
were prepared by Kelso’s general manager. When Webb signed the documents, credit was no longer
being extended to East West Truck Stop, Inc. Newcomb testified he discussed these documents with
Webb, and the purpose of the Unconditional Guaranty was for Webb to guarantee the amount that
was owed to Kelso. Newcomb acknowledged both the buyer and the guarantor on the Unconditional
Guaranty are identified as Frank Webb d/b/a East West Truck Stop. Newcomb did not prepare the
documents and could not explain why the buyer and the guarantor were identified as the same.
The Trial Court concluded “Frank Webb, d/b/a East West Truck Stop” constituted
a latent ambiguity which allowed explanation via parol evidence. According to the Trial Court, the
parties meant the corporate defendant to be the “buyer”. The Trial Court also found there was
sufficient consideration for the Unconditional Guaranty. The Trial Court concluded Webb was
personally liable pursuant to the Unconditional Guaranty. Judgment was entered against Defendants
for $119,241.19, and for $69,744.12 in late charges.1 Plaintiff also was awarded a judgment against
Webb for attorney fees. The Trial Court dismissed Defendants’ counterclaim.
Webb appeals, claiming the Statute of Frauds prohibited the Trial Court’s admitting
parol evidence to explain the terms of the Unconditional Guaranty. Webb also claims the Trial Court
erred in finding adequate consideration to support the Unconditional Guaranty. Both Defendants
appeal claiming the Trial Court erred in not finding the late charges to be interest and in violation
of the usury laws.
1
In ord er to correct a clerical error, the judgment against East West Truck Stop, Inc., was entered this second
time.
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Discussion
The factual findings of the Trial Court are accorded a presumption of correctness, and
we will not overturn those factual findings unless the evidence preponderates against them. See
Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001). With respect to legal
issues, our review is conducted “under a pure de novo standard of review, according no deference
to the conclusions of law made by the lower courts.” Southern Constructors, Inc. v. Loudon County
Bd. Of Educ., 58 S.W.3d 706, 710 (Tenn. 2001).
It is undisputed that East West Truck Stop, Inc., is a corporation. It also is undisputed
that Frank Webb does not do business as East West Truck Stop, but the corporation does. As a
result, “Frank Webb d/b/a East West Truck Stop” does not exist as a separate legal entity. When the
Unconditional Guaranty was drafted, for some reason not explained in the record, “Frank Webb d/b/a
East West Truck Stop” was identified as both the buyer and the obligor. Webb testified he never
intended in signing the various documents to bind himself personally but, rather, was signing these
documents as an officer of the corporation. Thus, according to Webb’s testimony, when he signed
the Unconditional Guaranty, the corporation was guaranteeing its own obligation.
Webb argues since the Trial Court had to supply an essential term of the
Unconditional Guaranty, i.e., who was the “buyer”, the Statute of Frauds prohibits enforcement of
this document. See, e.g., Lambert v. Home Federal Sav. & Loan Ass’n, 481 S.W.2d 770, 773 (Tenn.
1972)(“The general rule is that the memorandum, in order to satisfy the statute, must contain the
essential terms of the contract, expressed with such certainty that they may be understood from the
memorandum itself or some other writing to which it refers or with which it is connected, without
resorting to parol evidence. A memorandum disclosing merely that a contract had been made,
without showing what the contract is, is not sufficient to satisfy the requirement of the Statute of
Frauds that there be a memorandum in writing of the contract.”).
In relevant part, the Statute of Frauds provides:
Writing required for action. – (a) No action shall be
brought:
(2) To charge the defendant upon any special promise to
answer for the debt, default, or miscarriage of another person;…
unless the promise or agreement, upon which such action shall be
brought, or some memorandum or note thereof, shall be in writing,
and signed by the party to be charged therewith, or some other person
lawfully authorized by such party.
Tenn Code Ann. § 29-2-101.
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Webb argues the Trial Court essentially changed the identity of the “buyer” on the
Unconditional Guaranty when it concluded the buyer whose debt Webb was guaranteeing was the
corporate entity. We will assume the identity of the buyer is an essential term of the Unconditional
Guaranty. What we must decide then is whether the Trial Court committed reversible error in
finding the “buyer” to be East West Truck Stop, Inc.
In Creative Resource Management, Inc., v. Soskin, No. 01-A-01-9808-CH-00016,
1998 Tenn. App. LEXIS 788 (Tenn. Ct. App. Nov. 25, 1998), no appl. perm. appeal filed, we
observed:
This court has held that the very nature of a guarantee is the
obligation of a guarantor in addition to the obligation to be secured.
Villines v. Parham-Lindsey Groc. Co., 6 Tenn. App. 254 (1927).
"A guaranty obligating only the corporation would not in any
way add security to the obligation of the corporation, because the
corporation was already fully obligated as principal." Cone Oil Co.,
Inc. v. Green, 669 S.W.2d 662, 664 (Tenn. Ct. App.1983).
The Cone court concludes that " ... a guaranty of one's own
obligation is an exercise in futility." 669 S.W.2d 662, 664 (Tenn. Ct.
App. 1983).
Cone finds strong support in other jurisdictions. In Kordick
v. Merchants National Bank & Trust Co. of Indianapolis, 496 N.E.2d
119, the Indiana Court of Appeals was called upon to determine
whether or not the signature of Nicholas Kordick as "president"
bound him personally as guarantor of the debt of his corporation
"Fortune". The corporation defaulted and bankrupted and the bank
brought suit against Kordick individually on the guarantee. Relying
on Roy v. Davidson Equipment, 423 So. 2d 496 (Fl. App. 1982), the
Kordick court held:
In the case at hand, it would likewise be meaningless
for Fortune to guarantee its own debt because it would
add nothing to the existing obligation to Merchants.
Moreover, the guaranty obligation was not affected by
the release of the indebtedness of the
borrower--Fortune--an obvious paradox if Fortune
were the guarantor. Thus, we must conclude the
language of the guaranty specifically negates the
signature as having been made in a representative
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capacity, and Kordick was personally obligated on the
guaranty agreement.
496 N.E.2d 119, 124 (Ind. App. 1986).
Other cases applying the same rule are Beradi v. Hardware
Wholesalers, Inc., 625 N.E.2d 1259 (Ind. Ct. App. 1993); Roy v.
Davidson Equipment, Inc., 423 So. 2d 496 (Fla. Dist. Ct. App. 1982);
Ricker v. B-W Acceptance Corp., 349 F.2d 892 (10th Cir. 1965) and
Dann v. Team Bank, 788 S.W.2d 182 (Tex. App. 1990).
Creative Resource Management, 1998 Tenn. App. LEXIS 788 at *5, *6.
Webb admitted East West Truck Stop, Inc., did business as East West Truck Stop.
We find no basis to allow the corporation to conduct business under an assumed name and then
prohibit enforcement of the Unconditional Guaranty because the assumed name, rather than the
corporate name, was utilized in the document. The documents in the record show the “buyer” was
the corporate entity. The invoices are sufficiently connected to the Unconditional Guaranty to show
with certainty this essential term of the contract, who the “buyer” is. See, e.g., Brandel v. Moore
Mortgage and Investment Co., 774 S.W.2d 600, 605 (Tenn. Ct. App. 1989) (“[T]he requirement of
the statute is met by the signatures of plaintiffs on some, although not all, of the documents. It is not
necessary that the party to be charged sign each paper writing forming a part of the agreement where
the writings on their face relate to one another.”) Kelso’s invoices show the fuel was “Sold To: East-
West Truck Stop, Inc.” When payment was not forthcoming, Kelso drafted the Unconditional
Guaranty as additional security for the outstanding debt and, in return, took “the pressure off” Webb.
Although it would have been more accurate to list the correct name of the corporate entity as the
“buyer”, we believe the “buyer” was sufficiently identified for purposes of satisfying the Statute of
Frauds, especially in light of Webb’s admission the corporation did business as East West Truck
Stop. The Trial Court’s concluding the “buyer” was the corporate entity and that Webb personally
guaranteed this corporate debt prevented the Unconditional Guaranty from being “an exercise in
futility.” Creative Resource Management, supra. We affirm the Trial Court’s judgment on this
issue.
Webb’s next argument centers around the Trial Court’s conclusion there was adequate
consideration to support the Unconditional Guaranty. Webb argues the “consideration for the
guaranty as stated on the face of the instrument is the sale of goods (i.e. fuel) to Frank Webb d/b/a
East West Truck Stop . . . , not to the customer shown on the invoices, East West Truck Stop Inc.”
Because the Trial Court found the consideration to be forbearance to pursue collection, Webb
contends the Trial Court improperly used parol evidence to find consideration, in violation of the
Statute of Frauds. We disagree. The Unconditional Guaranty states the consideration is the “sale
of goods … and other good and valuable consideration.” Webb admitted he signed the documents
so Kelso would forbear taking legal action (i.e. not “pressure” him), and this result was achieved
after he signed the document. This is certainly “other good and valuable consideration” to support
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the agreement. We do not believe the Statute of Frauds required Kelso to list every possible form
of consideration supporting the Unconditional Guarantee, assuming the consideration is required to
be in writing. See Love and Amos Coal Co. v. United Mine Workers of America, 53 Tenn. App. 37,
56, 378 S.W.2d 430,439 (1963)(discussing cases which observed “it is not necessary that the
consideration of the promise be stated in writing in order to maintain an action under the Statute of
Frauds.”). We also note that the record shows that Kelso continued, at least for some time after the
execution of the Unconditional Guaranty, to sell goods to the “buyer.”
The final issue on appeal is Defendants’ claim the Trial Court erred in dismissing
their counterclaim wherein they asserted the interest charged by Kelso was usurious and in violation
of Tenn. Code Ann. § 47-14-101, et seq. In its judgment, the Trial Court awarded “late charges” on
the balance owed on the invoices at the annual rate of 18%. Defendants claim the “late charges”
were actually interest.2 Kelso claims they were late charges and not interest, relying on Wilson v.
Dealy, 222 Tenn. 196, 200, 434 S.W.2d 835, 837 (1968)(“Whether a charge imposed because of late
payment of a debt is compensation for the continued use of the money owed depends upon whether
the late charge is made as consideration for an extension of the time for payment or as compensation
for the damage done to the creditor by the debtor’s failure to pay his debt when due.”). The only
argument advanced by Defendants on this issue is that the Trial Court found forbearance to be the
consideration for the Unconditional Guaranty. Defendants argue, therefore, payment for this
forbearance is properly classified as interest under the relevant statute. The Trial Court did find
forbearance to be sufficient consideration for the Unconditional Guaranty. Plaintiff, however, is not
seeking these specific damages or compensation based solely on the terms of the Unconditional
Guaranty. Rather, this compensation is sought pursuant to the open account, payment of which was
guaranteed by the Unconditional Guaranty. The late charges imposed by the invoices were not made
as consideration for an extension of time for payment as the invoices, by their terms, never agreed
to any extension of time for payment. The late charges under the invoices constitute compensation
for the damage done to Kelso by the corporation’s failure to pay the debt when due. See Id. As
stated, the only argument advanced by Defendants is that the late charges awarded must constitute
interest pursuant to the terms of the Unconditional Guaranty. Since the terms of the Unconditional
Guaranty are not relevant insofar as to the purpose of the “late charges” provided for in the invoices,
we reject this argument, and find no error by the Trial Court relevant to this issue.
2
The parties stipulated at trial that the maximum interest rate Kelso would have been able to charge was 10%
in accord ance with T enn. Code Ann. § 47-14-103 (2), assuming this statute applies.
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Conclusion
The judgment of the Trial Court is affirmed, and this cause is remanded to the Trial
Court for such further proceedings as may be required, if any, consistent with this Opinion. The
costs on appeal are assessed against the Appellants East West Truck Stop, Inc., and Frank Webb, and
their surety.
___________________________________
D. MICHAEL SWINEY, JUDGE
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