Frontier Fiscal Services LLC v. Pinky's Aggregates, Inc.

Filed 5/28/19 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2019 ND 147Frontier Fiscal Services, LLC, Plaintiff and Appellee
v.
Pinky’s Aggregates, Inc.,
and Dale Honsey, Defendants and Appellants
No. 20180329
Appeal from the District Court of McKenzie County, Northwest Judicial
District, the Honorable Daniel S. El-Dweek, Judge.
AFFIRMED.
Opinion of the Court by McEvers, Justice.
Trevor A. Hunter (argued) and Lisa M. Six (on brief), Williston, ND, for
plaintiff and appellee.
Matthew D. Kirschenmann (argued) and Michael T. Andrews (on brief), Fargo,
ND, for defendants and appellants.
Frontier Fiscal Services v. Pinky’s Aggregates
No. 20180329
McEvers, Justice.
[¶1] Pinky’s Aggregates, Inc., and its president, Dale Honsey, appeal from a
judgment awarding Frontier Fiscal Services, LLC, $526,253.12 in its action for breach
of contract and to collect on a personal guaranty. Because Pinky’s and Honsey failed
to raise a genuine issue of material fact to preclude summary judgment, we affirm.
I
[¶2] Honsey is the president and owner of Pinky’s, which is in the business of
providing sand, gravel, and other aggregate and excavation and hauling services. In
2016 the Department of Transportation contracted with Baranko Brothers, Inc., which
subcontracted with Pinky’s to supply material and labor for a construction project.
Pinky’s entered into at least 16 hauling agreements with sub-subcontractors to
transport gravel and aggregate for the project. Many of the sub-subcontractors
assigned their accounts receivable under the hauling agreements to Frontier, which
provides invoice factoring services, purchasing receivables at a discount in exchange
for an immediate cash payment. Pinky’s received notice of the assignments and made
payments to Frontier for the sub-subcontractors’ invoices.
[¶3] Pinky’s eventually fell behind on its payments to Frontier, and Frontier in turn
ceased factoring for the sub-subcontractors. The sub-subcontractors refused to do any
more work for Pinky’s unless Frontier resumed factoring services for them. The
situation resulted in Honsey signing a personal guaranty with Frontier as “an
Individual & President of Pinky’s.”
[¶4] After Pinky’s failed to pay Frontier in full, Frontier brought a breach of
contract action against Pinky’s and sought to collect on the personal guaranty signed
by Honsey. The district court granted Frontier’s motions for summary judgment
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against Pinky’s and Honsey and held them jointly and severally liable for
$526,253.12.
II
[¶5] Pinky’s and Honsey argue genuine issues of material fact precluded the district
court from granting summary judgment against them.
[¶6] The standard of review for summary judgments is well established:
Summary judgment is a procedural device under N.D.R.Civ.P.
56(c) for promptly resolving a controversy on the merits without a trial
if there are no genuine issues of material fact or inferences that can
reasonably be drawn from undisputed facts, or if the only issues to be
resolved are questions of law. The party seeking summary judgment
must demonstrate there are no genuine issues of material fact and the
case is appropriate for judgment as a matter of law. In deciding
whether the district court appropriately granted summary judgment, we
view the evidence in the light most favorable to the opposing party,
giving that party the benefit of all favorable inferences which can
reasonably be drawn from the record. A party opposing a motion for
summary judgment cannot simply rely on the pleadings or on
unsupported conclusory allegations. Rather, a party opposing a
summary judgment motion must present competent admissible evidence
by affidavit or other comparable means that raises an issue of material
fact and must, if appropriate, draw the court’s attention to relevant
evidence in the record raising an issue of material fact. When
reasonable persons can reach only one conclusion from the evidence,
a question of fact may become a matter of law for the court to decide.
A district court’s decision on summary judgment is a question of law
that we review de novo on the record.
Becker v. Burleigh Cty., 2019 ND 68, ¶ 7, 924 N.W.2d 393 (quoting Dahms v. Nodak
Mut. Ins. Co., 2018 ND 263, ¶ 6, 920 N.W.2d 293).
A
[¶7] Pinky’s argues because an assignee receives no greater rights than the assignor,
see Collection Ctr., Inc. v. Bydal, 2011 ND 63, ¶ 15, 795 N.W.2d 667, Frontier had
the burden to establish that the sub-subcontractors complied with their various hauling
contracts. Pinky’s does not claim any of the sub-subcontractors failed to comply with
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the hauling contracts. Rather, Pinky’s argues that Frontier failed to present evidence
that the sub-subcontractors timely and correctly completed paperwork, that they raised
their dispute about nonpayment in a timely fashion, that they maintained proper
hauling records, and that Pinky’s consented to the assignments.
[¶8] Pinky’s’ argument is without merit. Frontier presented the following
deposition testimony of Honsey:
Q. So then a follow-up question to that would be, you do
believe that Pinky’s owes monies to Frontier Fiscal for the factoring
we’ve been talking about?
A. Absolutely. . . . I mean, I owe the money; Pinky’s owes
the money, I’m not disputing that whatsoever.
Q. So the only—okay. So you’re not contesting any
assertion made against Pinky’s in the complaint by Frontier in this
matter?
A. No.
Q. You’re not contesting any claims made by Pinky’s—or
excuse me—made by Frontier in the complaint in this matter?
A. Huh–uh.
....
Q. . . . . Certain notices of assignment were filed in this
action listing the assignment of certain debts of these leased truckers to
Frontier. You’ve seen those notices of assignment; right?
A. Right.
Q. And you believe they’re valid?
A. Yes.
Q. And you don’t have any reason to believe they’re invalid
or—
A. No.
Q. So you would agree with me that the money that was
meant for the subcontractors that Pinky’s owed to those subcontractors
following the notice of assignment was due Frontier; is that fair?
A. Right.
Q. And those subcontractors actually did work for Pinky’s;
right?
A. Right.
Q. And were they entitled to be paid for that work?
A. Yes.
Q. Did they get paid in full for that work?
A. No.
Q. Has Pinky’s paid Frontier in full?
A. No.
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....
Q. Do you believe Pinky’s has any reason why that money
is not owed to Frontier Fiscal today?
A. None, whatsoever.
Q. And just to confirm, you don’t have any documents
showing otherwise; right?
A. No.
Q. And you don’t have any documents showing that Pinky’s
paid Frontier in full for the amounts we just discussed?
A. No.
[¶9] It is undisputed that Pinky’s did not complain about the work performed under
the hauling contracts, the paperwork, timeliness of disputes about nonpayment or the
hauling records. Honsey admitted in a deposition that Pinky’s owes the money under
the hauling contracts to Frontier, that he had seen the assignments, and that the
assignments were valid. Honsey’s testimony establishes that Pinky’s consented to the
assignments. Honsey signed the hauling agreements as president of Pinky’s and is
presumed to have knowledge of their contents. See Hendricks Prop. Mgmt. Corp. v.
Birchwood Props. Ltd. P’ship, 2007 ND 181, ¶ 23, 741 N.W.2d 461. The burden of
proof ordinarily rests with the party who possesses the facts on the issue in dispute.
Monster Heavy Haulers, LLC v. Goliath Energy Servs., LLC, 2016 ND 176, ¶ 17, 883
N.W.2d 917. Summary judgment is appropriate when a party fails to establish the
existence of a factual dispute on an essential element of a claim on which the party
will bear the burden of proof at trial. Baker Boyer Nat. Bank v. JPF Enters., LLC,
2019 ND 76, ¶ 10, 924 N.W.2d 381. Pinky’s offered no evidence to establish
noncompliance with the hauling contracts.
[¶10] We conclude there are no genuine issues of material fact precluding summary
judgment against Pinky’s.
B
4
[¶11] Pinky’s and Honsey raise numerous issues regarding validity of the personal
guaranty.
[¶12] Honsey argues the guaranty is ambiguous because it is unclear whether Honsey
signed on behalf of Pinky’s or in his individual capacity. The guaranty, which was
signed by Honsey “[a]s an Individual & President of Pinky’s,” provides in relevant
part:
I, Dale Honsey as Pinky’s Aggregate’s (Pinky’s) Owner & President do
personally guarantee the prompt, full and complete performance of the
terms of this agreement and any Pinky’s Payable to Frontier Fiscal
Services, LLC (Frontier).
I, Dale Honsey personally guarantee that Seven Hundred and Ninty
[sic] Thousand dollars ($790,000.00) from the funds resulting from a
One Million Dollar loan that is currently being submitted to committee
for approval at the Rollette State Bank will be paid within one business
day of loan funding (via wire) to Frontier. The entire $790,000.00 are
to be applied by Frontier against the oldest invoices owed to Frontier
by Pinky’s.
I, Dale Honsey agree not to pledge, hypothecate, mortgage, sell or
otherwise transfer any of Pinky’s’s pledged assets that are these
Frontier receivables without written consent of Frontier; . . . .
Pinky’s and I, Dale Honsey represent that at the time of the execution
and delivery of this Guarantee nothing exists to impair the effectiveness
of this Guarantee[.]
Because Honsey testified in his deposition that he believed he signed the guaranty as
president of Pinky’s rather than in his individual capacity, Honsey argues the guaranty
is ambiguous and there is a genuine issue of material fact precluding summary
judgment.
[¶13] Section 22-01-01(2), N.D.C.C., defines a “guaranty” as “a promise to answer
for the debt, default, or miscarriage of another person.” (Emphasis added.) Since
entities and persons are unable to guarantee their own debts, courts will not construe
guaranties signed in both a representative and individual capacity as constituting a
guaranty by the entity involved because to do so would render the guaranty a nullity.
See, e.g., Nat. Fitness Ctr., Inc. v. Atlanta Fitness, Inc., 902 F. Supp. 2d 1098, 1106
5
(E.D. Tenn. 2012); Ubom v. SunTrust Bank, 17 A.3d 168, 174-75 (Md. Ct. App.
2011); 780 L.L.C. v. DiPrima, 611 N.W.2d 637, 645-46 (Neb. Ct. App. 2000); 38 Am.
Jur. 2d Guaranty § 19 (2010). As the court explained in Lab. Corp. of Am. v.
McKown, 829 So.2d 311, 313-14 (Fla. Dist. Ct. App. 2002):
Simply because the letter was written on corporate stationery
and the designation “President” appears over McKown’s signature does
not necessitate a finding that the guarantee is ambiguous. Florida
courts have consistently adhered to the general rule that an individual
who executes a guarantee as officer of a corporation by inserting his or
her corporate title after their name on the document cannot defeat the
purpose of the guarantee when, by its terms, the document contains
provisions for individual liability. See Robert C. Malt & Co. v. Carpet
World Distribs., Inc., 763 So.2d 508, 510 (Fla. 4th DCA 2000) (stating
that personal liability may be imposed “where the contract contains
language indicating personal liability or the assumption of personal
obligations, despite a signature preceded by a corporate name and the
word ‘by’ and followed by descriptio personae.”) (citation omitted);
Nelson v. Ameriquest Techs., Inc., 739 So.2d 161 (Fla. 3rd DCA 1999);
Summit Consulting, Inc. v. J.J. Walsh Constr., Inc., 568 So.2d 1290(Fla.App.2d Dist.1990); Central Nat’l Bank of Miami v. Muskat Corp.
of Am., Inc., 430 So.2d 957 (Fla. 3rd DCA 1983); see also Sabin v.
Lowe’s of Florida, Inc., 404 So.2d 772, 773 (Fla. 5th DCA 1981) (“The
fact that he signed it ‘as president’ should not alter the plain and
obvious meaning and intent expressed in the document.”). The reason
for the general rule is that “[t]o interpret the guaranty as being a
corporate guaranty because the word president was added to [the]
signature would result in the guaranty being meaningless and add
nothing to the existing obligation of the corporation.” Summit, 568
So.2d at 1292 (citing Muskat Corp. Inc.; Roy v. Davidson Equip., Inc.,
423 So.2d 496 (Fla. 4th DCA 1982)).
[¶14] Here, the guaranty provides “I, Dale Honsey personally guarantee that . . .
$790,000.00 . . . will be paid . . . to Frontier . . . to be applied by Frontier against the
oldest invoices owed to Frontier by Pinky’s.” The guaranty is not ambiguous. As a
matter of law, Honsey personally guaranteed Pinky’s’ debt notwithstanding that he
also signed the document as president of the corporation.
[¶15] Honsey argues a clause in the guaranty waiving legal defenses is void under
N.D.C.C. § 9-08-05, which provides:
6
Every stipulation or condition in a contract by which any party thereto
is restricted from enforcing that party’s rights under the contract by the
usual legal proceedings in the ordinary tribunals or which limits the
time within which that party thus may enforce that party’s rights is
void, except as otherwise specifically permitted by the laws of this
state.
Honsey also argues the clause requiring payment of Frontier’s attorney fees is void
under N.D.C.C. § 28-26-04, which bars provisions for attorney fees in certain
agreements as against public policy. There are two problems with Honsey’s
arguments. First, neither clause was applied in this case. The district court addressed
Honsey’s legal defenses in its lengthy order granting summary judgment and did not
award Frontier attorney fees. Second, even if we assume for purposes of argument
that the clauses are invalid, N.D.C.C. § 9-04-04 provides: “When a contract has
several distinct objects, of which one at least is lawful and one at least is unlawful in
whole or in part, the contract is void as to the latter and valid as to the rest.” The
guaranty can be construed to give effect to its lawful objectives without consideration
of the allegedly invalid clauses. See Schue v. Jacoby, 162 N.W.2d 377, 383 (N.D.
1968). Honsey’s argument is without merit.
[¶16] Honsey argues that he did not freely consent to the guaranty, which makes it
voidable under N.D.C.C. § 9-03-04, because he made a mistake of fact, see N.D.C.C.
§ 9-03-13, and believed he signed the guaranty on behalf of Pinky’s and not in his
individual capacity. A mistake of fact consists of “[a]n unconscious ignorance or
forgetfulness of fact, past or present, material to the contract,” or the “[b]elief in the
present existence of a thing material to the contract which does not exist, or in the past
existence of such a thing which has not existed.” N.D.C.C. § 9-03-13. Honsey’s
mistaken belief that by signing the personal guaranty in both his personal and
representative capacities Pinky’s was guaranteeing its own debt does not amount to
a mistake of fact as defined by the statute. Honsey’s misunderstanding of the effect
of signing the guaranty in dual capacities was not a mistake of fact because he was
aware of the fact that he needed to guarantee the debt for Frontier to continue
factoring for the sub-subcontractors. See Lange v. Cusey, 379 N.W.2d 775, 779 (N.D.
7
1985) (misunderstanding of the effect of a legal document is not a mistake of fact if
person claiming mistake was aware of the facts as they really were). Honsey’s
misunderstanding also does not qualify as a mistake of law under N.D.C.C. § 9-03-14,
which requires either a “misapprehension of the law by all parties” or a
“misapprehension of the law by one party of which the others are aware at the time
of contracting, but which they do not rectify.” There is no evidence that both parties
were aware of Honsey’s misunderstanding or that Frontier was aware of Honsey’s
misunderstanding and failed to rectify it. See Lange, at 779.
[¶17] We have concluded Pinky’s could not guarantee Pinky’s’ debt. Honsey signed
the guaranty in his personal capacity, even though he included his representative
capacity for the corporation. The guaranty clearly states “I, Dale Honsey personally
guarantee.” Parol evidence is not admissible to contradict unambiguous terms of a
written agreement. See, e.g, In re Estate of Dionne, 2009 ND 172, ¶ 16, 772 N.W.2d
891. Honsey cannot challenge with parol evidence the unambiguous statement that
he personally guaranteed Pinky’s’ debt.
[¶18] Honsey argues the guaranty is void for lack of consideration under N.D.C.C.
§ 22-01-03, because it was not entered into at the same time as the original obligation
and there is no evidence of consideration distinct from the original obligation.
Frontier argues distinct consideration consists of Pinky’s and Honsey being able to
meet their obligation to Baranko because sub-subcontractors would quit unless
Frontier provided additional factoring for them and Frontier would not do so without
a guaranty.
[¶19] The existence of consideration is a question of law, see Anderson v.
Zimbelman, 2014 ND 34, ¶ 18, 842 N.W.2d 852, and good consideration for a
contract is any benefit conferred or detriment suffered. See Molbert v. Kornkven,
2018 ND 120, ¶ 15, 910 N.W.2d 888. Consideration need not be expressed in a
guaranty. See N.D.C.C. § 22-01-04. Pinky’s was conferred a benefit by being able
to continue operations and Honsey was similarly conferred that benefit as Pinky’s’
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president and owner. We conclude Honsey received good consideration for the
personal guaranty.
[¶20] We conclude the district court did not err in granting summary judgment
against Honsey on his personal guaranty.
III
[¶21] Frontier seeks an award of costs and attorney fees against Pinky’s for a
frivolous appeal. For purposes of N.D.R.App.P. 38, “[a]n appeal is frivolous if it is
flagrantly groundless, devoid of merit, or demonstrates persistence in the course of
litigation which could be seen as evidence of bad faith.” Witzke v. City of Bismarck,
2006 ND 160, ¶ 19, 718 N.W.2d 586. We do not find Pinky’s’ appeal to be frivolous,
and we deny Frontier’s request.
IV
[¶22] It is unnecessary to address other arguments raised because they are either
unnecessary to the decision or are without merit. We affirm the judgment.
[¶23] Lisa Fair McEvers
Jon J. Jensen
Jerod E. Tufte
Mark T. Blumer, D.J.
Gerald W. VandeWalle, C.J.
[¶24] The Honorable Mark T. Blumer, D.J., sitting in place of Crothers, J.,
disqualified.
9