INTERSTATE ELECTRIC SUP CO v. BLANCHARD, 682 N.W.2d 81 (Iowa App. 2004)

No. 3-415 / 02-1705Court of Appeals of Iowa.
Filed March 10, 2004

Appeal from the Iowa District Court for Polk County, Gregory A. Hulse, Judge.

Interstate Electric Supply Co. appeals the district court’s ruling granting summary judgment in favor of Mike Blanchard in an action to enforce a personal guaranty of corporate accounts receivable. AFFIRMED.

Michael D. Ensley and Thomas D. Hanson of Hanson, Bjork
Russell, LLP, Des Moines, and Robert J. Murray and Shun-Lee Fong of Lamson, Dugan Murray, LLP, Omaha, Nebraska, for appellant.

Daniel M. Weddle and Mark D. Walz of Davis, Brown, Koehn, Shors Roberts, P.C., Des Moines, for appellee.

Heard by Huitink, P.J., and Vaitheswaran and Eisenhauer, JJ.

HUITINK, P.J.

Interstate Electric Supply Co. appeals the district court’s ruling granting summary judgment in favor of Mike Blanchard in an action to enforce a personal guaranty of corporate accounts receivable.

I. Background Facts Proceedings

Central Iowa Service, L.L.C., an electrical contracting business, was formed by Blanchard and Bill Vanderpool in January 1994. Under the terms of Central Iowa Service, L.L.C.’s credit agreement with Interstate Electric, Blanchard personally guaranteed Central Iowa Service, L.L.C.’s accounts with Interstate.

Central Iowa Service, L.L.C was dissolved in 1995 after Vanderpool left the company. On December 22, 1995, Blanchard incorporated a new company called Central Iowa Service, Inc. This corporation continued to purchase supplies on credit from Interstate Electric.

In this case Interstate Electric sued Blanchard to recover Central Iowa Service, Inc.’s delinquent account balance accrued in 2000 and 2001. Blanchard denied liability, claiming the terms of his 1994 guaranty limited his liability to Central Iowa Service, L.L.C.’s account with Interstate. The trial court subsequently granted Blanchard’s motion for summary judgment and dismissed Interstate’s claims against Blanchard. The trial court found:

The guarantee in this case was executed on a form furnished by Plaintiff. It is clear and unambiguous. The company” Central Iowa Service” is designated to be an “L.L.C.” Central Iowa Service, Inc., which is admitted to be a separate business entity, is not mentioned.

On appeal Interstate argues:

The trial court should have ruled that Blanchard continues to serve as the guarantor for the debts incurred by Central Iowa Service, even though he incorporated it, because the company underwent no material change of identity and there was no material increase of the risk assumed by him.

II. Standard of Review

We review a district court’s ruling on a motion for summary judgment for correction of errors of law. Financial Mktg. Servs., Inc. v. Hawkeye Bank Trust of Des Moines, 588 N.W.2d 450, 455 (Iowa 1999). Summary judgment will be upheld when the moving party shows there is no genuine issue of material fact and the party is entitled to judgment as a matter of law. See Iowa R. Civ. P. 1.981(3). In reviewing a motion for summary judgment, we consider the evidence in a light most favorable to the party opposing the motion. Crippen v. City of Cedar Rapids, 618 N.W.2d 562, 565 (Iowa 2000).

III. The Merits

A contract of guaranty is one in which the guarantor has the absolute right to prescribe the exact terms upon which to enter, and thereby may “plant himself on the technical obligation. . . .”Schoonover v. Osborne, 108 Iowa 453, 457, 79 N.W. 263, 264 (1899) (citation omitted). The court in Schoonover went on to state:

`A rule never to be lost sight of in determining the liability of a surety or a guarantor is that he is a favorite of the law, and has a right to stand on the strict terms of his obligation, when such terms are ascertained. This is a rule universally recognized by the courts, and is applicable to every variety of circumstances.’

Id. (citation omitted). The liability of a guarantor cannot be extended by implication when the terms of the guaranty are clearly established. Harman v. Hartman, 178 Iowa 912, 917, 160 N.W. 295, 297 (1916).

Here, the terms of Blanchard’s 1994 guaranty expressly and clearly limited his obligation to Central Iowa Service, L.L.C.’s account with Interstate. To extend his obligation to include a distinct successor entity conflicts with the strict limitations on guaranty liability expressed in Schoonover and Hartman. In the absence of any indication that the supreme court is prepared to overrule either, we decline to follow the rationale of other courts that have reached the opposite conclusion. See e.g., Fehr Bros., Inc. v. Scheinman, 509 N.Y.S.2d 304, 308 (N.Y. 1986) (holding a change in corporate name and operation was not enough to discharge the personal guaranty).

Lastly, we reject Interstate Electric’s claim that Blanchard’s failure to notify it of Central Iowa Service, L.L.C.’s dissolution extended Blanchard’s guaranty. A guarantor’s obligations are defined by the terms of the guaranty, and in the absence of any notice required in the guaranty, Blanchard had no duty to notify Interstate of Central Iowa Service, L.L.C.’s dissolution. See e.g., A.M. Byers v. Hickman Grain Co., 112 Iowa 451, 455-57, 84 N.W. 500, 502 (1900). There are simply no circumstances here justifying an extension of Blanchard’s duties beyond the express terms of his guaranty.

We accordingly affirm the district court’s ruling granting Blanchard summary judgment.

AFFIRMED.