ALETA A. TRAUGER, District Judge.
Pending before the court is the Motion for Summary Judgment filed by defendants Kemper Design Center, Inc., Jerome Berkemeyer, Jim Berkemeyer, and Edward Spar (Docket No. 15), to which the plaintiff has filed a response (Docket No. 20), and in support of which the defendants have filed a reply (Docket No. 21). For the reasons discussed below, the defendants' motion will be granted in part and denied in part.
Defendant Kemper Design Center, Inc. ("Kemper") is a defunct company that sold ceramic tile, stone, and granite countertops and served as a dealer for products manufactured by plaintiff Crossville, Inc. ("Crossville").
On February 29, 2008, Kemper signed a promissory note to Crossville for $239,479.29 (the "First Note"), to be paid in 12 monthly installments of $19,956.60, plus interest.
The note was secured by personal guaranties, also signed on February 29, 2008, from the three shareholders of Kemper: defendants Jerome Berkemeyer, Jim Berkemeyer, and Edward Spar (collectively, "the Guarantors" or the "individual defendants"). The guaranty agreements stated, in relevant part: "This Guaranty shall be continuing, absolute and unconditional, and shall apply to and cover all renewals, extensions and modifications of the Indebtedness."
The Guaranty further provided:
(Id. at 3.)
It is undisputed that, between April and December 2008, Kemper sent nine checks to Crossville, as required by the terms of the First Note. Each of these checks indicated that it was in payment of the "Crossville loan"; some checks included more specific notations, such as "Payment # 1— Note" and "Payment # 2 of 12." (Id., Ex. 4 at 6-15.) Each of the checks, except for the first, itemized the amount of principal being paid (in each case, $19,956.60) and the amount of interest being paid (interest exceeded $1,000 for the earlier checks and fell to approximately $330 for the ninth check). (Id.)
Kemper continued to purchase products from Crossville on credit, but it began falling behind on those payments. At the end of 2008, Kemper entered into discussions with Jim Smith, Crossville's credit manager, regarding the execution of a new promissory note. Defendant Spar's affidavit states that the parties intended that this note "would include the remaining two
(Id., Ex. 4 at 16.)
Kemper executed a new promissory note (the "Second Note") on December 31, 2008, in the amount of $174,403.32. The note provided that it "replaces and modifies that certain Promissory Note of Kemper to Crossville, dated February 29, 2008, in the original principal amount of $239,479.29." (Docket No. 1, Ex. 2 at 4.) Jerome Berkemeyer signed the note on behalf of Kemper. The Second Note obligated Kemper to make monthly payments of $19,956.60 plus interest, with a final payment of $14,750.52 due on September 1, 2009. (Id. at 2.) Kemper sent Crossville a check dated December 31, 2008 for $20,175.71, which included $19,956.60 of principal. (Docket No. 16, Ex. 4 at 15.)
It is undisputed that Crossville requested that Spar and the Berkemeyers sign new guaranties contemporaneously with the Second Note. A December 22, 2009 email from Jim Smith to Kemper attached the blank Second Note form "along with the three Personal Guaranties." (Id., Ex. 1 at 11; see also id. at 8 (unexecuted guaranty form for Edward Spar); Docket No. 19, Ex. 1 ¶ 50 (affidavit of Smith stating that, "[d]ue to Kemper's financial position, Crossville would not have agreed and did not agree to revise, modify or extend the February 29, 2008 Promissory Note in any way without the owners' personal guaranties.")).
The individual defendants never signed the second set of guaranties, however. A February 9, 2009 email from Smith stated that he "really need[ed] the signed copies of the personal guarantees from the three guys ASAP ! ! ! !" (Docket No. 16, Ex. 1 at 14.) On February 23, 2009, Smith sent an email requesting that "the personal guarantees from Jerry, Jim and Ed" be sent "to [his] attention ASAP." (Id. at 15.) On February 27, 2009, Smith again wrote that he "really need[ed] an update ASAP and the original copies of the documentation" because "[Crossville had] auditors and they [were] breathing down [his] neck." (Id. at 17.)
In a response emailed to Smith on February 27, 2009, defendant Spar wrote that, because of Kemper's deteriorating economic condition, "the owners are not in a position to sign additional person[al] guarantees for the new note." (Id. at 22.)
(Id. at 23.)
Because of the company's cash flow problems, after December 31, 2008, Kemper failed to make any additional monthly payments on the Second Note.
Crossville subsequently filed suit in this court, seeking payment on the Second Note from Kemper, Spar, and the Berkemeyers. Crossville has asserted claims for breach of contract and unjust enrichment. It previously filed a Motion for Judgment on the Pleadings, arguing that, as guarantors, the individual defendants were liable for the entire balance of the Second Note. In response, the defendants argued that the increase in principal embodied by the Second Note was not a "modification" of the First Note to which the Guaranty applied. In denying the plaintiff's motion, the court held that, at a minimum, the term "modification" as used in the Guaranty "does not unambiguously cover major increases in Kemper's outstanding debt." (Docket No. 12 at 10-11.) The court noted that the parties were free to introduce parol evidence regarding the meaning of the term at the summary judgment stage. (Id. at 11.)
Federal Rule of Civil Procedure 56(c) requires the court to grant a motion for summary judgment if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). If a moving defendant shows that there is no genuine issue of material fact as to at least one essential element of the plaintiff's claim, the burden shifts to the plaintiff to provide evidence beyond the pleadings "set[ting] forth specific facts showing that there is a genuine issue for trial." Moldowan v. City of Warren, 578 F.3d 351, 374 (6th Cir.2009); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "In evaluating the evidence, the court must draw all inferences in the light most favorable to the [plaintiff]." Moldowan, 578 F.3d at 374.
"`[T]he judge's function is not . . . to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial.'" Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). But "the mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient," and the plaintiff's proof must be more than "merely colorable." Anderson, 477 U.S at 249, 252, 106 S.Ct. 2505. An issue of fact is "genuine" only if a reasonable jury could find for the plaintiff. Moldowan, 578 F.3d at 374 (citing
As an initial matter, the parties dispute whether the Second Note is properly characterized as adding principal to the outstanding balance of the First Note. During 2008, Kemper made monthly payments on the First Note and, at the same time, continued to order products from Crossville on credit. In addition to the note payments, Kemper made a number of separate payments to Crossville to pay down this line of credit. (See Docket No. 19, Ex. 1 ¶¶ 13-49 (recounting payments made by Kemper in 2008).)
The defendants argue that, when the parties executed the Second Note in December 2008, there was $59,869.89 of outstanding principal on the First Note. (Docket No. 16 at 4.) They claim that the Second Note added approximately $115,000 of principal to this outstanding balance, which reflected the amount due on invoices for products ordered after February 2008. This view is supported by the December 18, 2008 email from Crossville's credit manager, Jim Smith, which stated:
(Docket No. 16, Ex. 4 at 16.)
Although Crossville concedes the authenticity of that email, it argues that it has retroactively decided to apply the monthly note payments to Kemper's line of credit. (Docket No. 20 at 8-9.) The plaintiff has submitted an affidavit from Jim Smith indicating that, in light of the way Crossville has now decided to allocate the payments, the principal balance of the First Note in December 2008 was at least $177,355.08. (See Docket No. 19, Ex. 1 ¶¶ 48-49.) Smith states that the Second Note modified the First Note by reducing the principal balance to $174,403.32 and extending the maturity date from March 1, 2009 to September 1, 2009. (Id. ¶ 50.)
In his affidavit, Smith acknowledges that this is inconsistent with his December 18 email, which explicitly stated that the balance of the First Note was $59,869.89:
(Id. ¶ 51.) Ultimately, Crossville claims that the defendants are liable for $158,700.12 of unpaid principal from the First Note. (Docket No. 20 at 8-9.)
The plaintiff argues that the notes and the Guaranty allow it to retroactively change the application of Kemper's payments. (Docket No. 20 at 9 ("[A]ll of those statements were made prior to Crossville exercising its right to apply Kemper's payments first to Kemper's Indebtedness to Crossville for materials supplied . . . on credit account, . . . and then to the Indebtedness secured by the February 29, 2008 Promissory Note.").) But the plaintiff
The Guaranty provided that, "[i]n the event that the Indebtedness of [Kemper] to [Crossville] shall so exceed any amount to which this Guaranty is limited, if any, any payments by [Kemper] . . . may first be applied by [Crossville] to any portion of the Indebtedness which exceeds the limits of this Guaranty." (Id., Ex. 3 at 2.) This clause arguably allowed Crossville to apply any given payment from Kemper to the line of credit before applying it to the balance of the First Note.
It is a longstanding rule in Tennessee that, once a creditor has applied a payment to a particular debt, it may not unilaterally change the application of that payment, particularly to the detriment of a guarantor.
This accords with the rule in other jurisdictions. See, e.g., Federal Land Bank v. Wilson, 719 F.2d 1367, 1371 (8th Cir.1983) ("Where an application of payment has been made and the debtor notified, the debt is discharged. Only assent of the parties can justify reapplication after the creditor has applied the payment and notified the debtor."); Industrial Inv. Corp. v. Rocca, 100 Idaho 228, 596 P.2d 100, 104 (1979) ("[O]nce a creditor has applied a payment to an obligation for which a guarantor is bound, the guarantor is discharged to the extent of the payment and the creditor may not thereafter alter or modify such application."); Reserve Ins. Co. v. Gayle, 393 F.2d 585, 589 (4th Cir. 1968) (noting the "established principle that once a creditor has applied a payment to an obligation for which a surety or guarantor is bound, the latter is discharged to the extent of the payment, and the creditor may not thereafter alter or modify such application"); Olson Constr. Co. v. United States, 332 F.2d 981, 984 (10th Cir.1964) ("[A] payment once made and applied cannot be recalled or otherwise applied without the consent of the surety . . . ."); see also 60 Am.Jur.2d Payment § 67 (2010) ("[A] creditor who applies a payment in a particular way is bound by this act and cannot afterward change the application without the debtor's consent, at least where such application has been communicated to the debtor. . . . Once a payment has been applied to an obligation for which a surety or guarantor is bound, such surety or guarantor is discharged to the extent of the payment, unless they agree to the change." (footnotes omitted)); 70 C.J.S. Payment § 58 (2010) ("After the creditor has made an application of a payment and has notified the debtor, it may not be altered except by mutual consent." (footnotes omitted)).
Here, the undisputed evidence shows that, at the time Crossville received Kemper's monthly payments, it applied them to the balance of the First Note. Smith's email to Kemper plainly stated that, as of December 18, 2008, the balance of the First Note was $59,869.89.
By their terms, the defendants' guaranties apply to "all renewals, extensions and modifications" of the First Note. The plaintiff argues that the individual defendants
Under Tennessee law, the interpretation of written documents, like the documents at issue in this case, is a matter of law appropriate for the court to decide. See, e.g., Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn.2006). "A cardinal rule of contract interpretation is to ascertain and give effect to the intent of the parties." Id. (citing Christenberry v. Tipton, 160 S.W.3d 487, 494 (Tenn.2005)). The starting point for ascertaining the intent of the parties is to examine the plain meaning of the words to determine whether the language is ambiguous. Id. (citing Planters Gin Co. v. Fed. Compress & Warehouse Co., 78 S.W.3d 885, 889-90 (Tenn.2002)). Generally, language in a contract is ambiguous when it is "susceptible to more than one reasonable interpretation." Id. A commercial guarantor, however, "shall be held to the full extent of his engagements," and "the rule in construing [guaranties] is that the words of the guaranty are to be taken as strongly against the guarantor as the sense will admit.'" Samick Music Corp. v. Hoy, No. M2008-00441-COA-R3-CV, 2008 WL 4682216, at *2, 2008 Tenn.App. LEXIS 639, at *7 (Tenn.Ct.App. Oct. 22, 2008) (quoting Farmers-Peoples Bank v. Clemmer, 519 S.W.2d 801, 805 (Tenn.1975)).
This court previously held that, even construing the Guaranty against the individual defendants, the term "modification" is ambiguous, in that it does not unambiguously cover a threefold increase in outstanding principal.
In MCI, the Supreme Court analyzed a federal statute that authorized the FCC to "modify" certain requirements binding on telecommunication companies. Id. at 224, 114 S.Ct. 2223. The Court stated that "[t]he word `modify' — like a number of other English words employing the root `mod-' . . ., such as `moderate,' `modulate,' `modest,' and `modicum,' — has a connotation of increment or limitation." Id. at 225, 114 S.Ct. 2223. "Virtually every dictionary we are aware of says that `to modify' means to change moderately or in minor fashion." Id. Thus, the Court concluded that the "small-scale world of `modifications'" does not include "fundamental changes." Id. at 228-29, 114 S.Ct. 2223;
If a contract is ambiguous, the court may consider parol evidence, including the contracting parties' statements and conduct, to "guide the court in construing and enforcing the contract." Allstate, 195 S.W.3d at 612 (citing Memphis Housing Auth. v. Thompson, 38 S.W.3d 504, 512 (Tenn.2001)). Here, the evidence submitted by the parties shows that they did not intend the Guaranty to apply to large-scale increases in outstanding principal.
First, the affidavits from the individual defendants state that they only intended to guarantee $239,479.29 of principal, the amount of the First Note. Second, and more important, the parties' conduct during the negotiation and execution of the Second Note indicates that nobody expected the initial guaranties to apply to the newly added principal. Crossville sent new guaranty agreements for Spar and the Berkemeyers to sign that explicitly guaranteed the full amount of the Second Note. It is undisputed that Crossville expected and desired the defendants to sign the new guaranties. For example, Smith's February 27, 2009 email to defendant Spar stated: "When [Crossville] renewed the note to assist Kemper it was with the complete understanding that all three of you would sign the personal guarantees." (Docket No. 16, Ex. 1 at 23.) Crossville's persistent and increasingly frantic attempts to have the defendants execute the new guaranties illustrate the importance of the guaranties to Crossville. The obvious implication is that the original guaranties were not intended to serve as guaranties of the full amount of the Second Note. If they were, new guaranty agreements would have been unnecessary.
In light of this evidence, the court finds that the February 29, 2008 guaranties were not intended to apply to so-called "modifications" of the First Note that add a relatively large amount of new principal to the outstanding balance. The Second Note added approximately $115,000 of principal to an outstanding balance of approximately $60,000. Besides nearly tripling the outstanding balance, the new principal was almost half of the original note amount. This was a fundamental change to the First Note, not a mere "modification," and the individual defendants are not liable as guarantors for the $115,000 of additional principal.
The plaintiff devotes most of its brief to an attempt to revisit this court's decision that the term "modification" is ambiguous, a reading that the plaintiff criticizes as
The plaintiff argues that MCI is irrelevant because, in that case, the Supreme Court was analyzing a statute, not a promissory note. (Id.) But the plaintiff does not argue or explain why the dictionary definitions discussed in MCI are inapplicable here. The dictionary definition (and thus the plain meaning) of a word does not change depending on whether the word is used in a statute or in a contract. Notably, the plaintiff's brief does not discuss the dictionary definition of "modification."
Instead, the plaintiff cites a number of cases, only one of which is firmly on point, in which courts or parties have used the word "modification" to refer to a change to a promissory note. The most relevant case discussed by the plaintiff is Donell v. Perpetual Investment, Inc., No. 2:04-CV-01172, 2006 WL 2792396, 2006 U.S. Dist. LEXIS 71741 (D.Nev. Sept. 27, 2006). In Donell, the defendant company executed a promissory note for $1,517,000, and the company's owner, defendant Robert Rippe, signed the note both on behalf of the company and as personal guarantor. Id. at *1, 2006 U.S. Dist. LEXIS 71741, at *1. Six months later, the company signed a "renewal, extension and/or modification agreement" that increased the principal amount to $1,692,000. Id. at *1, 2006 U.S. Dist. LEXIS 71741, at *2. Rippe again signed on behalf of the company but did not sign as guarantor. Id. The full amount of the principal was due on the note's maturity date, and the company ultimately failed to make that payment. Id.
The Nevada district court, applying Nevada law, held that, because the modification "[did] not change the terms of the original note" and provided that all previous terms and conditions "shall remain in full force and effect," the modified note "constitute[d] a clear and unambiguous adoption by reference of all previous terms and conditions, including the guaranty." Id. at *1-2, 2006 U.S. Dist. LEXIS 71741, at *4-5. Thus, Rippe was still liable as guarantor. Id. at *2, 2006 U.S. Dist. LEXIS 71741, at *5. The court further stated:
Id.
Donell is distinguishable from the instant case in several key respects. First, in Donell, the increase of principal was $175,000, which constituted only approximately 12% of the outstanding balance of $1,517,000. This relatively minor increase is much smaller than the nearly 200% increase at issue in this case. Second, the guarantor in Donell apparently signed the note itself. The court was not interpreting the language of a separate guaranty agreement, and the case did not directly address the meaning of "modification." Third, as the Donell court noted, there was no evidence that the parties did not intend the guarantor to assume liability for the increased amount. Here, there is such evidence.
The other cases cited by the plaintiff are inapposite. In Beal Bank, S.S.B. v. RBM Co., No. 03A01-9902-CH-00041, 1999 WL 1076931, 1999 Tenn.App. LEXIS 790 (Tenn.Ct.App. Nov. 30, 1999), the court,
Similarly, several of the other cases cited by the plaintiff involve "modifications" other than increases of principal. These cases discuss changes to notes' terms that, although material, are not analogous to tripling the outstanding principal of the note.
In the plaintiff's remaining cases, the modifications at issue did increase principal, but, when the principal was added, the guarantors agreed to guarantee the new amount. Wachovia Bank, N.A. v. Anderson, No. 3:09CV630, 2010 WL 2024488, at *1, 2010 U.S. Dist. LEXIS 48786, at *2 (E.D.Va. May 18, 2010) (the principal on a note was increased from $14.6 million to $15.9 million, but the guarantors agreed to guarantee the increased amount); FDIC v. Bristol Home Mortg. Lending, LLC, No. 08-81536-CIV, 2009 WL 2488302, at *1, 2009 U.S. Dist. LEXIS 74683, at *2 (S.D.Fla. Aug. 13, 2009) (when a promissory note for a $1 million line of credit was increased to $1.95 million, the defendant "unconditionally guaranteed payment of the modified note"); Sovereign Bank v. JARD Mktg. Corp., No. 08-4483-A, 2009 WL 1383744, at *1, 2009 Mass.Super. LEXIS 103, at *2 (Mass.Super.Ct. Apr. 23, 2009) (the guarantors themselves executed a "Note Modification Agreement" "by which they personally guarantied the [increased] principal amount"); Hous. Dev. Fund, Inc. v. 130 Main St. Dev., LLC, No. FSTCV085007937S, 2009 WL 1140489, at *1, 2009 Conn.Super. LEXIS 881, at *1-2 (Conn.Super.Ct. Mar. 26, 2009) (principal on a $4,925,000 promissory note was increased by approximately 5%, and "the parties," apparently including the initial guarantors, approved the increase); Nat'l City Bank v. Rini, 162 Ohio App.3d 662, 834 N.E.2d 836, 837 (Ohio Ct.App.2005) (the principal on a note was increased from $200,000 to $300,000, and the defendant signed a guaranty for $300,000). Again, these cases do not address the argument
In sum, none of the cases cited by Crossville supports its contention that "modification," as used in the Guaranty, unambiguously covers the significant amount of principal added by the Second Note. In light of the parol evidence submitted by the defendants, the court finds that the individual defendants are not liable as guarantors for repayment of that $114,533.43 of principal.
The individual defendants further argue that they are not liable as guarantors for any part of the Second Note. (Docket No. 16 at 10.) The court finds, however, that they are still liable for the portion of the Second Note representing Kemper's indebtedness from the First Note.
As discussed above, $59,869.89 of principal from the First Note was incorporated into the Second Note, which, by its terms, "replace[d]" the First Note. (Docket No. 1, Ex. 2 at 4.) The Guaranty provided that the defendants guaranteed "[a]ll indebtedness. . . of [Kemper] now or hereafter . . . owing pursuant to any and all other instruments. . . now or hereafter evidencing or securing the indebtedness and obligations owing by [Kemper] to [Crossville] pursuant to the [First Note]." (Docket No. 1, Ex. 3 at 2.) The $59,869.89 of outstanding principal from the First Note that Kemper rolled over into the Second Note is ultimately "indebtedness . . . owing . . . pursuant to" the First Note, so the individual defendants' guaranties continue to apply to that debt.
The undisputed evidence shows that, in December 2008 and June 2009, Crossville applied payments of $19,956.60 and $2,947.27, respectively, to the principal balance of the Second Note.
Thus, the court must decide how to apportion the payments. Mason v. Smith & Harris, 79 Tenn. 67, 74 (Tenn. 1883) ("[T]here was no application of the payment by any of the parties. The application must therefore be made by the law."); Restatement (Second) of Contracts § 260(1) (1981) ("If neither the debtor nor the creditor has exercised his power with respect to the application of a payment. . ., the payment is applied to debts to which the creditor could have applied it with just regard to the interests of third persons, the debtor and the creditor."), quoted in Alside Supply Ctr. v. Vinson, 802 S.W.2d 632, 635 (Tenn.Ct.App.1990); see also 20 Tenn. Jur. Payment § 13 ("The court makes the application of the payments when the parties do not. . . . The court will apply a payment as justice and equity may dictate at the time the court
The Restatement provides that, in allocating a debtor's payments, the court should give preference "to an unsecured or precarious debt rather than one that is secured or certain of payment." Restatement (Second) of Contracts § 260(2)(b)(ii). But in Blackmore v. Granbery, 98 Tenn. 277, 39 S.W. 229 (1897), the Tennessee Supreme Court rejected this approach. Rather than following the common law rule of giving preference to "the most precarious debt," the court adopted the civil law rule, which states that a court should apply payments "to discharge debts for which a surety is bound, rather than to one where the debtor has given no surety." Id. at 230. Alternately phrased, "application ought to be made to the debt for which the debtor has given securities, rather than to those he owes singly." Id. at 230-31 (quotation marks omitted); see also 20 Tenn. Jur. Payment § 13 ("Payments will be applied to discharge debts for which a surety is bound, rather than to one where the debtor has given no surety.") The Tennessee Supreme Court subsequently recognized this rule in Southern Construction Co. v. Halliburton, 149 Tenn. 319, 258 S.W. 409, 414-15 (1923).
Accordingly, the court will apply all of Kemper's payments to the portion of the Second Note secured by the individual defendants' guaranties. As a result, the individual defendants are liable as guarantors for $36,966.02 of the principal balance of the Second Note, plus contractual interest and fees.
The plaintiff seeks to recover its attorney's fees and 18% prejudgment interest on the amounts owed by the defendants. (Docket No. 1 ¶ 27.) Both the First Note and the Second Note provide that, "[i]n case of litigation to collect this note . . ., Kemper shall pay all costs incident to collection, including reasonable attorney's fees actually incurred." (Docket No. 1, Ex. 2 at 2.) Both notes also provide that, upon acceleration due to default, interest shall accrue at 18%. (Id. at 2-3.) The Guaranty specifically allows Crossville to recover reasonable attorney's fees pursuant to "collection of the indebtedness." (Docket No. 1, Ex. 3 at 1.)
The defendants argue that the court should equitably reduce the attorney's fees and interest recoverable from Kemper itself because Kemper has admitted that it owed $151,499.45 on the Second Note, making litigation against the company unnecessary.
The defendants also argue that the attorney's fees and interest recoverable from the individual defendants should be reduced, because they are not liable for the entirety of the Second Note. (Id. at 12-13.) This argument is unpersuasive. The Guarantors deny liability for any amount under the Second Note,
Finally, the defendants argue that the plaintiff's unjust enrichment claim against the Guarantors should be dismissed. (Docket No. 16 at 13-14.) The elements of an unjust enrichment claim are: "(1) a benefit conferred upon the defendant by the plaintiff, (2) appreciation by the defendant of such benefit; and (3) acceptance of such benefit under such circumstances that would be inequitable for the defendant to retain the benefit without payment of the value thereof." Freeman Indus., LLC v. Eastman Chemical Co., 172 S.W.3d 512, 525 (Tenn.2005).
The evidence here is sufficient to support the plaintiff's unjust enrichment claim. In December 2008, Crossville converted the money owed on Kemper's outstanding invoices into the Second Note. According to the affidavit of Crossville's credit manager, Kemper (specifically, defendant Spar) requested this conversion because the company was experiencing cash flow problems. (Docket No. 19, Ex. 1 ¶ 50.) Clearly, then, the promissory note provided some tangible benefit to the defendants. The evidence submitted by both parties also clearly shows that the parties had, at the very least, discussed the possibility that the individual defendants would guarantee the full amount of the Second Note. (See Docket No. 16, Ex. 1 at 11, 23.) But, after Kemper executed the note, the individual defendants waited more than two months to inform Crossville that they would not sign new guaranties. A reasonable juror could find that this delay was inequitable.
The defendants argue that the unjust enrichment claim should fail because (1) a valid contract existed among
In sum, the court will dismiss the unjust enrichment claim as to Kemper and will set the claim for trial as to the individual defendants.
For all of the reasons discussed above, the court will grant in part and deny in part the defendants' Motion for Summary Judgment. The court finds that the liability of the individual defendants as guarantors is $36,966.02, plus contractual interest and fees. In addition, the court will dismiss the unjust enrichment claim as to defendant Kemper.
An appropriate order will enter.
(Docket No. 1, Exs. 3-5 at 2.)
The most relevant clause from the First Note states that, "[u]nless Crossville elects otherwise, all payments . . . shall be applied first to the payment of interest as herein provided, then to amounts of principal." (Docket No. 1, Ex. 1 at 2.) This speaks to the allocation of payments between interest and principal, but it is ambiguous whether it allows Crossville to elect to apply payments to Kemper's separate and unrelated debts. None of the First Note's other terms contemplate that Crossville might apply Kemper's monthly payments to separate debts.
Regardless, for the purposes of this Memorandum, the court will assume that, upon receipt of the payments, Crossville had the initial right to apply them as it desired.
The plaintiff calls this statement "completely unsupported by law or logical analysis" and states that the court should have "(1) determine[d] what `modifications' the parties intended the Guaranty to cover; and (2) determine[d] whether the parties intended the so-called Second Note to be a `modification' covered by the Guaranty." (Docket No. 20 at 12.) But the Guarantors were not parties to the Second Note, which was executed by Kemper. Furthermore, the court is determining what "modifications" the parties intended the Guaranty to cover and whether the parties intended that term to encompass a relatively large addition of principal.
Obviously, this conversation occurred after the defendants had already refused to sign the new guaranties. No evidence indicates that, before that refusal, Crossville believed and intended that the original guaranties applied to the additional principal.
