Professional Veterinary Products, Ltd. v. Pharmakon Long Term Care Pharmacy, Inc. f/k/a LIberty Express Scripts, Inc., Paul Elmer, and Veterinary Inventory Solutions, Inc.

• Court: Indiana Court of Appeals
• Decided: October 18, 2012
• Docket: 49A02-1110-CC-980
• Status: Unpublished

Opinion

Pursuant to Ind. Appellate Rule 65(D), this Memorandum Decision shall not be regarded as precedent or cited before any court except for the purpose of establishing the defense of res judicata, collateral estoppel, or the law of the case.

ATTORNEYS FOR APPELLANT: ATTORNEY FOR APPELLEES:

FRED PFENNINGER DAVID F. McNAMAR Pfenninger & Associates McNamar & Associates, P.C. Indianapolis, Indiana Indianapolis, Indiana

FILED JACK H. FRISCH Jack H. Frisch & Associates Indianapolis, Indiana Oct 18 2012, 9:08 am

CLERK IN THE of the supreme court, court of appeals and tax court

COURT OF APPEALS OF INDIANA

PROFESSIONAL VETERINARY ) PRODUCTS, LTD., ) ) Appellant/Plaintiff/Counter-Claim ) Defendant, ) ) vs. ) No. 49A02-1110-CC-980 ) PHARMAKON LONG TERM CARE ) PHARMACY, INC. f/k/a LIBERTY EXPRESS ) SCRIPTS, INC., PAUL ELMER, and ) VETERINARY INVENTORY SOLUTIONS, INC., ) ) Appellees/Defendants/Counter-Claimants. )

APPEAL FROM THE MARION SUPERIOR COURT The Honorable Heather A. Welch, Judge Cause No. 49D12-0710-CC-43004

October 18, 2012 MEMORANDUM DECISION - NOT FOR PUBLICATION

BRADFORD, Judge

Appellant/Plaintiff/Counterclaim-Defendant Professional Veterinary Products, LTD

(“PVP”) appeals the trial court’s order limiting Appellee/Defendant/Counterclaimant Paul

Elmer’s personal liability for certain purchases by Appellee/Defendant/Counterclaimant

Veterinary Inventory Solutions, Inc. (“VIS”) to $3000. We affirm.

FACTS AND PROCEDURAL HISTORY1

PVP is a Nebraska-based company which distributes animal health care products to

licensed veterinarians and veterinary hospitals. VIS was an Indiana corporation that was

organized to supply medical products to veterinary hospitals and veterinarians by a

computerized inventory control system. Ordinarily, PVP would require that customers hold a

veterinary license, but a special exception was made for VIS, which did not hold a veterinary

license. In light of this special exception, VIS was allowed to order directly from PVP.2 VIS

was solely owned by Stuart Reed and was led by Brad Sandler, who served as VIS’s

president.

Elmer was the president of Liberty Express Scripts (“LES”).3 LES is a long-term care

pharmacy that is licensed under Indiana law as a pharmacy for supplying drugs to persons in

1 We heard oral argument in this matter on September 6, 2012, and wish to thank counsel for their presentations. 2 In order to satisfy the requirement that the buyer hold a veterinary license, PVP’s management arranged for a San Jose, California veterinarian to be the designated veterinarian for VIS. 3 LES is now called Parmakon Long Term Care Pharmacy (“Parmakon”). However, because Parmakon was called LES at all times relevant to this appeal, we will continue to refer to it as LES.

2 long-term care facilities, i.e., nursing homes. Elmer originally believed that he was a

stockholder in VIS, but subsequently learned that he was not. Sandler was never employed

by nor had any involvement with LES.

At some point prior to May 5, 2006, Elmer visited PVP’s company headquarters with

Sandler. While at PVP, Elmer and Sandler met with Lionel Riley and Steve Price of PVP.

Sandler, in his representative capacity of VIS, was contemplating initiating a business

relationship with PVP and asked Elmer to join him on the tour of PVP’s facilities.

In order to help VIS get up and running, Elmer agreed, in his capacity as president of

LES, to submit a credit application to PVP on May 5, 2006, so that VIS could order product

on credit from PVP. This was necessary because VIS, a relatively new company, did not

have an adequate credit history to open a credit-based account with PVP. Elmer and Sandler

filled out the credit application in LES’s name so that VIS could begin ordering product from

PVP. LES never had any intention of purchasing product from PVP.

On May 9, 2006, PVP notified Elmer and LES that its credit application had been

approved and that LES was given an initial credit limit of $1000. PVP informed Elmer and

LES that it could increase LES’s credit limit to $3000 if LES opted to use PVP’s direct

payment option. In response to PVP’s offer of the increased $3000 credit limit, Elmer

submitted a direct payment authorization.

On or about May 10, 2006, a personal guaranty was also submitted to PVP. Sandler

testified that he, not Elmer, filled out the personal guaranty and that he used Elmer’s

3 signature stamp on the guaranty.4 The guaranty did not explicitly mention LES or VIS or

contain LES’s PVP account number. Instead, the personal guaranty listed Elmer as both the

applicant and the guarantor. It stated that Elmer guaranteed payment of the account balance,

plus interest and other charges, including reasonable attorney fees. The guaranty was termed

a continuing guaranty.

On or about May 11, 2006, Sandler placed an order for approximately $34,000 worth

of goods. In the coming months, VIS made multiple purchases from and payments to PVP.

Despite making some payments to PVP, over time, VIS amassed an outstanding balance of

approximately $98,000.

PVP filed suit against LES and Elmer on October 10, 2007, alleging that LES and

Elmer owed PVP the principle sum of $98,663.84 plus interest and attorneys’ fees. LES and

Elmer denied the claims levied by PVP. On October 15, 2009, LES and Elmer requested

permission from the trial court to amend their answer to include a counterclaim against PVP.

The trial court granted this request and LES and Elmer filed a counterclaim in which they

alleged that PVP had stolen certain computer software from VIS. VIS then requested, and

was granted, permission to intervene as an additional party defendant. VIS filed an

alternative counterclaim against PVP, alleging that PVP had stolen a computer program that

was developed by a former VIS employee for VIS.

The trial court conducted a bench trial on February 11, 2011 and March 11, 2011.

Following trial, the parties filed proposed findings and conclusions thereon. Upon reviewing

4 Elmer does not claim that the personal guaranty was filled out without his knowledge or permission.

4 the evidence presented at trial along with the parties’ proposed findings, on September 8,

2011, the trial court entered judgment against VIS in the amount of $214,788.62.5 The trial

court further determined that the personal guaranty signed by Elmer applied to VIS’s debt to

PVP, but was limited to $3000, and entered judgment against Elmer for $3000. This appeal

follows.

DISCUSSION AND DECISION

Initially, we note that PVP does not challenge the trial court’s determination that VIS,

not LES, should be responsible for the outstanding debts to PVP because the management of

PVP knew that it was conducting business with VIS rather than LES. Instead, PVP contends

that the trial court erred in determining that Elmer’s personal guaranty was limited to $3000,

and that, as such, he was not liable for any principle, interest, or attorneys’ fees in excess of

$3000. Elmer, for his part, contends that the trial court erred in determining that the personal

guaranty applies to VIS’s debts. Alternatively, Elmer contends that if the personal guaranty

does apply to VIS’s debts, the trial court correctly limited said guaranty to $3000.

I. Standard of Review

The parties assert that this court is reviewing a general judgment on appeal. “In the

absence of special findings, we review a trial court’s decision as a general judgment and,

without reweighing evidence or considering witness credibility, affirm if sustainable upon

any theory consistent with the evidence.” Perdue Farms, Inc. v. Pryor, 683 N.E.2d 239, 240

(Ind. 1997). However, where, as here, the trial court issues factual findings and conclusions

5 The trial court determined that VIS owed PVP $98,633.84 in principal, $79,455.41 in interest, and $36,699.37 in attorney’s fees.

5 thereon, we will set aside the trial court’s judgment only if it is clearly erroneous. In re

Marriage of Nickels, 834 N.E.2d 1091, 1095 (Ind. Ct. App. 2005).

When reviewing the trial court’s findings of fact and conclusions thereon, we apply a two-tiered standard of review. W & W Equip. Co. v. Mink, 568 N.E.2d 564, 569 (Ind. Ct. App. 1991), reh’g denied, trans. denied. First, we consider whether the evidence supports the findings. In determining whether findings are clearly erroneous, we construe the findings liberally in support of the judgment. Citizens Progress Co. v. James O. Held & Co., 438 N.E.2d 1016, 1022 (Ind. Ct. App. 1982). The findings are clearly erroneous only when a review of the record leaves us firmly convinced a mistake has been made. Cooper v. Calandro, 581 N.E.2d 443, 444-445 (Ind. Ct. App. 1991), reh’g denied, trans. denied. Next, we determine whether the findings support the judgment. A judgment is clearly erroneous when unsupported by the findings of fact and conclusions thereon. DeHaan v. DeHaan, 572 N.E.2d 1315, 1320 (Ind. Ct. App. 1991), reh’g denied, trans. denied. In applying this standard, we neither reweigh the evidence nor judge the credibility of the witnesses. Donavan v. Ivy Knoll Apts. Partnership, 537 N.E.2d 47, 50 (Ind. Ct. App. 1989). Rather, we consider the evidence that supports the judgment and the reasonable inferences to be drawn therefrom. Id. Finally, we must affirm the judgment of the trial court unless the evidence points incontrovertibly to an opposite conclusion. Id.

Scott v. Scott, 668 N.E.2d 691, 695 (Ind. Ct. App. 1996).

II. Indiana Authority Relating to Guaranties

A. Definition of Guaranties

“A guaranty is defined as a promise to answer for the debt, default, or miscarriage of

another person.” Grabill Cabinet Co. v. Sullivan, 919 N.E.2d 1162, 1165 (Ind. Ct. App.

2010) (internal quotation and citation omitted). “It is an agreement collateral to the debt

itself and represents a conditional promise whereby the guarantor promises to pay only if the

principle debtor fails to pay.” Id. (internal quotations omitted). “Under Indiana law, three

parties are required to execute a guaranty agreement: the obligor or principal debtor, the

6 obligee or creditor, and the guarantor or surety.” S-Mart, Inc. v. Sweetwater Coffee Co., 744

N.E.2d 580, 585 (Ind. Ct. App. 2001), trans. denied.

A continuing guaranty is defined as a guaranty that:

“contemplates a future course of dealing encompassing a series of transactions.... [A] contract is continuing if it contemplates a future course of dealing during an indefinite period, or if it is intended to cover a series of transactions or succession of credits, or if its purpose is to give to the principal debtor a standing credit to be used by him from time to time. A continuing guaranty covers all transactions, including those arising in the future, which are within the contemplation of the agreement.”

Id. (quoting 38 Am. Jur. 2d Guaranty § 20 (1999)); see also Vidimos, Inc. v. Vidimos, 456

N.E.2d 455, 458 (Ind. Ct. App. 1983) (“continuing guaranty is not limited to single

transaction, but contemplates a future course of dealing encompassing a series of

transactions”). “Moreover, a continuing guaranty ‘is not limited in time or amount and is

operative until revoked.’” S-Mart, 744 N.E.2d at 585 (quoting 49 Am. Jur. 2d Landlord and

Tenant § 819 (1995)).

B. Interpretation and Construction of Guaranties

The rules governing the interpretation and construction of contracts generally apply to the interpretation and construction of a guaranty contract. Kordick v. Merchants Nat’l Bank & Trust Co. of Indianapolis, 496 N.E.2d 119, 123 (Ind. Ct. App. 1986). The extent of a guarantor’s liability is determined by the terms of his or her contract. Id. The terms of a guaranty should neither be so narrowly interpreted as to frustrate the obvious intent of the parties, nor so loosely interpreted as to relieve the guarantor of a liability fairly within its terms. Id. The contract of a guarantor is to be construed based upon the intent of the parties, which is ascertained from the instrument itself read in light of the surrounding circumstances. Skrypek v. St. Joseph Valley Bank, 469 N.E.2d 774, 776 (Ind. Ct. App. 1984); Orange-Co., Inc. v. Brown, 181 Ind. App. 536, 393 N.E.2d 192, 195 (1979). A guarantor’s liability will not be extended by implication beyond the terms of his or her contract. Goeke v. Merchants Nat’l Bank & Trust Co. of

7 Indianapolis, 467 N.E.2d 760, 765 (Ind. Ct. App. 1984), trans. denied (1985). “A guarantor is a favorite in the law and is not bound beyond the strict terms of the engagement. Moreover, a guaranty of a particular debt does not extend to other indebtedness not within the manifest intention of the parties.” Id.

Id. at 585-86.

In absence of ambiguity, the construction of a guaranty is a question of law. Goeke,

467 N.E.2d at 765. However, “‘[i]f the court finds that any term is ambiguous, then the

parties may introduce extrinsic evidence of its meaning, and the interpretation of that term

becomes a question of fact.’” Id. (quoting Loudermilk v. Casey, 441 N.E.2d 1379, 1383 (Ind.

Ct. App. 1982)). “‘A word or phrase is ambiguous if reasonable people could differ as to its

meaning.’” Id. (quoting Loudermilk, 441 N.E.2d at 1383). Any ambiguities in a contract are

to be construed against the party who employed the language of the contract. Id. at 769.

III. Analysis

In the instant matter, the trial court determined that based on the circumstances

surrounding the submission of the personal guaranty by Elmer, it was unambiguous that

Elmer intended for the personal guaranty to apply to the debt incurred by VIS. The trial court

also determined that in light of these same circumstances, the personal guaranty should be

limited to $3000. While we find the guaranty itself to be ambiguous, we agree that the

personal guaranty should apply to the debt incurred by VIS and should be limited to $3000 in

light of our review of the surrounding circumstances and the extrinsic evidence that was

introduced by the parties.

The record demonstrates that Elmer, in his capacity as president of LES, submitted a

credit application to PVP on May 5, 2006. Although the credit application listed LES as the

8 applicant, the parties understood that VIS would actually be ordering product from PVP

through this account. On May 9, 2006, PVP sent a letter to Elmer “welcoming” him as a

customer. Appellee’s App. p. 11. The letter stated that PVP had “established an open terms

credit limit on [LES’s] account in the amount of $1,000.00.” Appellee’s App. p. 11. The

letter further stated that the credit limit could be increased to $3000 if LES would elect to

participate in PVP’s direct payment program.

At some point on or before May 9, 2006, PVP also sent Elmer a personal guaranty.

The personal guaranty was created by or on behalf of PVP and stated as follows:

In consideration for the extension of credit to above Applicant by [PVP] the undersigned, jointly and severally, personally and unconditionally, guarantees payment of the account balance to [PVP] plus the interest and other charges referred to in this application including reasonable attorney fees. This is a guaranty of payment. The guaranty is personal in nature and the undersigned acknowledges personal liability and consents to having a credit bureau report pulled. This is a continuing guaranty, subject to cancellation only by registered mail directed to [PVP].

Appellee’s App. p. 9. The personal guaranty had space for one to write in the applicant’s

name, the applicant’s address and fax and phone numbers, and the location where the

personal guaranty was executed. It also included a signature line for the guarantor’s name. It

did not have any space for one to write in the date that the guaranty was executed.

On or about May 10, 2006, the personal guaranty was returned to PVP. The personal

guaranty, as submitted, listed Elmer as both the applicant and the guarantor. It did not make

any mention of or reference to either LES or VIS or contain an execution date. Nothing in

the record suggests that PVP, upon receipt of the personal guaranty, inquired as to why

Elmer, not LES, was listed as the applicant or made any attempt to correct the alleged error.

9 Again, in construing a guaranty, a court must give effect to the intentions of the

parties, which are to be ascertained from the language of the contract in light of the

surrounding circumstances. Noble Roman’s, Inc. v. Ward, 760 N.E.2d 1132, 1138 (Ind. Ct.

App. 2002). Further, because the personal guaranty was created by or on behalf of PVP, any

ambiguities therein must be construed against PVP. See Goeke, 467 N.E.2d at 769. Here,

the personal guaranty, on its face, is ambiguous as it does not contain an execution date or

any reference to LES or VIS. However, when we consider the personal guaranty in light of

the credit application submitted by Elmer on behalf of LES, the May 9, 2006 letter sent to

Elmer by PVP, and the timing with which these documents were exchanged, we conclude

that it is clear that the parties intended for the personal guaranty to relate to LES’s credit

application, and that by signing the personal guaranty, Elmer intended to guarantee payment

for the products ordered by VIS though LES’s account. The trial court’s findings to this

effect are supported by the evidence.

Having concluded that Elmer’s personal guaranty applies to the purchases made by

VIS, we must next consider whether the record supports the trial court’s determination that,

despite the language indicating that the personal guaranty was a “continuing” guaranty,

Elmer signed the personal guaranty under the assumption that LES’s credit limit would be set

at $3000. The May 9, 2006 letter, which indicates that PVP was willing to set LES’s credit

limit at $3000, provides the only written evidence concerning LES’s credit limit. Nothing in

the record indicates that the PVP and Elmer ever discussed raising LES’s credit limit above

the $3000 indicated in the May 9, 2006 letter sent to Elmer by PVP. Elmer did not request or

10 give permission for credit to be extended to LES in excess of the $3000 and nothing in the

record indicates that Elmer was aware that PVP had allowed VIS to accumulate an account

balance greatly exceeding the stated $3000 credit limit set by PVP.

Again, it is well-established the nature and extent of a guarantor’s liability depends

upon the terms of his contract, and a guarantor cannot be made liable beyond the terms of the

guaranty. Noble Roman’s, 760 N.E.2d at 1138 (citing Fortmeyer v. Summit Bank, 565

N.E.2d 1118, 1122 (Ind. Ct. App. 1991)); S-Mart, 744 N.E.2d at 586; Goeke, 467 N.E.2d at

765. Here, examining the circumstances surrounding the execution of the personal guaranty,

we conclude that one could reasonably infer from the evidence that Elmer intended the

guaranty to be limited to $3000. As such, we cannot say that the trial court’s determination

to this effect is clearly erroneous.6

We further conclude that the trial court correctly limited Elmer’s liability to $3000

because the increase in liability from $3000 to $98,000 amounts to a material change in

Elmer’s risk and, as such, would require PVP to provide Elmer with notice of the increase in

his potential liability under the guaranty. See Phelps Dodge Corp. v. Schumacher Elec.

Corp., 415 F.3d 665, 668 (7th Cir. 2005) (holding that under Illinois law, while a grantor is

not required to notice for a modification to a guaranty due to fluctuations in price or other

expected terms, a party who has a guaranty cannot be permitted to make a material increase

of the risk that the guarantor will have to make good on the guaranty without notifying the

6 Having concluded that the trial court did not err in limiting Elmer’s liability under the personal guaranty to $3000, we further conclude that Elmer could not be held liable for interest and attorneys’ fees in any amount in excess of the $3000 covered by the personal guaranty.

11 guarantor so that he has an opportunity to cancel it or demand modifications); Cont’l Bank

N.A. v. Modansky, 997 F.2d 309, 314 (7th Cir. 1993) (holding that “a guarantor is not liable

for anything which he did not agree to and if the creditor and principal have entered into an

agreement materially different from that contemplated by the instrument of guaranty, the

guarantor shall be released”); S-Mart, 744 N.E.2d at 585-87 (providing that while a

continuing guaranty is generally not limited in amount, the guaranty will only extend to

modifications that are non-material or that are material but shown to be within the

contemplation of the parties at the time the agreement was executed in circumstances where

the guaranty applies to modifications of the underlying agreement that were made without the

consent by the guarantors); Skrypek, 469 N.E.2d at 777 (providing that a surety would be

discharged from liability where there were binding changes in the underlying contract to

which the guarantor or surety did not consent).

Here, nothing in the record indicates that the credit line covered by Elmer’s personal

guaranty was increased due to foreseeable fluctuations in price of the products sold to VIS,

but rather indicates that PVP merely granted VIS a large increase over the original credit

limit discussed by the parties. In addition, nothing in the record indicates that Elmer waived

notification of or consented to any potential future material altercations of the personal

guaranty. Thus, because we conclude that the increase from $3000 of potential liability to

approximately $98,000 of potential liability amounts a material change that would necessitate

notice to and consent from Elmer and that Elmer was neither notified of nor consented to this

material change, we further conclude that Elmer cannot now be held liable for the

12 approximately $95,000 of debt incurred by VIS above and beyond the $3000 contemplated

by the parties.

The judgment of the trial court is affirmed.

ROBB, C.J., and BAKER, J., concur.