Friday, October 07, 2005

Whoaa—Supremes affirm a District court summary judgment, from Judge Burns no less. Construction contractor who gave personal guaranty to Nebco for supplying cement could not present sufficient evidence that his subsequent self-incorporation abrogated his existing guaranty. Summary judgment for Plaintiff affirmed. NEBCO, Inc. v. Adams, 270 Neb. 484 October 7, 2005. No. S-04-652. NEBCO, Inc., on behalf of its division Ready Mixed Concrete Company (Ready Mixed), filed an action in the district court for Lancaster County against appellant, Randy Adams, seeking payment pursuant to a personal guaranty contract which Adams had executed to guarantee the cost of purchases of concrete by Adams' business from Ready Mixed. Adams' business was identified in the guaranty as "Adams Concrete Construction." At the time Adams signed the guaranty, Adams Concrete Construction was a sole proprietorship. Adams' business was subsequently incorporated as "Adams Concrete Construction Inc." As he argued in district court, Adams claims on appeal that the guaranty is limited to the debts of the sole proprietorship and does not extend to the debts of the corporation. Adams therefore contends that he is not liable for the debts incurred by his corporation, which debts NEBCO sought to recover in this action. The district court determined that Adams was liable on the guaranty and granted NEBCO's motion for partial summary judgment on the issue of liability. The parties stipulated to damages without prejudice to the issue of liability, and the court entered judgment in favor of NEBCO. Adams appeals. Because we conclude that Adams is liable under the guaranty for the debts at issue, we affirm. [Whether subsequent incorporation of a party to the guaranty contract abrogates the guaranty depends on the intention of the parties and the extent it alters their business relationship] Fehr Bros. v Scheinman, 121 A.D.2d 13, 19, 509 N.Y.S.2d 304, 308 (1986), stated: The test which has evolved is to determine whether the changes in the entity, the debts of which . . . are guaranteed[,] significantly alter the business dealings between the debtor and the creditor and the nature of the guarantor's undertaking, in particular the degree of risk the guarantor is being obligated to assume. Whether changes in the principal [debtor] are of sufficient magnitude to justify releasing a guarantor is a determination courts must make on a case-by-case basis. Fehr Bros., Inc. v. Scheinman, 121 A.D.2d 13, 509 N.Y.S.2d 304, 307-08 (1986). Courts agree that minimal changes do not affect a guarantor's obligation. See Annotation, Change in Name, Location, Composition, or Structure of Obligor Commercial Enterprise Subsequent to Execution of Guaranty or Surety Agreement as Affecting Liability of Guarantor or Surety to the Obligee, 69 A.L.R.3d 567, 572 (1976). The incorporation did not change the relationship between Ready Mixed and Adams' business. Referring to the record, there was no evidence that Adams' business underwent a change which altered Adams' relationship to his business. To the contrary, based on the evidence presented by NEBCO, Adams continued to control his business after incorporation with no resulting change in the risk he had undertaken as guarantor of the business account. NEBCO presented evidence showing it was entitled to judgment on the guaranty contract if the evidence was uncontroverted at trial. The burden shifted to Adams, and Adams did not present evidence which showed the existence of a material issue of fact that prevented judgment.

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