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Air Sea International Forwarding, Inc. v. Global Imports and Trading, Inc.

2008 WL5070702 (U.S. Dist. Ct. D. N.J. 2008) (Unpublished)

GUARANTIES — Where a guaranty expressly states that it covers only certain charges pursuant to an underlying credit agreement, the guarantor is not liable for other charges imposed by the credit agreement because, in New Jersey, guaranty agreements are strictly construed and their coverage will not be expanded beyond the terms of the guaranty itself.

A rug importer sold Indian rugs to a retail store and agreed to deliver them within two weeks. Since the importer was a newly formed entity with little capital or credit history, it did not have sufficient funds to pay the shipping costs to have the rugs shipped from India and delivered to the retailer within such a short time frame. Therefore, the importer entered into an agreement with an international freight forwarder to facilitate the shipment of the rugs from India for delivery to its customer. The freight forwarder required the company to enter into a credit agreement. It also required the importer’s principals to sign personal guaranties, wherein they guaranteed payment of “50% of the credit balance of air freight, clearance and delivery charges incurred.” When the importer failed to pay the balance owed pursuant to the credit agreement, the freight forwarder sued the importer and the guarantors. The freight forwarder argued that the personal guaranty incorporated the terms of the credit agreement. Therefore, the guarantors were responsible to pay 50% of all the freight forwarder’s invoices, as well as its interest charges, and a 35% collection fee.

The United District Court noted that the freight forwarder’s argument to expansively construe the guaranty to include charges not specifically referenced in the guaranty was contrary to applicable precedent. In New Jersey, guaranty agreements are strictly construed and must be interpreted against the person at whose insistence the guaranty was written. Thus, the Court rejected the freight forwarder’s claims that the guarantor was responsible for 50% of consultation fees, interest charges, and collection fees. It found that the guaranty did not include consulting fees and the inclusion of such fees would improperly expand the scope of the guaranty. The Court also found that since the guaranty did not enumerate interest payments incurred by the freight forwarder as part of the credit agreement, the guarantors were not obligated to pay it. Lastly, it found that the freight forwarder was not entitled to a collection fee from the guarantors. According to the Court, under the “American Rule,” each party is obligated to pay its own costs and legal fees unless there is a statute authorizing such fees or there is an agreement between the parties that states otherwise. The American Rule does not prohibit parties from shifting responsibility for the payment of costs and legal fees, but any cost shifting agreements are to be strictly construed pursuant to a general policy that does not favor it. In this case, the Court found that the freight forwarder was not entitled to a collection fee from the guarantors because the guaranty was limited to air freight, clearance, and delivery charges and nothing else.

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