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Andrew E. Hall & Son, Inc. v. K & K Builders, Inc.

A-3743-09T4 (N.J. Super. App. Div. 2011) (Unpublished)

GUARANTIES; PAROL EVIDENCE — Where the meaning of a guaranty is ambiguous, a court may ascertain the parties’ intent by accepting parol evidence.

A plumbing contractor and a home improvement contractor did business with each other for about fifteen years, with the former providing goods and services to the latter on a time and material basis. The parties enjoyed a good working relationship, and the home improvement contractor never complained about the cost of the plumbing contractor’s services or work.

Eventually, the home improvement contractor owed the plumbing contractor a large sum of money. This caused the plumbing contractor unease. When the plumbing contractor refused to provide additional goods or services, or to extend further credit, the principal of the home improvement contractor agreed to execute a personal guarantee. The parties signed an agreement providing, in part, that the principal understood that he was not to incur additional debt with the plumbing contractor; and that all future monies were to be paid upon receipt or within a 30-day grace period. Next to the home improvement contractor principal’s signature was the term “personally.” The plumbing contractor understood the agreement was not only a personal guarantee from the home improvement contractor’s owner to pay the outstanding debt, but also one to personally guarantee all future debts incurred. The home improvement contractor subsequently satisfied the outstanding debt.

After the home improvement contractor failed to timely repay subsequent charges, the plumbing contractor filed two lawsuits. The lower court found in favor of the plumbing contractor, noting that the home improvement contractor failed to present a defense and adopting the plumbing contractor’s explanation of the agreement.

On appeal, the home improvement contractor’s principal alleged that the guaranty he had signed was not a continuing personal guarantee. The Appellate Division agreed that the terms of the contract were ambiguous. While a plain reading of part of the agreement constituted a personal guarantee for past debts, the rest of the agreement was susceptible to two reasonable interpretations.

First, two disputed sentences suggested that the personal guarantee was a continuing one. The second of them referenced “all future monies,” suggesting that the parties considered not just the original obligation but also any debt that might be incurred in the future. Second, the sentences, when read alone could have been interpreted to mean that the home improvement contractor was to pay for future goods and services within thirty days of the date any goods are delivered or services rendered. Under the latter interpretation, the latter sentence provided the conditions under which the home improvement contractor would continue doing business with the plumbing contractor by adhering to the circumstances described in a third sentence, rather than relating to the guarantee provided earlier.

However, the lower court ascertained the parties’ intent in executing the agreement by accepting parol evidence. The plumbing contractor’s principal testified, without objection, that the guarantee was a continuing guarantee of future debt. He testified that the home improvement contractor’s principal told him that he would guarantee everything that was due and everything in the future, and that he wouldn’t have continued to extend credit in the absence of such an assurance. In affirming, the Court found that the lower court’s determination that the agreement contained a personal guarantee of future debt was supported by credible evidence in the record.

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