791 F.2d 519 (7th Cir. 1986), 85-2152, Amoco Oil Co. v. Ashcraft

Docket Nº:85-2152.
Citation:791 F.2d 519
Party Name:AMOCO OIL COMPANY, Plaintiff-Appellee, v. Glyndon R. ASHCRAFT and Carolyn S. Ashcraft, Defendants-Appellants, Charles Bowlby Oil Co., Inc., Charles E. Bowlby, and Dorothy J. Bowlby, Defendants.
Case Date:May 20, 1986
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 519

791 F.2d 519 (7th Cir. 1986)

AMOCO OIL COMPANY, Plaintiff-Appellee,


Glyndon R. ASHCRAFT and Carolyn S. Ashcraft, Defendants-Appellants,

Charles Bowlby Oil Co., Inc., Charles E. Bowlby, and Dorothy

J. Bowlby, Defendants.

No. 85-2152.

United States Court of Appeals, Seventh Circuit

May 20, 1986

Argued Feb. 26, 1986.

J. Lee McNeely, McNeely & Sanders, Shelbyville, Ind., defendants-appellants.

Brian K. Burke, Baker & Daniels, Indianapolis, Ind., plaintiff-appellee.

Page 520

Before BAUER and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit judge.

POSNER, Circuit Judge.

Amoco brought this diversity suit to collect a debt of $62,000 from the Charles Bowlby Oil Company. It joined as additional defendants the Ashcrafts, who had guaranteed Bowlby Oil Company's debts, and Mr. and Mrs. Bowlby, who had done likewise. Apparently neither the Bowlby company nor the Bowlbys have any assets, although they remain as parties defendant in the district court. The Ashcrafts counterclaimed against Amoco for fraud and breach of contract. The district judge granted Amoco's motion for summary judgment against the Ashcrafts, and entered judgment in its favor for the full $62,000 and dismissed the counterclaims. He made the judgment final and appealable under Fed.R.Civ.P. 54(b). The Ashcrafts have appealed, raising interesting questions of contract law which the parties agree are governed by the common law of Indiana.

In 1981 Bowlby Oil Company was a franchised wholesaler of Amoco products, mainly home heating oil and gasoline, in Shelby County, Indiana. The company had fallen on evil days, and owed Amoco more than $200,000, though its credit limit was only $100,000. Glyndon Ashcraft, a successful small businessman--the sole owner of a trucking firm that had $5 million in annual sales--bought Bowlby Oil Company for $150,000. A few days after the deal closed, Ashcraft and his wife signed a document entitled "Unlimited Guaranty." (The Bowlbys had signed a similar guaranty when they had received the Amoco franchise in 1975.) In it they "Unconditionally Guarantee[d] Payment When Due ... of any and all indebtedness, including interest thereon, of [Bowlby Oil Company] to [Amoco], howsoever such indebtedness may arise, whether as principal, guarantor, indorser or otherwise, now or hereafter existing ...." According to Mr. Ashcraft's affidavits and deposition, which we must treat as truthful for purposes of deciding whether summary judgment for Amoco was proper, Amoco's local manager, Warrick, had told Ashcraft that he and his wife must sign the guaranty to continue doing business with Amoco and that it was only a guaranty of debts arising out of Ashcraft's operation of the company, not of the preexisting debt of $200,000.

Under Ashcraft's management Bowlby Oil Company managed to reduce its debt to Amoco--at one point to as low as $44,000. But the improvement was temporary. Although Amoco extended fresh credit to Bowlby Oil Company, the company continued to flounder, and after only six months of operation Ashcraft abandoned it, with Bowlby Oil Company owing Amoco $62,000; this suit followed. It seems that Mr. Bowlby had misrepresented the financial health of his company when he sold it to Ashcraft, for he later agreed to return the purchase price in exchange for a release of any claims that Ashcraft might have against him for misrepresentation.

The Ashcrafts make three arguments why it was wrong for the district judge to grant summary judgment for Amoco. The first is that the guaranty is ambiguous and Ashcraft should therefore be allowed to testify to the interpretation that Warrick placed on it. Indiana adheres to the ancient, mysterious, and much-derided distinction between "patent" and "latent" ambiguities in contracts and wills. Ohio Casualty Group of Ins. Cos. v. Gray, 746 F.2d 381, 383 (7th Cir.1984); Hauck v. Second Nat'l Bank, 153 Ind.App. 245, 261-64, 286 N.E.2d 852, 862-64 (1972); see generally Goetz & Scott, The Limits of Expanded Choice: An Analysis of the Interactions Between Express and Implied Contract Terms, 73 Calif.L.Rev. 261, 268 n. 13 (1985); Comment, The Problem of the "Unomitted Spouse" Under Section 2-301 of the Uniform Probate Code, 52 U.Chi.L.Rev. 481, 502 n. 102 (1985), and references cited there. If the ambiguity is patent, oral testimony is inadmissible to eliminate it; if...

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