Cheek v. McGowan Elec. Supply Co.

• Decision Date: 20 August 1985
• Docket Number: No. AU-89,AU-89
• Citation: 483 So.2d 1373,10 Fla. L. Weekly 2012
• Court: Florida District Court of Appeals
• Parties: 10 Fla. L. Weekly 2012, 11 Fla. L. Weekly 612 Alan CHEEK, Appellant, v. McGOWAN ELECTRIC SUPPLY CO., Appellee.

Page 1373

483 So.2d 1373

10 Fla. L. Weekly 2012, 11 Fla. L. Weekly 612

Alan CHEEK, Appellant, v. McGOWAN ELECTRIC SUPPLY CO., Appellee.

No. AU-89.

District Court of Appeal of Florida,

First District.

Aug. 20, 1985.

As Clarified on Denial of Rehearing

March 11, 1986.

M. Stephen Turner of Culpepper, Beatty & Turner, Tallahassee, for appellant.

William C. Owen and W. Douglas Hall of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tallahassee, for appellee.

PER CURIAM.

Alan Cheek appeals, and McGowan Electric Supply Co. cross appeals a final judgment entered upon a jury verdict holding Cheek liable to McGowan on a promissory note. The appeal raises four issues; the cross appeal raises a single issue. We affirm.

ISSUE I

WHETHER THE TRIAL COURT ERRED IN FINDING CHEEK LIABLE FOR THIRTY-FIVE PERCENT OF THE IMPROPER CHARGES MADE TO THE GUARANTEED ACCOUNT.

This is a suit on a promissory note executed by appellant Cheek and one Thomas Cook on behalf of appellee McGowan, as payee. ¹ The note was delivered in satisfaction It is undisputed that, prior to the execution of the guaranty agreement by Cheek, McGowan had cut off Cook from further credit purchases of electrical supplies and that Cheek solicited McGowan to allow purchases by Cook so that Cook could continue to work on Cheek's construction jobs. The record further establishes that Cook had done Cheek's electrical work for about two years before Cheek undertook to guaranty his credit purchases from McGowan. Accordingly, Cheek signed a credit application for Cook with McGowan which contained the following wording:

of a sum owing for goods purchased by Cook from McGowan under a credit arrangement whereby Cheek acted as guarantor for credit purchases made by Cook from McGowan of electrical supplies to be used on Cheek's jobs.

We the undersigned do hereby give our personal guarantee of payment for all debts incurred and any finance charges incurred due to late payments on open account with McGowan Electric Supply Company by Thomas L. Cook--special account, Alan Cheek job, or by us and agree to pay all court cost and seller's attorney's fees if legal action should ever become necessary to collect any amounts owing.

There was no provision in the agreement that McGowan would "police" the account to see that Cook did not charge anything to the account that was not to be used in Cheek's jobs, and Cheek did not furnish McGowan with a list of jobs for which charges would be permitted.

Some three months after the credit application was signed, McGowan called Cheek to advise him of the account status and that money was owing. Thereafter, McGowan contacted Cheek concerning the account balance when the balance reached over $8,000; again when the account reached over $15,000; again when the account reached $17,000; and finally when the account reached over $20,000. The credit arrangement was terminated in December, 1977, although, pursuant to telephone calls from Cheek on three separate occasions, Cook was allowed to purchase additional materials from McGowan.

McGowan sought to collect from Cheek under the guaranty agreement. Ultimately, on April 18, 1978, Cheek signed a promissory note in the amount of $22,000. In the suit on the note, Cheek asserted as defenses, and the jury was charged on: (1) mistake based on the fact that there were charges on the account which were not in compliance with the limitations of Cheek's guaranty; and (2) McGowan's breach of the guaranty by failure to inform Cheek that improper charges were made by Cook to the account.

Crucial to these defenses was the question of whether Cheek exercised due diligence to learn of the improper charges and to prevent, or to inform the other side, of Cook's making of improper charges. For its part, McGowan conceded that Cheek would not be responsible under the guaranty for those materials purchased by Cook which McGowan knew or should have known were purchased not for use in Alan Cheek jobs. The jury was so instructed.

The trial court prepared and, with the acquiescence of the parties, submitted to the jury a verdict form ² and instructions In the special interlocutory verdict, the jury determined that there were "improper charges" to the account in the amount of $17,163, an amount which coincides closely with the charges Cheek's expert witness testified were based on invoices not referenced specifically to Cheek's jobs. The jury also found that McGowan knew or should have known of some improper charges, that Cheek failed to act reasonably in order to avoid improper charges being made to the account, and assigned McGowan 65 percent, and Cheek 35 percent, of the total responsibility for the improper charges. The court multiplied McGowan's percentage of fault times the "improper charges" and gave Cheek a credit for this amount, both on the note and finance charges. After making the final calculations, the court determined that the balance owed to McGowan by Cheek was $7,223.93 plus interest of $3,268.55, for a total of $10,492.48.

which allowed the jury to apportion the responsibility ³ between McGowan and Cheek for the improper charges of the impecunious electrical subcontractor, Thomas Cook. This was an eminently sensible handling of the matter, and the result is fair to both sides and is supported by the record, which shows that both McGowan and Cheek each had some opportunity to verify whether the charges being made and the goods being delivered were in fact for use on Alan Cheek jobs. The jury evaluated the responsibility of each and found each side partially responsible. Appellant now objects to the trial court's application of that verdict to allocate to each side a portion of the improper charges.

The concept of negligence is recognized in Florida and under the Uniform Commercial Code (UCC) in contract matters. Earlier Florida cases referred to the concept as "a lack of due diligence;" ⁴ subsequent cases have used the term "negligence." ⁵

                The trial court here, in order, no doubt, to avoid any confusion with the similar tort doctrine, framed the question as whether the guarantor of the note "acted reasonably in order to avoid improper charges being made to the account."   These instructions, which also allowed the jury to find responsibility on the part of McGowan to the extent it "knew or should have known" of improper charges, are, indeed, more favorable to the appellant than they are required to be but, in any event, are not subject to the challenge asserted by appellant here
                

First of all, as maker of a promissory note, appellant was required, in establishing his defenses of mistake, misrepresentation, and/or failure of consideration, to negate negligence or lack of diligence on his part. The signer of a promissory note is responsible for that which he knew, or should have known, at the time he executed the note. Second, an equitable maxim of long standing applicable to guaranty agreements is that party who trusts the debtor is responsible in the event the debtor defaults. In this case, Cook was working on Cheek's jobs, and Cheek solicited McGowan to extend the credit. As between Cheek and McGowan, both "innocent" parties, the responsibility for Cook's failure to pay rests with Cheek, the party who was in the better position to protect himself and who also initiated the credit arrangement.

In Ruwitch v. First National Bank of Miami, 291 So.2d 650 (Fla. 3d DCA 1974), cert. denied, 305 So.2d 196 (Fla.1975), a bank extended credit to a corporate debtor, Harmony, Inc., based on guaranties purportedly executed by the president and vice president of that corporation. In fact, credit was extended based on a forged guaranty made by one Baker, who was the secretary and treasurer of the corporation. The court held that the fraud was not available as a defense to the bank's suit against the president and vice president of the corporation, as individuals, stating the general rule that, as between two innocent parties suffering from the fraud of a third, the party whose own negligence or misplaced confidence enables the third party to consummate the fraud must bear the loss. The court held (291 So.2d at 652):

As a general rule, when knowledge of alleged misrepresentation or concealment of material facts is equally available to both parties and the subject matter is open equally to their inspection, one not availing himself of the opportunity to ascertain the truth, will not be heard to raise the misrepresentation of the other party. [citations omitted]

Appellants were officers and guarantors of the principal, Harmony. As between two innocent parties suffering from the fraud of a third, the party whose own negligence or misplaced confidence enabled the third party to consummate the fraud must bear the loss. [citations omitted; emphasis added]

Had the dealings between the parties in the instant case been a single transaction and Cheek guilty of a lack of diligence with regard thereto, the trial court would have been duty bound to direct a verdict in the full amount in favor of McGowan Electric based on the foregoing principles. There would be no basis for allocation of fault, and, as guarantor, Cheek would be totally responsible for all improper charges. However, since the transactions here were a series of sales evidenced by invoices which varied as to their indication of job and other factors which would enable the guarantor to verify the charges made and because the case was tried on that basis under McGowan's concession previously mentioned, it was proper for the trial court to allow the placing of responsibility in part on each side for the goods improperly charged and obtained by Cook. This was not an application of the concept of "contribution or comparative Therefore, in the instant case, the appellant had the unenviable task of seeking to avoid his signature on a promissory note for goods which were admittedly delivered to Cook by establishing that, at the time he signed the...