Lum v. Lee Way Motor Freight, Inc.

Decision Date10 November 1987
Docket NumberNo. 64213,64213
Citation1987 OK 112,757 P.2d 810
PartiesRonald LUM, Claimant-Petitioner, v. LEE WAY MOTOR FREIGHT, INC., Own-Risk Employer, and PepsiCo, Inc., as Guarantor for the own-risk employer, Respondents.
CourtOklahoma Supreme Court

Proceeding to Review a Decision by an Appellate Panel of the Workers' Compensation Court.

Proceeding by claimant to review a Workers' Compensation Court order, Jacque Jeffries Brawner, Judge--affirmed by an appellate panel (composed of Judges Cross, Livingston and Demps)--which certifies a commuted unpaid award for enforcement in the district court solely against a bankrupt self-insured employer but refuses to include that entity's guarantor as co-obligor on that award.


James G. Grennan, Messrs. Greenan & Faulkner, Oklahoma City, for petitioner.

Kenneth N. McKinney, Robert R. Roark, Messrs. McKinney, Stringer & Webster, Charles C. Green, Messrs. Turner, Turner, Green & Braun, Oklahoma City, for respondent-PepsiCo, Inc.

OPALA, Justice.

Two issues stand tendered for our review: Does the parent company's guaranty, statutorily required to preserve its subsidiary's status as an own-risk employer, make the guarantor liable for payment of benefits awarded before the effective date of the guaranty, where the employer's default in payment occurred after the guaranty's revocation? and Did the Workers' Compensation Court commit error in refusing to include the guarantor--qua co-obligor with the now bankrupt own-risk employer--in the order certifying the commuted obligation for enforcement in the district court? We hold that the guarantor's promise under review is not to be treated as governed by strict principles found in the private law of guaranty, but instead, its breadth must be measured by rules applicable to a statutory undertaking given pursuant to the terms of 85 O.S.1981 § 61(d) 1 and Rule 35. 2 Our pronouncement answers both questions in the affirmative.


On March 27, 1982 claimant, an employee of Lee Way Motor Freight, Inc. [Lee Way], suffered an on-the-job heart attack. Lee Way was then a subsidiary of PepsiCo, Inc. [PepsiCo or guarantor] and was an own-risk employer. On August 9, 1983 the Workers' Compensation Court awarded claimant compensation for temporary total disability and 75% permanent partial disability.

Claimant received regular payments until November 9, 1984 when Lee Way ceased to comply with the orders for payment of compensation benefits. Upon claimant's motion, the trial tribunal on February 14, 1985 commuted the unpaid balance of the award entered on August 9, 1983 to a lump sum ($21,617.66) and authorized its certification to the district court in accordance with the terms of 85 O.S.Supp.1983 § 42 and Rule 28 of the Workers' Compensation Court. 3

In his motion to commute and certify the award, claimant sought the inclusion of PepsiCo, the guarantor, as an additional party-obligor. Because he did not succeed in this effort, claimant appealed to the three-judge review panel for modification that would add PepsiCo. After the review panel refused to modify the trial judge's order, claimant brought the instant proceeding for corrective relief.

Claimant relies on the guaranty executed by PepsiCo as the basis for PepsiCo's liability. That guaranty, submitted to the Workers' Compensation Court on July 27, 1984, was revoked by PepsiCo on August 29, 1984. It was filed below after claimant secured his initial award and was revoked before Lee Way ceased to meet its obligation.


Prior to the guaranty's effective date the Workers' Compensation Court had approved renewal of Lee Way's 1982 and 1983 applications for a permit to carry its own-risk insurance. For at least those two years the trial tribunal found that Lee Way qualified in its own right as an own-risk employer under the provisions of 85 O.S.1981 § 61(d). 4 Guaranties by its parent company, PepsiCo, or by any other third party, were neither offered nor sought as a prerequisite for obtaining own-risk status.

It was not until June 8, 1984 that the Workers' Compensation Court notified Lee Way by letter that its status as an own-risk employer could be maintained only if PepsiCo would provide the court a written guaranty for any liabilities that Lee Way "may incur" under the Workers' Compensation Act. 5 Because the trial tribunal was aware that the completion of the sale/merger of Lee Way to Commercial Lovelace Motor Freight, Inc. was imminent when it informed Lee Way of the guaranty requirement, the court instructed in its June 8, 1984 letter that, upon completion of the divestiture, the new owners would be required to replace the PepsiCo guaranty.

On July 9, 1984 the trial tribunal entered an order revoking Lee Way's status as a self-insured employer on the basis that it was financially unable to carry its own risk without compensation insurance. Lee Way timely appealed to the three-judge review panel from the trial tribunal's order revoking its permit as self-insurer. Shortly thereafter PepsiCo submitted its written guaranty for filing in the trial tribunal. The complete text of the guaranty is as follows:


To enable the continuing compliance by Lee Way Motor Freight, Inc., a Delaware corporation, maintaining its principal office at 3401 Northwest 63rd Street, Oklahoma City, OK 73116 (herein, Lee Way), with the terms and conditions of Own Risk Permit No. 12176 issued Lee Way by the Workers' Compensation Court of Oklahoma, and to induce the Workers' Compensation Court of Oklahoma to withdraw and annul it Order dated July 9, 1984, revoking Own Risk Permit No. 12176, PepsiCo, Inc., a Delaware corporation, maintaining its world headquarters at Purchase, New York, the owner of all of Lee Way's issued and outstanding capital stock, hereby guarantees the payment of any and all awards and judgments granted by the Workers' Compensation Court of Oklahoma to any Lee Way employee covered by the terms of the Oklahoma Workers' Compensation Act (85 O.S.A. § 1, et seq.) or the amounts ordered by the said Oklahoma Workers' Compensation Court to any other person, firm or corporation arising out of any Workers' Compensation claim made by any such Lee Way employee.

PepsiCo, Inc. hereby agrees that this guarantee [sic] will remain in full force and effect from the date hereof until such time as PepsiCo, Inc. shall provide written notice to the Oklahoma Workers' Compensation Court that said guarantee [sic] is no longer in force and effect.

Dated at Purchase, N.Y., this 27th day of July, 1984. * * * " [Emphasis added.]

The appeal from the trial tribunal's order revoking the own-risk permit was never set for hearing. Instead, the tribunal was informed by an August 9, 1984 letter that Lee Way had obtained insurance coverage effective August 6, 1984. Then, PepsiCo notified the court by its August 29, 1984 letter that it was revoking its guaranty effective immediately.

Subsequently, on February 27, 1985 Lee Way Motor Freight, Inc. merged with Commercial Lovelace Motor Freight, Inc. into another entity called Lee Way Holding Co. On March 7, 1985 Lee Way Holding Co. filed a voluntary petition in bankruptcy for Chapter 11 reorganization.

The question dispositive of this controversy is whether PepsiCo--as guarantor--is legally subject to inclusion in the certification order where (a) the unpaid benefits certified for enforcement were awarded before the effective date of its statutory guaranty and (b) the employer defaulted on payments after that guaranty had been revoked. 6




The guarantor's obligation under § 61(d) of the Workers' Compensation Act bears the earmarks of a statutory undertaking and some private contractual characteristics. Considering the former aspects alone, we hold that the challenged guaranty was intended to operate retrospectively.

A guaranty is a promise to answer for the debt, default or miscarriage of another person. 7 A guarantor has a collateral obligation which is independently and separately enforceable from that of the principal debtor or obligor. 8 Under Oklahoma law a guarantor is secondarily liable. His obligation is conditioned upon default by the principal debtor or obligor. 9

A guaranty is deemed continuing (a) if it contemplates a future course of dealing, not limited to a single transaction, for an indefinite period of time or (b) until it is revoked. 10 Liability under a continuing guaranty is deemed continuing until it is revoked where there are no express terms in the instrument specifically limiting the duration of the guarantor's responsibility. 11 Nevertheless, a continuing guaranty may be revoked and future liability ended when the guaranty contract has no definite time to run. 12 A guaranty is deemed unconditional unless its terms import some condition precedent to the guarantor's liability. 13

There is no dispute that the PepsiCo guaranty was continuing and capable of being revoked by the guarantor so that claims arising after its revocation would not be within its terms. The pivotal question here is whether the guaranty had a retrospective sweep that embraced within its ambit benefits awarded before the execution of the instrument and its filing in the Workers' Compensation Court.

The obligation of a private-law guarantor is purely contractual. The meaning of the written contract is controlled by the intent of the parties at the time they entered into the agreement. To determine that intent an inquiry must focus on the precise terms of the guarantor's undertaking and the extent of his promise. 14

Intent is to be collected from the whole instrument. Where the language is clear and explicit, its purpose and meaning must be ascertained from the face of the...

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