A.R.A. Mfg. Co. v. Cohen

• Decision Date: 03 June 1982
• Docket Number: No. 79CA0918,79CA0918
• Citation: 654 P.2d 857
• Parties: A.R.A. MANUFACTURING CO., Plaintiff-Appellee, v. Stanley L. COHEN and Gary N. Sneider, Defendants-Appellants, Central Music Distributing Co., Inc., Defendant. . I
• Court: Colorado Court of Appeals

Page 857

654 P.2d 857

A.R.A. MANUFACTURING CO., Plaintiff-Appellee, v. Stanley L. COHEN and Gary N. Sneider, Defendants-Appellants Central Music Distributing Co., Inc., Defendant.

No. 79CA0918.

Colorado Court of Appeals Div. I.

June 3, 1982.

Rehearing Denied July 1, 1982.

Certiorari Denied Nov. 22, 1982.

Holland & Hart, R.K. Rufner, R. Brooke Jackson, Denver, for plaintiff-appellee.

Miles & McManus, Richard G. McManus, Stanley Ereckson, Jr., Denver, for defendants-appellants.

COYTE, Judge.

Defendants Stanley L. Cohen and Gary M. Sneider appeal from a judgment entered on a jury verdict entered against them. We reverse.

Plaintiff, A.R.A. Manufacturing Co., (A.R.A.) filed suit against Central Music Distributing Co., Inc., (Central) and the individual defendants to collect a corporate account allegedly due and owing. A.R.A. contends that the individual defendants were personally liable for payment of the debt because they had given either an oral or implied guaranty of the account. Central filed for bankruptcy and all proceedings against it were stayed. Cohen and Sneider deny that they had personally guaranteed the payment of the account in any manner. They also raised the defense of the statute of frauds.

The evidence revealed that defendants Cohen and Sneider were the principal shareholders in Central. In November 1975 Cohen met with representatives of A.R.A. to obtain Denver distributorship rights for A.R.A. products. At that time Cohen applied to A.R.A. for an open line of credit for Central and at that time personal financial statements of Cohen and Sneider were submitted.

The credit was approved, and in January 1976, A.R.A. made the first shipment to the defendants. Payment for this shipment was due in 90 days. After 90 days had elapsed, payment had not been made. During the next four months, A.R.A. continued to ship merchandise on credit to Central although no payments had been made.

Eventually, A.R.A. stopped extending any further credit to Central and demanded payment of the account. In October 1976 A.R.A. obtained a writ of attachment and seized Central's inventory. This writ of attachment was subsequently dissolved.

The individual defendants first contend that the trial court erred in denying their motion for a directed verdict, thereby improperly allowing the jury to consider whether they gave a personal guaranty of the corporate debt. We agree.

The individual defendants first argue, and we agree, that no implied personal guaranty was created by their submission of a personal financial statement in support of their credit application.

Implied contracts arise from conduct of the parties which evidences a mutual intention to contract with each other; however, there must be a meeting of the minds before any contract will be implied. Stice v. Peterson, 144 Colo. 219, 355 P.2d 948 (1960); Ross v. Raymer, 32 Wash.2d 128, 201 P.2d 129 (1948). Since a guaranty is a specialized type of contract, mutual assent and consideration must exist before an implied guaranty may be found in the acts of the parties. Timi v. Prescott State Bank, 220 Kan. 377, 553 P.2d 315 (1976). Furthermore, guaranty agreements, as distinguished from ordinary contracts are to be strictly construed and are not to be extended by implication beyond the express terms of the instrument or the plain intent of the parties. Gandy v. Park National Bank, --- Colo. ---, 615 P.2d 20 (1980); Burkhardt v. Bank of America, 127 Colo. 251, 256 P.2d 234 (1953).

Here, the only evidence introduced by A.R.A. to prove that an implied personal guaranty had been given by the individual defendants was the personal financial statements submitted by them at the time they filed a credit application with A.R.A. A.R.A. credit manager, who had not met the individual defendants at that time, testified that he believed, solely on the basis of their submission of personal financial statements, that they would personally guarantee the payment of the corporate account. The individual defendants, however, testified that at no time did they intend these financial statements to be personal guarantees of Central's obligations.

The record is thus totally devoid of any evidence of mutual assent. Without some indication to the individual defendants prior to the execution of the contract that a personal guaranty was expected, they cannot be held to have given an implied guaranty on the basis of nothing more than the furnishing of a personal financial statement along with a credit application for Central Music. Northern State Construction Co. v. Robbins, 76 Wash.2d 357, 457 P.2d 187 (1969). A.R.A.'s credit manager's personal belief as to the individual defendants' intentions in giving personal financial statements is insufficient, as a matter of law, to hold them personally liable as guarantors. See Miller v. Walter, 165 Mont. 221, 527 P.2d 240 (1970).

The individual defendants next contend that they gave no oral guaranty. A.R.A., however, contends that in the course of numerous telephone conversations the individual defendants promised personally to guarantee the corporate account. The substance of the conversations was testified to by A.R.A.'s credit manager, McGowan, as follows: In May 1976, another employee of the company went to Denver to inquire about the status of Central's account which was approximately two months delinquent at the time. He was told by defendant Cohen that: "You will get your money, just don't get excited about it." In subsequent conversations McGowan testified that Cohen used words of similar import. Later in the summer, McGowan testified that during a conversation with defendant Sneider he was told that "they" would send $10,000 a...