United States Shoe Corp. v. Hackett, 84-C-0176.

• Decision Date: 15 January 1985
• Docket Number: No. 84-C-0176.,84-C-0176.
• Citation: 601 F. Supp. 531
• Parties: The UNITED STATES SHOE CORPORATION, an Ohio Corporation, Plaintiff, v. Patrick A. HACKETT and Rosemary H. Hackett, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

601 F. Supp. 531

The UNITED STATES SHOE CORPORATION, an Ohio Corporation, Plaintiff, v. Patrick A. HACKETT and Rosemary H. Hackett, Defendants.

No. 84-C-0176.

United States District Court, E.D. Wisconsin.

January 15, 1985.

Gary P. Lantzy, Kohner, Mann & Kailas, S.C., Milwaukee, Wis., for plaintiff.

Michael A. Bowen, Foley & Lardner, Milwaukee, Wis., for defendants.

CASE STATEMENT

WARREN, District Judge.

This is a collection action based on diversity jurisdiction. Defendants responded to plaintiff's complaint by moving to dismiss on the ground that the complaint failed to state a claim upon which relief can be granted, or, in the alternative, for summary judgment. Plaintiff resisted and by cross-motion seeks summary judgment. Both sides have filed extensive briefs and affidavits, and the Court has heard oral argument. Furthermore, since one of defendants' business entities, G.I. Corporation, Inc., formerly Graebels, Inc., has filed a petition under Chapter 11 of the Bankruptcy Code, and commenced a preference suit against the United States Shoe Corporation claiming a preference of $13,219.13, the parties have entered into a stipulation whereby the alleged preference suit has been settled and the amount of that settlement added to the plaintiff's prayer for relief herein subject to various procedural guarantees. Thus the prayer in this case is increased from $77,788.26 to $84,788.26. The Court has approved that stipulation. The following shall constitute the Court's findings in this case with respect to the motions under Rule 12(b) and Rule 56, F.R. C.P.

FINDINGS AND DECISION

Plaintiff herein is an Ohio corporation engaged in the manufacturing of shoes. Defendants are a husband and wife engaged in retail shoe sales in and around the Milwaukee area. They have previously done business through a variety of corporate entities, to-wit, Hackett Enterprises, Inc., Graebels, Inc., Graebel's Fond du Lac Shoe Corporation, Inc., and Mequon Shoe Corporation. On December 28, 1976, all four corporations were merged and the sole surviving corporation was Graebels, Inc.

For some years prior to the merger, the Hacketts had been expanding their business endeavors. During the period in question in this case, Hackett Enterprises, Inc. would frequently make wholesale shoe purchases for various other Hackett corporations. In so doing, Hackett Enterprises would order shoes from the plaintiff with the purchase order directing delivery to other Hackett stores, but with instructions that the billings were to be rendered to Hackett Enterprises, Inc. at 7630 West Capitol Drive, Milwaukee, Wisconsin 53222. A similar practice was sometimes followed with respect to purchase of other supplies for the Hackett corporations.

Anthony P. Rastani was the Regional Credit Manager of the United States Shoe Corporation who had oversight of the various Hackett business entities during the period from 1973 through May, 1978. Rastani was well acquainted with both defendants and dealt with all of the Hackett business entities at various times. He testified on deposition that plaintiff had a new Director of Credit in 1971 or 1972 and this person began seeking personal guarantees on all larger or marginal business accounts. Rastani sought and obtained, on December 21, 1973, a personal guaranty from Patrick Hackett and Rosemary Hackett, as individuals, covering the debts of "HACKETT ENTERPRISES, INC., a Wisconsin corporation d/b/a GRAEBELS, whose principal address is 7630 West Capitol Drive, Milwaukee, Wisconsin 53222." A copy of this document is attached hereto as Attachment A. The form was one prepared by the plaintiff's Legal Department. Rastani indicated in his affidavit and deposition that words describing the debtor on this form had been prepared by him during a conversation with Hackett. He testified that the plaintiff chose all the language of the guaranty and that Hackett signed the document just the way it was submitted to him (Rastani Dep. T-35).

At the time the guaranty at issue was sought and obtained, the Hacketts were purchasing, through Hackett Enterprises, Inc., the start-up inventory for a new store in the Bayshore Shopping Center. Thus the purchases were substantially larger than the on-going purchases made through Hackett Enterprises for the regular course of business of the various outlets. Mrs. Hackett's affidavit explains that the couple wanted to pay off the start-up costs over a 36-month period on an installment basis. The plaintiff agreed to the proposal but insisted that the guaranty be provided in connection with this special arrangement. Defendants' affidavit avers that the debt arising from the start-up inventory purchase was retired over a 36-month period as contemplated, and that by 1976 or early 1977 at the latest, that debt had been paid in full. This contention was not refuted by plaintiff and the parties agree that the obligation being sued upon represented purchases made after the merger of the earlier corporations into Graebels, Inc.

The record further indicates that on January 29, 1974, a security agreement was entered into between Mequon Shoe Corporation and the United States Shoe Corporation wherein the debtor was described as a "corporation in good standing under the laws of the State of Wisconsin" and that it "is doing business as Graebels." In transmitting a copy of the agreement to defendants, plaintiff addressed it to "Mr. Pat Hackett, Graebels, Inc." It is clear and undisputed that before, during, and after the submission of the guaranty, Rastani was familiar with the various Hackett entities and their practice of doing business as Graebels.

On December 28, 1976, about three years after the guaranty described above, articles of merger were filed under which Hackett Enterprises, Inc., Mequon Shoe Corporation, Inc., Graebel's Fond du Lac Shoe Corporation and Graebel's, Inc. were merged into a single corporation under the name of the surviving entity, "Graebels, Inc." Under Article IV of said document, the assets and liabilities of the constituent corporations were transferred to the survivor. Hackett Enterprises, Inc. ceased to exist as of the date of the merger and conducted no business thereafter. The purchases involved in this lawsuit were made during 1982 and 1983 and do not cover purchases made by any business entity while Hackett Enterprises, Inc. was still in existence. After the merger described above, the Hacketts continued to control Graebels, Inc. and to conduct business in said name. Neither Patrick Hackett nor Rosemary Hackett ever formally, in writing or otherwise, revoked the guaranty executed by them on December 21, 1973.

It is undisputed that the Hacketts never formally advised the plaintiff of the merger of the various corporations into Graebels, Inc. However, it is also clear that plaintiff had knowledge of the separate corporate entities and did business with each of them.

Under common law, the obligations devolving upon one who is a guarantor under a suretyship agreement are derived from the terms of the agreement. Mitchell Street State Bank v. Froedtert, 169 Wis. 120, 170 N.W. 822 (1919). Thus the scope of a guaranty, as to duration and obligations covered, will be determined by the document which creates it.

Where the language of a guarantee contract is unclear, the Court may consider parol evidence to determine the intentions of the parties. As noted in Wisconsin REIT v. Weinstein, 509 F.Supp. 1289, 1295 (E.D.Wis.1981),

"The court must determine if there is ambiguity in the language. If there is, then it is for the finder of fact to resolve, based upon the parole evidence, the meaning of the instrument, unless the extrinsic evidence is not conflicting or no conflicting inferences can be drawn from it...."

In this case, there is a great deal of extrinsic evidence that is not conflicting as to the facts. Therefore, the Court believes this action may appropriately be disposed of as a matter of law.

The guaranty at issue by its terms was to "... continue until expressly revoked by written notice to U.S. Shoe...." If the parties intended that a guaranty shall continue for an indefinite time, it will be operative until rightfully revoked or otherwise terminated, Thiensville Creamery Co. v. Hickcox, 165 Wis. 537, 162 N.W. 660 (1917).

Where subsequent to the execution of a guaranty or suretyship an obligor commercial enterprise undergoes a change in name, location, composition, structure, or the like, it is frequently argued by a guarantor or surety, upon the obligor's default, that such changes serve to release the obligor from its liability to the obligee. As a general proposition, the courts have taken the position that such liability is not terminated merely because the obligor business undergoes a change of name or location; in the type of business conducted; from a sole proprietorship to a corporation; from a partnership to a corporation; by the transfer of its assets to another corporation or by its reincorporation; by the takeover of a corporation by its creditors; or by a corporation's dissolution or cessation of business. 69 A.L.R.3d 567 § 2(a) (1976).

Those cases where it has been held that some change in the identity of the debtor released the guarantor were decided on the grounds that the change had the effect of creating a different contract on which the guarantor never intended to be liable. 38 Am.Jur.2d Guaranty § 81 (1968). Some of the older cases indeed seem to stand for the proposition that a guarantor has the right to prescribe very technically the exact terms upon which he will enter into a guaranty...