Missouri Court of Appeals Affirms Minority Owner's Personal Guaranty of Auto Dealership's Debt

The Missouri Court of Appeals, Eastern District, recently affirmed a decision in favor of a borrower, finding that the company’s minority shareholder was responsible for a personal guaranty made in acquiring credit for the business operations. 

In Labantschnig v. Royal Gate, Inc., the court of appeals upheld a finding that Dr. Cyrus Alizadeh (Alizadeh) had personally guaranteed loans obtained to support the business operations of an auto dealership he had a minority ownership interest in.  The court of appeals rejected Alizadeh’s contentions on six separate points of appeal. 

Background and the Trial Court Case

Royal Gate owned and operated multiple automobile dealerships.  Dr. Cyrus Alizadeh had minority ownership in the holding company that owned Royal Gate, he was not involved in the day-to-day operations of Royal Gate or the dealerships.  Royal Gate was experiencing financing issues on its vehicle inventory with its lender, and requested that the dealership manager, Denny Labantschnig, obtain a line of credit to assist in vehicle financing while Royal Gate attempted to sell the dealerships; Labantschnig agreed to do so only if a guaranty was provided. 

Labantschnig secured a Credit, Procurement, Reimbursement, and Indemnity Agreement (CPRI Agreement) providing a $1.5 million line of credit for the benefit and use of Royal Gate’s short-term operations needs.  The CPRI Agreement indemnified Labantschnig against all losses and detailed Royal Gate’s repayment obligations; the CPRI Agreement was the first three pages of a five-page document with Alizadeh’s Personal Guaranty on the fourth page. Royal Gate sold the dealerships, but only repaid half of the loan obligations under the CPRI Agreement.

Labantschnig repaid the remaining principal balance and accrued interest and then pursued litigation against Alizadeh and the other shareholders of Royal Gate. The case against Alizadeh proceeded after the other defendants stipulated to consent judgements in favor of Labantschnig.

The trial court found Alizadeh had personally guaranteed the CPRI Agreement and entered an award of damages and attorneys’ fees pursuant to the Personal Guaranty.

The Personal Guaranty

The Personal Guaranty provided in pertinent part as follows:

For and in consideration of the premises, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce [Labantschnig] to perform its obligations hereunder, the undersigned, jointly and severally, do hereby personally guaranty to [Labantschnig] the payment of all liabilities and obligations of Royal Gate to [Labantschnig] and Bank of any nature arising under and pursuant to the Agreement, whether now existing or hereafter incurred, whether created directly or acquired by [Labantschnig] by assignment or otherwise, whether matured or unmatured and whether absolute or contingent.  The undersigned shall reimburse [Labantschnig], to the extent that such reimbursement is not made by Royal Gate, for all ILOC draws, expenses (including counsel fees), and other losses incurred by {Labantschnig] in connection with any liabilities or obligations of Royal Gate under the Agreement.

…

This is a continuing guaranty and shall remain in full force and effect irrespective of any interruptions in the business of any of the parties.  All monies available to [Labantschnig] for application in payment or reduction of the liabilities or obligations of Royal Gate may be applied by [Labantschnig] in such manner and in such amounts and at such time or times as it may see fit to the payment or reduction of such liabilities or obligations as [Labantschnig] may elect, and the obligations pursuant to this guaranty shall not be affected by any surrender or release by Royal Gate of any other security held by it for any claim hereby guaranteed.  The undersigned hereby waive (a) notice of acceptance of this guaranty, (b) presentment and demand for payment of any of the liabilities or obligations of Royal Gate, (c) protest and notice of dishonor or default to the undersigned or to any other party with respect to any of the liabilities or obligations of Royal Gate, (d) all other notices to which the undersigned might otherwise be entitled, and (e) any demand for payment under this guaranty.

The Points of Appeal

On appeal, Alizadeh contented that the court erred by: (1) misapplying the law by interpreting the term “Agreement” in an overbroad manner; (2) the evidence did not support the finding that the Personal Guaranty guaranteed the debt Royal Gate incurred under the CPRI; (3) an extension of the repayment timeline constituted a material alteration of the agreement that discharged the Personal Guaranty; (4) the evidence did not support finding that Labantschnig accepted the Personal Guaranty; (5) the evidence did not support Alizadeh received consideration in exchange for the Personal Guaranty; and (6) the court should not have awarded Labantschnig attorneys’ fees.

The court rejected the first two contentions for several reasons but primarily because the inclusion of the Personal Guaranty as page 4 of 5 in the CPRI document evidenced that the CPRI and Personal Guaranty were part of the same document. The court also rejected an argument that Alizadeh did not read or appreciate the legalese of the Personal Guaranty because Missouri law does not recognize a failure to read or understand a contract as a defense to the same when the party had an opportunity to read the same. The court rejected the third contention because it found that an adjustment to the repayment timeline under the contract was not a material modification of the agreement.

The court rejected the fourth, fifth, and sixth contentions because they were expressly refuted by the language of the Personal Guaranty and/or were waived by the express terms of the Guaranty.

Key Takeaways

This case provides a good overview of Missouri law regarding the cannons of contract interpretation, and a good reminder to be purposeful in preparing, reviewing, and signing any document. 

When interpreting contracts, courts will read the contract as a whole to determine the intent of the parties and give the terms used their plain and ordinary meaning.  Parties should seek to draft separate agreements if they want to avoid multiple documents being construed as one contract.  Courts will only consider extrinsic evidence if the contract itself has ambiguity; the Court here rejected the contention that there was any ambiguity in the contract.

Each party who enters into a contract must receive consideration for a contract to be valid; however, where a contract states that consideration has been received courts will accept the same as true.

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