APL, INC. v. Ohio Valley Aluminum, Inc.

Citations: 839 S.W.2d 571; 1992 Ky. App. LEXIS 212; 1992 WL 297461Docket: 91-CA-002532-MR

Court: Court of Appeals of Kentucky; October 23, 1992; Kentucky; State Appellate Court

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APL, Inc. and its subsidiaries appealed a summary judgment that held APL liable for a guaranty of payment to Ohio Valley Aluminum, Inc. (OVACO). OVACO, a manufacturer of aluminum extrusion billet, had sold approximately 18.5 million pounds of billet to ATEC Industries, Inc. and ATEC South, Inc. from June 1985 to March 1990, accumulating a debt of $139,237.91 for the last shipment made on March 13, 1990. ATEC's account had been consistently overdue, prompting OVACO to seek additional security for payment, leading to APL providing a standby letter of credit that expired in September 1989. As ATEC's financial situation remained precarious, APL issued a Guaranty of Payment to OVACO in September 1989, but no payment was made for the final shipment after the letter's expiration. OVACO demanded payment from APL on May 14, 1990, which was not fulfilled, resulting in OVACO filing a lawsuit in June 1990. APL's defenses included claims of nonconforming goods and lack of compliance with the guaranty terms. The Shelby Circuit Court ultimately ruled in favor of OVACO, affirming that the guaranty was absolute and did not require notification of acceptance, as it was not subject to KRS 371.065 concerning commercial paper. The court awarded OVACO $139,237.91 plus interest and attorneys' fees.

Defendants ATEC and ASI were determined to be essentially one entity, leading to the appeal. Guaranties are classified as absolute or conditional. An absolute guaranty obligates the guarantor to fulfill the debtor's obligations without additional contingencies, while a conditional guaranty requires a specific event or act by the creditor before the guarantor is liable. For an absolute guaranty, if no expectation of notification from the creditor is indicated, the guarantor is liable as soon as reliance is placed on it by the creditor. 

The guaranty provided by APL to OVACO was characterized as an absolute guaranty, ensuring prompt payment of all of Atec’s obligations to OVACO, with no requirement for OVACO to pursue any actions against Atec first. APL consented to Kentucky jurisdiction and agreed to pay reasonable attorney's fees in any enforcement action. The guaranty is valid until December 31, 1991, and was signed by an authorized representative of APL. It contained no language suggesting that APL expected notification of acceptance from OVACO. The long-standing business relationship, with over $7 million in transactions, supports the interpretation of the document as an absolute and unconditional guaranty.

The guaranty of payment issued by APL to OVACO was meant to replace an expiring standby letter of credit, with both parties indicating a desire to continue their business relationship without the need for re-negotiation. APL's Vice President expressed hope for an increased line of credit in a letter accompanying the guaranty. Five months later, ATEC/ASI placed another order with OVACO, suggesting no formal acceptance of the guaranty was required by APL. 

KRS 371.065, prior to its 1990 amendment, stipulated that a guaranty not written on the involved instrument must be in writing, signed by the guarantor, and specify the maximum liability and termination date to be enforceable. APL argued that this statute applied to all guaranties since its enactment, claiming entitlement to summary judgment because the guaranty lacked a specified maximum amount, rendering it unenforceable. 

The trial court, however, interpreted KRS 371.065 as applicable only to guaranties of commercial paper, based on the bill's original title relating to commercial paper. Although the statute was later moved to the chapter on contracts, the title remained unchanged. The court ruled that this did not make the statute unconstitutional, asserting its applicability to commercial paper only. APL noted that the 1990 amendment changed the act's title to reference all guaranties, implying legislative intent for broader applicability.

APL's guaranty to OVACO, executed in 1989, pertains to a transaction not involving commercial paper, as KRS 371.065 at that time applied solely to such guaranties. The 1990 amendment to KRS 371.065 is deemed irrelevant for this appeal. Upholding APL's argument would conflict with the U.S. Constitution's prohibition against laws impairing contract obligations, potentially necessitating the annulment of KRS 371.065. The trial court ruled that the disputed amount is $139,237.91 and determined that Atec Industries, Inc. and Atec South, Inc. are effectively the same entity, rejecting APL's assertion of error in this finding.

APL's guaranty explicitly states that it covers Atec's obligations to OVACO, noting the interconnected structure of the companies involved, with APL as the parent company of Atec and ASI. The business activities of ATEC and ASI have ceased, while APL continues operations. The court found no reversible error in the trial judge's decision, affirming APL's liability for the debts of Atec and ASI totaling $139,237.91. Consequently, OVACO was entitled to judgment as a matter of law, with all parties concurring in the ruling.