The opinion of the court was delivered by: KRAFT
This is a suit against the defendants,
who are two of three guarantors upon a written guaranty agreement. The third guarantor is F. William Thacher, Jr.,
who is president of the corporate plaintiff and was formerly treasurer and one of the directors of Maxwell Sales and Engineering Company, (Maxwell Sales).
In our opinion filed contemporaneously in a companion action ( Kroon v. Maxwell, D.C., 297 F. Supp. 277), the identities and relationships of the parties and the corporations involved are fully set forth and are now incorporated herein.
The plaintiff seeks to recover $168,569.09 from the defendants under the guaranty agreement. That sum is the combined total of the following three accounts: $38,469.70 owed Sherman by Maxwell Sales on a loan account; $22,239.21 owed Sherman by Maxwell Sales on a purchase account; $107,860.18 owed Shermax Corporation
by Maxwell Sales under a manufacturing agreement, which debt was assigned by Shermax to Sherman on December 16, 1963.
The defendants, at trial, chose not to controvert the fact, that as of June 30, 1964, immediately prior to the filing of this complaint, Maxwell Sales was indebted to Sherman in these amounts and upon these accounts.
The defendants, however, do dispute the application of the guaranty to these accounts and contend that: (1) the guaranty was not intended to cover any indebtedness owed by Maxwell Sales to Sherman other than those accounts receivable which Maxwell Sales factored through Sherman and which, in turn, Sherman factored through Standard Factors Corporation (S.F.C.); (2) since S.F.C. insisted that Sherman obtain the individual guarantees of the Maxwell directors to Sherman, the guaranty must be interpreted to reflect the actual intention of the parties; (3) if Sherman and Thacher covertly intended the guaranty to cover the existing indebtedness of Maxwell Sales to Sherman, the guaranty was procured from defendants by fraud; (4) the guaranty does not cover Shermax accounts, because Shermax was not in existence nor was its incorporation contemplated on April 30, 1962, the date the guaranty was executed, nor was the guaranty intended to cover indebtedness of Maxwell Sales to other creditors to whom Sherman might succeed by assignment; (5) in any event, if Sherman prevails in this action, it must give the defendants a credit of $64,857.82 for the conversion of Maxwell Sales' inventory.
Thacher, by his counsel, has stipulated that, in the event of a recovery by Sherman against the defendants, Thacher shall be liable for his pro-rata share of contribution.
Plaintiff argues that, since the guaranty is clear and unambiguous on its face, parol evidence is inadmissible to vary its terms. With this general proposition of law, we are in accord. However, the conduct of Sherman and Thacher prior to, at the time of, and after the execution of this guaranty on April 30, 1962, contradicts and conflicts with the otherwise clear language of the guaranty and requires this Court to examine all of the circumstances attending the execution of the agreement.
Before April 30, 1962 both Sherman and Thacher deliberately and falsely induced the Maxwells to believe that the loan account represented money actually borrowed by Maxwell Sales from the Cinnaminson Bank. On the day of execution of the guaranty the balance due on the loan account was $37,772.23. After the guaranty was executed neither Sherman nor Thacher ever disclosed the true facts to the Maxwells, who were permitted to continue to believe the earlier false representations.
In this posture, though defendants were so induced to and did believe Maxwell's debt was owed to Cinnaminson Bank we are asked by plaintiff to find that this guaranty was executed by the Maxwells with full knowledge that it applied to past debts actually owed by Maxwell Sales to Sherman, which plaintiff had falsely represented to defendants to be debts due by Maxwell Sales to Cinnaminson Bank. This was accomplished by Thacher who, as treasurer of Maxwell Sales, had complete charge of the corporation's financial records, which were maintained by Sherman's employees under Thacher's supervision.
The Maxwells reposed their complete trust and confidence in Thacher's handling of the financial affairs of Maxwell Sales, because he was far more experienced than they in fiscal matters. By reason of this trust and the relationship among the corporations and the parties, a fiduciary relation existed between Thacher and Sherman on the one hand and the Maxwells on the other, which was breached by Thacher's intentional deception.
Plaintiff regards this concealment
as immaterial, since the opening balance of $37,772.23 was eventually reduced to zero and the present balance of $38,469.70 concerns loans made after April 30, 1962. Such procrustean logic eludes us and we find that, by its practiced deception, plaintiff dealt unfairly with the defendants and intentionally concealed from them material facts necessary for them to make an intelligent decision to bind themselves ...