Opinion
No. C9-95-2446.
Filed May 21, 1996.
Appeal from the District Court, Hennepin County, File No. 9417745.
James M. Strommen, Kennedy Graven, Chtd., (for Respondent).
Larry E. Reed, Hassan Reed, Ltd., (for Appellant).
Considered and decided by Willis, Presiding Judge, Crippen, Judge, and Amundson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1994).
UNPUBLISHED OPINION
Appellant Gene Adamic, a guarantor for Skitch Enterprises, Inc., challenges the trial court's summary judgment against him on respondent Drexel Enterprises's breach of contract claim. We reverse.
FACTS
This case arises out of Skitch's 1993 contract with SWS Partnership, respondent's predecessor in interest. In that contract, SWS agreed to buy twenty tile remover machines from Skitch and Skitch agreed to repurchase the machines at a later date for a higher price. Skitch's president, Al Sikich, and appellant Adamic, a shareholder in Skitch, personally guaranteed the contract: "Adamic and Sikich agree to fulfill the terms of this agreement in the event of a default by Skitch." When Skitch failed to repurchase the machines, respondent Drexel filed suit against Skitch, Sikich, and appellant for breach of contract.
Attempting to minimize litigation, Skitch Enterprises and Sikich entered into a settlement agreement with respondent in May 1994 to arrange for repayment of Skitch's debt. Appellant Adamic was not a party to the settlement agreement. In that agreement, respondent agreed to have the machines delivered to Skitch, enabling Skitch to use the machines to fulfill several asbestos removal contracts. In return, Skitch promised to satisfy its debt in installments from payments received on service contracts. The settlement agreement contained this clause:
Nothing in this Agreement shall effect Drexel's rights against Gene Adamic in the Litigation [i.e. Drexel Enterprises, Inc. v. Skitch Enterprises, Inc, et al. ].
Respondent delivered the machines to Skitch pursuant to the settlement agreement, but Skitch again failed to pay for them. Respondent thus revived its lawsuit against Skitch, Sikich, and appellant, filing a motion for summary judgment against appellant for the amount owed for the machines under the original contract guaranteed by appellant. Appellant filed a responsive motion for summary judgment, but the trial court ordered summary judgment for respondent, holding that appellant had guaranteed the first contract and that this obligation was not surrendered by the settlement agreement.
As part of the settlement agreement, respondent obtained a confession of judgment from Skitch and Sikich for the amount owed under the original contract. Thus, respondent moved for summary judgment only against appellant.
DECISION
The Minnesota Supreme Court has held that a guarantor has the right to "insist that he is bound to the extent, in [the] manner, and under the circumstances pointed out in his obligation, and no further." Schmidt v. McKenzie , 215 Minn. 1, 9, 9 N.W.2d 1, 5 (1943) (quoting Simonson v. Thori , 36 Minn. 439, 442, 31 N.W. 861, 862 (1887)).
[T]he guarantor has the right to prescribe the exact terms upon which he will enter into the obligation, and to insist on his discharge if those terms are not observed. It is not a question whether he is harmed by a deviation to which he has not assented. He may plant himself on the technical obligation: "This is not my contract."
Id. at 10, 9 N.W.2d at 5 (quoting Schoonover v. Osborne , 108 Iowa 453, 457-458, 79 N.W. 263, 264 (1899)). See also Clark v. Otto B. Ashbach Sons, 241 Minn. 267, 276, 64 N.W.2d 517, 523 (1954) (stating general rule that a material alteration of a principal contract, such as extension of time for payment or performance, without the consent of the guarantor releases the guarantor from his or her obligation).
In guaranteeing the original contract, appellant promised to "fulfill the terms of this agreement in the event of a default by Skitch." The terms of the agreement were for Skitch to "purchase" the tile remover machines "from SWS." Neither SWS nor respondent, SWS's successor in interest, currently has possession of the machines, thus, there can be no exchange of payment for delivery of property, that is, no "purchase" of the property. Appellant cannot "fulfill the terms" of the contract. Stated differently, the settlement agreement "materially altered" the parties' original contract under Schmidt and Clark .
Respondent urges us to view delivery to appellant as having already occurred by virtue of the transfer of the machines to Skitch, and it suggests that appellant still can and must "purchase" the machines by paying for them. This theory disregards the separate identities of the principal and the guarantor. See Clark, 241 Minn. at 275, 64 N.W.2d at 522 (stressing importance of keeping guarantor and principal debtor separate). Appellant did not agree to pay for the machines to be delivered to Skitch. Rather, he agreed to buy the machines. This may suggest only a drafting error; nevertheless, appellant "may plant himself on the technical obligation" and refuse to perform beyond his duty as dictated by the instrument that he guaranteed. Schmidt , 215 Minn. at 10, 9 N.W.2d at 5 (quoting Schoonover , 108 Iowa at 457-58, 79 N.W. at 264). Reversed.
We note a supreme court declaration subsequent to Schmidt and Clark that a material alteration of a principal contract without the consent of the guarantor releases the guarantor only "if the alteration adversely affects the guarantor's interests." Dewey v. Henry's Drive-Ins of Minn., 301 Minn. 366, 370, 222 N.W.2d 553, 555 (1974). We make no judgment whether the inclusion of the "adverse effect" requirement in Dewey was inadvertent or purposeful. Even were we to follow the Dewey language, appellant was adversely affected when the machines he guaranteed to buy were transferred to another party. Nothing in the record indicates an assurance that appellant would be able to obtain the machines from Skitch upon paying respondent for them.