SULLIVANS, INC. v.RICHARD J. BAUR and others [Note 1]

KIRKMAN, J. On December 10, 2014, Sullivans, Inc. ("Sullivans") filed this suit on a contract for goods sold on account, but not paid for by the appellee and two District Court codefendants. Sullivans recovered default judgments against the codefendants, TT Motorcycles, Inc. ("TT Motorcycles") and Robert T. Leppan ("Leppan"). [Note 2] Richard J. Baur ("Baur") answered the complaint and survived a motion for summary judgment filed by Sullivans. After a jury-waived trial, a Justice of the Plymouth District Court entered judgment on behalf of defendant Baur on November 10, 2015. Sullivans has appealed, claiming that the court erred by finding that, although Baur breached the agreement, Sullivans had not proved the breach caused any damages. [Note 3] We agree with the trial court's decision, albeit for different reasons.

Sullivans is a Hanson, Massachusetts, business that sells motorcycle safety apparel throughout the United States to, among others, motorcycle dealers. Sullivans had a business relationship with TT Motorcycles, a Michigan corporation, from 2005 until the latter business closed in 2014. The parties' relationship began on November 7, 2005, with a credit application that forms the basis for the contractual claim against Baur. The document contains two pages.

The first page is entitled "Credit Application." The document reads as a standard application for credit and imposes no obligation on any party. It lists the "company's"

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name as TT Motorcycles, Inc.; the "owner's" name as Robert T. Leppan; and the "partner's" name as Richard J. Baur. The signers also listed their Social Security numbers on the application (which were redacted from the trial exhibit).

The second page is entitled "Terms," and imposes obligations on the signers. It sets out seven terms of a credit agreement. Paragraph four on the second page frames one of the issues before this Division. That paragraph reads:

"4. Company shall notify Sullivans of any change of ownership within five (5) working days of such change."

Below the terms is a signature line bearing Leppan's signature as "Owner." Below that signature line is the word "Guarantee" with Baur's signature below it as "Owner." Below Baur's signature is language suggesting joint and several guaranties of payment for all purchases. Baur signed that portion of the document as "Partner" and Leppan signed as "Owner." [Note 4] Both the application for credit and the contract terms document were apparently signed the same day and faxed to the plaintiff on the next day.

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At the time the foregoing documents were signed, Baur was an employee of TT Motorcycles and held 4,900 stock shares in TT Motorcycles. He left his employment in April, 2012, retaining an ownership interest of 7,994 shares, or ten per cent of the outstanding stock, in 2013. On March 28, 2014, Baur turned over all his shares to TT Motorcycles. No notice of the transaction was provided to Sullivans by the company. Sullivans apparently continued to ship goods to TT Motorcycles, which was invoiced without subsequent payment beginning May 9, 2014. The debt kept accruing with more shipments but no payments. The final debt became $23,109.65.

Sullivans gave two reasons to the trial court, and reasserts them here, as to why Baur is responsible for its loss. First, Sullivans argued that Baur breached his personal agreement to notify Sullivans of the change of ownership, as required by paragraph four of the contract terms, and as a result, his breach caused the loss of $23,109.65. In addition, Sullivans claimed that Baur owes the amount outstanding because of his personal guaranty. The trial judge found otherwise.

The court found that the credit application and the appended "terms" constituted a binding contract between Baur and Sullivans. Moreover, the court found that Baur breached the contract by not contacting Sullivans about the change of ownership. Nevertheless, the judge found that because Baur left the company two years before any nonpayment by TT Motorcycles, Baur's breach did not cause any loss, and the personal guaranty cannot be enforced against him.

There is no question a contract was formed between Sullivans and TT Motorcycles for the delivery of goods on credit in exchange for payment for the goods. A clear reading of the document in evidence at trial sets up the parameters of the agreement. See Bank v. Thermo Elemental, Inc., 451 Mass. 638, 648 (2008); Browning-Ferris Indus. v. Casella Waste Mgt. of Mass., Inc., 79 Mass. App. Ct. 300, 307 (2011) (determination of ambiguity in contract "presents a question of law for the trial court and one for de novo review by the appellate court").

The first page of the document submitted to the trial court is nothing more than a credit application to determine the credit worthiness of the applicant corporation. The inclusion of personal information of corporate owners is related to the second page, which sets out not only the relevant terms of the agreement, but also establishes personal guaranties for unpaid deliveries. The issue before this Division is the liability of Baur under the contract.

In this case, paragraph four is quite clear in requiring the Company, meaning TT Motorcycles, to notify Sullivans when there is a change in ownership. [Note 5] And of course, it is the corporate employees who provide that notice on behalf of the company. While "[a] corporation or other person controlling a corporation and directing, or participating actively in, its operations may become subject to civil or criminal liability on principles of agency or of causation," (citation omitted) My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614, 618 (1968), the failure of a corporate employee to carry out a corporate duty of performance under a contract does not incur individual liability on the employee. Porshin v. Snider, 349 Mass. 653, 655 (1965); Restatement (Third) Agency § 6.01(2) (2006). In any event, in this case, as was stipulated by the parties before trial, Baur was no longer employed by TT Motorcycles at the time of the change of ownership. Therefore, Baur did not "breach" the contract provision requiring notice.

But even if we were to adopt the trial judge's finding of a breach of paragraph four by Baur, there was insufficient evidence, as the judge found, tying a lack of notice to losses

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occurring months or years later. As Sullivans asserted at trial, the purpose of the notice is to allow it to find other credit worthy buyers or guarantors. There was no evidence that Sullivans could find no others to do business with, or that the goods would not have continued being delivered even with the desired notice. Thus, there was no proof that the failure of Baur to notify Sullivans that he was no longer connected to the company by ownership or employment led to the losses claimed. The question remains, though, is Baur liable under the personal guaranty?

The portion of the document labeled "Guarantee" clearly sets out the obligation of the signers to "guarantee payment of all purchases made by said Company." But nothing in the document describes the duration of the guaranty. So, we must ascertain its duration by construction.

"The liability of a surety or guarantor is to be ascertained from the terms of the written instrument by which his obligation is expressed, construed according to the usual rules of interpretation in the light of the subject-matter, the well understood usages of business, and the relations of the parties to the transaction. Where the words are unambiguous, they alone can be examined to determine their meaning." Zeo v. Loomis, 246 Mass. 366, 368 (1923). But where the parties "have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances will be supplied by the court. In a sense, when an essential term of a contract is missing, that contract is ambiguous and it falls to [the reviewing court] to interpret the contract sensibly in the light of the terms of the document taken as a whole, and surrounding facts" (citations omitted). Fay, Spofford & Thorndike, Inc. v. Massachusetts Port Auth., 7 Mass. App. Ct. 336, 342 (1979).

Where a guaranty is ambiguous, the contract is generally interpreted in favor of the guarantor, Keith v. Thomas, 266 Mass. 566, 571 (1929), unless the guarantor drafted the contract, in which case, it is to be strictly construed against it. Merrimack Valley Nat'l Bank v. Baird, 372 Mass. 721, 724-725 (1977). In resolving an ambiguity, as in this case by interpreting a contract with a missing term, we should look to the context in which the contract was formed, Starr v. Fordham, 420 Mass. 178, 190 (1995), in order to supply a missing term. Amsco, Inc. v. Foze, 8 Mass. App. Ct. 796, 797-798 (1979).

In this case, the guaranty is a continuous guaranty. The duration is to ensure payments on an open account. The guaranty was set up by Sullivans, essentially, to pierce the corporate veil, upon a default by TT Motorcycles. Under the contract terms, drafted by Sullivans, the guaranty would be terminated by notice of a change in ownership pursuant to paragraph four. Baur was not obligated to provide that notice. Nor was he obligated to notify Sullivans, under the contract, once he left the employ of the company and surrendered his ten per cent ownership interest. As mentioned above, Sullivans had full control over contract terms that favored only its position and was not the subject of any negotiation with Baur. Moreover, Sullivans omitted any explicit termination clause. It could have easily inserted language that the guaranty is terminated only upon written notice by the guarantor. See Federal Fin. Co. v. Savage, 431 Mass. 814, 817-818 (2000). It is not unreasonable to limit the duration of the guaranty to the time that Baur fully separated from TT Motorcycles as the trial judge did after hearing the evidence.

The judgment of the trial court is affirmed.