Contracts

How to Position Yourself to Win a Contract Dispute

Yesterday the Washington Court of Appeals released an opinion providing a good example of how you can position yourself to win a contract dispute. The opinion affirmed a summary judgment awarding more than $300,000 plus fees and interest to GLV International, Inc. against American Rodsmiths, Inc. and its president Robert Scherer.

The Facts of the Case
American Rodsmiths purchased more than $300,000 in goods from GLV. American Rodsmiths then failed to pay its outstanding balance. GLV extended credit to American Rodsmiths based on a personal guaranty from the company president, Mr. Scherer. The personal guaranty included a provision awarding attorney fees to GLV if it prevailed in a suit against Mr. Scherer to enforce the terms of the personal guaranty. GLV offered orders, invoices, shipping records, packing lists, bills of lading, and emails as evidence documenting American Rodsmiths’ outstanding debt.

The trial court granted GLV’s motion for summary judgment. This means the case never got to trial, because the judge found that there was no genuine issue of material fact. GLV had evidence of the contract, and nothing American Rodsmiths offered brought the contract, or the amount owing, into question. The trial court entered a judgment against American Rodsmiths and Scherer in the amount of $342,497.13, including more than $14,000 in attorney fees and interest.

American Rodsmiths appealed the summary judgment claiming the trial court erred in ruling there was no genuine issue of material fact. In supporting its proposition, American Rodsmiths offered a declaration from Mr. Scherer stating that some of the goods were defective and some were never ordered. But none of the alleged deficiencies were presented with particularity, and the appellate court held that American Rodsmith’s “conclusory allegations” were insufficient to show that a genuine issue of material fact existed.

How to Position Yourself to Win a Contract Dispute

GLV took a number of actions that placed itself in a good position entering this dispute. First, they had a clear and unambiguous contract with Mr. Scherer, which included a provision that awarded attorney fees to the prevailing party in a contract dispute. Second, they had great records documenting the order and delivery of the goods. The copious records GLV maintained prevented this case from going to trial, and not only led to a judgment in GLV’s favor, but eliminated the need for a trial. The best way to position yourself to win a contract dispute is to have a clear and unambiguous contract, and proof that you performed your side of the bargain.

Other Important Takeaways from GLV v American Rodsmiths

Personal Guaranty
The importance of a personal guaranty should not be underestimated by either party. One of the main purposes of having a corporate entity is to avail yourself of the limited liability protection. If a business owner or operator provides a personal guaranty, the corporate shield is rendered worthless with respect to the subject of the personal guaranty. Had he not made the personal guaranty, Mr. Scherer would not have been personally liable for any portion of the $342,000 judgment. Now GLV can go after Mr. Scherer’s personal assets. I am sure he wishes he never made that personal guaranty. From GLV’s perspective, the personal guaranty added a second contractual basis for them to sue and a path towards recovering attorney fees.

Costs of Appeal
The appellate court awarded additional attorney fees for the appeals process. The decision to appeal a superior court’s ruling should not be made lightly. Mr. Scherer and American Rodsmiths will now be obligated to pay GLV an even greater sum.

Length of Dispute
Even though this case never went to trial, the litigation lasted for more than two years. GLV filed the complaint in November of 2010, the trial court awarded summary judgment in September of 2011, and the court of appeals affirmed the trial court’s summary judgment ruling yesterday–January 22nd, 2013.

          


Kyle Hulten

When I'm not in the office I enjoy cooking, gardening, and watching my toddler son explore his little universe.


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