Park 100 Investors, Inc. v. Kartes
650 N.E.2d 347 (1995)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A contract of guaranty is unenforceable if the guarantor was induced to sign it by the fraudulent misrepresentations of the guarantee, which serves as an exception to the general rule that parties are bound by the terms of a contract they sign, regardless of whether they have read it.
Facts:
- In 1984, James and Nancy Kartes were part-owners of Kartes Video Communications, Inc. (KVC).
- KVC, through its vice-president David Kaplan, negotiated a lease for facilities in Park 100's industrial complex; a personal guaranty was never mentioned during these negotiations.
- After KVC's attorney approved the lease, Kaplan signed and delivered it to Park 100's representative, Robert Scannell.
- On the evening of July 27, 1984, just before KVC was scheduled to move in, Scannell intercepted the Karteses as they were leaving for their daughter's wedding rehearsal.
- Scannell presented a document titled 'Lease Agreement,' referred to it as 'lease papers,' and insisted it must be signed immediately or KVC could not occupy the premises.
- James Kartes called Kaplan to confirm their lawyer had approved the 'lease agreement,' which Kaplan confirmed; Scannell remained silent during this exchange.
- Relying on Scannell's representations and the document's title, the Karteses signed the document where Scannell indicated, without reading it, unaware it was a personal guaranty of the lease.
- Years later, after KVC's successor company defaulted on rent, Park 100 sought to enforce the personal guaranty against the Karteses.
Procedural Posture:
- Park 100 brought suit against James and Nancy Kartes in an Indiana trial court to enforce a personal guaranty of lease and collect unpaid rent.
- Following a trial, the court entered Findings of Fact and Conclusions of Law in favor of the Karteses, holding that the guaranty was unenforceable because it was procured through fraud.
- Park 100, as the appellant, appealed the trial court's judgment to the Court of Appeals of Indiana.
- The Karteses are the appellees in this appeal.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a party's fraudulent misrepresentation about the nature of a document invalidate a personal guaranty signed by another party, even if that party did not read the document before signing?
Opinions:
Majority - Barteau, Judge.
Yes. A personal guaranty is unenforceable where the guarantor has been induced to enter into the contract by fraudulent misrepresentation. The general rule requiring parties to read contracts before signing does not apply when one party employs fraud to secure the other's signature. The court found that Park 100's agent, Scannell, committed actual fraud by: (1) materially misrepresenting the personal guaranty as 'lease papers,' a misrepresentation furthered by the document's deceptive title, 'Lease Agreement'; (2) knowing these representations were false; and (3) inducing the Karteses' reasonable reliance. The Karteses exercised ordinary care by attempting to verify the document with their agent, and their reliance was justified because the law does not permit an intentional fraud practiced on the unwary, even in an arm's-length business transaction. Therefore, the trial court's finding of fraud was not clearly erroneous and the guaranty is unenforceable.
Analysis:
This case reaffirms the potency of the fraud exception to the 'duty to read' doctrine in contract law. It clarifies that reliance on a misrepresentation can be deemed reasonable even for sophisticated business parties if the fraud is intentional and affirmative steps are taken to deceive. The decision emphasizes that courts will look at the totality of the circumstances, including time pressure and deceptive labeling of documents, when evaluating a fraud claim. This precedent strengthens the position of parties who are tricked into signing documents, showing that a perpetrator of fraud cannot use the victim's failure to read as a shield against liability.
Unlock the full brief for Park 100 Investors, Inc. v. Kartes