Murphy v. Yale Materials Handling Corp.

Opinion

POCHÉ, Acting P. J.

Plaintiffs, Robert H. Murphy, M.D. and Shirley S. Murphy, appeal from a judgment after trial to the court in favor of defendants, Yale Materials Handling Corporation and various other related business entities (hereafter collectively Yale), which held personal guaranties executed by the Murphys.

This case arose from the financial decline of a forklift dealership. Although the issues before us on this appeal are relatively uncomplicated, the commercial context and legal posture of the case require some explanation.

I.

Background

Dr. and Mrs. Murphy were the majority shareholders of Bay Area Material Handling Inc. (Bay Area), a dealership for Yale brand forklifts. Bay Area

[621]

entered into various financing agreements to purchase inventory, some with Yale and its parent corporation and some with Yale’s predecessor in interest, Heller Financial, Inc. In March 1987 Bay Area failed to remit some $200,000 owed to Yale and/or Heller for forklifts it had sold; Yale concluded Bay Area had thereby sold out of trust under the financing agreements. On April 16, 1987, Robert Murphy executed a $1 million personal guaranty of Bay Area’s indebtedness in favor of Yale, and his wife executed an identical guaranty in the amount of $250,000.

In late 1988 Bay Area committed to greatly increase its Yale forklift inventory. This increase resulted in a debt of “nearly $5 million” owed by Bay Area to Yale entities. In October 1989 Yale again evidenced concern that Bay Area was selling out of trust. Finally, on June 21, 1991, Yale terminated Bay Area’s dealership.

In August of 1991 Bay Area filed a complaint naming Yale as a defendant; in September Yale cross-complained naming Bay Area and the Murphys as cross-defendants. Yale’s cross-complaint pleaded breach of the personal guaranties of the Murphys.

In mid-October 1991 Bay Area filed a voluntary chapter 11 (reorganization) bankruptcy petition. The bankruptcy case was converted into a chapter 7 (liquidation) case in September 1993, and in June 1994 the trustee of the bankruptcy estate entered into a settlement with Yale whereby the estate paid Yale $215,000 in exchange for a release of all Yale’s claims against the Bay Area bankruptcy estate. That settlement was subsequently approved by the bankruptcy court.