NATURE OF PROCEEDINGS: Hearing on Defendant's Demurrer

 

Defendant's Demurrer is overruled.

 

BACKGROUND

Plaintiff U.S. Merchants Financial Group Inc. (Plaintiff) filed this action against BlendJet Inc. (BlendJet) and Brian Zuk, alleging they failed to pay invoices totaling $285,330.52 for goods delivered and services provided.

The causes of action are: (1) Breach of a Written Contract; (2) Quasi-Contract; and (3) Open Book Account.

 

Defendant Brian Zuk (Defendant) filed a Demurrer. Plaintiff filed an opposition.

 

LEGAL STANDARD

When considering demurrers, courts read the allegations liberally and in context. Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994. “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315. As such, courts assume the truth of the complaint’s properly pleaded or implied factual allegations. Ibid. However, it does not accept as true deductions, contentions, or conclusions of law or fact. Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538. “To the extent the factual allegations conflict with the content of the exhibits to the complaint, [courts] rely on and accept as true the contents of the exhibits and treat as surplusage the pleader's allegations as to the legal effect of the exhibits.” Barnett v. Fireman's Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (court shall not “sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment”); Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 (“A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment.”). The burden is on the complainant to show the Court that a pleading can be amended successfully. Blank v. Kirwan (1985) 39 Cal.3d 311, 318.

 

ANALYSIS

Defendant demurs to the Complaint on the grounds that he is not liable for BlendJet’s debts.

I. Personal Liability

First, Defendant argues he signed the Credit Application Form in his capacity as an officer of BlendJet, not in his personal capacity. He further argues that Plaintiff has failed allege facts showing BlendJet is his alter ego, such that Plaintiff may pierce the corporate veil.

This argument is without merit. The Credit Application Form, attached to the Complaint as Exhibit A, states, “In order to induce U.S. Merchants to extend credit and other financial accommodations to Buyer in connection with the sale of goods and merchandise and/or services, the undersigned: [¶] a) represents and agrees, on behalf of buyer, that the above information is true, complete and correct and the obligations are joint and several [¶] b) acknowledges, accepts and agrees, on behalf of Buyer, to the terms and conditions attached c) personally guaranties prompt and full payment and performance on invoices, doing so without any guaranty defenses [¶] d) authorizes, on behalf of Buyer, U.S. Merchants to check assets and credit background and the continuing release of all financial and credit data for as long as U.S. Merchants has not been paid in full.” (Emphasis added).

Unlike the other provisions, which clearly state they are on behalf of the buyer, section “c)” clearly states that the undersigned “personally guarantees prompt full payment and performance….”

Therefore, Plaintiff does not need to allege alter ego liability against Defendant.

II. Contract of Adhesion

Defendant asserts that the Credit Application Form is a contract of adhesion and is therefore unenforceable.

A contract of adhesion is “a standardized contract which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Schmidt v. Pacific Mut. Life Ins. Co. (1969) 268 Cal.App.2d 735, 737 (citation omitted) (internal quotation marks omitted).

The Court rejects this argument for two reasons.

First, Plaintiff offers no authority for the proposition that contracts of adhesion are categorically unenforceable. On the contrary, “[a]bsent an ambiguity, adhesion contracts are enforced according to their terms.” Meyers v. Guarantee Sav. & Loan Assn. (1978) 79 Cal.App.3d 307, 312. That a contract is adhesive is a factor in determining unconscionability, but is not by itself unenforceable. See Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1244 (Baltazar) (“Ordinary contracts of adhesion, although they are indispensable facts of modern life that are generally enforced … contain a degree of procedural unconscionability even without any notable surprises….”); see also Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 796 (“Where there is no other indication of oppression or surprise, the degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.”).

Second, the Complaint does not allege facts showing that this was a contract of adhesion.

Defendant asserts that the Credit Application Form is a contract of adhesion “because it is a standardized pre-printed form prepared unilaterally by Plaintiff without any negotiation between Plaintiff and BlendJet or Mr. Zuk.” Demurrer at p. 5: 26-27. This is a statement of fact not contained anywhere in the Complaint.

III. Separate Document

Next, Defendant argues that the personal guarantee is invalid because it is not contained in a separate document.

It is true that “‘[a] contract of guaranty gives rise to a separate and independent obligation from that which binds the principal debtor.’” Talbott v. Hustwit (2008) 164 Cal.App.4th 148, 151 (quoting Security-First Nat. Bank v. Chapman (1940) 41 Cal.App.2d 219, 221). However, Defendant offers no support for his claim that this independent obligation must be made in a separate document. Nor does Defendant distinguish any of the cases Plaintiff cites, where the court enforced personal guaranty contained within the contract. See e.g., Niederer v. Ferreira (1987) 189 Cal.App.3d 1485, 1499.

IV. Unconscionability

Finally, Defendant argues that the personal guarantee in the Credit Application Form is unconscionable.

The general principles of unconscionability are well established. A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party. Unconscionability has both a procedural and a substantive element.” Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 492 (citations omitted) (internal quotation marks omitted).

“The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided.” Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246 (citations omitted).

“[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability. But they need not be present in the same degree. Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Baltazar, supra, 62 Cal.4th at pp.1243-44 (Baltazar) (cleaned up).

A. Procedural Unconscionability

Defendant argues that the personal guarantee is procedurally unconscionable because it is “oppressive and was hidden in single, incomplete sentence in a pre-printed credit application drafted and presented by Plaintiff.” Demurrer at p. 7:7-8.

The court disagrees with Defendants characterization that the guarantee was “hidden.” The guarantee was part of a short block of text immediately preceding the signature line. Defendant essentially repeats his assertion that the guarantee was part of a contract of adhesion. For the reason given above, that is a factual question not resolvable on demurrer. As pleaded, the Complaint does not include facts showing procedural unconscionability.

B. Substantive Unconscionability

Defendant argues that the personal guarantee is substantively unconscionable because it is clearly one-sided in favor of Plaintiff and its enforcement would be overly harsh to Defendant, who signed the Credit Application Form reasonably believing that only BlendJet could and would be liable for corporate debts. Demurrer p. 7.:9-12.

First, the Court disagrees that the personal guarantee is clearly one-sided in favor of Plaintiff. In extending credit to BlendJet, Plaintiff risks BlendJet’s default. Defendant’s personal guarantee lessons the risk to Plaintiff because it permits him to recover against Defendant’s assets as well as BlendJet. There is nothing inherently unfair or one-sided about that arrangement.

Second, whether Defendant reasonably believed that only BlendJet would be liable for the corporate debts speaks to procedural, not substantive unconscionability. Moreover, as explained above, the guaranty provision was not hidden. It was not reasonable for Defendant to ignore the terms of the contract he was signing, particularly when the relevant provision appears just above the signature line.

Accordingly, the Court finds that the Complaint properly alleges Defendant is liable, under the Credit Application Form, for BlendJet’s obligations to Plaintiff.

 

CONCLUSION

Defendant's Demurrer is overruled. Defendant has 20 days to answer.