Antitrust Law Daily Wrap Up, FRANCHISING AND DISTRIBUTION—D.N.J.: Disputed authenticity of signatures on personal guaranty precludes summary judgment, (Feb 3, 2015)

By Dan Selcke, J.D.

The existence of a material issue of fact regarding the authenticity of signatures on a franchisee’s personal guaranty to make good on payment obligations to a hotel franchisor precluded the entry of summary judgment in favor of either the franchisor or the franchisee, according to the federal district court in Newark, New Jersey (Ramada Worldwide Inc. v. Jafri, January 29, 2015, McNulty, K).

Franchise agreement default. Ramada Worldwide operates the nationally known Ramada hotel franchise. The company entered into a franchise agreement with Whitehall, which owned a lodging facility in Connecticut, providing that the facility would operate as a Ramada hotel. Under the agreement, Whitehall was to pay Ramada a variety of periodic fees that, if unpaid, would allow Ramada to terminate the agreement and require Whitehall to pay liquidated damages.

Whitehall was owned by Zulfikar Jafri and his three partners. Purportedly, the four of them signed a personal guaranty that they would make good on Whitehall’s payment obligations to Ramada if their company ever defaulted. Eventually, Whitehall fell behind on its periodic payments, which amounted to a default. Ramada terminated the franchise agreement and demanded that the partners satisfy Whitehall’s debts.

Signatures forged? The payments were not forthcoming, and Ramada brought suit against Jafri and his partners to enforce the personal guaranty. Jafri’s partners settled, leaving him as the sole defendant. While he admitted to signing the personal guaranty, Jafri argued that someone at Ramada had forged the signatures of his partners after he had already affixed his, and that therefore the document was invalid as to him. Both he and Ramada filed motions for summary judgment.

Issue of fact. It was undisputed that Jafri breached the personal guaranty by not making good on Whitehall’s payment obligations to Ramada. However, the allegation that the signatures of his partners had been forged created, at minimum, an issue of fact. The forgery assertion was backed up by an (unsworn) handwriting analyst’s report and deposition testimony from the partners that the signatures on the guaranty were not theirs. Jafri, testifying as someone who was familiar with his partners’ signatures, said the signatures were not genuine.

Guiding law. What was less clear to the court was whether the question regarding the genuineness of the signatures represented a material issue of fact. To determine that, the court first turned to guiding case law. There were no New Jersey cases on point, but courts in other jurisdictions had addressed the issue of whether an agreement was valid as to one signatory when other signatures had been forged. For example, the court in Danner v. Walker-Smith Co. said: “Had Walker-Smith & Co. been in any wise connected with such forgery, said instrument would have been void as to all parties…” 154 W.E. 295, 300 (Tex. Ct. App. 1912). In this case, Jafri alleged that someone at Ramada forged the signatures after he, acting on the reasonable belief that his partners would sign later, signed the document. This would suggest that the issue of the authenticity of the signatures was material.

No reason to forge. Ramada pointed out that it had no reason to forge any of the signatures, as it was fastidious about observing the formalities of the transaction and did not want to commit itself without the four guaranties firmly in place. Still, that argument did not make Jafri’s allegations of forgery impossible. At present, neither party could conclusively state where the partners’ signatures had come from, so any arguments as to why Ramada lacked incentive to forge them went to the credibility and weight of the evidence. It did not preclude a finding a finding that there was a genuine, material issue of fact to be tried.

Reliance. Similarly, there was conflicting evidence regarding whether Jafri, when signing the guaranty, had actually relied on the notion that his partners would sign it later. Jafri testified that, when he signed the document, he did not notice that there were signature lines for the other partners. He also never checked with them to make sure they had signed, and in general had not read the document closely. This indicated that he did not rely on his partners eventually signing the guaranty. However, the document itself was a collective, group document that continually referred to the guarantors as “we,” “our,” or “us.” Also, Jafri testified that Ramada’s representative told him at the closing that the guaranty would not become operative “until all the signatories signed.”

In conclusion, there was contradictory evidence regarding all of the issues involved, but none of it was so one-sided as to require summary judgment. Therefore, the court denied both parties’ motions for summary judgment.

The case number is: 12-cv-5301

Attorneys: Bryan Paul Couch (LeClairRyan) for Ramada Worldwide Inc. Michael A. Orozco (Price, Meese, Shulman & D'Arminio) for Zulfikar Jafri.

Companies: Ramada Worldwide Inc.

Cases: FranchisingDistribution NewJerseyNews