Guarantor not bound by forum selection clause in guaranteed contract – Quebecor v. Harsha Associates

A recent case by a federal court in New York illustrates the importance of choice of law and forum selection clauses in each and every contract or guaranty.

Forum_selection_clauseIn Quebecor v. Harsha Associates (Quebecor World (USA), Inc. v. Harsha Associates, L.L.C., et al (2006 WL 2918797 (W.D.N.Y.)), the court held that a guarantor was not bound by a forum selection clause
contained in the guaranteed contract. Only if the guaranty and the contract were closely
related, one could hold the guarantor to a forum selection clause in the
underlying contract.  The court listed the following factors as important when deciding whether a close relationship existed:

  • whether the two documents were executed contemporaneously;
  • whether the guaranty stated to have been an inducement or consideration for the
    contract or whether it incorporated the contract by reference; and
  • whether the two
    documents covered the identical subject matter.

In Quebecor v. Harsha Associates, the court denied such a close relationship.

The court further stated that absent a close connection between a guaranty and the underlying
contract, courts in New York were reluctant to
bind a guarantor under a contract’s forum selection clause,
particularly where the guaranty contains a choice of law (but not a
choice of forum) clause (which was the case in Quebecor v. Harsha Associates).

See below the fold for facts and the court’s reasoning.

Related Post:  How to choose New York law and New York courts in your business contracts when you have no connection to New York.

The defendant executed an application for credit with plaintiff
which application contained a guarantee provision, stating that "the
undersigned…guaranty [sic] prompt payment when due of any and all
indebtedness now due or which may hereafter become due from [Harsha
& Associates] to [plaintiff]…," and that "[t]his shall be a
continuing guaranty and shall not be revocable." 

The application for credit contained a choice of law clause but no forum selection clause.

Two months after the application for credit, Harsha & Associates
entered into a contract for printing services with plaintiff.  The printing contract contained a forum selection clause which stated in relevant part that

suit to enforce this Agreement or
any provision or portion thereof will be brought exclusively in the
federal courts located in the State of New York…Each party to this
Agreement irrevocably agrees that all claims in respect of such actions
or proceedings may be heard and determined in such courts and
irrevocable agrees that all claims in respect of such actions or
proceedings may be heard and determined in such courts and irrevocable
submits to the jurisdictions thereof.  Each of the parties irrevocable
waives, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to laying venue of any
such dispute brought in such court or any defense of inconvenient forum
in connection therewith.

A dispute arose in connection with the printing contract, and
plaintiff sued defendant in the Western District of New York.
Defendant moved to dismiss for lack of personal jurisdiction and the
motion was granted. 

The court found that the application for credit and guaranty was executed two months prior to the printing contract and set forth no significant details of the printing contract; the guaranty and the printing contract did not refer to each other, nor was there any express statement in them that the guaranty was an inducement for plaintiff to enter into the printing contract.  Finally, the printing contract stated that it was intended as the complete and exclusive statement of the terms of the agreement.  Under these circumstances, the court found that the forum selection clause contained in the printing contract should not be deemed to apply to defendant by virtue of having signed the earlier guaranty.

About Imke Ratschko

Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027.

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