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Forged Power Of Attorney In Set Of Loan Documents Did Not Render Personal Guaranty Unenforceable

Lesson. A properly-executed promissory note and personal guaranty should overcome alleged defenses associated with other flawed loan documents.

Case cite. Nextgear Capital Inc. v. Premier Grp. Autos LLC 2022 U.S. Dist. LEXIS 89317 (S.D. Ind. 2022)

Legal issue. Whether a forged power of attorney signed in connection with floorplan financing rendered a personal guaranty of the loan unenforceable.

Vital facts. Floorplan financing “is when an automobile dealer establishes a line of credit with a lender to purchase vehicles before selling them to a customer….” Once the dealer sells the vehicle, it repays the money to the lender. In Nextgear, Borrower entered into a contract for floorplan financing with Lender. The contract involved a promissory note, security agreement and two personal guaranties. Borrower “floored” its first vehicle with Lender on April 16, 2019.

On April 18, 2019, a sales executive for Lender went to Borrower’s office to meet with the two guarantors, who were also representatives of Borrower, for the purpose of obtaining a power of attorney (POA) required to service the loan. Upon arriving, the sales executive met with someone he believed was one of the guarantors, who signed the POA. The sales executive, who was a notary, examined a photocopy of the individual’s driver’s license and notarized the POA. Borrower proceeded to floor ten more vehicles.

Lender’s policy of obtaining a POA was limited to having one signed by Borrower, not any guarantors. The promissory note and guaranties confirmed this. In this instance, for some reason Lender got signatures on POAs from what Lender believed were both guarantors, presumably signing as agents of Borrower.

Later in 2019, the parties agreed to increase the line of credit. In connection with this, Borrower made a 150k payment to Lender, which credited Borrower’s account for that amount. Immediately following that payment, Borrower floored several more vehicles. Shortly thereafter, Borrower’s 150k payment was rejected for insufficient funds. At that point, Borrower’s loan balance was about 355k. Further, Borrower began paying operational expenses upon the sales of vehicles rather than paying Lender as required. Lender declared Borrower to be in default.

Also, Lender later discovered that the person who signed one of the POAs was not in fact a guarantor. The actual guarantor contended that the sales executive may not have properly notarized the POA or otherwise assisted with the forgery.

Procedural history. Lender sued Borrower and guarantors for breach of contract, specifically for claims related to the promissory note and guaranties. The guarantor identified on the forged POA (“Guarantor”) filed multiple counterclaims that included forgery and indemnification. Lender filed a motion for summary judgment.

Key rules.

When interpreting contracts like promissory notes and guaranties, an Indiana court’s analysis “starts with determining whether the contract's language is ambiguous.” If the language is unambiguous, courts then apply the contract’s “plain and ordinary meaning in light of the whole agreement, 'without substitution or addition.'"

Indiana’s right to indemnification arises through a contract, by a statutory obligation, or may be implied at common law. "In the absence of any express contractual or statutory obligation to indemnify, such action will lie only where a party seeking indemnity is without actual fault but has been compelled to pay damages due to the wrongful conduct of another for which he is constructively liable."

Holding. The U.S. District Court for the Southern District of Indiana granted summary judgment in favor of Lender. This post focuses on some of the counterclaims/defenses of Guarantor surrounding the forged POA.


Were the promissory note and guaranty unenforceable against Guarantor due to the POA being forged? No. Importantly, Guarantor did in fact execute the guaranty. “[Guarantor contends that due to the forged POA allegedly from him, [his co-guarantor] was able to substantially increase the line of credit and increase the amount of money [Lender] now seeks from [Guarantor]. [Guarantor] argues that even if he is liable based on signing the guaranty, it should be limited to the amount of money that was provided in the first thirty days after execution of the promissory note.” The Court rejected the defense because the promissory note only required a POA to be signed by Borrower. Since the co-guarantor signed the POA on behalf of Borrower, and since Guarantor did not need to co-sign, the forgery on the separate POA was inconsequential.

Another of Guarantor’s defenses rested on the theory of indemnification. He claimed that his liability was derivative of the sales executive’s “wrongful conduct in assisting with the forgery” of his POA. “But for [the forger], [co-guarantor] would not have drawn on the line of credit, thus leading [Guarantor] to be liable.” The Court reiterated that the forged POA was not required to extend credit to Borrower. Further, the sales executive’s actions did not cause Guarantor to sign his guaranty.

Related posts.

I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.