## Facts

- McLeod Distributing, Inc. (McLeod) was a wholesaler of floor coverings, including carpet.
- Michael B. Smith was president of both Colonial Mat Company, Inc. (Colonial Mat) and Colonial Industrial Products Company, Inc. (Colonial Industrial).
- Colonial Mat’s incorporation documents described it as engaging in sales, distribution, and services for industrial products, including floor coverings; Colonial Industrial’s incorporation documents described it as selling and distributing industrial products.
- Smith commonly referred to his businesses as “Colonial,” and his business card displayed “Colonial Mat Co., Inc.” along with “Colonial.”
- Colonial Mat and Colonial Industrial shared the same address and telephone number, used the same office personnel, and had the same treasurer.
- In 1987, McLeod extended a line of credit to Colonial Mat for flooring purchases after Smith signed a personal guaranty for any debt Colonial Mat incurred on the account.
- In early 1989, Smith notified McLeod that he would be selling flooring products under the name “Colonial Carpets” going forward.
- Colonial Industrial filed with the Indiana Secretary of State to do business under the assumed name (d/b/a) “Colonial Carpets.”
- After receiving Smith’s notice, McLeod changed the name in its billing system for the existing account to “Colonial Carpets, Inc.” and continued shipping flooring products on credit.
- At trial, McLeod introduced evidence suggesting that business conducted under the “Colonial Carpets” name was not separate from Colonial Mat, including that Colonial Mat paid invoices and issued payroll checks for operations after the 1989 name change.
- In 1990, several invoices were not paid. McLeod sued Colonial Mat and Smith to recover the unpaid balance, attorney’s fees, and prejudgment interest.
- The case proceeded to a bench trial, and the trial court entered judgment for McLeod against both Colonial Mat and Smith, awarding damages and attorney’s fees and prejudgment interest, but reducing prejudgment interest because the record reflected years with little or no activity in prosecuting the case.
- Smith and Colonial Mat appealed, and McLeod cross-appealed the reduction of prejudgment interest.

## Issues

1. Whether the trial court erred in concluding that Colonial Mat was a proper liable party even though the unpaid invoices were directed to “Colonial Carpets, Inc.”
2. Whether Smith’s personal guaranty was invalid due to improper execution.
3. Whether the trial court erred in reducing McLeod’s prejudgment interest because the case sat largely inactive for several years.

## Decision

- The Court of Appeals of Indiana affirmed the judgment in all respects.
- The court held the evidence supported treating Colonial Mat as the obligor on the account despite invoices being addressed to “Colonial Carpets, Inc.”
- The court upheld the validity and enforceability of Smith’s personal guaranty for the debt incurred on the Colonial Mat credit account.
- The court affirmed the trial court’s reduction of prejudgment interest based on the extended lack of prosecution reflected in the record.

## Legal Principles

- A debtor may remain liable on an existing credit account despite invoices being issued under a different business name where the evidence supports a finding that the account and the purchasing operation continued as the same enterprise.
- A personal guaranty executed to induce a creditor to extend a line of credit is enforceable when supported by consideration (the extension of credit) and proven at trial, notwithstanding later changes in billing name or how the buyer held itself out.
- Although prejudgment interest is commonly available on ascertainable contract damages, a trial court may reduce the amount on equitable grounds when the prevailing party allows substantial, unexplained delay in prosecuting the action; the decision is reviewed for abuse of discretion.

## Conclusion

The Indiana Court of Appeals affirmed a bench-trial judgment requiring Colonial Mat and its president, Smith, to pay McLeod for unpaid flooring invoices, finding that invoicing under “Colonial Carpets, Inc.” did not defeat Colonial Mat’s liability where the proof showed continuity of the account and operations, enforcing Smith’s personal guaranty given the credit extension it secured, and upholding a reduced prejudgment-interest award due to years of inactivity in the litigation.


Smith v. McLeod Distributing, Inc., 744 N.E.2d 459 (2000)