431 Mass. 814 | Mass. | 2000
The defendant, Blanche Z. Savage, sought further appellate review of a Superior Court judgment holding that she is obligated to pay $90,000 plus interest to the plaintiff, Federal Financial Co., the holder of a note given by Ralsco, Inc. (Ralsco), to Plymouth-Home National Bank (bank).
The material facts are undisputed. Ralsco was founded by the defendant’s late husband. After his death, the defendant became president of Ralsco and her son, James Savage, assumed responsibility for Ralsco’s day-to-day operations.
On August 23, 1985, the defendant and her son, on behalf of Ralsco, signed a commitment letter with the bank for a $180,000 loan (1985 loan or 1985 note) from the proceeds of which Ralsco would fully repay the existing 1984 loan. The bank, as a condition for the new loan, asked the defendant and her son to sign new personal guaranties (1985 guaranty). The 1985 guaranty was more comprehensive and provided the bank with more protection than the 1984 guaranty.
The plaintiff, as the holder of the 1985 note and the beneficiary of the 1984 guaranty, sought repayment from the
The Appeals Court, in an unpublished memorandum pursuant to its rule 1:28, affirmed the Superior Court judgment but applied different reasoning. 47 Mass. App. Ct. 1107 (1999). The Appeals Court, relying on Community Nat’l Bank v. Loumos, 6 Mass. App. Ct. 830, 831 (1978), held that the 1984 guaranty signed by the defendant continued in effect for purposes of the 1985 loan because the defendant never provided written notification to the bank as required by the terms of the 1984 guaranty. Although pursuant to this reasoning the plaintiff would have a claim for the full amount of the 1985 loan ($180,000), the Appeals Court concluded that the plaintiff had waived any claim beyond $90,000 because it failed to file a cross appeal from the Superior Court judgment.
The Appeals Court, in its memorandum, did not address the relevance of Atlantic Aluminum & Metal Distribs., Inc. v. Standard Paint & Wall Paper Co., 347 Mass. 415 (1964). The defendant petitioned for rehearing and the Appeals Court allowed the petition for the purpose of considering the significance
The issue we consider is whether the defendant’s subsequent dealings with the bank, i.e., refusing to sign the 1985 guaranty, signing the commitment letter for the 1985 loan only in her capacity as Ralsco’s president, and subordinating her mortgage on Ralsco property as additional security for the 1985 loan, terminated her obligation under the 1984 guaranty. We agree with the Appeals Court’s conclusion that the defendant could only terminate the 1984 guaranty by sending a written notice to the bank.
A guaranty is a contract “like all other contracts.” Merchants Nat’l Bank v. Stone, 296 Mass. 243, 250 (1936). When the words of the guaranty “are clear they alone determine the meaning.” Merrimack Valley Nat’l Bank v. Baird, 372 Mass. 721, 723 (1977). The words of the 1984 guaranty signed by the defendant are clear and unambiguous. The termination clause of the 1984 guaranty provides that “ [t]his Guaranty is made and shall continue as to any and all such indebtedness and liability of Borrower to the Bank incurred or arising prior to receipt by the Bank of written notice of the termination hereof from the undersigned . . . .” The 1984 guaranty provides only one mechanism for termination, i.e., the defendant must send written notice to the bank. The defendant never informed the bank in writing of her intention to terminate her obligation under the 1984 guaranty. Thus, she did not comply with the terms of the contract, and refusing to sign the 1985 guaranty does not affect her obligation under the 1984 guaranty. Any other conclusion would be inconsistent with the well-established rule that the “liability of the guarantor . . . can be terminated only in accordance with the terms of the contract.” Merchants Nat’l Bank v. Stone, supra at 252. See Manufacturers’ Fin. Co. v. Rockwell, 278 Mass. 502, 504 (1932); Community Nat’l Bank v. Loumos, supra.
The defendant contends that the written termination provision of the 1984 guaranty does not govern because the guaranty was unlimited in time. The defendant argues that guaranties unlimited in time are only operative for a reasonable time and that the bank’s attempt and failure to obtain a further guaranty
In reaching our conclusion in the Atlantic Aluminum case, we relied on our decision in Zeo v. Loomis, 246 Mass. 366, 368 (1923), in which we held that a guaranty without a written duration provision is “operative for a reasonable time.” However, we cautioned that this rule is only applicable where the duration period cannot “be ascertained from the terms of the written instrument by which [the obligation] is expressed.” Id. The rule established in the Zeo case and applied in the Atlantic Aluminum case concerning a guaranty without a written duration provision has no application to this dispute. In the Zeo and Atlantic Aluminum cases, the language of the guaranties provided that the guarantors personally promised to repay the debts of a third party indefinitely. Unlike the guaranties at issue in those cases, the guaranty here is not indefinite because it has a duration provision; it is in effect until the defendant provides a written notice of termination. This is not a formalistic distinction. In the Zeo case, the parties failed to provide for an end to the obligation under the guaranty. Id. at 367. The court concluded that it was unlikely that the parties intended such an indefinite agreement and assumed that the parties intended the guaranty to be operative only for a reasonable time. Id. at 368. Thus, the court inferred a reasonable duration provision. Id. In this case, the parties explicitly bargained for a duration period, i.e., termination after written notice. The fact that the guarantor could terminate the guaranty at any time further justifies the conclusion that there is a specific time limit. A reasonable time limit is inferred when no time limit is expressed. Here, a time limit is provided and it is particularly simple for the guarantor because it can be implemented at any time. No public policy is served by ignoring this provision and treating the agreement as a guaranty without duration.
The defendant erroneously relies on Bank One Texas Nat’l Ass’n v. Morrison, 26 F.3d 544 (5th Cir. 1994); First Acadiana Bank v. Bieber, 582 So. 2d 1293 (La. 1991); and Kelly Springfield Tire Co. v. Faulkner, 191 Wash. 549 (1937). In Bank One and Kelly Springfield, the courts held that questions of fact existed as to whether a written guaranty was terminated by a subsequent agreement. In these cases, there was ample evidence in the record showing the possible existence of a subsequent agreement. In Bank One, among other evidence, the bank stamped across the original guaranty the word “cancelled” and a bank officer testified that the bank had released the guarantor. Bank One Texas Nat’l Ass’n v. Morrisson, supra at 545. In Kelly Springfield Tire Co. v. Faulkner, supra at 553, there was evidence of an express oral agreement to terminate the prior guaranty. In First Acadiana Bank v. Bieber, supra at 1297, the court noted in dictum that the parties to a written guaranty could arguably terminate that guaranty by their conduct. These cases are inapplicable because, as discussed, supra, the defendant has failed to produce any evidence showing that she had an agreement with the bank to terminate the 1984 guaranty.
Because there is no enforceable oral modification to the 1984 guaranty, the defendant must comply with the original written termination provision. As the defendant did not send the bank the required written notice to terminate the 1984 guaranty, she is bound by its terms.
This was an arm’s-length transaction between sophisticated individuals culminating in the defendant’s company receiving the benefit of two bank loans. Partially in exchange for the company’s receiving that benefit, the defendant committed to repay the loans if the company should default. The bank
Judgment affirmed.
The note at issue was acquired by New Bank of New England, N.A., which was the successor in interest to Plymouth-Home National Bank. New Bank of New England’s assets were then taken over by the Federal Deposit Insurance Corporation (FDIC) which assigned the note to the. plaintiff.
James Savage was named as a defendant in the complaint filed in the Superior Court. He was defaulted and is not a party to this appeal.
On February 28, 1984, the son also executed and delivered to the bank a guaranty with the same provisions as the one signed by the defendant.
For example, the 1985 guaranty required that the guarantors waive any right to have the borrower joined in a suit brought against the guarantor on the guaranty. In addition, it stated that any act, delay, omission, or course of dealing between the bank and borrower or guarantors would not be a waiver of any of the bank’s rights under the guaranty.
The judge’s decision to order repayment of the “original” 1984 loan appears to be an error as the judge had concluded that the 1984 guaranty was terminated and, as a factual matter, there was no outstanding debt owed by Ralsco on the 1984 loan. Based on the summary judgment submissions of the parties, it is undisputed that the 1984 loan was repaid by Ralsco from the proceeds of the 1985 loan. However, the plaintiff did not cross-appeal from the Superior Court judgment and has conceded in its brief that it is satisfied with the $90,000 amount of the judgment. Therefore, the amount of the Superior Court judgment is not at issue in this appeal.
The defendant also contends that the bank is estopped from arguing that the 1984 guaranty was valid. Not having raised the argument below, it cannot be raised for the first time on appeal. See Moloney v. Boston Five Cents Sav. Bank FSB, 422 Mass. 431, 436 (1996); International Fid. Ins. Co. v. Wilson, 387 Mass. 841, 851 (1983); M.H. Gordon & Son v. Alcoholic Beverages Control Comm’n, 386 Mass. 64, 67 (1982).