Moody v. Kirkpatrick
| Decision Date | 15 October 1964 |
| Docket Number | Civ. No. 3251. |
| Parties | Robert L. MOODY, Plaintiff, v. Edward L. KIRKPATRICK, Jr., et al., Defendants. |
| Court | U.S. District Court — Middle District of Tennessee |
W. Raymond Denney, of Denney, Leftwich & Lackey, Nashville, Tenn., for plaintiff.
William Waller, Sr., and Robert G. McCullough, of Waller Lansden & Dortch, Nashville, Tenn., for defendants.
In January of 1960, the remaining defendant in this action, Jack M. Bass, Jr., together with the plaintiff and six others entered into a written agreement with the United States Sulphur Corporation, a Texas corporation with a mine and plant under construction at High Island, Texas, and Harry T. McClain, the principal (88%) stockholder and President of the Corporation, in which they agreed to guarantee to the River Oaks Bank of Houston, Texas, a $225,000 loan to the Corporation in return for royalties on minerals mined and sold by the Corporation, options to purchase stock from McClain, and the voting rights to McClain's stock during the period that the guaranteed obligation remained unsatisfied. The agreement fixed the respective interests of the guarantors in the royalties, options and voting rights and thereby their liabilities for the loan as follows:
Harold W. Clark, B. W. Landstreet III
Edward L. Kirkpatrick, Jr. and
William Nelson II 27.77% $62,500
Thomas H. Murphy and John
H. Lowell 27.77% $62,500
Jack M. Bass, Jr. 22.22% $50,000
Robert L. Moody 22.22% $50,000
Soon after the execution of this agreement, the River Oaks Bank loaned the Corporation $225,000. In February 1961, this debt was transferred to the Bank of Texas of Houston, Texas, the eight guarantors signing a continuing guaranty (the subject of this action) in which they jointly and severally guaranteed payment of the obligations of the Corporation to the latter bank to the extent of $225,000. The Corporation executed a six-month promissory note with a due date of August 15, 1961.
Between January 1960 and August 1961, all of the guarantors, except plaintiff Moody, made substantial investments in the foundering Corporation in the form of loans and additional guarantees. On August 10, 1961, one of the guarantors, who had assumed the Presidency of the Corporation, requested the plaintiff to make a loan to the Corporation to be used to pay the interest on the maturing note and to defray expenses which would be incurred in renewing the loan for an additional six months. Moody refused to make the loan, objected to the extension of time for payment, and offered to pay his share of the principal of the note. Moody did not, however, notify the guarantee bank that he was revoking his guaranty.
On August 15, the Corporation renewed the loan, executing another six-month promissory note. When this note became due on February 13, 1962, the Corporation was unable to make payment. The loan was not renewed. On March 23, 1962, Moody paid the Bank of Texas $225,000 plus $6,781.25 in interest from August 15, 1961. The bank assigned the note and guaranty to Moody.
Invoking the diversity jurisdiction of this Court, Moody filed suit against five co-guarantors who resided in Nashville, Tennessee. He has settled with four as follows:
Harold W. Clark $15,625 cash
B. W. Landstreet III $15,625 cash
Edward L. Kirkpatrick, Jr. $15,625 ten-year note
William Nelson II $ 1,000 cash
$14,625 ten-year note
Moody alleges that the other two guarantors reside in Colorado and are insolvent. He seeks to recover from the remaining guarantor Bass on the assigned note and guaranty (1) an amount in excess of the latter's agreed proportion of the obligation by way of the joint and several liability provision of the guaranty; and (2) attorneys' fees pursuant to the provisions of the note and guaranty. In the alternative, by an amendment, Moody seeks recovery in contribution.
One of the defenses is that the defendant signed the guaranty in Tennessee and that under Tennessee law the note is usurious on its face and therefore void, since it provides for interest at the rate of 10% per annum after maturity, Bang v. Windmill Co., 96 Tenn. 361 (1896). Both parties have moved for summary judgment on the pleadings, exhibits, affidavits and depositions on file.
When the jurisdiction of this court rests solely upon the diversity of citizenship of the parties before it, it must endeavor to reach the same outcome as a comparable court of the state in which it sits. Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 60, 89 L.Ed. 560 (1945). Problems in conflicts of laws must be resolved by the application of the conflicts rules of that state. Tennessee follows the general rule that the validity of a contract and the substantive rights of the parties to it are to be governed by the law which the parties intended. In the absence of a manifestation of contrary intention, the parties are presumed to have contracted pursuant to the laws of the state in which the contract was entered into. Deaton v. Vise, 186 Tenn. 364, 210 S.W.2d 665 (1948).
The usual contract of guaranty is unilateral, the guarantor's offer of guaranty being accepted by the act of the guarantee in extending credit to the principal debtor. 38 C.J.S. Guaranty § 3, at 1133 n. 31. While there do not appear to be any Tennessee conflicts decisions involving a guaranty contract, the Tennessee courts have discussed guaranty in terms of an offer which is accepted by the act of the guarantee. Mountain City Mill Co. v. Lindsey, 8 Tenn.App. 337, 351 (M.S.1928); Villines v. Parham-Lindsey Groc. Co., 6 Tenn.App. 254, 262 (M.S. 1927).
A conflicts decision from another jurisdiction which would appear to be directly in point is C. I. T. Corp. v. Sanderson, 43 F.2d 985 (E.D.Idaho 1930). A contract of guaranty was held valid and enforceable in a federal district court in Idaho against a married woman who had signed the guaranty in that state, the laws of said state denying to married women the power to enter into such contracts. The guarantee resided in a state which did permit married women to so contract. The contract was construed to have been made in the latter state where the offer of guaranty was accepted by the extension of credit.
This is not to say that a contract of guaranty might not be bilateral with the last act necessary to make it binding being the signature of the guarantor. In Davis v. Wells, 104 U.S. 159, 26 L.Ed. 686 (1881), the Supreme Court found such a guaranty contract. It was, however, a guaranty for an existing debt and recited the receipt of consideration from the guarantee.
The guaranty contract which is the subject of this suit gives every indication of being the usual unilateral contract. The defendant, the plaintiff and the other guarantors appear to have made an offer to the guarantee bank which the latter accepted, first by making the original loan to the Corporation and again by extending the time for payment. The instrument which all of the guarantors signed is so worded:
"This is a continuing guaranty and all extensions of credit and financial accommodations concurrently herewith or hereafter made by Bank to Borrower shall be conclusively presumed to have been made in acceptance hereof." (Emphasis added.)
Thus, the contract of guaranty was entered into in the state in which the guarantee bank extended credit to the Corporation — Texas. Under the Tennessee conflicts rule, the validity of the guaranty and the rights of the parties to it are to be governed by the substantive law of Texas. This result is in accord with the weight of authority:
"So, if an offer of guaranty is made in one state and accepted and acted on in another, it is held to be a contract of the latter state and governed by the laws thereof." 38 C.J.S. Guaranty § 3, at 1133.
It should also be pointed out that the place of performance of a guaranty contract is generally presumed to be the guarantee's place of residence. Ibid. This strengthens the presumption that the parties to the present guaranty contract intended it to be governed by the law of Texas. Bond v. John V. Farwell Co., 172 F. 58 (6th Cir. 1909).
Since the interest rate provided for in the note is not alleged to be usurious under Texas law, the note and guaranty are enforceable in a federal district court in Tennessee. Bond v. John V. Farwell Co., supra.
However, under the decisions of the Texas courts the plaintiff is not entitled to maintain an action on the note and guaranty against the defendant. The Supreme Court of Texas has held that a co-obligor cannot recover from another co-obligor on the contract creating the common liability because the obligation was satisfied and extinguished by the plaintiff's payment. Faires v. Cockerell, 88 Tex. 428, 31 S.W. 190, 28 L.R.A. 528 (1895). The Texas courts have adhered to this reasoning to such an extent as to hold that a co-judgment...
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