American Bank & Trust Co. v. Blue Bird Restaurant & Lounge, Inc.

• Decision Date: 30 May 1973
• Docket Number: No. 9387,9387
• Citation: 279 So.2d 720
• Court: Court of Appeal of Louisiana — District of US
• Parties: AMERICAN BANK & TRUST COMPANY v. BLUE BIRD RESTAURANT & LOUNGE, INC., et al., Herbert E. Courtney.

Page 720

279 So.2d 720

AMERICAN BANK & TRUST COMPANY v. BLUE BIRD RESTAURANT & LOUNGE, INC., et al., Herbert E. Courtney.

No. 9387.

Court of Appeal of Louisiana, First Circuit.

May 30, 1973.

Rehearing Denied July 5, 1973.

Writ Granted Aug. 31, 1973.

Warren L. Mengis, Baton Rouge, for Courtney (Herbert Courtney).

Frederick Kroenke & Sidney Fazio, Baton Rouge, for American Bank.

Edwin A. Smith, Jr., Baton Rouge, for defendant Chas. Courtney.

Before LOTTINGER, ELLIS and CRAIN, JJ.

LOTTINGER, Judge.

This is a suit by the American Bank and Trust Company, as petitioner, on a promissory note in the sum of $91,207.89 against Blue Bird Restaurant & Lounge, Inc., Blue Bird Drive-In, Inc., Blue Bird of Nicholson, Inc., and Charles E. Courtney, Sr., makers of the note, and against Herbert E. Courtney, appellant herein, on guaranty in the sum of $20,000.00. The Lower Courr rendered judgment in favor of petitioner and against defendants. The defendant, Herbert E. Courtney has taken a devolutive appeal.

We quote from the excellent reasons for judgment rendered by the Lower Court:

'Petitioner is the holder of a promissory note executed on March 8, 1971, by Charles Courtney, Sr., and the above-named corporations, in the amount of $91,207.89. The note is payable to the order of American Bank ninety days after date, stipulating to bear interest at the rate of eight and one half percent per annum from date, until paid. The note further provides for the payment of ten percent for attorneys fees in the event of default.

Petitioner is the owner and holder, as additional security, of the following, to-wit: a $50,000.00 collateral mortgage note dated August 4, 1965, paraphed with an act of collateral mortgage covering a leasehold interest on property described therein; a $20,000.00 chattel mortgage note dated April 1, 1970, paraphed with an act of collateral chattel mortgage covering various equipment described therein; and a $30,000.00 chattel mortgage note dated June 1, 1966, paraphed with an act of collateral chattel mortgage covering equipment described therein.

On May 12, 1969, Charles Courtney, Sr., executed a note in the amount of $30,000.00, endorsed by Herbert Courtney, but otherwise unsecured. This note was subsequently reduced by payments to a balance of $20,000.00, which forms a part of the total indebtedness involved in this lawsuit. In connection with the above transaction, defendant Herbert Courtney executed a continuing guaranty on the first $20,000.00 of the total indebtedness owed by Charles Courtney, Sr., and the Blue Bird Drive-In, Inc., to American Bank. The guaranty was signed by Herbert Courtney on March 8, 1971, and is filed in evidence as 'P--9'.

The principal debtors defaulted and the entire debt is presently due. Petitioner alleges that Charles Courtney, Sr., Blue Bird Restaurant and Lounge, Inc., Blue Bird Drive-In, Inc., and Blue Bird of Nicholson, Inc. are liable to it, in solido, in the full sum of $91,207.89, together with interest and attorneys fees. Petitioner further alleges that under the terms of the guaranty, Herbert Courtney is liable, in solido, with Charles Courtney and Blue Bird Drive-In, Inc., in the sum of $20,000.00, with interest and attorneys fees.

The only issue this Court feels necessary to determine is whether the continuing guaranty shall be given effect and, if so, the extent of Herbert Courtney's liability thereunder.

The Courts have long recognized that in Louisiana contract of guaranty is similar, if not equivalent, to a contract of suretyship. In both, there is an engagement to answer for the debt, default, or miscarriage of another, and for this reason the terms 'surety' and 'guarantor' or 'guaranty' are often used interchangeably. Brock v. First State Bank and Trust Company, et al, 175 So. 569, 187 La. 766 (1937), Rehearing denied; Siben v. Green, 8 So.2d 706 (La.App. Orleans 1942).

Defendant guarantor's principal contention is that no contract of guaranty was ever confected between the parties because there was no meeting of the minds on material provision of the agreement. He relies on La.C.C. Article 1945(4) which, in effect, provides that absent the common intent of the parties, there is no common consent and, consequently, no contract.

Contracts of guaranty or suretyship are subject to the same rules of interpretation as contracts in general. La.C.C. Article 1945 sets the basic rules of contract interpretation:

'Article 1945. Legal agreements having the effects of law upon the parties, none but the parties can abrogate or modify them. Upon this principle are established the following rules:

'First--That no general or special legislative act can be so construed as to avoid or modify a legal contract previously made;

'Second--That courts are bound to give legal effect to all such contracts according to the true intent of all the parties;

'Third--That the intent is to be determined by the words of the contract, when these are clear and explicit and lead to no absurd consequences;

'Fourth--That it is the common intent of the parties--that is, the intention of all--that is to be sought for; if there was a difference in this intent, there was no common consent and, consequently, no contract.'

Defendant guarantor argues that there is lack of common intent insofar as the meaning of the first sentence of the last paragraph of the guaranty. The sentence reads as follows:

'This Continuing Guaranty will guarantee only the first $20,000.00 on the indebtedness of Charles Courtney of Blue Bird Drive-In, Inc.'

Defendant contends that this was intended to limit the general terms of the guaranty making it a guaranty of collection or conditional guaranty, rather than a guaranty of payment or absolute guaranty.

As this Court appreciates the distinction between the two, an absolute guaranty exists whenever the guarantor binds himself in solido with the principal debtor or when he waives the benefit of discussion and division. Under such a contract, the guarantee may proceed directly against the guarantor immediately upon the default on the principal debtor.

A conditional guaranty, on the other hand, obligates the guarantor to discharge the principal's debt only in the event that the creditor is unable to recover payment through legal action against the debtor. Under the contract, the guarantor is entitled to a discussion of the debtor's effects.

An examination of the continuing guaranty is necessary to determine the effect of the last paragraph therein. The contract pertinently provides in part:

'In consideration of American Bank and Trust Company . . . giving or extending terms of credit to Charles Courtney or Blue Bird Drive-In, Inc., hereinafter called debtor, we hereby give this continuing guaranty to the said American Bank . . . for the payment in full . . . of any indebtedness . . . of said debtor . . . up to the principal amount of Twenty Thousand and No/100 dollars . . . The Bank shall not be bound to exhaust its recourse against the debtor or other persons or upon the securities it may hold before being entitled to payment from the undersigned of the amount hereby guaranteed. We do furthermore bind and obligate ourselves . . . in solido with said debtor, for the payment of said indebtedness precisely as if the same had been contracted and was due or owing by us in person, hereby agreeing to and binding ourselves . . . by all terms and conditions in any note or notes signed or to be signed by said debtor, making ourselves a party thereto; Hereby waiving . . . notice of any act to establish the liability of any party of any . . . paper, indebtedness or obligation covered by this quaranty; we do further waive . . . all pleas of discussion and division and we agree to pay upon demand at any time to said Bank . . . the full amount of said indebtedness up to the amount of this guaranty . . ....