Beach Cmty. Bank v. Labry, No. W2011-01583-COA-R3-CV

CourtCourt of Appeals of Tennessee
Writing for the CourtJ. STEVEN STAFFORD
Decision Date15 June 2012
Docket NumberNo. W2011-01583-COA-R3-CV


No. W2011-01583-COA-R3-CV


May 24, 2012 Session
Filed June 15, 2012

Appeal from the Circuit Court for Shelby County
No. CT-005144-09, Div. 5-J
Kay S. Robilio, Judge

This case involves personal guaranties on a loan to purchase real estate. The Appellants entered into a partnership for the purpose of buying and selling real estate. The partnership obtained a loan in the amount of $2,611,000.00 to purchase real property located in Florida. The Appellants each signed a personal guaranty on the loan in favor of the Appellee bank. By the express terms of the guaranties, the Appellants guaranteed "up to a principle amount of $795,600.00." The partnership defaulted on the loan and the bank sued to enforce the guaranties. The Appellants answered that the guaranties were joint and several and that, because they were only 30% owners of the partnership, they could only be liable for 30% of the amount of the defaulted loan. In addition, the Appellants argued that the bank breached the covenant of good faith in failing to foreclose on the subject property. The trial court found that, under Florida law, the guaranties were not ambiguous, but were separate guaranties holding each Appellant separately liable for $795,600.00. The trial court also awarded interest on the entire debt. We affirm the trial court's determination that the guaranties unambiguously require each Appellant to be separately liable for $795,600.00, but hold that the term regarding interest is ambiguous. Accordingly, we reverse the grant of summary judgment on this issue and remand to the trial court for the consideration of parole evidence regarding the amount of interest and fees chargeable to the Appellants. Affirmed in part, reversed in part and remanded.

Tenn. R. App. P. 3. Appeal as of Right; Judgment of the Circuit Court Affirmed in
Part; Reversed in Part; and Remanded

J. STEVEN STAFFORD, J., delivered the opinion of the Court, in which ALAN E. HIGHERS, P.J.,W.S., and DAVID R. FARMER, joined.

Daniel W. Van Horn and Michael C. McLaren, Memphis, Tennessee, for the appellants, William B. Benton and J. Kevin Adams.

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John B. Philip, Memphis, Tennessee, for the appellee, Beach Community Bank.


I. Background

In the early 2000's, two separate partnerships, Mosaic Capital Partners ("Mosaic") and 474 Club, LLC ("474 Club") joined together to create RB 286, an entity formed for the sole purpose of purchasing, developing, and selling real estate located in Rosemary Beach, Florida. Edward A. Labry, III,1 and Defendants/Appellants J. Kevin Adams, and William B. Benton (together with Mr. Adams, "Appellants") are members of 474 Club, which owns a 30% interest in RB 286.

The RB 286 partnership entered into an operating agreement, which provided that the investors may be required to enter into appropriate guaranty2 agreements in order to obtain financing for the venture, but stated that "Investor shall in no event be obligated to guarantee any portion of the Company's indebtedness in excess of Investor's Percentage." The Appellants allege that the Bank was aware of this provision in the operating agreement.

On July 6, 2005, RB 286 executed and delivered, to Plaintiff/Appellee Beach Community Bank ("the Bank"), a Universal Note in the principle amount of $2,611,000.00. The Appellants allege that they had no involvement in the negotiation of the terms and conditions of the Bank's loan to RB 286. The Universal Note provided that RB 286 was obligated to make monthly payments to the Bank, with the balance due in 2013.3

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Also on July 6, 2005, Mr. Labry and the Appellants entered into personal guaranties in favor of the Bank. Although each of the Appellants signed separate guaranties, the documents were identical and were sent to the Appellants as one package. The guaranties state that each guarantor "absolutely and unconditionally guarantee[s] to you the payment and performance of each and every debt . . . up to the principle amount of $795,600.00 . . . ." The guaranties also provide that the guarantor "waive[s] . . . any right to require you to pursue any remedy or seek payment from any other person before seeking payment under this agreement, and all other defenses to the debt, except payment in full." Further, the guaranties provide that each guarantor is "obligated to pay according to the terms of this guaranty even if any other person has agreed to pay the borrower's debt."

It is undisputed that RB 286 stopped making payments toward the note in March of 2009. Accordingly, the Bank filed suit against the Appellants and Mr. Labry on November 3, 2009 to collect the sums allegedly owed under the guaranties. The parties filed cross motions for summary judgment. The Appellants' motion argued, inter alia, that the Bank was not entitled to recover anything under the guaranties because the Bank breached the covenant of good faith in failing to foreclose on the property. The Appellants alleged that the property had become encumbered with fees and assessments due to the non-development of the land within the two-year development window. According to the Appellants, the assessments would run with the land and could only be extinguished if the Bank foreclosed on the property, thus triggering a new two-year development window and erasing the current assessments.

Both Mr. Labry and the Appellants' depositions were attached to the Appellants' motion for summary judgment. According to the depositions, neither the Appellants, nor Mr. Labry, entered into any negotiations with the bank, met anyone from the bank, or participated in any way in the underlying loan. Mr. Labry testified that, not only did he not know anyone from the bank, but that he had also never met the members of Mosaic; furthermore, he testified that he did not read the guaranty when it was given to him to sign. There was also some confusion among the partners as to whether they had signed the guaranties in each other's presence, or not.

The trial court heard oral argument on March 9, 2011. During the hearing, the trial court orally ruled that the guaranties unambiguously required each Appellant to be liable for a separate $795,600.00. In addition, the court ordered that the Appellants were responsible for all interest and fees on the underlying debt. Accordingly, the trial court indicated that that it would grant summary judgment in favor of the Bank. Counsel for the Bank was directed to draft the order.

The parties returned to court on March 10, 2011, seeking clarification as to the trial

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court's ruling regarding fees and interest. Specifically, counsel for the Appellants stated that he had been confused the previous day when discussing interest and was not aware that the court had awarded interest on the entire debt, rather than on the amount guaranteed. The trial court then directed that the parties submit competing orders. Over Appellants' objections, on March 28, 2011, the trial court adopted the order proposed by the Bank. The order provides that the guaranties unambiguously hold each of the Appellants separately liable for "$795,600.00 plus accrued interest, attorney fees, cost of collection and other expenses." Accordingly, each Appellant was held liable for a total amount of $1,918,229.50,4 provided that the total amount collected from the Appellants should not exceed the total amount owed by RB 286. The order also provided that the trial court denied the Appellants' motion for summary judgment on the ground that the Bank breached the covenant of good faith.

Appellants filed a motion to alter or amend on April 26, 2011, which was denied on June 3, 2011. The Appellants timely appealed.5

II. Issues Presented

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The Appellants raise the following issues, taken from their brief:

1. Whether the trial court complied with its Rule 56.04 obligation to provide the parties with the legal grounds upon which it granted summary judgment to the Bank and denied summary judgment to the Appellants?

2. Whether the trial court erred in interpreting the language of the guaranties to mean that Appellants guaranteed $795,600.00 worth of partnership debt?

3. Whether the trial court erred in finding that the guaranties were separate and individual, rather than collective or joint and several?

4. Whether the trial court erred in finding that Appellants owed interest and costs to the Bank on the full amount of the underlying debt?

5. As a matter of Florida law, whether the trial court erred in finding that the Bank did not breach the covenant of good faith?

6. As a matter of Florida law, whether the trial court erred in finding that the there was a meeting of the minds between the Bank and the Appellants?

III. Standard of Review 6

A trial court's decision to grant a motion for summary judgment presents a question of law. Our review is therefore de novo ...

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