Consolidated Roofing & Supply Co., Inc. v. Grimm

• Decision Date: 17 April 1984
• Docket Number: No. 1,CA-CIV,1
• Court: Arizona Court of Appeals
• Parties: , 38 UCC Rep.Serv. 1684 CONSOLIDATED ROOFING & SUPPLY CO., INC., an Arizona corporation, Plaintiff-Appellee, v. Veronica GRIMM, a widow, on behalf of herself, and on behalf of her community interests with Richard C. Grimm, deceased, Defendant-Appellant. 6289.

Page 457

682 P.2d 457

140 Ariz. 452, 38 UCC Rep.Serv. 1684

CONSOLIDATED ROOFING & SUPPLY CO., INC., an Arizona corporation, Plaintiff-Appellee, v. Veronica GRIMM, a widow, on behalf of herself, and on behalf of her community interests with Richard C. Grimm, deceased, Defendant-Appellant.

No. 1 CA-CIV 6289.

Court of Appeals of Arizona Division 1, Department C.

April 17, 1984.

Marvin Johnson, P.C. by Charles Hultstrand, Phoenix, for plaintiff-appellee.

Rowe & Scoggin by John B. Rowe, Phoenix, for defendant-appellant.

OPINION

EUBANK, Judge.

The primary issue in this case is whether appellant Veronica Grimm and her deceased husband Richard Grimm (the Grimms) are liable for the indebtedness of G & K Roofing Company (G & K) to appellee Consolidated Roofing & Supply Company, Inc. (Consolidated) pursuant to a guaranty signed by Richard Grimm.

Consolidated is a roofing materials supplier which provided a line of credit to G & K from October 5, 1978, until approximately November, 1980. Richard Grimm and George Kriner were the original stockholders and principal owners of G & K, a roofing subcontractor. On October 5, 1978, Grimm and Kriner executed a personal guaranty for credit extended to G & K by Consolidated.

Grimm sold his stock in G & K in November of 1979. However, although he had terminated his ownership interest and management function in G & K, he did not revoke his personal guaranty for G & K's indebtedness to Consolidated.

G & K found itself in serious financial trouble in 1980, which was caused in part by flood damage at its place of business in Phoenix. By late fall, G & K owed Consolidated over $27,000. On November 7, 1980, Consolidated filed suit to recover this debt in Maricopa County Superior Court against G & K, George Kriner, the Grimms, and United States Fidelity and Guaranty Company. (United States Fidelity and Guaranty Company, which is not a party to the appeal, had issued G & K's performance bond. The trial court entered summary judgment in its favor on the grounds that its bond had already been exhausted by a judgment in favor of another creditor of G & K.)

In November of 1980, both G & K and George Kriner filed for bankruptcy. The United States Bankruptcy Court lifted its automatic stay of proceedings against defendants G & K and Kriner for the purpose of allowing litigation to proceed against defendant Grimms in the Maricopa County court action. Summary judgment was granted in favor of Consolidated and against the Grimms for $27,686.01, plus interest, costs and attorney's fees. Following the trial court's consideration of several motions not relevant to this appeal, an amended judgment in favor of Consolidated was entered on September 24, 1981. The Grimms filed a timely appeal from that judgment.

The Grimms contend that the judgment should be reversed because: (1) the guaranty was limited to $5,000, (2) Consolidated's negligence discharged Richard Grimm's obligation, (3) the guaranty cannot be enforced against the marital community, and (4) factual disputes precluded entry of summary judgment.

We consider first whether the guaranty limits the Grimms' liability to $5,000. The Grimms point out that the guaranty was included on the same document as a corporate resolution authorizing G & K's credit application to Consolidated, and that the credit application expressly limited G & K's credit line to $5,000. They then argue that the guaranty incorporated this maximum credit line. We observe, however, that the corporate resolution itself does not purport to limit the indebtedness that G & K could incur to Consolidated. ¹ The credit application was a separate document. Further, G & K did not request a restricted credit line on its application. Rather, Consolidated initially set the $5,000 limit itself.

The guaranty executed by George Kriner and Richard Grimm provides:

In consideration of advances, and/or extensions of credit for merchandise sold and delivered, to the Applicant above-named by CONSOLIDATED ROOFING AND SUPPLY CO., hereinafter called "CONSOLIDATED ROOFING", and as an inducement to make such advances and/or sales and deliveries, the undersigned, jointly and severally, unconditionally guarantee the payment of any and all sums of money as are now, or at any time hereafter may be, owing to CONSOLIDATED ROOFING by said Applicant, on account of such advances and/or sales and deliveries, in accordance with the terms, conditions and agreements contained in this Application, together with such costs and expenses, including reasonable attorney's fees, as may be incurred by CONSOLIDATED ROOFING in the enforcement of this Guaranty whether or not suit is commenced. The undersigned hereby waive notice of acceptance hereof, amount of advances and/or sales and deliveries, terms of credit, date of shipment or delivery, extensions of time of payment and/or default in payment further waive legal proceedings by CONSOLIDATED ROOFING against said Applicant.

This is intended to be and is a continuing guaranty and shall not be revoked except by written notice to CONSOLIDATED ROOFING not to make further advances and/or sales and deliveries on the security of this Guaranty and until the expiration of five (5) days after such notice shall have been received by CONSOLIDATED ROOFING by registered mail, return receipt requested. Any such revocation shall be effective only with respect to advances made and/or merchandise shipped or delivered after the expiration of said five-day period, and shall not affect, in any respect, liability incurred by the undersigned prior to that time.

We find that the express language of the guaranty provides for a continuing personal guaranty by Kriner and Grimm for G & K's credit purchases from Consolidated. The guaranty contemplates future purchases without limit as to the amount of such purchases.

A contract of guaranty will be strictly construed to limit the liability of the guarantor. See Cushman v. National Surety Corp. of New York, 4 Ariz.App. 24, 27, 417 P.2d 537, 540 (1966). A person may, however, make himself liable for the future debts of another. Giovanelli v. First Federal Savings and Loan Ass'n, 120 Ariz. 577, 582-583, 587 P.2d 763, 768-769 (App.1978). Although the Grimms argue that Mr. Grimm's understanding in executing the guaranty was that he was incurring liability for a maximum sum of $5,000, this alleged understanding is not reflected in the written guaranty and is therefore not controlling. Where the language of a contract is clear and unambiguous, it must be given effect as it is written. Hadley v. Southwest Properties, Inc., 116 Ariz. 503, 506, 570 P.2d 190, 193 (1977); Hofmann Co. v. Meisner, 17 Ariz.App. 263, 266, 497 P.2d 83, 86 (1972). We find the language of the guaranty to be unambiguous. It does not limit Mr. Grimm's liability to $5,000.

The Grimms also argue that a factual issue was raised with respect to whether or not Consolidated knew that Mr. Grimm had terminated his ownership in G & K. This question, however, is not material to Mr. Grimm's contractual obligation because this obligation was not conditioned upon his remaining an owner or officer of G & K. Indeed, no evidence was presented indicating that Mr. Grimm properly terminated his contractual obligation. He did not revoke the guaranty by written notice to Consolidated, which is the manner expressly provided for in the guaranty. We conclude, therefore, as a matter of law that the sale of his shares in G & K and his withdrawal from participation in the company did not terminate his liability under the contract. See Valley National Bank v. Shumway, 63 Ariz. 490, 496, 163 P.2d 676, 678-679 (1945).

The Grimms next contend that Mr. Grimm's obligation as a guarantor was discharged because Consolidated was negligent and thereby increased the risk Mr. Grimm had undertaken. Their argument is based upon A.R.S. § 44-2573 (U.C.C. § 3-606) which provides that the holder of an instrument discharges any party to that instrument to the extent that without that party's consent it releases or suspends the enforcement of any rights it may have against a third party. ² The Grimms argue that the guaranty was discharged because Consolidated delayed in seeking to recover against G & K's performance bond until that bond was exhausted by other creditors, thereby increasing their liability. They also argue that their liability was increased by Consolidated's failure to file materialmen's liens against various general contractors for whom G & K was a subcontractor.

A.R.S. § 44-2573 (U.C.C. § 3-606) is part of the Arizona Commercial Code governing commercial paper. See A.R.S. § 44-2501 (U.C.C. § 3-101). It is applicable to persons who are parties to negotiable instruments. A.R.S. § 44-2502(A)(5) (U.C.C. § 3-102). A negotiable instrument is defined in A.R.S. § 44-2504(A) (U.C.C. § 3-104) which provides:

A. Any writing to be a negotiable instrument within this article must:

1. Be signed by the maker or drawer; and

2. Contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this article; and

3. Be payable on demand or at a definite time; and

4. Be payable to order or to bearer.

The guaranty signed by the Grimms was not made payable to order or to the bearer nor was it for a sum certain. It was therefore not within the definition of a negotiable instrument. It was a continuing guaranty which is not a transaction covered by this provision of the code. See EAC Credit Corp. v. King, 507 F.2d 1232, 1238 (5th Cir.1975); Liberty Bank v. Shimokawa, 2 Hawaii App. 280, 632 P.2d 289, 291-292 (1981), cert. denied 454 U.S. 1146, 102 S.Ct. 1009, 71 L.Ed.2d 299 (1982). Nor was it a guaranty of a specific negotiable instrument, and therefore A.R.S. § 44-2553 (U.C.C. § 3-416) does not apply. Consequently, we find no merit to the Grimms' argument that A.R.S. § 44-2573 (U.C.C. § 3-606) mandates a discharge...