Cranfill v. Union Planters Bank, N.A.

CourtCourt of Appeals of Arkansas
Citation86 Ark. App. 1,158 S.W.3d 703
Docket NumberNo. CA 03-1064.,CA 03-1064.
PartiesG. Lee CRANFILL, M.D. v. UNION PLANTERS BANK, N.A., and Northeast Arkansas Management Company, LLC.
Decision Date14 April 2004

Snellgrove, Langley, Lovett & Culpepper, by: Todd Williams, Jonesboro, for appellee Union Planters Bank, N.A.

Womack, Landis, Phelps, McNeill & McDaniel, by: D. Chris Gardner, Tom D. Womack, and Pamela A. Haun, Jonesboro, for appellee Northeast Arkansas Management Co., LLC.


This is an appeal from the Craighead County Circuit Court's entry of judgment to appellee Union Planters Bank against appellant G. Lee Cranfill, M.D., in the amount of $136,570. The central issue in this appeal is whether appellant was primarily liable on that debt or whether he was simply an accommodation party and, thus, only a surety on it. We hold that he was primarily liable on the debt and affirm the circuit court's decision.

Factual and Procedural History

Appellant, a physician, was a shareholder of Northeast Arkansas Internal Medicine Clinic, P.A. (Clinic), in Jonesboro when it sold its fixed assets in 1995 to PhyCor, Inc., which agreed to manage the practices of the Clinic's physicians. The money paid by PhyCor to the Clinic was distributed to the physicians, and appellant received $227,018 as a result of the sale. As part of the total transaction, each physician signed a separate agreement with PhyCor that gave PhyCor the right to manage his practice if he left the Clinic's employ but remained in the area and competed against the Clinic. These agreements, including the one signed by appellant, contained a liquidated damages clause that permitted the physician to be released from that agreement upon payment of an amount equal to the proceeds he received in the sale. In 1999, the Clinic and PhyCor entered into another agreement whereby the Clinic, through two new entities, Northeast Arkansas Clinic, P.A., and appellee Northeast Arkansas Management Co., LLC (NEA Management), repurchased its assets. Another aspect of the consideration given to PhyCor for the purchase was each physician's signing of a release, confidentiality, non-disparagement, and settlement agreement with PhyCor. Appellant signed such an agreement, which released him from any responsibility under the management agreement, including his obligation to pay liquidated damages to PhyCor as stated above.

For this transaction, appellee Union Planters Bank, N.A. (Bank), loaned $16,750,000 to appellee NEA Management, which signed a promissory note. As a part of this loan, each physician, including appellant, signed a "Limited Commercial Guaranty." Appellant's guaranty for $376,756, a portion of the principal, contained the following provision:

Additionally, the Guarantor agrees that if at any time prior to the full repayment of the Indebtedness Guarantor's employment with Northeast Arkansas Clinic, P.A. is terminated for any reason, either voluntarily or involuntarily, other than the Guarantor's death, permanent disability, or attainment of age 62 years and normal retirement, Guarantor shall at that time be personally obligated to make immediate payment to Lender of the sum of $136,570 if termination occurs prior to the last day of the third year of the loan term, then decreasing to 66.7% of said amount until the end of the fourth year, then decreasing to 33.3% of said amount until the end of the fifth year, said payment to be applied on the balance of the Indebtedness then owing, the amount of said payment by the Guarantor to reduce and offset to the extent thereof the amount otherwise provided by the Guaranty granted hereunder, the remainder of the Guaranty to continue to be an obligation of the Guarantor until full and complete repayment of the Indebtedness occurs. Failure of the Guarantor to make said payment upon Lender's demand shall be deemed a breach of this Guaranty, and Lender may bring legal proceedings against Guarantor to recover the payment owed without Borrower as a party to the proceeding. Provided, however, failure of Lender to exercise this right to make such demand and bring legal proceedings against Guarantor shall not be prejudicial to Lender or in any way affect Guarantor's obligations pursuant to this Guaranty agreement.

On June 20, 2001, appellant's employment with the Clinic was terminated. The Bank then demanded payment of the $136,570 set forth above from appellant. After he refused to pay it, the Bank sued him in this action. Appellant filed a third-party complaint against NEA Management, alleging that he was only an accommodation party to the loan. All parties moved for summary judgment, and a hearing was held on the motions. Stating that appellant was not an accommodation party, the trial court granted summary judgment to appellees:

Whether Dr. Cranfill is an accommodation maker will depend on whether the $227,018 payment to PhyCor was a sufficient direct benefit to him or if it is, as he characterizes it, a "remote" and "nominal" benefit to him in the form of a release from a "contingent liability" to PhyCor.

The trial court then set forth a thorough review of the guaranty's terms and explained its conclusion that appellant was not an accommodation party:

Simply put, the Bank lent $16,750,000 to NEAMC. NEAMC was to bear the responsibility for the repayment of the loan. Each of the physician members guaranteed the repayment of his proportional share of the loan. In Dr. Cranfill's case, it seems apparent to the court that the plaintiff, Union Planters Bank, sought to impose two distinct obligations upon Dr. Cranfill by way of the guaranty agreement. The first obligation is, what the court assumes to be Dr. Cranfill's proportional share of the $16,750,000 that NEAMC borrowed for the buy-back from PhyCor. That amount is $376,756, or 2.24929 percent of the total amount of the loan. The second obligation seeks to require a payment of $136,570 in the event of Dr. Cranfill's termination from his employment with the clinic. There is no question that Dr. Cranfill would be responsible for repayment of the $376,756 (or the portion thereof that had not been reduced by virtue of payments made by NEAMC) upon default by NEAMC. The question here is whether he is responsible for the $136,570 in the absence of a default and if he is, whether he is entitled to reimbursement from NEAMC in that amount.

There is not a wealth of Arkansas appellate authority on this precise issue. Dr. Cranfill points to Comment 1 to Ark.Code Ann. § 4-3-419, which offers the following example:

If X cosigns a note of Corporation that is given for a loan to Corporation, X is an accommodation party if no part of the loan was paid to X or for X's direct benefit. This is true even though X may receive indirect benefit from the loan because X is employed by Corporation or is a stockholder of Corporation, or even if X is the sole stockholder so long as Corporation and X are recognized as separate entities.

Dr. Cranfill maintains that the instant situation is essentially identical to the example provided in Comment 1. Were it not for the payment of the $227,018 to PhyCor on Dr. Cranfill's behalf, the court would agree. While it is true, as Dr. Cranfill asserts that

"A guaranty has been defined as a collateral undertaking by one person to answer for payment of a debt of another. [G]uarantor is entitled to have his undertaking strictly construed. A guarantor cannot be held liable beyond the strict terms of his contract,"

and that

"A guarantor, like a surety, is a favorite of the law, and his liability is not to be extended by implication beyond the express limits or terms of the instrument, or its plain intent."

Dr. Cranfill's position must fail for two reasons. First of all, his obligation to pay the $136,570 is set out in the agreement itself. The court notes that it is called upon to discern the intent of the parties. To determine rights and duties under a contract, the court must determine the intent of the parties. This is to be accomplished by examining the written agreement to construe it and declare its legal effect. Duvall v. Massachusetts Indemnity and Life Insurance Co. [295 Ark. 412, 748 S.W.2d 650 (1988)]. The intent of the parties is to be determined from the whole context of the agreement; the court must consider the instrument in its entirety. Continental Casualty Co. v. Davidson, 250 Ark. 35, 463 S.W.2d 652 (1971); Fowler v. Unionaid Life Insurance Co., 180 Ark. 140, 20 S.W.2d 611 (1929). The two seeming contradictory obligations anticipate a possible change in status of the member physicians. It is clear that the intention at the time the instrument was executed was that as a member of NEAMC, Dr. Cranfill and all other members would be liable on it to the extent of their proportional share of the total amount borrowed from Union Planters. The obligation of the member physicians would not "ripen" unless and until NEAMC defaulted on the obligation. Upon a change of his then-existing status, i.e. becoming a non-member of NEAMC, the repayment obligation changed as well. Upon that change of status, Dr. Cranfill was obligated to pay the $136,570 immediately. The balance ($240,186 or such portion thereof as had not been reduced by payments made by NEAMC), would not be owed by Dr. Cranfill unless and until there was a default by NEAMC.

Secondly, the court does not find the payment of the $227,018 to be as inconsequential or indirect as Dr. Cranfill would have the court believe. In reaching this conclusion the court draws upon the rationale given by the Arkansas Court of Appeals in Nelson v. Cotham, 268 Ark. 622, 595 S.W.2d 693 (Ark.App.1980). In that case, Buxton and Cotham started Buxton Homes, Inc. The corporation entered into a contract with Nelson whereby Buxton Homes would convey title to Lot 158 to and build a home on the lot for the Nelsons. Buxton homes borrowed...

To continue reading

Request your trial
22 cases
  • QHG of Springdale, Inc. v. Archer, CA 07–1115.
    • United States
    • Court of Appeals of Arkansas
    • 9 Diciembre 2009 be unambiguous, its construction and legal effect are questions of law to be determined by the court. Cranfill v. Union Planters Bank, 86 Ark.App. 1, 158 S.W.3d 703 (2004). The contract in this case contains two clauses relevant to this appeal. Section 3.2 of the agreement provides, “Eit......
  • S. Constr., LLC v. Horton, CV-19-783
    • United States
    • Court of Appeals of Arkansas
    • 2 Septiembre 2020
    ...the words used by the parties as they are taken and understood in their plain, ordinary meaning. Cranfill v. Union Planters Bank, N.A. , 86 Ark. App. 1, 158 S.W.3d 703 (2004). It is also a well-settled rule in construing a contract that the intention of the parties is to be gathered, not fr......
  • QHG of Springdale, Inc. v. Archer, CA 07-1115 (Ark. App. 10/21/2009), CA 07-1115
    • United States
    • Court of Appeals of Arkansas
    • 21 Octubre 2009 be unambiguous, its construction and legal effect are questions of law to be determined by the court. Cranfill v. Union Planters Bank, 86 Ark. App. 1, 158 S.W.3d 703 The contract in this case contains two clauses relevant to this appeal. Section 3.2 of the agreement provides, "Either par......
  • Martin v. KNOLLMEYER, CA03-967
    • United States
    • Court of Appeals of Arkansas
    • 2 Noviembre 2005
    ...on appeal of action that he has induced, to which he has consented, or in which he has acquiesced. Cranfill v. Union Planters Bank, N.A., 86 Ark. App. 1, 158 S.W.3d 703 (2004); Keathley v. Keathley, 76 Ark. App. 150, 61 S.W.3d 219 (2001). In their second point, appellants assert that their ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT