Crown Life Ins. Co. v. Howard

• Court: Arizona Court of Appeals
• Writing for the Court: KLEINSCHMIDT; GERBER, P.J., and LANKFORD
• Citation: Crown Life Ins. Co. v. Howard, 822 P.2d 483, 170 Ariz. 130 (Ariz. App. 1991)
• Decision Date: 26 September 1991
• Docket Number: No. 1,CA-CV,1
• Parties: CROWN LIFE INSURANCE COMPANY, a Canadian corporation, Plaintiff-Appellee, Cross Appellant, v. Wayne N. HOWARD, Defendant-Appellant, Cross Appellee, Lucia Howard, Defendant-Cross Appellee. 89-599.

Page 483

822 P.2d 483

170 Ariz. 130

CROWN LIFE INSURANCE COMPANY, a Canadian corporation, Plaintiff-Appellee, Cross Appellant, v. Wayne N. HOWARD, Defendant-Appellant, Cross Appellee Lucia Howard, Defendant-Cross Appellee.

No. 1 CA-CV 89-599.

Court of Appeals of Arizona Division 1, Department B.

Sept. 26, 1991.

[170 Ariz. 131] Mohr, Hackett, Pederson, Blakley, Randolph & Haga, P.C. by Gregory W. Falls, Phoenix, for plaintiff-appellee, cross appellant.

Douglas G. Wymore and Tracey Westerhausen, Phoenix, for defendant-appellant, cross appellees.

OPINION

KLEINSCHMIDT, Judge.

This is an appeal from a grant of summary judgment in favor of Crown Life Insurance Company enforcing a guaranty agreement against defendant Wayne Howard, from the dismissal of Howard's counterclaim against Crown Life for breach of an implied covenant of good faith and fair dealing, and from the dismissal of Lucia Howard as a defendant in the case. We affirm the summary judgment in favor of Crown Life, and we affirm the dismissal of Howard's counterclaim. We vacate the dismissal of Lucia Howard and remand for further findings of fact.

BACKGROUND

In March 1980, Applewhite Mortgage Company loaned $1,650,000 to Los Jardines, a general partnership. The loan documents included a promissory note, deed of trust, assignment of rents and leases, security agreement, and UCC financing statement.

On March 6, 1981, Applewhite assigned its interest in the loan and the collateral documents to Crown Life. On March 9, Wayne Howard, as a general partner of Los Jardines Apartment Development, a limited partnership, signed an assumption agreement on behalf of the limited partnership under which it assumed the $1,650,000 loan made by Crown Life to Los Jardines. On the same day, Howard signed a guaranty agreement as a condition of Applewhite's allowing the limited partnership to assume the loan. On March 10, Applewhite assigned its interest in the guaranty agreement Howard signed to Crown Life. Howard was a single man at the time he signed the guaranty.

Under the terms of the promissory note, the limited partnership had no right to prepay the loan during the first ten years of the contract. In November 1986, during this ten-year period, the limited partnership asked Crown Life what it would charge to waive this term of the loan and accept prepayment. Crown Life responded that it would charge $501,668.97. The limited partnership made a counteroffer of $150,000, which Crown Life rejected.

Approximately one year later, after a second request, Crown Life agreed to accept $286,012.51 as a prepayment penalty. The limited partnership again made a counteroffer which Crown Life rejected. In March 1988, the limited partnership defaulted on the loan, and a month later, Crown Life declared the loan due and began proceedings for a trustee's sale. A month after that, Crown Life demanded that Howard pay all sums due on the promissory note pursuant to the guaranty agreement. Howard did not pay.

Wayne and Lucia Howard were married in 1984. In September 1988, Crown Life sued them both on the guaranty. Wayne Howard counterclaimed against Crown Life for breach of implied covenant of good faith and fair dealing. Lucia Howard answered separately, alleging that because she had not signed the guaranty, neither the marital community nor her sole and separate property was liable for the debt. Crown Life moved for summary judgment on all claims. The court granted summary judgment for Crown Life against Wayne Howard. It dismissed Lucia Howard as a defendant, finding that neither her separate property nor the Howards' community assets could be used to satisfy the guaranty signed by Wayne Howard prior to his marriage.

Howard timely filed a motion for reconsideration or in the alternative a new trial, in which, for the first time, he challenged the validity of the guaranty agreement. The court denied the motion and entered final judgment for Crown Life on the guaranty agreement against Wayne Howard's sole and separate property, dismissing Howard's counterclaim against Crown Life, and dismissing Lucia Howard as a defendant.

Howard argues that the guaranty agreement was invalid, that any action against him must await the outcome of the trustee's sale, and that the court improperly dismissed his counterclaim. Crown Life cross-appeals, alleging that it is entitled to judgment against some part of the Howards' community property.

THE APPEAL

The Guaranty Agreement

Crown Life asserts that Howard is precluded from challenging the validity of the guaranty agreement on appeal because he raised the issue for the first time in his motion for reconsideration or in the alternative for new trial. Since Crown Life did not object on this basis in the trial court, and since the trial court presumably considered Howard's argument on its merits, we will consider it.

Howard argues that the guaranty agreement is a nullity as to Crown Life because the guaranty was given to Applewhite, not Crown Life, and it was executed after Applewhite had transferred all of its interest in the transaction to Crown Life. The terms of an agreement are to be viewed to give effect to the intent of the parties. Polk v. Koerner, 111 Ariz. 493, 495, 533 P.2d 660, 662 (1975). Here, the parties clearly intended that Howard personally guarantee the loan which the limited partnership assumed, and which Applewhite assigned to Crown Life. Howard was aware of Applewhite's transfer to Crown Life on the day that Howard signed the guaranty agreement in which Applewhite was identified as the lender of $1,650,000 to the limited partnership. Howard also signed an assumption agreement in which Crown Life was identified as the lender of the $1,650,000 which the limited partnership was to repay.

Howard also argues that the guaranty agreement is invalid for lack of consideration because Applewhite never contracted to lend any money to the limited partnership to which the guaranty could apply. We disagree. The consideration was the assumption agreement under which the limited partnership obtained an interest in the loan to which Los Jardines was the originally obligated party. Although Applewhite was not a named party to the assumption agreement, the loan that was being assumed was the same loan that Applewhite made to Los Jardines which was assigned to Crown Life; the same loan that Howard personally guaranteed.

Howard, citing A.R.S. subsections 33-814(A) and (C), next argues that because the guaranty agreement is invalid, Crown Life cannot sue Howard on the guaranty pursuant to subsection C but is limited to suing Howard for a deficiency judgment after a trustee's sale is held pursuant to subsection A. Because we have already found that the guaranty agreement is valid, Crown Life may proceed against Howard on the guaranty agreement pursuant to subsection C, which allows for the enforcement of an obligation on a contract secured by a deed of trust against a person not a trustor who has agreed that he may be sued...