DeCota v. J.E.M. Development Corp.

• Decision Date: 01 November 1995
• Docket Number: 20137,Nos. 20001,s. 20001
• Parties: Duane C. DeCOTA, Appellant-Respondent, v. J.E.M. DEVELOPMENT CORPORATION, Appellant, and Mary Lou Dilks, Respondent, and John P. Dilks, Defendant.
• Court: Missouri Court of Appeals

Page 884

908 S.W.2d 884

Duane C. DeCOTA, Appellant-Respondent, v. J.E.M. DEVELOPMENT CORPORATION, Appellant, and Mary Lou Dilks, Respondent,

and

John P. Dilks, Defendant.

Nos. 20001, 20137.

Missouri Court of Appeals,

Southern District,

Division One.

Nov. 1, 1995.

Richard Whiffen, Sikeston, for Appellant Duane C. DeCota.

Michael M. Pritchett, Poplar Bluff, Summers, Walsh, Pritchett and Blaich, P.C., for Appellant J.E.M. Development Corporation and Respondent Mary L. Dilks.

MONTGOMERY, Presiding Judge.

Duane C. DeCota (Plaintiff) sued J.E.M. Development Corporation (JEM), John P. Dilks (John) ¹ and Mary Lou Dilks (Mary) after JEM failed to pay a promissory note in favor of the First Financial Bank of Southeast Missouri (Bank). Plaintiff, John, and Mary (John's wife) guaranteed payment of JEM's note by their individual guaranty agreements signed on April 8, 1991, the same day the note was made.

John, as JEM's president, executed the note which contained a maturity date of July 8, 1991. The time for payment was extended four different times by extension agreements signed by John either as president of JEM or individually. Plaintiff signed one extension agreement but Mary signed none.

Plaintiff paid Bank the balance due on JEM's note on July 14, 1992, and the note along with John and Mary's guaranty agreement was "endorsed" to Plaintiff. Later, Plaintiff brought this action seeking reimbursement for the amount he paid on the note. Subsequently, all parties filed a motion for summary judgment.

The trial court ruled on each motion for summary judgment by (1) granting Plaintiff judgment against JEM, (2) denying JEM's motion against Plaintiff, (3) granting judgment in favor of Mary against Plaintiff because the extension of time for payment of the note, without her knowledge or consent, operated to discharge her liability as a guarantor, and (4) denying Plaintiff's motion against John because issues of material fact remained in the case against him. Under the provisions of Rule 74.01(b) ² the trial court expressly determined that the "judgments herein shall be final for purposes of appeal as there is no just reason for delay."

Plaintiff appeals from the summary judgment in Mary's favor, and JEM appeals from the summary judgment in Plaintiff's favor. Plaintiff's appeal will be addressed first.

No. 20001

Rule 74.04(c)(3) provides that "the judgment sought shall be entered forthwith if a motion for summary judgment and response thereto show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." "When considering appeals from summary judgments, the Court will review the record in the light most favorable to the party against whom the judgment was entered." ITT Commercial Fin. Corp. v. Mid-America Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993).

Our review is essentially de novo. The criteria on appeal for testing the propriety of summary judgment are no different from those which should be employed by the trial court to determine the propriety of sustaining the motion initially. The propriety of summary judgment is purely an issue of law. As the trial court's judgment is founded on the record submitted and the law, an appellate court need not defer to the trial court's order granting summary judgment.

Id. (citations omitted).

Plaintiff's single point alleges that the trial court erroneously entered summary judgment for Mary because the extensions of time for payment of the note did not operate to discharge her, in that, her guaranty agreement allowed extensions of time without her consent and because the extensions did not enlarge or lessen her liability as guarantor.

One of the provisions in Mary's guaranty agreement provides that:

[T]he bank may, but shall not be obligated to, enter into transactions resulting in the creation or continuance of indebtedness, without any consent or approval by the undersigned and without any notice to the undersigned. The liability of the undersigned shall not be affected or impaired by any of the following acts or things (which the Bank is expressly authorized to do, omit or suffer from time to time, both before and after revocation of this guaranty, without notice to or approval by the undersigned): ... (ii) any one or more extensions or renewals of indebtedness (whether or not for longer than the original period)....

Plaintiff argues that this provision allowed the Bank (1) to four times extend the time of payment of the note without Mary's consent and (2) to do so without discharging Mary's liability as a guarantor. Mary urges that the Bank's extensions of time without her knowledge or consent were material alterations of the note guaranteed and as a result, her liability as a guarantor was discharged.

The law is well settled that "a guarantor is entitled to strict construction of the guaranty; a material alteration of the obligation guaranteed without the guarantor's consent will discharge the guarantor; if a change enlarges or lessens the liability, it is material and discharges the guarantor; and courts do not inquire whether the alteration was injurious or beneficial." Wigley v. Capital Bank of Southwest Missouri, 887 S.W.2d 715, 724 (Mo.App.1994). For example, the guarantor in First State Bank v. Benson, 613 S.W.2d 888 (Mo.App.1981), was discharged after a demand note was changed to a weekly payment schedule without the guarantor's knowledge or consent. Benson applied the general rule that an extension of time for payment by the principal obligor not consented to by the guarantor releases the guarantor from further liability. Id. at 891.

However, the general rule followed in Benson does not apply here because of the terms of the guaranty agreement. In 38 Am.Jur.2d Guaranty § 94 (1968), it is said that:

A guarantor is bound by an agreement in the guaranty contract which permits extensions of time for the performance of the principal contract. When such an agreement is included in the guaranty contract, an extension of time within the intent of the agreement does not discharge the guarantor. The guaranty contract may be drafted with enough breadth so as to allow a series of extensions or renewals without discharging the guarantor.

Among cases from other jurisdictions that apply the above principle are Cravens v. First State Bank of Seminole, 355 P.2d 1025 (Okla.1960), and Gillespie v. DeWitt, 53 N.C.App. 252, 280 S.E.2d 736 (1981). In both cases, the guaranty agreements contain language almost identical to the instant provision. In both cases, construction of the guaranty agreement provision resulted in a determination that the parties intended that the bank could, without notice or consent, grant multiple extensions of the principal obligation without discharging the guarantor's liability. Missouri courts apparently have not previously addressed the issue before us.

We believe Cravens and Gillespie are properly decided on the principle followed in each case. Therefore, the trial court erroneously applied the law by granting summary judgment in Mary's favor, and that portion of the judgment must be reversed. ³

No. 20137

JEM's appeal presents three points relied on in the following form:

1. The trial court erred in sustaining Plaintiff's motion for summary judgment against Defendant, JEM Development Corporation, for the reasons that said Defendant received no notice of default of the note; no demand for payment of the note; and no notice that Plaintiff had executed a guaranty.

2. The trial court erred in sustaining Plaintiff's motion for summary judgment against JEM Development Corporation for the reason that genuine issues of...