Equitable Trust Co. v. Bratwursthaus Management Corp.

• Decision Date: 25 April 1975
• Docket Number: No. 74-1247,74-1247
• Citation: 514 F.2d 565
• Parties: The EQUITABLE TRUST COMPANY, Appellant, v. BRATWURSTHAUS MANAGEMENT CORPORATION, Defendant, and Francis J. Plombon and Patricia A. Plombon, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 565

514 F.2d 565

The EQUITABLE TRUST COMPANY, Appellant, v. BRATWURSTHAUS MANAGEMENT CORPORATION, Defendant and Francis J. Plombon and Patricia A. Plombon, Appellees.

No. 74-1247.

United States Court of Appeals Fourth Circuit.

Argued Nov. 6, 1974.

Decided April 25, 1975.

James E. Wesner, Washington, D. C. (Ginsburg, Feldman & Bress, Washington, D. C., on brief), for appellant.

Laurence G. Roman, Arlington, Va., for appellees.

Before BOREMAN, Senior Circuit Judge, and FIELD and WIDENER, Circuit Judges.

BOREMAN, Senior Circuit Judge:

This action was brought in the United States District Court for the Eastern District of Virginia by The Equitable Trust Company (hereafter "Equitable"), a Maryland corporation, with its principal place of business in Baltimore, against Bratwursthaus Management Corporation (hereafter "BMC"), incorporated under the laws of Virginia with a business office in Towson, Maryland, Francis J. Plombon and Patricia A. Plombon, citizens of Virginia, and others. The parties filed a written stipulation as to admitted and uncontested facts and other facts were found by the court. Evidence consisted of exhibits and the testimony of witnesses.

On December 11, 1968, defendants Francis J. Plombon and Patricia A. Plombon executed, under seal, a guaranty agreement whereby they jointly and severally guaranteed payment of any and all discounts, loans or advances made or to be made by Equitable to BMC, limiting, however, their liability as guarantors to a maximum of $35,000 plus attorneys' fees and other collection costs. The guaranty agreement is reproduced in full in APPENDIX A which is appended hereto and made a part of this opinion. The guaranty agreement was a printed form which was supplied by Equitable. One William M. Clements, vice-president of BMC, had made tentative arrangements with Equitable for BMC to borrow the sum of $35,000, but Equitable would not make the advance until the Plombons and Mr. and Mrs. Clements had guaranteed the payment thereof. The Plombons signed the guaranty agreement at their home in Virginia and it was returned either by mail or personal delivery to the BMC office at Towson, Maryland, for return to Equitable.

On December 17, 1968, Equitable made the loan to BMC which was evidenced by a note for that amount payable to Equitable in the sum of $35,000, executed by BMC through its vice-president, William M. Clements. Subsequently, on May 5, 1969, a note in the amount of $60,000 payable to Equitable at Baltimore, Maryland, was executed for BMC by Ronald E. Brown, its secretary. As the district court noted in its opinion, "It is believed that this ($60,000) note included the original $35,000.00 loan." On June 2, 1969, another note payable to Equitable at Baltimore, Maryland, in the sum of $25,000, was executed for BMC by Brown, its secretary. At or about the time of the execution of the notes for $60,000 and $25,000 Mr. Clements brought to Mr. Plombon certain papers including another form of guaranty for a sum greater than the original $35,000, but the Plombons refused Mr. Clements' request to guarantee the payment of any sums borrowed by BMC from Equitable in excess of the $35,000 although they did not then notify Equitable to that effect.

BMC admitted liability on the notes and consented to the entry of judgment against it in the amount of $85,000 plus interest from the date of the last payment and reasonable costs of collection including attorneys' fees. It is undisputed that the loans made to BMC by Equitable exceeded $35,000. In this action Equitable sought to recover from the Plombons the sum of $35,000 plus attorneys' fees and other collection costs under the terms of the guaranty agreement set forth in APPENDIX A.

The district court denied recovery to Equitable on said guaranty of payment agreement, held that the choice of law rules of Virginia were applicable, and concluded that the case was governed by Virginia contract law. The court then further determined that under that law Equitable could not recover from the Plombons because the guaranty was conditional and Equitable had breached a condition of the guaranty by advancing to BMC amounts in excess of $35,000. On appeal Equitable challenges each of these holdings. We reverse.

The Plombons, in successfully defending before the district court against liability, contended that the language in the guaranty, that the guarantors "requested Trust Company (Equitable) to make and/or continue such discounts, loans and/or advances not exceeding at any one time THIRTY-FIVE THOUSAND dollars . . . " constituted under Virginia law a condition which was breached by Equitable when it made loans totaling $85,000. The questions raised on appeal are whether the district court correctly determined that Virginia law is applicable here and whether Virginia law, if controlling, requires a finding that Equitable had breached a condition of the guaranty thereby precluding its recovery.

We hold that, in this situation, the law of Maryland, rather than that of Virginia, governs and determines the liability of the Plombons under their guaranty agreement. In this diversity action we apply, as we must, Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), the choice of law principles recognized in Virginia and we conclude that the courts of Virginia would look to and apply Maryland law in determining the questions here presented. Virginia adheres to the principle that the law of the place of performance governs questions arising in connection with the performance of a contract. Arkla Lumber and Mfg. Co. v. West Virginia Timber Co., 146 Va. 641, 648, 132 S.E. 840, 842 (1926). It is clear that all acts of performance as between Equitable and the Plombons were to take place in Maryland. Equitable made the advances from its offices in Baltimore to the offices of BMC in Towson, Maryland. Payment of the notes issued by BMC to Equitable evidencing Equitable's loans, expressly were to be made in Baltimore. ¹ The only place where the Plombons could have tendered performance of their obligation would have been at Equitable's offices in Baltimore; all acts of performance of all obligations of BMC and the Plombons as guarantors under their agreement were to take place in Maryland. Since the law of the place of performance determines questions relating to performance, whether Equitable breached a condition of the Plombons' guaranty agreement by making loans in excess of $35,000 is a question to be determined under Maryland law.

We reach the conclusion that, under Maryland law, Equitable may enforce the Plombons' guarantee of payment. In Walton v. Washington County Hospital Association, 178 Md. 446, 13 A.2d 627 (1940), there are set forth the applicable rules of construction.

A contract of guaranty is a form of commercial obligation, which should be construed in furtherance of its spirit without strict technical nicety to promote liberally the use and convenience of commercial intercourse. The words of a guaranty should receive a...