Estate of Frantz v. Page, C8-87-2277
| Decision Date | 28 June 1988 |
| Docket Number | No. C8-87-2277,C8-87-2277 |
| Parties | ESTATE OF Donald R. FRANTZ, Respondent, v. Gregory K. PAGE, et al., Defendants, Robert W. Willwerscheid, Appellant. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. After assignment of note and guaranties, coguarantor had option to proceed on guaranties or to sue for contribution.
2. Assignment did not materially increase guarantors' risk and thereby release them from liability on their guaranties.
3. Estate, as creditor, had no obligation to attempt prompt collection of the debt from the principal.
4. The legal and equitable interests in the club property did not merge when the estate held both interests, because the parties did not intend such a merger.
5. Trial court properly credited estate with net value of property received in property exchange in determining deficiency on bank note.
6. Trial court properly held guarantors jointly and severally liable in accordance with the terms of the guaranties.
7. Trial court properly assessed interest at rate set forth in note rather than legal rate.
8. Evidence was insufficient for trial court to limit estate's liability for contribution to 20 percent.
Maher J. Weinstein, Moss & Barnett, Minneapolis, for respondent.
Jerome B. Simon, Seth M. Colton, Maun, Green, Hayes, Simon, Johanneson & Brehl, St. Paul, for appellant.
Heard, considered and decided by WOZNIAK, C.J., and PARKER and FORSBERG, JJ.
Robert W. Willwerscheid appeals from the judgment holding him jointly and severally liable on a guaranty and from the denial of his motion for amended findings of fact, conclusions of law and order for judgment. Five of the six shareholders of the St. Clair Racquetball Club, Inc. (St. Clair), including Willwerscheid, executed guaranty contracts in favor of the First Grand Avenue State Bank of St. Paul to obtain a first mortgage loan for $390,000 from the bank to St. Clair. St. Clair defaulted on the loan. The estate of Donald R. Frantz paid the entire principal balance and accrued interest on the loan and received an assignment of the note, mortgage and guaranties. The estate then proceeded against the shareholders on their guaranties for the deficiency.
The trial court held four of the five guarantors jointly and severally liable for $332,402.97, the amount of the alleged deficiency. Only one of the guarantors, Willwerscheid, appealed.
We vacate the judgment because the court limited the estate's liability for contribution to 20 percent. Without evidence of the defendants' ability to respond to the judgment, the evidence was not sufficient to limit the estate's liability to 20 percent. The trial court must reopen the record to take evidence on the contribution issue.
On October 3, 1980, St. Clair, which operated a racquetball club, borrowed $390,000 from the bank, giving the bank a note secured by a first mortgage encumbering St. Clair's real estate.
The note was also secured by the separate guaranties of Gregory K. Page, James P. McCarthy, Gary A. Sturm, and Willwerscheid (defendants) and Donald R. Frantz. 1 Each guaranteed payment of the note in accordance with its terms. The guaranties expressly made each jointly and severally liable to the bank and its assigns for the entire amount of the loan ($390,000) plus interest as specified in the note.
St. Clair never showed a profit, experiencing losses in all years except 1983. In the fall of 1982, shortly after Donald Frantz's death, the bank filed a claim against his estate for the entire unpaid principal and interest. The probate court allowed the claim. St. Clair, through Page, negotiated with the bank during 1983 and 1984 for various agreements and extensions of the loan, none of which were consummated. In September 1984 the bank sent a written demand to St. Clair for immediate repayment of the amount outstanding on the note plus interest. Willwerscheid informed the other shareholders and guarantors that the bank had demanded payment.
After meetings of the shareholders, the estate paid the balance of the bank's claim in the amount of $395,851.52, including principal and interest, on January 3, 1985. In return, the bank assigned to the estate, without recourse, the note, guaranties and the mortgage. In February 1985 St. Clair made $9,000 in payments on the bank note to the estate.
Sometime in early 1985, the racquetball club was put up for sale. Page listed the club through a broker for $445,000. In July or August 1985, Sturm approached Frantz about the possible exchange of a hog farm, owned by Howard Leland, for the club.
In August or September 1985, Frantz convened a meeting with the other shareholders. Sturm and Frantz told the shareholders that they could exchange the club for the hog farm. Frantz testified that he "believe[d] it was the concession of everybody that this was a way out of a huge debt [that had] been hanging over the five of [them]." Frantz threatened to lock the doors if the deal did not go through. Sturm testified that the shareholders told Frantz to pursue the deal.
On September 3, 1985, all the shareholders transferred their shares to the estate. Sturm and Willwerscheid admitted that the purpose of the transfer to the estate was to smooth the exchange with Leland. Page understood that the transfer would make the exchange less technically complicated.
Page and Frantz both testified that before the parties signed the transfer agreement, Page prepared a document which provided that the shareholders would "quitclaim" their shares to the estate in exchange for the estate's release or forgiveness of their guaranties. Frantz, as the estate's representative, refused to release the shareholders from liability on the guaranties. Sturm testified that although he did not participate in the conversation between Page and Frantz, he knew they were discussing some type of release for the stock at the meeting.
Page then drafted another document, which all the shareholders signed, "quitclaiming" the shareholders' shares to the estate. Appellant Willwerscheid testified that he thought everyone, including himself, was in favor of the property exchange because the club was continuing to lose money. He also testified that Frantz never told him that he would release him or any other guarantor from their guaranties and that he never demanded such a release in exchange for the transfer of shares.
Frantz and Page indicated that the shareholders also discussed the possibility of a deficiency between the amount the estate had paid on the note and the value of the farm. No agreement was reached on the possible deficiency or on the farm value at that meeting. Willwerscheid testified that Frantz told him he did not know the farm's value. According to Frantz, he told the shareholders he would not forgive the deficiency and the "general concession was we'll take our licks later, our bumps later."
On November 1, 1985, the club assets were sold to Leland in exchange for the farm and a $150,000 contract for deed. The farm had encumbrances of $311,822.55. On January 29, 1986, the farm was appraised at $220,000 (fair market value). The court, relying on these figures, calculated that the estate received net assets worth $58,177.45 in the exchange. At the time of trial a complete appraisal of St. Clair had not been done because it had been requested only shortly before trial.
The estate sued the guarantors for the difference between the net value received in the property exchange and the amount the estate paid on the note. The court found the defendants jointly and severally liable for that difference, less the estate's 20 percent liability on Donald Frantz's guaranty and less the $9,000 paid by St. Clair in 1985 (i.e. $332,402.97). Willwerscheid appeals.
1. Could the estate, a coguarantor, take an assignment of the note and guaranties and elect to proceed on the guaranties rather than to sue for contribution?
2. Did the assignment materially increase the guarantors' risk and thus release them from liability on their guaranties?
3. Did the estate's forebearance to collect on the note for eight months release the guarantors from their guaranties?
4. Did the mortgage merge into the fee and discharge the debt and guaranties when the estate took title to the fee?
5. Should the trial court have credited the estate with the fair market value of St. Clair's assets in determining any deficiency?
6. Did the trial court abuse its discretion in holding the guarantors jointly and severally liable?
7. Did the trial court err in assessing interest at the rate set forth in the note, rather than at the legal rate?
8. Was the evidence sufficient for the court to limit the estate's liability for contribution to 20 percent?
Willwerscheid argues that the estate had only the right to sue the coguarantors for contribution and could not proceed against them on their guaranties. The bank made a valid claim on the estate, which was allowed by the probate court. The estate had no choice but to pay off the note. In exchange, the bank assigned its rights under the note, mortgage and guaranties.
The guaranty contracts and the promissory note spelled out the rights of the bank and its assigns. Both instruments expressly permitted their assignment. The guaranties specified that an assignee had the same rights and powers under the note as did the bank and that the signers guaranteed payment of the note. These provisions gave the estate the choice, in its capacity as a creditor-assignee, to proceed on the guaranties or, in its capacity as a guarantor, to bring an action for contribution. See also Minn. Stat. Secs. 336.3-301 (); 336.3-416(1) (1986) ("payment guaranteed" or equivalent means signer promises that if instrument is not paid when due, signer will pay according to its tenor).
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