F.D.I.C. v. Moore

• Decision Date: 07 July 1994
• Docket Number: No. 20903,20903
• Citation: 118 N.M. 77,879 P.2d 78,1994 NMSC 72
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, as Liquidator of New Mexico National Bank, a national banking association, Plaintiff-Appellee, v. Richard MOORE and Paulette Moore, Defendants-Appellants.
• Court: New Mexico Supreme Court

Page 78

879 P.2d 78

118 N.M. 77

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, as Liquidator of New Mexico National Bank, a national banking association Plaintiff-Appellee, v. Richard MOORE and Paulette Moore, Defendants-Appellants.

No. 20903.

Supreme Court of New Mexico.

July 7, 1994.

[118 N.M. 78] David L. Norvell and Thomas A. Tabet, Albuquerque, for appellants.

Gary Don Reagan, P.A., Gary Don Reagan, Mark Terrence Sanchez, Hobbs, and Ann S. DuRoss, Richard J. Osterman, Jr., and E. Whitney Drake, Washington, DC, for appellee.

OPINION

FRANCHINI, Justice.

Richard and Paulette Moore appeal from a grant of summary judgment against them and in favor of the FDIC. The Moores guaranteed a loan made by New Mexico National Bank to High Country Ceramics, Inc. ("the Corporation"). The FDIC is the liquidator of the Bank, which became insolvent in July, 1986. Because it is undisputed that the Moores revoked the guaranty and that the Bank then materially altered the terms of the note in contravention of the Moores' instructions, we conclude that the Moores must be discharged from their liability as guarantors. Accordingly, we reverse the judgment.

Facts and proceedings below. On May 29, 1984, Richard Moore as vice-president and Darrel E. Brigham as president of the Corporation procured a short-term loan from the Bank, submitting a security agreement and financing statement for accounts receivable and inventory. On the same day, both officers and their wives executed continuing guaranty agreements to further secure any loan from the Bank to the Corporation. The guaranty, which was for an unlimited amount, applied to extensions and provided that the Bank had no duty to give notice to the guarantors of any modifications of the terms of the loans.

In June, Brigham and Moore, on behalf of the corporation, assigned to the Bank the invoice receivables from the Corporation and the Bank extended the maturity date on the loan. On October 3, 1984, the Corporation obtained a loan of over $92,000 from the Bank and the Brighams additionally secured the loan with a mortgage of their real property. The Brighams later obtained two extensions of the maturity date of October 15, 1985 so that the note was to mature on April 3, 1986.

Moore discovered that only interest payments were being made on the note and on March 17, 1986, notified the Bank in writing that Brigham was improperly liquidating assets that secured the note without applying the proceeds to the note. On April 11, Moore notified the Bank in writing that he would no longer serve as guarantor for future loans or extensions obtained by Brigham or the Corporation and insisted that the outstanding past-due note on which he was subject to liability as guarantor be called as due and owing. Moore stated in the letter that he believed the corporate assets were presently sufficient to cover the indebtedness, but that he was concerned that if the Bank did not call the note, those assets would not be available. The Bank apparently ignored Moore's letter and on May 29, 1986, upon Brigham's request, again extended the past-due note to mature December 15, 1986.

The Bank was declared insolvent on July 17, 1986, and the FDIC purchased the Bank's assets, including the note. The Corporation defaulted on the note and the FDIC brought suit for foreclosure and money due against the Corporation, the Moores, and the Brighams for the corporate debt. The FDIC also sued the Brighams for foreclosure and money due under a separate note for a personal loan the Brighams obtained in 1985 and secured with another mortgage on the same real property in the same suit.

Issues and arguments. The FDIC moved for summary judgment on the basis of the notes, guaranty contracts, and extensions. The Moores responded, claiming that there was a genuine issue of material fact whether they signed the guaranty contract in their personal or corporate capacities. They attached affidavits swearing they signed the guaranty contract on behalf of the corporation and not in their personal capacities and showed that the acknowledgment of their signatures used the corporate acknowledgment form, stating that they were "of High Country Ceramics, Inc."

The Moores further contended that as a matter of law, they should be discharged from the obligation under the note because the Bank extended the note after it received notice that the Moores would not guarantee payment if further extensions were granted. They cited as authority Sunwest Bank of Farmington v. Kennedy, 109 N.M. 400, 402, 785 P.2d 740, 742 (1990) (stating that a surety may be discharged when the holder grants an extension of a note without authorization of the surety), and Western Bank v. Aqua Leisure, Ltd., 105 N.M. 756, 757, 737 P.2d 537, 538 (1987) (stating that "[a] guarantor is discharged from his obligation if there is a material change in the obligation unless the guarantor consents to the change").

The FDIC argued that as a matter of law, the Moores had to have signed in their personal capacities because "the only [legal] purpose for signing a guaranty is for an individual to guarantee the corporate debt." It asserted that the guaranty itself allowed extensions without the Moores' consent and that the Moores were bound by the guaranty contract. The FDIC also contended that because the Moores could not revoke their guaranty insofar as it related to the pre-existing indebtedness of the corporation, see First Nat'l Bank v. Energy Equities Inc., 91 N.M. 11, 15-16, 569 P.2d 421, 425-26 (Ct.App.1977), they must be held liable under the guaranty contract for extensions made after notice was given. The FDIC complains that it would be unfair to make a bank face a "dire alternative of either calling the corporate loan [at the time it became due] or ... losing the benefit of the guaranty."

The court properly determined as a matter of law that the Moores signed the contract in their personal capacities. The Moores' signatures on the guaranty contract were not accompanied by words to the effect that they signed as officers on behalf of the corporation. Only the acknowledgment form states that the individuals are "of High County Ceramics, Inc." This statement alone, in light of the fact that there would be no purpose in a corporation guaranteeing its own debt, is not sufficient to raise a genuine issue of material fact of capacity. A contract signed personally by an individual with no qualifying language following the signature results in personal liability on the contract. Bank of New Mexico v. Priestley, 95 N.M. 569, 573, 624 P.2d 511, 515 (1981). We hold that, as a matter of law, the Moores signed the guaranty in their personal capacities.

A continuing guaranty does not cover unauthorized post-revocation extensions of obligations existing at the time of the revocation. Under the FDIC's interpretation of guaranty contracts, one who signs a continuing guaranty may never revoke its contract as to an existing obligation and is indefinitely left at the mercy of the bank and the principal obligor. We find this interpretation to be incompatible with surety law. It is black letter law that an offer to guarantee future obligations in a continuing guaranty may be revoked absent a contrary provision in the guaranty instrument. See Annotation, Duration of Continuing Guaranty, 81 A.L.R. 790, 795-98 (1932); Arthur A. Stearns & James L. Elder, The Law of Suretyship § 4.20, at 87 (5th ed. 1951). There is a split in case law as to whether a guarantor is released from liability if, after revocation of a continuing guaranty, a bank makes further extensions or renewals without the consent of the guarantor. See Annotation, Guaranty as Covering Renewals, after Revocation, of Claims Within Coverage at Time of Revocation, 100 A.L.R. 1236, 1237-39 (1936); compare Southern California First Nat'l Bank v. Olsen, 41 Cal.App.3d 234, 116 Cal.Rptr. 4, 8-9 (Ct.App.1974) (holding that "continuing guaranty does not cover renewals, after revocation, of obligations which were covered by the guaranty at the time of revocation."); Gandy v. Park Nat'l Bank, 200 Colo. 298, 615 P.2d 20, 22 (1980) (en banc) (same); Bank of U.S. v. Andron, 155 Misc. 21, 277 N.Y.S. 594, 598 (Mun.Ct.1934) (same); and Straus-Frank Co. v. Hughes, 138 Tex. 50, 156 S.W.2d 519, 521 (1941) (same), with Corn Exchange Bank Trust Co. v. Gifford, 268 N.Y. 153, 197 N.E. 178, 179-80 (1935) (holding guarantor responsible for renewals made after revocation.); Broward Bank v. Southeastern X-Ray Corp., 463 So.2d 440, 442-43 (Fla.Dist.Ct.App.1985) (same); and Marking Sys. Inc. v. Interwest Film Corp., 567 P.2d 176, 178-79 (Utah 1977) (same). In a case factually similar to the one at bar, the Indiana Court of Appeals in Franklin Bank & Trust Co. v. Reed, 496 N.E.2d 596 (Ind.Ct.App.1986) aff'd in part & vacated in part on other grounds, 508 N.E.2d 1256 (Ind.1987), explained the rationales of the two views as follows:

[The cases releasing the guarantor] proceed on the rationale that when a guarantor revokes the guaranty, his obligations to the creditor become fixed as of that date. The Bank, at the maturity of the existing loans if they are not paid, may proceed against the guarantor and collect the amount due. If the Bank accepts a renewal after the revocation it elects to be bound by the revocation, and it is presumed that it thereafter relied upon the credit of the principal and his security....

[The cases obligating the guarantor reasoned that the] language of the guaranty is very broad and provides that the creditor could extend the time of payment, renew the...