Founders Bank and Trust Co. v. Upsher

• Decision Date: 17 March 1992
• Docket Number: No. 68660,68660
• Citation: 830 P.2d 1355,1992 OK 35
• Parties: FOUNDERS BANK AND TRUST COMPANY, a national banking association, Plaintiff-Appellee, v. Betty Lee UPSHER, Sidney P. Upsher and Philip Boyle, Jr., Defendants-Appellants, and 50 Rockwell Associates, Ltd., an Oklahoma limited partnership, Gary C. Johnston and John L. Hessel, general partners of 50 Rockwell Associates, Ltd., Gary C. Johnston and John L. Hessel, individuals, Star Construction Company, an Oklahoma corporation, and United States of America acting through the Small Business Administration, Defendants.
• Court: Oklahoma Supreme Court

Page 1355

830 P.2d 1355

1992 OK 35

FOUNDERS BANK AND TRUST COMPANY, a national banking association, Plaintiff-Appellee, v.Betty Lee UPSHER, Sidney P. Upsher and Philip Boyle, Jr.Defendants-Appellants and 50 Rockwell Associates, Ltd., an Oklahoma limited partnership, Gary C. Johnston and John L. Hessel, general partners of 50 Rockwell Associates, Ltd., Gary C. Johnston and John L. Hessel, individuals, Star Construction Company an Oklahoma corporation, and United States of America acting through the Small Business Administration, Defendants.

No. 68660.

Supreme Court of Oklahoma.

March 17, 1992.

Certiorari to the Court of Appeals, Division 3.

The District Court, Oklahoma County, Bryan C. Dixon, Judge, denied guarantors' postjudgment plea for credit on an agreed judgment for the Bank.The Court of Appeals reversed.On certiorari previously granted to the Bank.

THE COURT OF APPEALS' OPINION IS VACATED AND THE TRIAL COURT'S POSTJUDGMENT ORDERS ARE AFFIRMED.

John W. Swinford, Jr., Mitchell D. Blackburn, Hastie and Kirschner, Oklahoma City, for appellee.

John E. Sargent, Jr., Joseph H. Bocock, M. Richard Mullins, Kerry L. Balentine, McAfee & Taft, Oklahoma City, for appellants.

OPALA, Chief Justice.

Two questions are presented on certiorari: (1) Were the guarantors entitled to credit on the Bank's judgment against them for the fair market value of the property sold at sheriff's sale rather than for the amount of the sale's confirmed proceeds? and (2) Did the trial court correctly allot the amount realized from the security's sale to that portion of the judgment that is unaffected by the guaranty agreement?We answer the first question in the negative and the second question in the affirmative.

I.THE ANATOMY OF LITIGATION

Founders Bank and Trust Co.[Bank] lent money to a limited partnership.Evidenced by a promissory note, the obligation was secured by a mortgage on real property and by five guarantors in separate agreements, ¹ identical except that a typed provision specified a fixed percentage of the total unpaid obligation each guarantor would bear.The two general partners each guaranteed payment of one hundred percent of the note's unpaid balance, with interest and expenses; one limited partner guaranteed twenty-five percent and two others each guaranteed twelve and one-half percent of the same amount.The principal defaulted and the Bank sued (1) on the promissory note, (2) to enforce the guaranty agreements and (3) to foreclose the mortgage.

The trial court gave the Bank an agreed judgment against the principal and each guarantor, jointly and severally.The property was to be sold with the proceeds to be applied toward the judgment's satisfaction unless the obligation were paid immediately.²No money was paid and the Bank proceeded with execution.It also initiated collection efforts against the guarantors.One day before the sheriff's sale, the three guarantors who were limited partners, Betty Lee Upsher, Sidney P. Upsher and Philip Boyle, Jr.[collectively referred to as the guarantors], brought a postjudgment plea for credit on the guaranty-debt judgment.³They contended our anti-deficiency statute, 12 O.S.1981 § 686, entitled them to an offset in the full amount of the mortgaged property's fair market value.⁴

The Bank purchased the property at sheriff's sale while the guarantors' postjudgment motion was pending.The sale stood confirmed when no objections to confirmation were lodged.In a postconfirmation order the nisi prius court denied the guarantors credit for the property's fair market value.Although it ordered the Bank's judgment reduced by the proceeds of the then confirmed sheriff's sale, the court permitted the Bank to apply the sale proceeds first to that portion of the judgment which is unaffected by the guaranty agreement.⁵A second postconfirmation order set the amount of the guarantors' supersedeas bonds.⁶

On appeal the guarantors contended their liability was limited to a fixed percentage of the unpaid judgment whose amount must be computed by deducting the sold property's fair market value and then determining the portion of the debt for which the affected guarantor stands as security.The appellate court reversed the nisi prius orders on the grounds that the anti-deficiency statute, 12 O.S.1981 § 686, entitles the guarantors to set off the mortgaged property's fair market value.It resolved in guarantors' favor a dispute over the guaranty agreement's text.⁷The appellate court's opinion instructed the trial court to credit the property's fair market value to that portion of the judgment for which each guarantor's agreement stands as security.⁸

II.POSTCONFIRMATION LITIGATION

The Bank characterizes the guarantors' setoff plea as a compulsory affirmative defense.It urges the guarantors' failure to press that issue before judgment is fatal to their plea for credit.According to the Bank, that issue is no longer invocable because the guarantors neither appealed from nor sought to modify the January 12, 1987 judgment.The short answer to the Bank's contention is that because the setoff issue did not arise until after special execution on the mortgaged property had issued, it was not available as a counterclaim.⁹

The landmark decision that distinguishes a postjudgment plea for credit from a quest to modify a judgment ¹⁰ is Willis v. Nowata Land and Cattle Co. Inc.¹¹ Willis was a foreclosure action in which the borrower sought credit for fire insurance proceeds on a previously adjudicated mortgage debt.We noted there that postconfirmation litigation, which ordinarily encompasses only issues that arose after the sheriff's sale and confirmation, may include pleas for credit on the judgment.The guarantors' quest for credit, here under consideration, clearly is a genuine postconfirmation issue.The decision to grant or deny credit for the property's fair market value would neither alter the terms of the now confirmed judicial sale nor modify the now unassailable judgment.It would merely define the amount the Bank may demand in satisfaction of its unpaid judgment.¹²

III.

THE GUARANTORS' PURELY CONTRACTUAL OBLIGATION

A.THE BREADTH OF THE UNDERTAKING

The Bank contends the agreement's terms are consistent because the guarantors ensure payment of a fixed percentage of the note's unpaid balance upon default, rather than a percentage of the unpaid judgment after credit for other sources of payment.

Oklahoma's guaranty jurisprudence is well established."A guaranty is a promise to answer for the debt, default or miscarriage of another person."¹³The guarantor's obligation is collateral to that of the principal debtor or obligor and independently and separately enforceable.¹⁴

Because the present case deals with private-law guarantors, we must apply the general rule that obligations of a private-law guarantor are purely contractual.¹⁵The intent of the parties at the time they entered into the agreement controls the meaning of the written contract.¹⁶The precise terms of the guarantor's undertaking and the extent of the given promise govern the breadth of the obligation.¹⁷

Intent is to be gathered from the entire instrument.¹⁸Where the language is clear and explicit, there is no need to resort to extrinsic evidence to ascertain its meaning.¹⁹Where a contract is complete in itself but, as viewed in its entirety is unambiguous, its language is the only legitimate evidence of what the parties intended.²⁰Absent illegality parties are free to bargain as they see fit.When the bargained-for agreement is in writing, a court may neither make a new contract to benefit a party nor rewrite the existing one.²¹A guaranty is to be construed in favor of one who has parted with property in reliance on the collateral promisor.²²

Applying these general principles of guaranty, we hold that the agreement in contest was intended to assure a guarantor's payment of a fixed percentage of the note's unpaid balance after crediting the confirmed sheriff's sale proceeds first to that portion of the judgment which is unaffected by the guaranty.This is so because the clause that limits a guarantor's obligation to a fixed percentage of the note's unpaid balance must be considered together with the provision which details the procedure to be followed in case of a lien's foreclosure.We must hence conclude that the latter clarifies the meaning of the term "unpaid balance."When the agreement is read as a whole we see no conflict between the terms.Clearly, the parties must have contemplated the amount recovered from the mortgaged property's sale might not be sufficient to satisfy the entire obligation.This is true because the guarantors were asked to stand as security for a fixed percentage of the unsatisfied balance--a balance that must be determined by giving credit for the sheriff's sale proceeds first to that part of the debt which is unaffected by the guaranty.²³

The guarantors assert it is unreasonable to hold them liable for a fixed percentage of the guaranty-debt judgment when the amount owed by the principal will be reduced by the mortgaged property's fair market value.²⁴Oklahoma jurisprudence adheres to the principle that even though the result may be harsh, a party will be bound by the unambiguous terms of a contract.²⁵Moreover, the legal effectiveness of a guaranty is not dependent on the continued existence of the principal's debt.Rather, it is co-extensive in its breadth and sweep with the terms of the guarantors' enforceable promise.²⁶

The terms of 15 O.S.1981 § 334 provide that the obligation of a guarantor must be neither larger in amount nor in other respects more burdensome than that of the principal.This rule relates to conditions at the time of a guaranty's execution.²⁷An agreement's original obligation may be fixed to assure the guarantor's does not exceed that of the principal, but the guarantor may further agree that--upon the occurrence...