Greenwell v. American Guaranty Corp.

Decision Date12 May 1971
Docket NumberNo. 383,383
Citation262 Md. 102,277 A.2d 70
PartiesCharles GREENWELL et ux. v. AMERICAN GUARANTY CORPORATION.
CourtMaryland Court of Appeals

James P. Salmon, Upper Marlboro (Hal C. B. Clagett, Sasscer, Clagett, Channing & Burcher, Upper Marlboro, and Joseph A. Mattingley, Leonardtown, on the brief), for appellants.

Frank H. Weller, Jr., Baltimore (Robert R. Winter, Ober, Grimes & Shriver, Baltimore, and Wm. Aleck Loker, Leonardtown, on the brief), for appellee.

Argued before HAMMOND, C. J., and BARNES, McWILLIAMS, SINGLEY and SMITH, JJ.

SINGLEY, Judge.

American Guaranty Corporation (American Guaranty) brought suit against Dr. and Mrs. Charles Greenwell in the Circuit Court for St. Mary's County to enforce the Greenwells' guaranty of a lease of industrial equipment. From a summary judgment for $22,650.10 together with interest and costs entered against the Greenwells in favor of American Guaranty, the Greenwells have appealed.

American Guaranty is in the business of leasing equipment to industrial and commercial users, Burton v. Tatelbaum, 240 Md. 280, 213 A.2d 875 (1965). In 1961, the Greenwells' son, Joseph Greenwell, who was president of American Cellular Corporation (later American Plastic Container Corp.) of Miami, Florida (American Plastic), arranged to lease from American Guaranty certain blow molding equipment which American Guaranty undertook to purchase from the manufacturer, The Producto Machine Company of Bridgeport, Connecticut, for use by American Plastic in the manufacture of plastic bottles.

The lease, which was executed by American Plastic on 17 July 1961, was for an initial term of five years, and as originally drawn, called for monthly payments of $979.17 and a security deposit in the same amount. On 23 August 1961, the lease was amended by adding to $45,543.00, the original cost of the equipment, the sum of $1,148.00, consisting of freight charges of $648.00 and an amount of $500.00 attributed to the additional cost of a substituted component. This had the consequence of increasing the amount of the monthly rent and of the security deposit from $979.17 to $1,003.86. While the record is not entirely clear, it would seem that the security deposit was made at the time American Plastic signed the lease, and the first month's rent was paid on 1 September. The lease, as amended, was ultimately approved by American Guaranty on 13 December 1961.

As of the day when the lease was executed by American Plastic, the Greenwells had joined with their son Joseph in signing a form of personal guaranty which provided, in part: 1'In consideration of the execution and delivery of (the) lease * * * the undersigned, jointly and severally, hereby guarantee, promise, and agree with the said (American Guaranty), its successors and assigns absolute performance by (American Plastic) of all the obligations under the said lease and any supplementary schedules added thereto during the initial lease term specified and any renewals of said lease and supplementary schedules, and waive notice of the acceptance of this guaranty, waive right to any notice and demand, or either, in each case of any default by (American Plastic) under said lease and further agree that any extension or modification granted to (American Plastic) shall not release the liability of the undersigned.'

The undertaking seems to have been illstarred from the outset. The blow molder was put in operation sometime early in December of 1961, and could never be made to function properly. American Plastic got behind in the rent. On 15 December 1966, the machine was destroyed by a fire at American Plastic's plant.

In May, 1967, American Guaranty brought suit against the Greenwells seeking a recovery of rent due and owing from American Plastic under the lease in the amount of $50,885.95. A motion for summary judgment was filed with the declaration and there was appended the affidavit required by Rule 610. The Greenwells answered the motion for summary judgment and filed an affidavit and supplementary affidavit in which they relied principally on a failure of consideration and on the fact that American Guaranty had brought a similar suit against American Plastic as principal and Joseph Greenwell as coguarantor in the United States District Court for the Southern District of Florida. The trial court granted American Guaranty's motion, then granted a rehearing, and struck the order granting summary judgment.

Almost two years later, American Guaranty filed a certified copy of the District Court's judgment for $21,086.87 with interest of $4,563.23 and costs of $173.11, entered on 11 March 1969 on a jury verdict that there had been a 30% failure of consideration, and renewed its motion for summary judgment. The Greenwells countered with a motion for summary judgment in their favor. The lower court denied the Greenwells' motion, granted American Guaranty's and entered judgment in favor of American Guaranty and against the Greenwells for $22,650.10, this being the amount of the Florida judgment less $3,000 which had been received in reduction of it, with interest from 11 March 1969.

The Greenwells assign three reasons why we should reverse the action taken by the court below:

(i) The trial court should have granted the Greenwells' motion for summary judgment as a matter of law;

(ii) Assuming, for purposes of argument, that the Greenwells' motion for summary judgment should not have been granted, there was a disputed question of material fact which should have prevented the granting of American Guaranty's motion; and,

(iii) The trial court was in error in ruling that the Greenwells were bound by the verdict in the Florida case.

(i)

The trial court should have granted the Greenwells' motion

for summary judgment as a matter of law.

The Greenwells bottom this argument on the contention that once American Guaranty added freight charges of $648.00 to the cost of the equipment, and made a commensurate increase in the monthly rent, a material modification had been made to the lease without their knowledge or consent, which, as a matter of law, released them from liability under the agreement of guaranty. This is a completely tenable argument which may be advanced by an uncompensated guarantor who has not consented to modification of his contract of guaranty, Restatement, Security § 128 at 340 (1941). See also, W. B. Saunders Co. v. Ducker, 116 Md. 474, 82 A. 154 (1911), which invoked the doctrine of strictissimi juris, and the discussion in A/C Electric Co. v. Aetna Ins. Co., 251 Md. 410, 247 A.2d 808 (1968).

It will be recalled that the Greenwells, in the agreement which they signed, waived their right to notice and demand in the event of default and further agreed 'that any extension or modification granted to (American Plastic) shall not release the liability' of the guarantors. The Greenwells argue that the addition of the freight charge was not a modification granted to American Plastic, but rather a modification granted by American Plastic to American Guaranty, which was not encompassed by the terms of the consent.

We are inclined to share the view of the trial court that the addition of the freight charge was not a modification at all. Attached to the lease, and incorporated by reference, was a letter proposal from The Producto Machine Company to American Plastic dated 21 June 1961 quoting prices of the molding equipment which concluded: 'TERMS To be arranged F.O.B. our plant floor Bpt.Conn. (Bridgeport, Connecticut).'

A somewhat similar contention was before us in Gordon v. State National Bank of Bethesda, 249 Md. 378, 239 A.2d 915 (1968), where the Gordons, in August 1965, agreed that:

'In Consideration of a loan in the amount of $30,000 made or to be made * * * we * * * do hereby * * * guarantee * * * the prompt payment * * * of said note or notes * * * in whole or in part * * *.'

A year later, the debtor borrowed $19,000.00 and then defaulted. In holding the Gordons liable, we quoted from Walton v. Washington County Hospital Ass'n, 178 Md. 446, 450, 13 A.2d 627, 629 (1940):

"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 fair and reasonable interpretation to effectuate the intention of the parties, and the circumstances accompanying the transaction may be considered in seeking the intention of the parties. The Court should give the instrument that construction which will best accord with the intention as manifested by the language in the light of all the surrounding circumstances, without stretching the words beyond their import in favor of the creditor or restricting them in aid of the guarantor." and concluded:

'If this test is applied to the instrument before us, it is obvious that the intent and purpose of the Gordons was to guarantee, until such time as they gave written notice that no further advances were to be made, any indebtedness which Frontiers might incur at the Bank up to a maximum principal sum of $30,000, whether the debt was evidenced by one note or several.' 249 Md. at 384, 239 A.2d at 919.

An analogous situation is present here. It is manifest that the agreement which the Greenwells signed was intended to give American Plastic a free hand in dealing with American Guaranty and that no modification of the terms of the arrangement would have relieved the Greenwells of an obligation which was intended to be without limit as to either duration or amount. See 38 C.J.S. Guaranty § 73 at p. 1238 (1943). The decision in Plunkett v. Davis Sewing Machine Co., 84 Md. 529, 36 A. 115 (1897), relied on by the Greenwells, is only obliquely apposite because there, an uncompensated guarantor who had agreed that a sales agent's contract could be modified in writing as to terms, prices or territory, was discharged from...

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