Kansas State Bank & Trust Co. v. DeLorean

• Citation: 7 Kan.App.2d 246,640 P.2d 343
• Decision Date: 11 February 1982
• Docket Number: No. 52464,52464
• Parties: , 33 UCC Rep.Serv. 632 KANSAS STATE BANK & TRUST COMPANY, Appellee, v. John Z. DeLOREAN, Appellant.
• Court: Kansas Court of Appeals

Page 343

640 P.2d 343

7 Kan.App.2d 246, 33 UCC Rep.Serv. 632

KANSAS STATE BANK & TRUST COMPANY, Appellee, v. John Z. DeLOREAN, Appellant.

No. 52464.

Court of Appeals of Kansas.

Feb. 11, 1982.

Syllabus by the Court

1. Whether a written contract is ambiguous is a question of law to be decided by the court. Where both sides to a controversy concerning the meaning of a written instrument advance different, but plausible explanations of its meaning in the abstract, the language of the contract is ambiguous.

2. A contract of guaranty, like other contracts, is to be construed according to the intention of the parties. Where the language of the contract leaves the intent of the parties doubtful or unclear, the instrument is ambiguous.

3. When a written contract is found to be ambiguous, extrinsic evidence of the facts and circumstances, including oral agreements, surrounding its execution become competent to determine which one of two or more meanings was intended.

4. Reasonable rather than unreasonable interpretations of contracts are favored and results which vitiate the purpose or reduce the terms of a contract to an absurdity should be avoided.

5. Questions concerning which debts are properly covered by a written guaranty are resolved by determining the intention of the parties concerning the scope of the contract.

6. Interest owing on a guarantor's obligation following demand for payment by the guarantee is not part of the guaranteed debt per se but is, instead, the guarantor's own primary obligation and such interest may be recovered, even though such recovery has the effect of increasing the judgment beyond the limit of liability stated in the contract.

7. Contracts of guaranty are of two types: conditional and unconditional. The first type requires the guarantor to first proceed against the principal obligor before attempting to collect from the guarantor, while the second does not.

8. Questions concerning whether a guarantee, through impairment of collateral, may have discharged the obligation of the guarantor are identical, irrespective of whether the guaranty contract is conditional or unconditional.

9. Separate contracts of guaranty are not covered by the phrase "any party to the instrument" contained in K.S.A. 84-3-606(1).

10. Although the impairment of collateral by a guarantee ordinarily discharges the guarantor's obligation, pro tanto, the consent of a guarantor to lack of diligence in collection or to an impairment of collateral operates as a waiver of such discharge.

11. In an action to recover on a guaranty, it is held: (1) The trial court correctly determined the intention of the parties in an ambiguous contract of guaranty by resort to extrinsic evidence concerning the facts, circumstances, and understandings of the parties leading up to and immediately following the execution of the guaranty contract; (2) the trial court correctly determined the scope of such contract of guaranty from the court's factual determination of the intention of the parties; (3) the consent of the guarantor to the lack of diligence in collection and to the impairment of collateral operated as a waiver of any discharge of the guarantor as a result thereof; and (4) no error appearing, the judgment of the trial court in favor of the guarantee and against the guarantor, for all of the reasons set forth in the opinion, is affirmed.

Paul B. Swartz, of Martin, Pringle, Fair, Davis & Oliver, Wichita, for appellant.

Thomas D. Kitch, and Paul R. Kitch, of Fleeson, Gooing, Coulson & Kitch, Wichita, for appellee.

Before FOTH, C. J., Presiding, TERRY L. BULLOCK, District Judge, and FREDERICK WOLESLAGEL, District Judge Retired, Assigned.

TERRY L. BULLOCK, District Judge, Assigned:

John Z. DeLorean appeals from a judgment of the district court which found him liable, as guarantor, for certain corporate debts of Dahlinger Pontiac- Cadillac, Inc. to the Kansas State Bank and Trust of Wichita. The evidence introduced at the bench trial was extensive and conflicting, ultimately resulting in the entry of 79 findings of fact and 58 conclusions of law by the trial court. Highly summarized, the factual background necessary for a determination of the issues raised on appeal follows.

DeLorean, a New York inventor-investor-entrepreneur and former vice-president of General Motors, contacted the Bank in 1976 expressing his interest in acquiring controlling interest in one of the Bank's corporate customers, the financially troubled Dahlinger automobile dealership. Thereafter, DeLorean sent his agent, Roy Nesseth, to investigate Dahlinger's financial condition. After concluding this investigation, Nesseth commenced negotiations with the owners of Dahlinger. Eventually, DeLorean's personal attorney, Thomas Kimmerly, assisted in closing the resulting sale, wherein 25% of the Dahlinger stock remained with Jerry Dahlinger and 75% was transferred to Nesseth and Kimmerly. Although DeLorean held no stock in his name, J. V. Lentell, the Bank's president, understood, and the trial court found, that DeLorean was the "financial power" behind the purchase. Consistent with this understanding, DeLorean's December 31, 1976, personal financial statement revealed an equity investment in a "Pontiac-Cadillac dealership in Wichita, Kansas" in the amount of $200,000.

In order to obtain credit from the Bank for this newly acquired dealership, DeLorean personally guaranteed the Dahlinger floorplan loan, a Dahlinger promissory note and a $385,000 loan made by the Bank to the John Z. DeLorean Corporation (a separate corporation, wholly owned by DeLorean.) Notwithstanding these infusions of credit, by the late summer of 1977, Dahlinger was once again experiencing financial difficulty. In fact, it was at this time that the Bank notified Dahlinger and DeLorean it would no longer honor overdrafts on the corporate checking account. As a result of these developments, the DeLorean interests decided to sell the troubled dealership, if a buyer could be found. In due course, a group of Texas investors became interested, but only on the condition that DeLorean could first purchase and then lease to them the land on which the Dahlinger place of business was located. In order to satisfy this condition, DeLorean needed another loan.

On Sunday, September 11, 1977, a meeting was held at the offices of the Bank for the purpose of discussing the financial condition of Dahlinger and the terms of the prospective sale of the dealership. On that date, the total Dahlinger indebtedness to the Bank, including both principal and interest, was in the approximate amount of $700,000. In addition, the $385,000 loan to DeLorean's own corporation was in default. At this meeting, predictably, the Bank indicated its desire to both protect and recover its investments and, at the same time, avoid the difficulty and expense connected with foreclosure. On the other side of the conference table, the DeLorean interests desired to obtain additional monies for several purposes, including the purchase of the real estate in question. Consistent with its objectives, the Bank proposed to loan DeLorean $1,350,000 for 20 years at 5% and to loan the continuing Dahlinger corporation the sum of $250,000 on identical terms. The purpose of the loan to DeLorean, proposed by the Bank, was to provide $850,000 for the purchase of the subject real estate and an additional $500,000 to be held in escrow to assure the payment of that part of the remaining Dahlinger indebtedness to the Bank not covered by the new $250,000 loan. The remarkably favorable terms of the proposed loans, both as to time and interest rate, were the Bank's concessions to the obvious financial difficulties of its borrower and were expressly offered by the Bank in an effort to avoid foreclosure.

In response to the Bank's proposal, DeLorean expressed interest in the loans, but on different terms. His proposal was that the "extra" $500,000 be released to him for his own use, the Bank being required to look to Dahlinger and its assets for the repayment of the balance of the Dahlinger indebtedness. The Bank would not agree to DeLorean's terms. Accordingly, a compromise was struck whereby the Bank loaned Dahlinger the sum of $250,000 and loaned DeLorean the sum of $1,350,000, both loans being for 20 years at 5% and on conditions which follow. The DeLorean loan was disbursed as agreed: $850,000 for the real estate purchase, $385,000 to pay off the delinquent DeLorean Corporation loan and $115,000 to DeLorean in cash. In exchange for these loans, DeLorean agreed to guarantee up to $450,000 of the remaining Dahlinger indebtedness (a sum slightly in excess of the principal and interest then due on the total Dahlinger debt to the Bank, after first subtracting the new loan to Dahlinger). The parties specifically agreed that the Bank would have no further obligation to liquidate the Dahlinger pledged collateral but, if Dahlinger did so, any proceeds therefrom, actually paid to the Bank, would reduce DeLorean's guaranty "dollar for dollar." The clear intent of the parties, reflected throughout the trial court's extensive findings and conclusions, was that DeLorean's guaranty would ultimately assure the Bank full payment of the remaining Dahlinger indebtedness to the same extent that the Bank would have been paid if the additional $500,000 had been escrowed and applied to those debts on September 11, as the Bank originally proposed.

On September 12, 1977, Kimmerly, DeLorean's attorney, prepared and executed, as DeLorean's attorney-in-fact, a written guaranty intended by the parties to reflect their agreements made the prior day. The terms of that agreement are as follows:

"September 12, 1977

To THE KANSAS STATE BANK AND TRUST COMPANY

WICHITA, KANSAS

"In consideration of one dollar, to me paid, receipt of which is hereby acknowledged, the total and absolute release of any and all other guarantees previously made by me on behalf of Dahlinger...