Layne v. Garner
| Decision Date | 16 October 1992 |
| Parties | Delbert W. LAYNE and Charlotte Layne v. Robert M. GARNER. Robert M. GARNER v. Delbert W. LAYNE and Charlotte Layne. 1910262, 1910301. |
| Court | Alabama Supreme Court |
Fred K. Granade of Stone, Granade, Crosby & Blackburn, P.C., Bay Minette, for appellants/cross-appellees.
Samuel G. McKerall, Gulf Shores, for appellee/cross-appellant.
One issue is presented in these consolidated appeals: Can a guarantor, who has paid part of the guaranteed debt, enforce contribution against his coguarantors without having paid the entire indebtedness, given that the guaranty agreement contained the following provision:
(Supplemental Record, Vol. B, at 7; R. at 42; emphasis supplied.)
We conclude that Section 5 of the guaranty agreement prohibited the guarantor, Robert M. Garner, from suing the coguarantors, Delbert W. Layne and Charlotte Layne, until the entire indebtedness guaranteed by the agreement was paid; therefore, we hold that Garner's lawsuit was premature and that the trial court erred in entering a judgment for Garner against the Laynes. We emphasize, however, that Garner's lawsuit was premature. Garner may sue the Laynes at a later time, when the entire debt has been paid and discharged.
In the summer of 1988, Delbert Layne, Charlotte Layne (Delbert's wife), Michael Moses, Patricia Moses (Michael's wife), and Robert Garner formed LGM Fun Enterprises, Inc. ("LGM"), to develop, build, and operate a miniature golf course in Perdido Key, Florida. The Laynes became 1/3 shareholders in LGM; the Moseses became 1/3 shareholders; and Garner became a 1/3 shareholder.
To finance the miniature golf course, LGM borrowed $280,000 from Peoples Federal Savings Bank ("the Bank") in Fort Walton Beach, Florida. The Bank took a mortgage on the miniature golf course site to secure the loan. As additional security, the Bank required all the corporate shareholders to sign a personal guaranty agreement; the Bank also held a $125,000 certificate of deposit owned by Garner.
Sometime in 1989, LGM experienced financial difficulties. Garner lent the corporation money to make the payments on the bank loan and to fund the day-to-day operation of the golf course. In early 1990, LGM defaulted on the bank loan and the Bank applied the balance of Garner's certificate of deposit toward the debt.
Anticipating the corporation's default and the Bank's application of his certificate of deposit toward the debt, Garner sued the Laynes, seeking contribution from them of their pro rata share of the debt. Just days after filing suit and perfecting service on the Laynes, Garner moved the trial court for a partial summary judgment based on § 8-3-42, Ala.Code 1975. 1 The Laynes objected on the basis that the motion was premature; apparently, the trial court never ruled on Garner's motion.
Soon thereafter, the Laynes answered the complaint and filed a counterclaim against Garner and a third-party complaint against the Moseses. 2 The answer set forth a general denial of liability and various affirmative defenses; the counterclaim and third-party complaint alleged various ultra vires acts by Garner and the Moseses, as well as waste of corporate assets, mismanagement of the corporation, and a conspiracy to deprive the Laynes of the value of their corporate stock. The counterclaim and third-party complaint also asked for an equitable accounting, and generally invoked the trial court's equitable jurisdiction, and alleged that Garner had withdrawn money from the corporate account without permission.
The case was tried without a jury. After hearing ore tenus evidence, the trial court entered an order awarding Garner $62,848.85 against the Laynes. The Laynes moved for a new trial, or in the alternative, to alter, amend, or vacate the order. After the trial court failed to rule on that motion within 90 days, both Garner and the Laynes appealed, apparently thinking the motion had been denied by operation of Rule 59.1, Ala.R.Civ.P. Determining that the order appealed from was not final, see Rule 54(b), Ala.R.Civ.P., this Court remanded the case to the trial court for disposition of the Laynes' counterclaim and third-party complaint. On remand, the trial court entered a final judgment for Garner against the Laynes for $62,848.85, and denied the Laynes' counterclaim and third-party complaint. Garner and the Laynes appealed.
The Laynes argue (1) that the trial court erred, as a matter of law, in entering the judgment against them for contribution on the corporate debt when the guaranty agreement prohibits a suit for contribution until all of the debt is "fully paid and discharged" and (2) that the law of contribution among cosureties requires complete satisfaction of the debt by one party before that party can seek contribution from his cosureties. We agree with the Laynes that Garner's suit was premature, based on the express terms of the guaranty agreement. Therefore, we are constrained to reverse the judgment and remand the cause to the trial court with instructions to dismiss the suit. However, we disagree with the Laynes' argument that Alabama law requires that the entire debt be paid before contribution among cosureties could be required. 3
On several occasions this Court has stated that "[i]t is generally recognized that the rules governing the interpretation and construction of contracts are applicable in resolving a question as to the interpretation or construction of a guaranty contract." Pate v. Merchants Nat'l Bank of Mobile, 428 So.2d 37, 39 (Ala.1983); see Colonial Bank of Alabama v. Coker, 482 So.2d 286, 291 (Ala.1985); Dill v. Blakeney, 568 So.2d 774, 777 (Ala.1990); and Moody v. Hinton and Hinton Properties, Inc., 603 So.2d 912 (Ala.1992). Thus, "when the terms of a [guaranty agreement] are unambiguous, the construction of the contract and its legal effect become questions of law for the court." Dill, 568 So.2d at 777. Further, "[w]hether a [guaranty agreement] is ambiguous is a question of law for the court." Id. at 778.
Section 5 of the guaranty agreement is clear and unambiguous. It states, in clear and simple terms, that no cosurety or coguarantor can "exercise ... any right of contribution against ... any person liable" on the debt "unless and until" the indebtedness has been "fully paid." The obvious import of section 5 is that a coguarantor or cosurety cannot seek contribution against other coguarantors or cosureties unless the entire debt has been paid.
This contractual prerequisite to suit was raised in the Laynes' answer; during the actual trial of this case; in the Laynes' motion to alter, amend, or vacate the order awarding Garner $62,848.85; and, of course, in this Court on appeal. Garner argues in response that Section 5 was intended to benefit only the Bank, that it was not bargained for by the parties, and that it would be unconscionable to enforce the provision among co-guarantors. We disagree.
The clear language of Section 5 states that the coguarantors will not enforce any right of contribution against "any person liable to payment of the indebtedness" before full payment has been made. (Supplemental Record, Vol. B, at 7; R. at 42.) The Laynes fall within the plain meaning of this phrase. Thus, Garner's argument that the guaranty agreement should only benefit the Bank is unfounded, based on the unambiguous language of the guaranty agreement itself.
Garner also argues that Section 5 was not a bargained-for part of the guaranty agreement. The record does contain testimony from Garner and Michael Moses to buttress this claim, but this Court has stated:
Williams v. Bank of Oxford, 523 So.2d 367, 368 (Ala.1988) (citations omitted); and see, Waldrep v. Nosrat, 426 So.2d 822 (Ala.1983). Garner has not claimed fraud or misrepresentation here. Thus, he is bound by the clear terms of the guaranty agreement.
Further, Garner argues that Section 5 is unconscionable, and, therefore, that it should be rescinded or that this Court should refuse to enforce it. Initially, we note that Garner failed to make this argument at the trial level; nevertheless, we will address it.
While it is true that a court may rescind a contract, or a portion of a contract, for unconscionability, "[r]escission of a contract for unconscionability is an extraordinary remedy usually reserved for the...
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