Lowe v. Albertazzie

• Decision Date: 14 May 1999
• Docket Number: No. 25445.,25445.
• Court: West Virginia Supreme Court
• Parties: John D. LOWE, Jr., and Edward E. Stout, Jr., Plaintiffs, v. Ralph D. ALBERTAZZIE and Carol J. Albertazzie, Defendants.

516 S.E.2d 258

205 W.Va. 47

John D. LOWE, Jr., and Edward E. Stout, Jr., Plaintiffs, v. Ralph D. ALBERTAZZIE and Carol J. Albertazzie, Defendants.

No. 25445.

Supreme Court of Appeals of West Virginia.

Submitted March 9, 1999.

Decided May 14, 1999.

Michael L. Scales, Greenberg & Scales, P.L.L.C., Martinsburg, West Virginia, Attorney for the Plaintiffs.

John W. Askintowicz, III, Law Office of John W. Askintowicz, III, Charles Town, West Virginia, John H. Kamlowsky, Frankovitch, Anetakis, Colantonio & Simon, Wheeling, West Virginia, Attorneys for the Defendants.

DAVIS, Justice:

The United States District Court for the Northern District of West Virginia presents this Court with a certified question asking whether West Virginia recognizes the principle of subsurety along with the equitable elements of that principle. We conclude that West Virginia does recognize subsuretyship. However, in accordance with that principle and the general principles of contract law, we find that the equitable elements of subsurety should be considered only in limited circumstances such as when an agreement between or among secondary obligors is ambiguous, when there is no agreement or when a party claims fraud, mistake, or material misrepresentations in the execution of the agreement.

I. FACTUAL AND PROCEDURAL HISTORY

The case underlying the question herein certified by the United States District Court for the Northern District of West Virginia [hereinafter "district court"] arises from bankruptcy proceedings involving Ralph D. and Carol J. Albertazzie [hereinafter collectively referred to as "the Albertazzies"], the appeal of which is now pending in the district court. Three separate claims against the Albertazzies' bankruptcy estate are the subject of the appeal before the United States district court. The following factual history of the case sub judice results from a stipulation of facts entered into by the parties during proceedings before the United States Bankruptcy Court for the Northern District of West Virginia [hereinafter "bankruptcy court"].

Two related companies are involved in the underlying controversy, Flying A Communications, Inc. [hereinafter "Flying A, Inc."] and Flying A Communications Limited Partnership d/b/a WYVN-TV [hereinafter "Flying A Communications"]. Flying A, Inc., was the general partner of Flying A Communications. Ralph Albertazzie [hereinafter "Albertazzie"] was the president of Flying A, Inc. The stipulated facts do not indicate whether Albertazzie himself was a partner in Flying A Communications.

One of the three appealed claims against the bankruptcy estate of Ralph and Carol Albertazzie was asserted by Edward E. Stout, Jr. [hereinafter "Stout"], who was the Vice President of Flying A, Inc.¹ Stout was also a limited partner in Flying A Communications. On September 25, 1991, Flying A, Inc., borrowed $100,000 from One Valley Bank of Martinsburg [hereinafter "One Valley"]. The note and security agreement accompanying this loan list the borrower as Flying A, Inc., who signed the note through its President, Albertazzie. The note indicates that Albertazzie is the guarantor of the loan.² As security for this loan, Stout granted the bank a security interest in a certificate of deposit in the amount of $150,000, which had been issued to Stout in his own name and individual capacity.

In October, 1992, Flying A, Inc., filed a voluntary Chapter 11 bankruptcy petition.³ Subsequently, the case was converted to a Chapter 7 bankruptcy action.⁴ The stipulated facts state that One Valley satisfied Flying A, Inc.'s, $100,000 loan obligation by enforcing its security interest in Stout's certificate of deposit. Thereafter, in March, 1993, and after the Albertazzies initiated their own bankruptcy proceedings, Stout filed Claim Number 20 against the Albertazzies' bankruptcy estate seeking to recover the $103,750 he was required to pay for satisfaction of Flying A, Inc.'s, $100,000 loan. The bankruptcy court denied Stout's claim insofar as he sought complete indemnification from the Albertazzies, and determined that Stout was "entitled to contribution from Albertazzie in the sum of one-half of the amount paid by Stout under his surety agreement." In rendering its decision, the bankruptcy court relied upon the language of W. Va.Code § 45-1-6 (1923) (Repl.Vol.1997), which explains "[c]ontribution among cosureties and coguarantors" as follows:

If the principal debtor be insolvent, any surety or guarantor (or his [or her] committee, personal representative or heir) against whom a judgment or decree has been rendered on the contract in which he [or she] was surety or guarantor, may obtain a judgment or decree by motion, in the court in which such judgment or decree was rendered, against any cosurety or coguarantor (or his [or her] committee, personal representative or heir) for his [or her] share, in law or equity, of the amount for which the first-mentioned judgment or decree may have been rendered; and if the same has been paid, for such share of the amount so paid, with interest thereon from the time of such payment.

The court reasoned that although Stout signed as surety and Albertazzie signed as guarantor, their liability under the contract was identical because the terms "surety" and "guarantor" are often interchanged and because the only difference between the two terms pertains to procedures for suit and notice requirements to which the parties are entitled, rather than the extent or nature of their liability. Stout appealed this ruling to the district court which, as is noted in greater detail below, deferred ruling until this Court resolves the legal question presented herein.

The second and third claims being appealed in the district court both arose from a promissory note in the amount of $650,000 payable to One Valley that was executed by Flying A, Inc., on July 16, 1991. The promissory note provided that it "shall become effective only in the event that Letter of Credit # 84 issued in favor of Borrower is drawn upon by Dana Commercial Credit Corporation" [hereinafter "Dana"].⁵ The note listed Flying A, Inc., as the borrower, which again signed the obligation by its President, Albertazzie. Under the note's guaranty section appeared the personal signatures of Albertazzie, Stout and John D. Lowe, Jr. [hereinafter "Lowe"].⁶ In addition, the note was secured by a first deed of trust on real estate jointly owned by Stout and his wife, and Lowe and his wife.

Dana ultimately "drew upon" the letter of credit and, as with the $100,000 loan, Flying A, Inc., defaulted upon the $650,000 note. After Flying A, Inc.'s, default, the promissory note securing the letter of credit was paid by Stout and Lowe. Consequently, Stout and Lowe each filed claims⁷ against the bankruptcy estate of the Albertazzies seeking reimbursement of the full $650,000 expended in satisfaction of Flying A, Inc.'s, promissory note debt.⁸ For the same reasons it partially denied Stout's claim for $103,750, the bankruptcy court rejected, in part, Stout's and Lowe's claims for a $650,000 recovery from the Albertazzies, finding instead that "Albertazzie is liable [only] for his one-third share of the sum paid by Stout and Lowe on the note." The court observed that:

Claims Nos. [sic] 27 and 30 are even more evident as to the legal relationship of the parties. On this note, Ralph Albertazzie, Edward E. Stout, Jr. and John D. Lowe, Jr. have all signed as guarantors. Although it is stipulated that the security was placed by Stout and Lowe, it is of no consequence. Assuming there had been no security, Stout and Lowe could have paid off the note to the bank and have demanded an equal contribution from Albertazzie.

Stout and Lowe appealed this ruling to the district court, which concluded that a determination of whether Stout and Lowe were entitled to the relief sought required clarification of the law of West Virginia by this Court. Accordingly, the district court deferred ruling and certified the following question for this Court's resolution:

Does West Virginia, by statute or common law, recognize the doctrine of subsurety, to the extent that the equities of the situation may require one of two sureties to be liable for the entire loss caused by the default of the principal, negating the usual pro rata indemnification of cosurety?

II. STANDARD OF REVIEW

We recently held that "[a] de novo standard is applied by this Court in addressing the legal issues presented by a certified question from a federal district or appellate court." Light v. Allstate Ins. Co., 203 W.Va. 27, 506 S.E.2d 64 (1998).

III. DISCUSSION

The contention asserted by the plaintiffs, Stout and Lowe, is that they should be permitted to recover the full amount of the sums they paid to cure Flying A, Inc.'s, indebtedness to One Valley. They urge this Court to adopt the principle of subsuretyship wherein Stout and Lowe would be subsureties, with subordinate responsibility for Flying A, Inc.'s, indebtedness, and Albertazzie would be the primary surety who, as among the various sureties, is ultimately responsible for the satisfaction of Flying A, Inc.'s, financial obligations. Stout and Lowe maintain that the principle of subsuretyship is not contrary to either the statutory or the common law of this State.

First, Stout and Lowe suggest that W. Va.Code § 45-1-6, the statute relied upon by the bankruptcy court, is not activated with regard to their claims because it requires a judgment against the surety or guarantor seeking contribution⁹ and One Valley did not obtain a judgment against Stout or Lowe. Stout further contends that W. Va.Code § 45-1-6 does not govern his claim for reimbursement of the $100,000 he expended on Flying A, Inc.'s, behalf because the statute contemplates multiple guarantors or sureties. As there existed only one guarantor (Albertazzie) and one surety (Stout) with respect to this loan, Lowe argues, § 45-1-6 does not apply.

In the alternative, Stout...