Medley v. SouthTrust Bank of the Quad Cities

• Decision Date: 12 December 1986
• Citation: 500 So.2d 1075
• Parties: Oscar MEDLEY v. SOUTHTRUST BANK OF THE QUAD CITIES. 85-729.
• Court: Alabama Supreme Court

Page 1075

500 So.2d 1075

Oscar MEDLEY v. SOUTHTRUST BANK OF THE QUAD CITIES.

85-729.

Supreme Court of Alabama.

Dec. 12, 1986.

J.A. Dardess, Sheffield, for appellant.

John D. Clement, Jr., Tuscumbia, for appellee.

JONES, Justice.

This case involves a suit on a guaranty agreement. We affirm in part and reverse in part.

SouthTrust Bank of the Quad Cities sued Oscar Medley on a guaranty contract executed by him to Muscle Shoals National Bank (now SouthTrust) on May 2, 1979, guaranteeing the debts of his son, Roy Medley, d/b/a Medley & Company. This case was instituted as a result of Medley & Company's default under the terms of several promissory notes, which are allegedly covered by the guaranty agreement executed by Oscar Medley. The guaranty agreement is an absolute, continuing guaranty which, by its terms, can be revoked only by written notice to the bank.

The facts are as follows: In 1971, Roy Medley formed a sole proprietorship called Medley & Company. Muscle Shoals National Bank made loans to Medley & Company. On May 2, 1979, Oscar Medley Roy's father, executed to Muscle Shoals National Bank an agreement guaranteeing the debts of Roy Medley, d/b/a Medley & Company. The bank continued making loans to the business.

On January 1, 1981, Roy Medley formed a partnership with James M. Thompson. During the latter part of 1981, Muscle Shoals National Bank merged with Southern Bank of Lauderdale County, and the name of the bank was changed to SouthTrust Bank of the Quad Cities. Thereafter, the partnership (under the name Medley & Company) had the old debts of Medley & Company, owed to Muscle Shoals National Bank (now SouthTrust), refinanced.

In April 1983, when the partnership was terminated, Roy Medley and James Thompson agreed that Roy would assume all liabilities of the partnership. Shortly thereafter, all notes of Medley & Company owed to SouthTrust were consolidated into one note. It is this note and three others, all loans to Medley & Company, executed during the years 1983 and 1984, that are the subject of this action.

Throughout the collection proceedings, Oscar Medley (hereinafter referred to as Medley) has maintained that he has no recollection of executing the guaranty agreement, although he acknowledges that the signature on the document is his own. He defends on the grounds of fraud, estoppel, novation, failure of consideration, release, and statute of limitations. Further, he counterclaimed against SouthTrust for misrepresentation, arguing that the bank had a duty to disclose the nature of the instrument and that, because of the bank's failure to properly advise him, he was misled into signing the document. This counterclaim was disposed of by summary judgment in favor of SouthTrust.

Medley filed a motion for summary judgment, contending that the guaranty agreement was void for lack of consideration. The trial court denied Medley's motion. After a trial, the trial court directed a verdict in favor of SouthTrust and against Medley.

From the final judgment, embracing these three rulings, Oscar Medley appeals.

MEDLEY'S LACK OF CONSIDERATION CLAIM

Medley submits that the guaranty agreement sued upon is void for lack of consideration and, thus, that the trial court erred by not granting his motion for summary judgment or, in the alternative, his motion for a directed verdict. Medley contends that there is no consideration because the guaranty sued upon 1) included pre-existing debts, 2) was not made contemporaneously with any loan, and 3) contained no expression of new valuable consideration. SouthTrust, on the other hand, argues that its promise of future advances constitutes sufficient consideration.

That portion of the guaranty agreement here contested contains the following language:

"WHEREAS, the undersigned (if more than one, the undersigned jointly and severally) have requested THE MUSCLE SHOALS NATIONAL BANK (hereinafter referred to as the Bank) to extend credit from time to time to

Roy D. Medley d/b/a Medley & Co.

(hereinafter referred to as the debtor), and have agreed to guarantee the payment when due of all such credits, and also of all other indebtedness of every kind and character now or at any time hereafter (before revocation hereof) owing by the debtor to the Bank; and

"WHEREAS, the Bank is willing to extend such credit to the debtor from time to time as, in the Bank's discretion, is prudent and wise, provided this instrument of guaranty is executed to the Bank.

"NOW, THEREFORE, in consideration of the premises, and in order to induce the Bank to extend to the debtor from time to time in the future as requested by the debtor, such loans, extensions of loans and forbearances as to the Bank may seem prudent and wise, the undersigned (if more than one, the undersigned jointly and severally) guarantee(s) the prompt payment on demand of the principal of and interest on any indebtedness of the debtor now, or at any time hereafter, outstanding, and any and all renewals thereof, together with all costs of collection, including a reasonable attorney's fee, as may be provided for in the face of any and all notes heretofore taken, or hereafter executed by the debtor, evidencing any such indebtedness, or any part thereof."

It is true that when someone not a party to the original transaction signs an instrument as guarantor after the original contract has been duly executed and delivered, without agreement at the time of the execution of the original contract that additional security would be furnished, he is entering a new and independent contract; and, to be binding, this agreement must be supported by consideration, independent of the original contract. Clark v. McGinn, 268 Ala. 252, 255, 105 So.2d 668, 671 (1958).

When dealing with a guarantee of a pre-existing debt, consideration is essential to sustain the obligation. Zadek v. Forcheimer, 16 Ala.App. 347, 348, 77 So. 941 (1918). In the instant case, however, the guaranty agreement is not limited solely to pre-existing debts. Rather, it covers the "indebtedness of debtor now, or at any time hereafter, ... and any and all renewals thereof...." In other words, Medley agreed to guarantee all of his son's past and future indebtedness to SouthTrust.

This Court has repeatedly held that the promise of extension of credit in the future to the principal debtor is good consideration in a guaranty contract. Colonial Bank of Alabama v. Coker, 482 So.2d 286, 291-92 (Ala.1985); Scharnagel v. Furst, 215 Ala. 528, 531, 112 So. 102 (1927); Lefkovits v. First National Bank of Gadsden, 152 Ala. 521, 530, 44 So. 613 (1907).

It is well established that when the terms of a contract are unambiguous, the contract's construction and legal effect become a question of law for the court, and, when appropriate, may be decided by summary judgment. Colonial Bank of Alabama v. Coker, 482 So.2d 286, 291 (Ala.1985). The contract at issue here is not ambiguous insofar as the issue of consideration is concerned, nor has any such allegation been made. The contention that there was no consideration has been disproved by the undisputed fact that SouthTrust subsequently made loans to Medley & Company (from May 1979 through the end of 1979), as contemplated by the guaranty agreement.

In reviewing the evidence available to the trial court when the motion for summary judgment was denied ( Ex parte Bagby Elevator & Electric Co., 383 So.2d 173 (Ala.1980)), we cannot say the trial court erred in denying Medley's motion for summary judgment. The promise of future extension of credit is good and valid consideration; thus, the guaranty agreement was not void for lack of consideration.

THE MISREPRESENTATION CLAIM

Medley asserts the trial court erred in granting summary judgment on behalf of SouthTrust, on his counterclaim. That counterclaim was premised on allegations of fraud. Medley cites § 6-5-102 for the proposition that the suppression of a material fact is fraud, if the confidential relationship of the parties mandates disclosure of the material fact which was suppressed. He claims that SouthTrust, using its trust position in relation to him, breached its duty to make full disclosure, inducing him to sign the guaranty sued upon through concealment, misrepresentations, and suppression of material facts.

The guaranty contract here contested was in writing and signed by Medley. "The general rule of contract law is that when parties reduce their agreements to writing, the writing is the sole expositor of the transaction and the intention of the parties, in the absence of mistake or fraud or ambiguity." Gunnels v. Jimmerson 331 So.2d 247, 250 (Ala.1976). See, also, Whitehead v. Johnston, 467 So.2d 240, 243 (Ala.1985); Sanders v. Sanders, 425 So.2d 476, 478 (Ala.Civ.App.1983). "[O]ne who has executed a written contract in ignorance of its contents cannot set up that ignorance to avoid the obligation absent fraud or misrepresentation." Waldrep v. Nosrat, 426 So.2d 822, 824 (Ala.1983). See also, Gunnels v. Jimmerson, supra, at 250. Specifically, with regard to guaranty contracts, it has been held that the guarantor's claimed ignorance of the contents of a written guaranty contract executed by him in no way avoids his obligation thereunder in the absence of fraud or misrepresentation. Reichhold Chemicals, Inc. v. Replex Corp., 401 So.2d 96, 98 (Ala.Civ.App.1981).

Thus, Medley's claimed ignorance of the contents of the guaranty agreement will not excuse his obligation under the contract unless he can show fraud or misrepresentation. Medley contends that SouthTrust had a duty of disclosure because of a confidential relationship that existed between them. In Faith, Hope & Love, Inc. v. First Alabama Bank of Talladega Co., 496 So.2d 708 (Ala.1986), this Court restated the general principle that the relationship, between a bank and its customer is traditionally viewed as a creditor-debtor relationship which does not impose a fiduciary duty of disclosure on the bank.

...