Old Nat. Bank of Washington v. Seattle Smashers Corp.

• Decision Date: 21 February 1984
• Docket Number: No. 10979-1-I,10979-1-I
• Citation: 36 Wn.App. 688,676 P.2d 1034
• Parties: OLD NATIONAL BANK OF WASHINGTON, a National Banking Association, Respondent, v. SEATTLE SMASHERS CORPORATION, a Washington corporation, Defendant, Lorrin Carl, Appellant, and Jane Doe Carl, husband and wife, Defendant, John Conte, Jr., Appellant, and Mary Louise Conte, husband and wife, Defendant, Harold Sapiro, Appellant, and Katheryn J. Sapiro, husband and wife; Wayne A. Gardner and Suyiko Gardner, husband and wife, Defendants, Robert Shaw, Appellant, and Jane Doe Shaw, husband and wife; and Zaid A. Aziz and Jane Doe Aziz, husband and wife, Defendants.
• Court: Washington Court of Appeals

Page 688

36 Wn.App. 688

676 P.2d 1034

OLD NATIONAL BANK OF WASHINGTON, a National Banking Association, Respondent, v. SEATTLE SMASHERS CORPORATION, a Washington corporation, Defendant Lorrin Carl, Appellant and Jane Doe Carl, husband and wife, Defendant John Conte, Jr., Appellant and Mary Louise Conte, husband and wife, Defendant, Harold Sapiro, Appellant, and Katheryn J. Sapiro, husband and wife; Wayne A. Gardner and Suyiko Gardner, husband and wife, Defendants, Robert Shaw, Appellant, and Jane Doe Shaw, husband and wife; and Zaid A. Aziz and Jane Doe Aziz, husband and wife, Defendants.

No. 10979-1-I.

Court of Appeals of Washington, Division 1.

Feb. 21, 1984.

David A. Williams, Bellevue, for appellants.

Diamond & Sylvester, Craig Sternberg, S. Randall Johnson, Seattle, for respondent.

SCHOLFIELD, Judge.

Carl, Conte, Shaw and Sapiro (hereafter "guarantors") appeal a summary judgment granted respondent Old National Bank (ONB) against them individually and their marital communities in the amount of $36,813.22, plus interest and attorney's fees.

In 1978, the guarantors all signed continuing guaranties to secure loans from ONB to the Seattle Smashers Corporation (hereafter "Corporation"). The guarantors were at the time members of the Corporation's board of directors. The guaranties applied to "any loans, discounts, advances or other credits, whether secured or unsecured, and any modifications, renewals or extensions of any existing or future indebtedness" incurred by the Corporation. The guaranties also provided The undersigned agree that the Bank, its endorsees or assignees, may grant extensions, receive or surrender securities, accept compositions, grant releases and discharges and otherwise deal with the Customer and with other parties and securities as it or they may see fit ...

* * *

This shall be a continuing guaranty, and shall cover all liabilities of the Customer to the Bank until the undersigned, or the executors or administrators of the undersigned, shall have given the Bank notice in writing to extend no further credit on the security of this guaranty; but such notice shall not affect the liability of the undersigned on any transactions covered by this guaranty entered into before actual receipt of such written notice by the Bank.

ONB subsequently advanced the Corporation $40,000 in return for a 90-day promissory note dated July 3, 1978. On November 17, 1978, the note was renewed with another 90-day note.

The Corporation then applied for a loan from the Small Business Administration (SBA). The SBA required as a condition of the loan that all bank debt be extended or "termed" over a period of 5 years. At a special meeting of the board of directors on March 8, 1979, the extension of the ONB loan was briefly discussed. The four guarantors were present at the meeting. Later that day, they resigned from the board of directors.

On March 13, 1979, ONB notified the SBA that it was agreeing to amortize its loan to the Corporation over a 5-year period. On April 6, 1979, the guarantors delivered a letter to ONB advising the bank "not to extend further credit to the Seattle Smashers based on the security of any guaranty, or guarantees" executed by them. Ten days later, on April 16, 1979, ONB accepted a new promissory note executed by the Corporation in the amount of $40,000, requiring repayment over 5 years.

ONB brought suit to recover on the April 1979 note against both the Corporation and the guarantors. The guarantors and ONB moved for summary judgment. The trial judge granted ONB's motion, and judgment was entered on November 5, 1981.

The guarantors contend that the extension of time for payment of the note, occurring after revocation of their guaranty, was a material modification of the obligation without their consent and therefore discharged their obligation to guarantee payment.

Extending the time of payment without consent of the surety operates to discharge the surety. J.R. Watkins Co. v. Brund, 160 Wash. 183, 189, 294 P. 1024 (1931); Lincoln v. Transamerica Inv. Corp., 89 Wash.2d 571, 574, 573 P.2d 1316 (1978).

The guarantor, however, is not released if he consents to the extension of time. Lincoln v. Transamerica Inv. Corp., supra at 574, 573 P.2d 1316.

To determine the intent of the parties, the language of a guaranty agreement should receive a fair and reasonable interpretation reflecting the purpose of the agreement and the right of the guarantor not to have his obligation enlarged. Hansen Serv., Inc. v. Lunn, 155 Wash. 182, 189, 283 P. 695 (1930). If the language employed is equally susceptible of two or more meanings, it should be construed against the party using the ambiguous language. Seattle-First Nat'l Bank v. Hawk, 17 Wash.App. 251, 256, 562 P.2d 260 (1977).

The language of the guaranty is determinative of the issue in this case.

ONB's right to extend the time of payment was a condition exacted from the guarantors before any loan was made to the Corporation. The guarantors promised to pay "all loans, discounts or advances which have been made or which may hereafter be...