Port Distributing Corp. v. Pflaumer

• Decision Date: 21 March 1995
• Docket Number: No. 92 Civ. 5514 (LAP).,92 Civ. 5514 (LAP).
• Citation: 880 F. Supp. 204
• Parties: PORT DISTRIBUTING CORP., Plaintiff, v. William PFLAUMER, Defendant.
• Court: U.S. District Court — Southern District of New York

880 F. Supp. 204

PORT DISTRIBUTING CORP., Plaintiff, v. William PFLAUMER, Defendant.

No. 92 Civ. 5514 (LAP).

United States District Court, S.D. New York.

March 21, 1995.

Roy A. McKenzie, New York City, for plaintiff.

Gregg J. Borri, New York City, Alan Klein, Mark J. Rosen, Cohen, Shapiro, Polisher, Shiekman and Cohen, Philadelphia, PA, for defendant.

MEMORANDUM AND ORDER

PRESKA, District Judge.

Plaintiff, Port Distributing Corp. ("Port"), brought this action to compel payment of $560,000.00, together with 19% interest from October 1, 1991 based upon a guaranty executed by the defendant, William Pflaumer ("Pflaumer"). Port has moved for summary judgment. Defendant opposes this motion and has cross-moved for summary judgment, arguing that Port impaired the collateral that secured the guaranteed obligation, thereby discharging the guarantor. Upon reviewing the record and the parties' submissions, I find defendant's arguments persuasive and conclude that Port's actions, in fact, have discharged Pflaumer. Plaintiff's motion for summary judgment, therefore, is denied; defendant's cross-motion is granted.

BACKGROUND

Port, a New York corporation, is a wholesale beer distributor. As of October 3, 1989, Port possessed certain distribution rights in the distribution of malt beverages made by the G. Heileman Brewing Co., Inc. ("Heileman") in the New York metropolitan area. It had acquired these rights pursuant to an earlier agreement with Heileman. On October 3, 1989, Port entered into a Purchase and Sale Agreement with Heileman essentially to sell back these distribution rights. The price of the distribution rights was $500,000.00.¹

The Purchase and Sale Agreement directed that the $500,000.00 purchase price be paid as follows:

(a) On the Closing Date, Purchaser shall deliver the following ...:

(ii)(A) a non-interest bearing promissory note to the order of Seller in the aggregate amount of $500,000.00 in the form set forth in Exhibit A representing the Purchase Price in respect of the Distribution Rights and (B) a non-interest bearing note to the order of H. Dieter Holterbosch in the aggregate amount of $200,000.00 in the form set forth in Exhibit B representing the amounts due in respect of the Non-Compete Agreement (collectively the "Deferred Payment Notes").

(Affidavit of Gregg J. Borri in Opposition to Plaintiff's Motion for Summary Judgment ("Borri Aff."), Exh. A.)

On October 3, 1989, Heileman duly signed two non-interest-bearing promissory notes in accordance with this provision. The first, in the amount of $500,000.00, carries on its face the following guaranty:

The undersigned, William P. Pflaumer, individually, and Midway Beverage Corp., jointly and severally, hereby unconditionally and irrevocably guarantee the obligations of G. Heileman Brewing Co., Inc. under this Note.

(Borri Aff., Exh. A.) The second promissory note in the amount of $200,000.00 carries an identical guaranty. (Id.)

Contemporaneously with the Purchase and Sale Agreement and the Notes, Port and Heileman executed a Security Agreement, under which Heileman granted Port a first priority security interest in the distribution rights that Heileman was acquiring. This interest secured Heileman's obligations under the Deferred Payment Notes.

On November 2, 1989, Holterbosch and Port filed a UCC-1 financing statement with the City Register — Kings County, claiming a security interest in "All of Debtor's right, title and interest in and to the Assets and Distribution Rights described in the Purchase and Sale Agreement dated October 3, 1989 among Debtor and Secured Parties." On November 13, 1989, Port and Holterbosch filed a substantially identical UCC-1 with the Nassau County Clerk.

Approximately fourteen months later, on January 24, 1991, Heileman petitioned for protection under Chapter 11 of the Bankruptcy Code. On January 28, 1991, the United States Trustee's Office sent a letter to all of Heileman's known creditors, including Port and Pflaumer, advising of the formation of a creditors' committee. Port filed proofs of claim in the amount of $500,000.00; Holterbosch filed a proof of claim in the amount of $60,000.00² Both documents alleged that the claims were "secured," "priority" claims. Pflaumer evidently did not file a proof of claim in the Bankruptcy proceeding.

On or about October 1, 1991, the attorneys for Heileman sent Port notice of a security agreement between Heileman and First National Bank of Boston ("First National") dated June 30, 1988. Counsel claimed that this security agreement constituted a pre-existing lien covering the distribution rights. Thereafter, because of First National's priority, Port and Holterbosch stipulated to a reduction in their claims and treatment as unsecured creditors in the bankruptcy proceedings. These stipulations were "So Ordered" by the Bankruptcy Court on June 22, 1991. Lacking recourse against the collateral, Port then filed this action, pursuing its claim against Pflaumer as guarantor.

DISCUSSION

Under Rule 56(c), summary judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.

Fed.R.Civ.P. 56(c); see Anderson v. Liberty Lobby, 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

The moving party has the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrates the absence of a genuine issue of material fact." Celotex Corp v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The substantive law determines which facts are material to the outcome of a particular litigation. See Anderson, 477 U.S. at 250, 106 S.Ct. at 2511; Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir.1975). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986) (citing U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)).

If the moving party meets its burden, the burden then shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(e). The non-moving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356. Only when it is apparent, however, that no rational finder of fact "could find in favor of the non-moving party because the evidence to support its case is so slight" should summary judgment be granted. Gallo v. Prudential Residential Services, Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994).

The plaintiff in this case would have me first look solely at the promissory notes and accompanying guarantees, and then enforce Port's claim against Pflaumer in accordance with those documents' evident terms. The plaintiff points to the parol evidence rule as the rationale for this position. Although plaintiff's position would simplify the case significantly, the argument fails for two reasons.

First, the parol evidence rule does not bar evidence of contemporaneous written agreements. Under N.Y.U.C.C. § 2-202,³ the terms of a written agreement may not be contradicted by a prior written agreement or by prior or contemporaneous oral agreement. The Security Agreement concerning Port's security interest in the distribution rights was executed at the same time as the Purchase and Sale Agreement, the promissory notes and the guarantees. All of these documents, therefore, properly are before the Court in determining the enforceability of the guaranty.

Second, with reference to the particular context of this transaction, a principal contract and a guaranty are considered as one for the purposes of interpretation where the guaranty is made at the time the principal contract is executed.⁴ See Components Direct Inc. v. European American Bank, 175 A.D.2d 227, 572 N.Y.S.2d 359, 361 (2nd Dep't 1991). This interpretive principle is wellsettled; as long ago as 1912, the New York Court of Appeals held that, where a guaranty was made at the same time a contract of sale was entered into, the instruments would be construed together. See Catskill National Bank v. Dumary, 206 N.Y. 550, 100 N.E. 422 (1912); accord Hirsch v. Rifkin, 166 A.D.2d 293, 564 N.Y.S.2d 120 (1st Dep't 1990) (holding that three contemporaneously executed instruments, including a guaranty, must be viewed as interdependent).

In accordance with this long-standing rule, I must look at the parties' entire transaction, as embodied in the Purchase and Sale Agreement, the Security Agreement, and the Notes with their guarantees. Clearly, the reality of this transaction was a sale for consideration in the form of a promise to pay: Port attempted to protect its rights to collect on this promise first by acquiring a security interest in the distribution rights and then by obtaining Pflaumer's guaranty. The parties' obvious intent was that, upon Heileman's default, Port's first recourse would be to the collateral. To the extent the collateral proved inadequate to cover the obligation, Port then could look to Pflaumer to satisfy the shortfall.

It is a venerable principle in New York law that a creditor holding collateral security for an obligation that is guaranteed holds that collateral in trust for the guarantor, and must preserve it for the benefit of the guarantor. See The Merchant's Bank of Syracuse v. Comstock, 55 N.Y. 24 (1873). The reason for this rule is apparent — creditors may not shift unjustly the burden of a debt upon a guarantor. As one authority has observed:

A surety has an

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