R.F.C. v. Faulkner

• Decision Date: 01 July 1958
• Citation: 143 A.2d 403,101 N.H. 352
• Parties: RECONSTRUCTION FINANCE CORPORATION v. John C. FAULKNER et al.
• Court: New Hampshire Supreme Court

Page 403

143 A.2d 403

101 N.H. 352

RECONSTRUCTION FINANCE CORPORATION v. John C. FAULKNER et al.

Supreme Court of New Hampshire.

Argued May 6, 1958.

Decided July 1, 1958.

Howard B. Lane, Keene, McLane, Carleton, Graf, Greene, & Brown, Manchester, and Edward G. Griffin, Boston, Mass., Kenneth F. Graf, Manchester, orally, for plaintiff.

Faulkner, Plaut & Hanna and John R. Goodnow, Keene, George R. Hanna, Keene, orally, for defendants.

LAMPRON, Justice.

On October 26, 1951, the company executed two notes, each in the amount of $150,000, payable to the plaintiff according to certain terms therein specified. As security therefor the company executed a mortgage of its real estate, a chattel mortgage of machinery, equipment and other personal property located thereon, a factor's lien agreement covering work in process and other inventory items and an assignment of insurance policies insuring the life of its officers. As additional security each of the two principal stockholder-officers of the company and their wives signed identical guaranty agreements, except for a limitation of liability based on their respective stock holdings.

The notes having become in default the RFC foreclosed its real estate and chattel mortgages by sales held on August 11, 1954. The proceeds, $75,000 from the real estate and $133,915.12 from the personal property, were credited to the company's notes leaving a balance due of $65,410.71 sought to be recovered in these actions from the four guarantors.

The defendants admitted the execution and validity of the notes, the execution of the agreements of guaranty and the fact that all amounts of cash actually received by RFC have been credited on the company's notes. They denied however plaintiff's allegation that the company had received 'all credits which it is entitled to' and claimed instead that credits in a larger amount should have been made on these notes. Defendants maintain that the company was entitled to be credited with the fair value of its real estate and chattels at the time RFC foreclosed its mortgages thereon. This value they claim was sufficient to pay the company's indebtedness in full. They allege that the reason why the fair value was not realized on foreclosure was due to careless and negligent action or failure to act as well as to willful acts and failures to act by the plaintiff in relation thereto.

In other words defendants take the position that although by their agreements they guaranteed 'the due and punctual payment when due * * * of the principal of and interest on and all other sums payable' on these notes, there is nothing in their guaranty agreements which in any way released or waived their rights to the same credits on these notes as those to which the company is entitled. They maintain that if the company were credited with the amounts the property probably would have brought on foreclosure, if plaintiff had exercised due diligence and good faith, the company would owe RFC nothing and consequently neither would they.

The plaintiff's position is that the defendants by their agreements have expressly waived the defense based on the alleged negligent conduct of RFC which they now seek to assert. Also that defendants have failed to sustain the burden of proving their allegations of willful acts or failures to act by the plaintiff in the foreclosure of these mortgages. Further that 'adopting, arguendo the guarantors' theory that they should be allowed to set off the difference between the amount actually received and the amount which would have been received had the sale been conducted differently * * * [they] never proved that more would have been received at a different type of sale.' Hence plaintiff maintains the court was justified in directing verdicts for it.

By ruling of the Trial Court on motion of the plaintiff made before trial defendants were precluded from introducing evidence specifically in proof of their allegation that plaintiff was guilty of negligence in its actions or failures to act in the foreclosure of the mortgages in question. However defendants' counsel stated at the trial 'that our offer of proof on the negligence theory would be that which we are going to offer under the wilful theory anyway.'

Defendants maintain that the evidence introduced, taken most favorably to them, proved substantially the following: RFC caused the real estate to be sold as a whole as well as the machinery and equipment although it was generally known and it knew that piecemeal sale, at least of the machinery and equipment, would bring a larger price. Plaintiff did not employ a professional auctioneer to conduct the sales but relied instead on its local attorney in spite of the fact that it knew that a public auctioneer would get a better price. Even though it knew that advertising in newspapers and by mail would aid in securing a better price, RFC deliberately confined its conduct of the sales in question to the bare minimum requirements of the statute and intentionally conducted a sale in form only, merely for the purpose of obtaining legal title to the collateral, rather than one aimed at securing a reasonably price for it. Lastly that in spite of certain appraisals and recommendations to guide it as to what the amount of its top bids at the sales should be it deliberately set the amount of its high bid for the machinery and equipment at a lower figure than that recommended by its agent in the field.

The guaranty agreement executed by each defendant contained the following provisions. 'The undersigned hereby grants to * * * [RFC] full power, in its uncontrolled discretion and without notice to the undersigned, but subject to the provisions of any agreement between the Debtor or any other party and [RFC] at the time in force, to deal in any manner with * * * the collateral, including, but without limiting the generality of the foregoing, the following powers:

'* * * e) In the event of the nonpayment when due * * * of any of the Liabilities * * * to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interest as [RFC] may elect, at any public or private sale or sales * * * without demand, advertisement or notice of the time or place of sale or any adjournment thereof (the undersigned hereby waiving any such demand, advertisement and notice to the extent permitted by law), or by foreclosure or otherwise, or to forbear from realizing thereon, all as [RFC] in its uncontrolled discretion may deem proper, and to purchase all or any part of the collateral for its own account at any such sale or foreclosure, such powers to be exercised only to the extent permitted by law.

'The obligations of the undersigned hereunder shall not be released, discharged or in any way affected, nor shall the undersigned have any rights or recourse against [RFC] by reason of any action the corporation may take or omit to take under the foregoing powers.'

The extent of a guarantor's liability depends upon the terms of his contract. Lavigne v. Lavigne, 87 N.H. 223, 225, 176 A. 282. His obligation is that which the fair import of the language imposes upon him. Brown Durrell Co. v. Belisle, 83 N.H. 516, 144 A. 786. The construction to be placed on the agreement presents the question of what the parties meant by the words they employed. Newcomb v. Ray, 99 N.H. 463, 465, 114 A.2d 882.

We are of the opinion that the fair import (Simons v. Steele, 36 N.H. 73, 80; Brown Durrell Co. v. Belisle, supra) of the language used is that the parties intended that the powers and waivers enumerated in the agreement were to bind the parties unless the law prevented or unless other documents, such as the notes and mortgages were inconsistent therewith. The notes executed by the company contained provisions similar to those found in the guaranty agreements. Certain of these in effect incorporated in the notes the 'covenants and conditions' contained in the guaranties. The notes further provided that the maker empowered the plaintiff to sell 'the whole or any part of the collateral, at public or private sale, without * * * notice * * *.'

The plaintiff elected to 'realize on the collateral * * * by foreclosure,' a power specifically granted by paragraph e) of the guaranties, and to follow the requirements of the mortgages and statutes in so doing. The real estate mortgage provided that 'Upon any default * * * the mortgagee may sell the said property * * * either as a whole or in parcels * * * at public auction * * * without notice or demand, except first publishing a notice of the time and place of sale once a week for three successive weeks in some one newspaper published in the County of Cheshire and by sending, by registered mail, addressed to the mortgagor * * * a copy of said printed notice, the said notice to the mortgagor and the first publication of said notice to be at least twenty-one days before the date of sale.' The chattel mortgage provided that 'upon default * * * the Mortgagee * * * may, subject to any provisions of law governing the foreclosure of chattel mortgages, sell any or all of said personal property at public auction, first giving five days' notice in writing of the time and place of sale to the mortgagor * * * or by publishing such notice once a week for three successive weeks in some one newspaper published in or having a general circulation in said Keene.' Both mortgages provided that the mortgagee 'may purchase at any sale * * * made as aforesaid.'

The statutory requirements pertaining to the foreclosure of real estate mortgages under power of sale (RSA 479:25) and of chattel mortgages (RSA 360:28) were complied with by the plaintiff as were the conditions set out in the mortgages. 'So far as the power itself defines the details of notice and execution in addition to, or not inconsistent with, statutory requirements, and provides for a sale in compliance with them, such provisions constitute an agreement of liquidated...