Transamerica Commercial Finance Corp. v. Naef

• Decision Date: 30 November 1992
• Docket Number: No. 91-246,91-246
• Citation: 842 P.2d 539
• Parties: 21 UCC Rep.Serv.2d 704 TRANSAMERICA COMMERCIAL FINANCE CORPORATION, a Corporation, Appellant (Plaintiff), v. Linda NAEF, Appellee (Defendant).
• Court: Wyoming Supreme Court

Page 539

842 P.2d 539

21 UCC Rep.Serv.2d 704

TRANSAMERICA COMMERCIAL FINANCE CORPORATION, a Corporation, Appellant (Plaintiff), v. Linda NAEF, Appellee (Defendant).

No. 91-246.

Supreme Court of Wyoming.

Nov. 30, 1992.

Bret F. King and David Wallick (argued), of King & King, Jackson, for appellant.

Kenneth S. Cohen (argued), Jackson, for appellee.

Before MACY, C.J., and THOMAS, CARDINE, URBIGKIT ^* and GOLDEN, JJ.

CARDINE, Justice.

Appellant Transamerica Commercial Finance Corporation (Transamerica) seeks to recover from appellee Linda Naef sums due under a promissory note she and her husband signed in an attempt to save his business. Since we agree with the trial court that no consideration was given for Mrs. Naef's signature on either the note or the loan guarantee she signed, and since Mrs. Naef cannot be considered an accommodation party on either document or a co-maker on the note, we affirm the trial court's judgment for appellee and dismissal of Transamerica's complaint.

Appellant states the issues as follows:

I. Whether the district court committed reversible error by not giving effect to the plain language of the guaranty and waiver, executed on October 20, 1989, by the appellee Linda Naef.

II. Whether the district court committed reversible error by refusing to apply the law of accommodation parties.

III. Whether the district court's factual finding that appellee Linda Naef was not part of the "original transaction" was contrary to the great weight of the evidence.

Richard Naef owned a snowmobile repair facility called Teton Power Products. In March or April of 1988, he purchased Weeks Motor Sports, a snowmobile dealership, from Ray Weeks. As part of the sale, Ray Weeks agreed to transfer to Mr. Naef his right to sell Yamaha and Polaris snowmobiles and to assist Mr. Naef in getting the franchise agreements with Yamaha and Polaris transferred to Mr. Naef.

Rich Poll, a Polaris representative, told Mr. Naef that it would be very difficult to get the Polaris franchise transferred immediately. He recommended that Mr. Naef operate the franchise he had purchased under the Weeks Motor Sports name for awhile until he had established a "proven track record." Mr. Naef did so, prosperously, from the spring of 1988 until the summer of 1989.

In April of 1989, Mr. Naef was given forms to fill out for a Polaris franchise. These forms included paperwork for financing snowmobile purchases through Transamerica. ¹ He applied for a franchise in May in the name of Teton Power Products. Mr. Poll told him during the summer that "everything looked pretty good" and "approval was there."

In June 1989, Teton Power Products reaffirmed Weeks Motor Sports' previous order of close to one hundred snow machines. These machines were financed by Transamerica. They began arriving in August 1989.

Richard Naef married Linda Naef on September 29, 1989. Linda Naef testified that she was not aware that Mr. Naef owned Teton Power Products when they married. On October 20, 1989, Rich Poll brought the documents for the Polaris franchise for Richard Naef to sign. Richard Naef mentioned to Mr. Poll that he had recently married. Mr. Poll told Mr. Naef that it was "absolutely necessary" for Mrs. Naef, as well as himself, to sign the dealership agreement. Both Richard and Linda Naef signed a loan guaranty making each of them personally liable for moneys Transamerica advanced to Teton Power Products.

The terms of Teton Power's agreement with Transamerica required Teton Power to remit the amount owed on each snowmobile when it was sold. The managers Richard Naef hired to run his business sold several snowmobiles for Christmas delivery but did not remit the moneys they received into an account Mr. Naef had established for paying Transamerica. As a result, two checks written from that account to Transamerica were returned for insufficient funds. By borrowing money, Richard and Linda Naef were able to cover most of what was due Transamerica. In order to keep the business open, they both signed a promissory note payable to Transamerica for around $41,000.00. Mr. Wood, a manager for Transamerica, told the Naefs that it was "imperative" that Mrs. Naef sign the promissory note in addition to Mr. Naef.

The next day, after inducing Linda to sign a note to keep the business open, Transamerica repossessed the remaining snowmobiles in Teton Power Products' inventory, thus closing out the business. Mr. Wood called Polaris and told them what he had done; as a result, Polaris canceled Teton Power's franchise. Teton Power Products went out of business. The note to Transamerica remained mostly unpaid.

On June 12, 1990, Transamerica sued Teton Power Products, Richard Naef and Linda Naef for the amounts still due on the note, plus interest due, and for unpaid interest due under the original security agreement. Both Teton Power Products and Richard Naef filed for bankruptcy protection shortly thereafter. Transamerica continued its action against Linda Naef. After a trial on the merits, the trial court determined that Linda Naef was not a part of the original transaction between Teton Power Products and Transamerica. Her signatures on the promissory note and guaranty were not supported by separate consideration and could not therefore be enforced against her. The trial court gave judgment for Linda Naef and dismissed Transamerica's complaint against her. Transamerica took timely appeal.

Our standard of review of a trial court's decision is well known:

The trial court's findings of fact are presumed to be correct, and an appellate court shall not disturb them unless they are inconsistent with the evidence, clearly erroneous, or contrary to the great weight of the evidence. On questions of law, an appellate court accords no special deference to, nor is it bound by the trial court's decision. However, if the trial court's judgment is sustainable on any legal ground or theory appearing in the record, an appellate court must affirm that judgment, even if the legal ground or theory articulated by the trial court as sustaining the judgment is incorrect.

City of Laramie v. Hysong, 808 P.2d 199, 202 (Wyo.1991).

The trial court based its holding on Moorcroft State Bank v. Morel, 701 P.2d 1159 (Wyo.1985). In Moorcroft, two employees borrowed money from a bank. Eight days later, the bank president persuaded Morel, their employer, to guarantee their obligation. The original loan to the employees was not made subject to receiving Morel's guarantee. Furthermore, Morel had no other obligation to sign the guarantee. In affirming judgment for Morel in the bank's suit against him on the guaranty, we said the following:

In this circumstance, it is necessary that there be a separate consideration flowing from the bank to Morel to support and create a valid contract of guaranty between the parties. * * * Simply stated, at the time the bank sought Morel's guaranty, it conferred no benefit upon Morel nor did it suffer any detriment.

The law of guaranty is part of general contract law. When the guarantor is not a part of the original transaction of the principal obligor, his promise must be supported by separate consideration. 38 Am.Jur.2d Guaranty § 45. A naked promise is not sufficient. Consideration is one of the basic elements of a contract. The burden of proving consideration is on the one seeking to recover on the contract. Miller v. Miller, Wyo., 664 P.2d 39 (1983).

Moorcroft, 701 P.2d at 1161.

Although the trial court found that no consideration passed to Linda Naef for her signature on the guaranty or on the promissory note, Transamerica argues that the rule in Moorcroft does not apply to this case. Transamerica contends that the guaranty Linda Naef signed was part of the "original transaction" which created the debt. It also argues that Linda Naef was an accommodation party, and therefore independent consideration to her for her signature was not required. We shall address each of these arguments separately.

The rule in Moorcroft only applies where the guarantor was not a part of the original transaction of the obligor. Otherwise, the original transaction itself supplies the necessary consideration. See, e.g., Herschel Arant, Arant on Suretyship 71 (1931). Transamerica argues that the original transaction took place on October 20, 1989, when Richard Naef signed the dealership papers and he and Linda Naef signed the loan guarantee. Our review of the record convinces us otherwise. Black's Law Dictionary 1496 (6th ed. 1990) defines "transaction" as follows:

Act of transacting or conducting any business; between two or more persons; negotiation; that which is done; an affair. An act, agreement, or several acts or agreements between or among parties whereby a cause of action or alteration of legal rights occur. Miles v. Starks, Tex.Civ.App., 590 S.W.2d 223, 227. It may involve selling, leasing, borrowing, mortgaging or lending. Something which has taken place, whereby a cause of action has arisen. It must therefore consist of an act or agreement, or several acts or agreements having some connection with each other, in which more than one person is concerned, and by which the legal relations of such persons between themselves are altered. It is a broader term than "contract."

The transaction in question here was the extension of credit to acquire snowmobiles. By Richard Naef's testimony, this transaction came into being sometime in the summer of 1989. In June of that year, Mr. Naef reaffirmed the order placed earlier by Weeks Motor Sports. The first shipment of snowmobiles occurred in August or early September 1989. Regardless of whether these snowmobiles were delivered in the name of Weeks Motor Sports or Teton Power Products, the transaction which resulted in the guaranty and note began with the credit Transamerica extended beginning in the summer of 1989. This transaction predated Mrs. Naef's signature on the guaranty and note by several months. She...