Union Planters Nat. Bank of Memphis v. Markowitz

• Decision Date: 26 April 1979
• Docket Number: Civ. No. C-77-2645.
• Parties: UNION PLANTERS NATIONAL BANK OF MEMPHIS, Plaintiff, v. Ben MARKOWITZ and J. W. O'Donnell, Defendants.
• Court: U.S. District Court — Western District of Tennessee

468 F. Supp. 529

UNION PLANTERS NATIONAL BANK OF MEMPHIS, Plaintiff, v. Ben MARKOWITZ and J. W. O'Donnell, Defendants.

Civ. No. C-77-2645.

United States District Court, W. D. Tennessee, W. D.

February 14, 1979.

On Motion to Reconsider April 26, 1979.

COPYRIGHT MATERIAL OMITTED

Robert F. Miller, Patrick M. Ardis, Wildman, Harrold, Allen, Dixon & McDonnell, Memphis, Tenn., for plaintiff.

Robert C. Liddon, Jr., Heiskell, Donelson, Adams, Williams & Kirsch, Memphis, Tenn., for defendant Markowitz.

W. H. Fisher, III, Memphis, Tenn., for defendant O'Donnell.

Thomas P. Kanaday, Jr., Ellen K. Bronaugh, Farris, Warfield & Kanaday, Nashville, Tenn., for 3rd party defendant Kornman.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANT BEN MARKOWITZ

BAILEY BROWN, Chief Judge.

Plaintiff brought this diversity action seeking payment of $98,274.71 plus interest from defendants under the terms of a guaranty agreement. Plaintiff has moved for summary judgment as to defendant Ben Markowitz, and Ben Markowitz has filed a cross-motion for summary judgment.

In June 1964, Markowitz Brothers, Inc., a subcontractor involved in the installation of heating and plumbing, executed a promissory note to plaintiff in the amount of $600,000 plus six percent annual interest. On July 2, 1964, defendants, along with A. N. Kornman and I. D. Kuntz, signed a guaranty agreement jointly and severally guaranteeing the payment to plaintiff of all present and future debts owed to plaintiff by Markowitz Brothers. The agreement limited the liability of the guarantors to $600,000 plus interest. According to defendant Markowitz, Markowitz Brothers ceased doing business in 1968 after a decline in its financial position. As of December 4, 1967, bank records indicate that Markowitz Brothers had managed to pay off all but $102,962.21 on its original $600,000 indebtedness. Plaintiff subsequently received an additional $4,687.50 from Markowitz Brothers' accounts receivable, reducing the outstanding balance to $98,274.71. That is the amount of principal still allegedly due and owing. On March 7, 1974, Markowitz Brothers, Inc. executed a new promissory note in the amount of $98,274.71 plus 10 percent interest running from September 3, 1974. This promissory note stated that the 1964 guaranty was pledged as "collateral security" for payment of the note. Plaintiff contends that the 1964 guaranty agreement remains in full force and that defendant Markowitz is liable as a guarantor of the remaining debt. Defendant Markowitz raises four primary defenses to the assertion that he is liable as a guarantor: (1) plaintiff's claim is barred by the statute of limitations; (2) plaintiff's claim is barred by laches; (3) plaintiff's claim is barred because plaintiff negligently failed to perfect its security interest in assigned accounts receivable from Markowitz Brothers, failed to attempt collection of the debt from Markowitz Brothers before Markowitz Brothers ceased doing business, and failed to file claims against the estates of co-guarantors Kornman and Kuntz who have died since the demise of Markowitz Brothers; and (4) plaintiff's claim is barred due to material alterations in the terms of the original $600,000 promissory note. Unless one or more of these defenses is valid, plaintiff is entitled to summary judgment since there appear to be no disputed issues of material fact.

I. Statute of Limitations

Markowitz contends that the six-year statute of limitations provided by T.C.A. § 28-309 bars plaintiff's action. Markowitz reasons that the statute begins to run as soon as a cause of action against a guarantor accrues, and that the cause of action against him accrued when the principal obligation reached maturity without a renewal having been executed. Although Markowitz acknowledges that numerous renewals or extensions were executed, he points to one example where a renewal note matured by its terms on January 15, 1968 but was not renewed until March 15, 1968. He concludes that a cause of action thus accrued against him as of January 15, 1968, and that any action against him based on this debt of Markowitz Brothers was barred after January 15, 1974.

At the outset, it is important to point out that the statute of limitations does not apply to the guaranty agreement itself. By its terms, the guaranty was "continuing, absolute and unconditional" until terminated in writing by the guarantors and until all prior debts were fully paid. Furthermore, the mere existence of the guaranty does not give rise to a cause of action, but rather a cause of action against the guarantors accrues only as each obligation of the principal debtor becomes due. Thus the statute of limitations applies independently to each obligation that is guaranteed, and the six-year limitations period runs on each cause of action separately.

Even assuming that Markowitz is correct that a two-month delay in executing a renewal of the note that became due on January 15, 1968 created a cause of action against him as of that date, the most that can be said is that an action by plaintiff on the note of October 16, 1967 is barred by the statute of limitations. It is the law in Tennessee that execution of a new note acknowledging existing indebtedness waives the limitations period with respect to that indebtedness, so that a new limitations period begins to run from the time of the renewed note. First National Company v. Commissioner of Internal Revenue, 289 F.2d 861, 865 (6th Cir. 1961); Hannah and McCord v. Hawkins, 73 Tenn. 240, 243-244 (1880). Since a new promissory note was executed on March 7, 1974 for the amount of the existing indebtedness, and since the guaranty agreement was still in effect, plaintiff's cause of action for the amount sought in this suit did not accrue until payment on that note became due on September 3, 1974. In this light, the limitations period on this 1974 note does not expire until 1980. Thus, plaintiff brought its action well within the limitations period prescribed by T.C.A. § 28-309.

II. Laches

Defendant Markowitz asserts that plaintiff's claim is barred by laches "because as a result of its plaintiff's long, unexplained delay in asserting its claim, the circumstances of the parties have changed, the memory of facts has become dimmed and much material evidence may well have been lost." Since laches is an equitable defense, it is only available to a defendant when a plaintiff seeks some form of equitable relief. It is not a valid defense to an action brought solely at law. 27 Am.Jur.2d Equity § 154 (1966); 30A C.J.S. Equity § 113 (1965). It is clear that this action is one at law since plaintiff only is seeking recovery of a sum of money under the guaranty agreement. 27 Am.Jur.2d Equity § 112; 30 C.J.S. Equity § 27. Accordingly, plaintiff's claim cannot be barred by laches.

III. Negligent Impairment of Collateral and Recourse

Defendant Markowitz contends that he is entitled to be relieved of his role as guarantor because plaintiff was negligent in not taking certain steps which might have substantially reduced Markowitz's liability. First, he states that plaintiff negligently failed to perfect its security interest in $866,267 worth of accounts receivable which were pledged to plaintiff by Markowitz Brothers as collateral for the $600,000 note at the same time as the guaranty agreement was executed. Markowitz contends that plaintiff lost priority to other creditors as a result of its negligent failure to perfect its security interest in these accounts and thus recovered only $4,687.50 from them. In addition, Markowitz says that plaintiff impaired his rights by failing to take action against Markowitz Brothers before the company ceased doing business in 1968 and by failing to file claims against the estates of two deceased co-guarantors.

Plaintiff does not seek to demonstrate that it actually exercised due care in these matters, but instead relies on the waiver provisions contained in the guaranty agreement. The agreement provides, in pertinent part:

. . . The liability hereunder shall in no wise be affected or impaired by any acceptance by said Bank of any security for or other guarantors upon any of said indebtedness, obligations and liabilities, or by any failure, neglect or omission on the part of said Bank to realize upon or protect any of said indebtedness, obligations or liabilities, or any collateral or security therefor . . .. In order to hold the undersigned liable hereunder, there shall be no obligation on the part of said Bank at any time to first resort to, make demand on, file claim against, or exhaust its remedies against the Debtor, any one or more of the undersigned, or other persons or corporations, their properties or estates, or to resort to and exhaust its remedies against any collateral, security, property, liens or other rights whatsoever.

Further down in the agreement, it is stated:

No act of commission or omission of any kind, or at any time, upon the part of said Bank in respect to any matter whatsoever, shall in any way affect or impair this guaranty.

It is evident that these provisions in the agreement purport to make the guaranty binding on the guarantors even if plaintiff acted negligently in the manner described by Markowitz. Thus, Markowitz can only have a valid defense based on plaintiff's negligence if he demonstrates that these waiver provisions are somehow invalid.

Markowitz cites good authority to the effect that the general rule discharges a guarantor to the extent of any loss caused by a creditor's failure to perfect a security interest. However, nothing in the authority cited by Markowitz indicates that this general rule cannot be waived by agreement. In fact, where a guaranty is absolute, as this one clearly is, several authorities have stated that a guarantor is not discharged by the fact that the creditor has failed to resort to collateral. 38 Am.Jur.2d Guaranty § 114 (1968); 38 C.J.S. Guaranty § 81...