United Missouri Bank v. Gagel

Citation815 F. Supp. 387
Decision Date02 February 1993
Docket NumberCiv. A. No. 90-2446-DES.
PartiesUNITED MISSOURI BANK OF KANSAS CITY, N.A., Plaintiff, v. John W. GAGEL and D.L. Pratt & Company, Inc., Defendants.
CourtUnited States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas

COPYRIGHT MATERIAL OMITTED

James F. Duncan, Emily Jane Bailey, Watson, Ess, Marshall & Enggas, Kansas City, MO and Steven B. Moore, Watson, Ess, Marshall & Enggas, Olathe, KS, for plaintiff.

Gordon E. Wells, Jr., Harry E. Wigner, Jr., John L. Vratil, Lathrop & Norquist; Michael G. Norris, Payne & Jones, Chtd.; and Jerome V. Bales, Wallace, Saunders, Austin, Brown & Enochs, Overland Park, KS, for defendants.

MEMORANDUM AND ORDER

SAFFELS, Senior District Judge.

This matter is before the court on the motion of the plaintiff, United Missouri Bank of Kansas City, N.A. ("Bank"), for partial summary judgment against defendant John W. Gagel on Count I of the complaint.

Defendant Gagel is the principal officer and owner of Machinery and Supplies Company, Inc. ("MSC"). MSC defaulted on several notes held by plaintiff Bank, which in turn exercised its rights in MSC's collateral pursuant to security agreements executed by the Bank and MSC on August 6, 1986, and December 27, 1988. After applying the proceeds to the unpaid principal on the notes, plaintiff Bank contends that MSC's remaining principal indebtedness totals $2,299,121.85.

In Count I of the amended complaint,1 the Bank claims that defendant Gagel executed a guaranty in favor of the Bank on June 6, 1983, guaranteeing payment of MSC's liabilities to the Bank to the extent of $500,000.2 Defendant Gagel's answer defends the Bank's claim on the personal guaranty by contending that (1) the disposition of the collateral was not commercially reasonable, (2) the Bank cannot show it gave proper notice to Gagel of the sale of the collateral, (3) the guaranty was executed under economic duress and is therefore unenforceable, and (4) the Bank's breach of its agreement to release Gagel precludes its recovery on the guaranty.

Jurisdiction and Venue

Plaintiff Bank is a national banking association located in the State of Missouri, and is therefore deemed a citizen of Missouri. See 28 U.S.C. § 1348. Defendant John Gagel is a citizen of Kansas. Defendant D.L. Pratt & Co., Inc., is a Kansas corporation with its principal place of business in Kansas. The court has diversity jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Venue is proper under 28 U.S.C. § 1391.

Facts

For purposes of this motion, the court finds the following facts to have been established. At all relevant times, defendant Gagel was the president, chairman of the board, and majority shareholder of MSC. On June 6, 1983, Gagel executed and delivered to plaintiff Bank a continuing guaranty for MSC's obligations, in consideration for credit extended by the Bank to MSC "from time to time." By the terms of the guaranty, Gagel's aggregate personal liability for MSC's obligations was limited to the sum of $500,000.

MSC subsequently executed 19 promissory notes in favor of plaintiff Bank on which it failed to pay the principal and interest due.3 Plaintiff Bank took possession of MSC's collateral in July, 1990 and sold it in a series of private sales. In early April 1991, a public auction was conducted to dispose of the remaining collateral. The proceeds of these sales were applied to the outstanding balance due on MSC's notes.4 Bank contends that the remaining principal indebtedness on MSC's notes is $2,299,121.85.

It is not clear whether the amount of the unpaid principal balance remains in dispute following the close of discovery. Even so, however, it would be unnecessary for the purpose of deciding this motion to determine the exact amount of MSC's unsatisfied liability. See Fed.R.Civ.P. 56(c) (summary judgment may be rendered on issue of liability alone notwithstanding genuine issue as to amount of damages). Plaintiff Bank's motion for partial summary judgment essentially seeks a determination by the court that Gagel is bound by his personal guaranty to the extent of MSC's unsatisfied liability to the Bank, not to exceed $500,000. For the purpose of deciding this motion for summary judgment, the court finds that MSC's unpaid obligations to the Bank exceed $500,000, including accrued interest at the contract rate.

Summary Judgment Standards

Summary judgment is appropriate "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). A "genuine" issue of fact requires the existence of evidence such that a reasonable jury could return a verdict for the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The moving party has the burden of showing the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). This burden can be met by identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Id. at 324, 106 S.Ct. at 2553.

The court must consider factual inferences tending to show triable issues in the light most favorable to the existence of those issues. United States v. O'Block, 788 F.2d 1433, 1435 (10th Cir.1986). The court must consider the record in the light most favorable to the party opposing the motion for summary judgment. Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir.1984), cert. denied, 469 U.S. 1214, 105 S.Ct. 1187, 84 L.Ed.2d 334 (1985); Ewing v. Amoco Oil, Co., 823 F.2d 1432, 1437 (10th Cir.1987).

In this case, the plaintiff is the party moving for summary judgment. To meet its initial burden of showing the absence of a genuine issue of material fact, plaintiff as the moving party must make a prima facie showing on each of the elements essential to its case. See United States v. Frey, 708 F.Supp. 310, 312-13 (D.Kan.1988). Further, the plaintiff must show the absence of a genuine issue of material fact as to those affirmative defenses which have been preserved for trial by defendant Gagel with regard to plaintiff's claim on the guaranty. See id. The party moving for summary judgment must establish its entitlement beyond a reasonable doubt. Ellis v. El Paso Natural Gas Co., 754 F.2d 884, 885 (10th Cir.1985), cited in Carland v. Metropolitan Life Ins. Co., 727 F.Supp. 592, 595 (D.Kan.1989), aff'd, 935 F.2d 1114 (10th Cir.), cert. denied, ___ U.S. ___, 112 S.Ct. 670, 116 L.Ed.2d 761 (1991).

Choice of Law

The personal guaranty executed by defendant Gagel states explicitly that Missouri law controls its construction. Plaintiff Bank has its principal place of business in Kansas City, Missouri, and by its terms the guaranty was for the benefit of the Bank. On the other hand, Gagel is a resident of Kansas, and the principal place of business of MSC, the debtor on the notes, was apparently in Kansas. When a transaction bears a reasonable relation to more than one state, under the Uniform Commercial Code, the parties may generally agree that the law of either state shall govern their rights and duties. K.S.A. 84-1-105(1); Mo.Rev.Stat. § 400.1-105(1). The court finds that the guaranty bears a reasonable relation to both Missouri and Kansas. The parties do not dispute that the legal effect of the guaranty is to be governed by Missouri law.

Analysis

Missouri recognizes that a contract of guaranty is a separate, independent agreement from the contract to which it is collateral, and imposes different responsibilities. See Commerce Bank of St. Louis, N.A. v. Wright, 645 S.W.2d 17, 20 (Mo.App.1982); Four-Three-O-Six Duncan Corp. v. Security Trust Co., 372 S.W.2d 16, 23 (Mo.1963). The guaranty contract imports the existence of two different obligations, one by the principal debtor and the other by the guarantor. Id. Nevertheless, by definition the obligation of a guarantor may not be enforced unless proof is made of liability and default on the part of the principal debtor. See Black's Law Dictionary 705 (6th ed. 1990) ("agreement by which the guarantor agrees to satisfy the debt of another (the debtor), only if and when the debtor fails to repay (secondarily liable)."). The liability of a guarantor is to be strictly construed according to the terms agreed upon. Lemay Bank & Trust Co. v. Lawrence, 710 S.W.2d 318, 322 (Mo.App.1986) (quoting Pelligreen v. Century Furniture & Appliance Co., 524 S.W.2d 168, 172 (Mo.App.1975)).5

Although MSC is not a party to this litigation, plaintiff Bank essentially seeks to recover from Gagel the amount that it would otherwise have recovered from MSC as a deficiency judgment after repossessing MSC's collateral.6 Under Missouri law, in order to recover a deficiency judgment from the debtor, the creditor must comply with Mo.Rev.Stat. § 400.9-504(3), which requires the creditor to dispose of the collateral in a commercially reasonable manner. Whether resale of collateral was conducted in a commercially reasonable manner is an issue of fact. Lendal Leasing, Ltd. v. Farmer's Wayside Stores, 720 S.W.2d 376, 380 (Mo. App.1986) (citing C.I.T. Corp. v. Duncan Grading & Const., Inc., 739 F.2d 359, 360 (8th Cir.1984)). In addition, Missouri law requires the creditor to send written notification to the debtor of the time and place of any public sale, or written notification of the time after which any private sale or other intended disposition is to be made. See Executive Financial Services, Inc. v. Garrison, 535 F.Supp. 263, 264-66 (W.D.Mo.1982), aff'd, 722 F.2d 417, 418-19 (8th Cir.1983); see also United States v. Friesz, 690 F.Supp. 843, 845 (E.D.Mo.1988); Lankheit v. Estate of Scherer, 811 S.W.2d 853, 858 (Mo.App.1991) (quoting Modern Auto Co. v. Bell, 678 S.W.2d 443, 444 (Mo.App.1984)); Lendal Leasing, Ltd. v. Farmer's Wayside Stores, 720 S.W.2d at 379....

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