Williams v. Sandman, 96-2669

• Decision Date: 10 August 1999
• Docket Number: CA-93-193,No. 96-2669,96-2669
• Citation: 187 F.3d 379
• Parties: Page 379 187 F.3d 379 (4th Cir. 1999) C. WAYNE WILLIAMS, both individually, as a general partner in Pavilion Properties, a Limited Partnership, and as Administrator for the estate of Mary Rogers, Plaintiff-Appellant, and JAMES M. GRIFFIN, Special Master, Plaintiff, v. H. ARTHUR SANDMAN, individually and in his capacity as General and Limited Partners in Pavilion Properties, a Limited Partnership, Defendant-Appellee, and THOMAS F. WALKER, individually and in his capacity as General and Limited Partners in Pavilion Properties, a Limited Partnership, Defendant. (
• Court: U.S. Court of Appeals — Fourth Circuit

Page 379

187 F.3d 379 (4th Cir. 1999)

C. WAYNE WILLIAMS, both individually, as a general partner in Pavilion Properties, a Limited Partnership, and as Administrator for the estate of Mary Rogers, Plaintiff-Appellant and JAMES M. GRIFFIN, Special Master, Plaintiff v H. ARTHUR SANDMAN, individually and in his capacity as General and Limited Partners in Pavilion Properties, a Limited Partnership, Defendant-Appellee and THOMAS F. WALKER, individually and in his capacity as General and Limited Partners in Pavilion Properties, a Limited Partnership, Defendant.

No. 96-2669 (CA-93-1937-3-19).

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: June 5, 1997.

Decided: August 10, 1999.

Appeal from the United States District Court for the District of South Carolina, at Columbia.

Dennis W. Shedd, District Judge.

COUNSEL ARGUED: Palmer Freeman, Jr., SUGGS & KELLY, Columbia, South Carolina, for Appellant. Marcus Angelo Manos, NEXSEN, PRUET, JACOBS & POLLARD, L.L.P., Columbia, South Carolina, for Appellee.

Before WIDENER and NIEMEYER, Circuit Judges, and MICHAEL, Senior United States District Judge for the Western District of Virginia, sitting by designation.

Affirmed by published opinion. Judge Widener wrote the opinion, in which Judge Niemeyer and Senior Judge Michael concurred.

OPINION

WIDENER, Circuit Judge:

This case arises from the souring of a relationship between three business associates, H. Arthur Sandman, Thomas F. Walker, and C. Wayne Williams. On appeal, plaintiff Williams challenges an order of the United States District Court for the District of South Carolina refusing to set aside defendant Sandman's foreclosure on Williams' partnership interest in Columbia Hotel Associates and granting judgment as a matter of law to defendants Sandman and Walker on the conversion count of Williams' complaint. Finding no error, we affirm the district court's decision.

I.

Williams, Sandman, and Walker were associated through four business entities that they primarily used to develop real estate in South Carolina. The first business, Columbia Hotel Associates Limited Partnership, developed and owns the Columbia Sheraton Hotel and Convention Center. Sandman, Walker, and Williams are equal general partners in Columbia Hotel Associates. Sandman, Walker, and Williams also own in equal parts all the outstanding shares of another business, Carolina Development Corporation. Carolina Development was formed to apply for and develop low-income housing limited partnerships.

In 1984, Williams and Walker conceived the idea for what would eventually become Pavilion Properties Limited Partnership (Pavilion), their third business. They planned to use government financing to construct a mixed residential and commercial property in which 20% of the units were designated as low-income housing. Sandman, Walker, and Williams designated themselves general partners in Pavilion. In obtaining the property for Pavilion, the partners also acquired additional property not needed for the project. They placed this property into Vista Properties Limited Partnership, a separate and fourth business for the trio, to free it from government restrictions controlling the Pavilion property.

In March 1987, South Carolina National Bank provided Pavilion a $500,000 letter of credit. Sandman, Walker, and Williams signed the letter of credit payment and security agreement as general partners in Pavilion. Each partner also pledged his respective interest in Columbia Hotel Associates as collateral for the letter of credit. In addition, they executed a separate guaranty agreement as individuals.

After Pavilion defaulted on the letter of credit obligation, the bank sought the outstanding balance from the guarantors. Sandman paid the entire amount, and in exchange the bank assigned to Sandman the letter of credit, collateral assignments, and guaranty agreement. Only Walker complied when Sandman demanded one-third of the debt each from Williams and Walker. Sandman then foreclosed on Williams' interest in Columbia Hotel Association. Sandman himself purchased Williams' interest at a public sale, and the parties do not dispute that the sale was conducted in a commercially reasonable manner.

On account of the foreclosure and other problems in their business relationship, Williams filed this action against Sandman and Walker in a South Carolina state court. Williams' complaint stated nine state and federal causes of action against Sandman and Walker, both individually and in their capacity as partners in Pavilion. Williams also requested an accounting of the businesses forming a basis for the suit.

The case was removed to the United States District Court for the District of South Carolina at Sandman's instance in August, 1993. In October 1995, the district court appointed a special master to hold an accounting. After receiving the special master's report and holding a bench trial on July 11, 1996, the district court dismissed one of Williams' causes of action, granted summary judgment for the defendants as to six causes of action, and granted judgment as a matter of law for the defendants as to Williams' conversion and RICO claims.

Williams now asserts two assignments of error. First, he challenges the district court's refusal to set aside as improper Sandman's foreclosure on Williams' interest in Columbia Hotel Association. Next, Williams argues that the district court erroneously concluded that he had made an election of remedies through the accounting and therefore improperly entered judgment as a matter of law as to his conversion claim. On appeal from a bench trial, we may set aside findings of fact only if they are clearly erroneous. Fed. R. Civ. P. 52(a). We review the district court's conclusions of law de novo . Resolution Trust Corp. v. Maplewood Invs., 31 F.3d 1276, 1281 n.7 (4th Cir. 1994).

II.

The dispute over the propriety of Sandman's foreclosure on Williams' Columbia Hotel Associates interest centers on the characterization of the guaranty agreement executed by Sandman, Walker, and Williams. Williams contends that S.C. Code § 36-3-601(3)(a) (1976) is the controlling statute because the parties undertook primary liability for the letter of credit through the agreement. That statute frees all parties from liability when one of the makers of an instrument pays the instrument and takes an assignment thereof. ¹ Williams accordingly argues that Sandman could not foreclose on his partnership interest because that collateral was freed of the letter of credit. Therefore, the argument goes, Sandman's only recourse would be an action for contribution, which would not be available until Pavilion's dissolution. Williams cites Jeffcoat v. Morris, 389 S.E.2d 159 (S.C. Ct. App. 1989), in support of his position.²

Conversely, the district court treated the guaranty agreement as a guaranty. The district court then relied on S.C. Code § 36-9-504(5) (Supp. 1995), which provides:

A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement, or the like and who receives a transfer of collateral from the secured party or is subrogated to his rights has thereafter the rights and duties of the secured party. This transfer of collateral is not a sale or disposition of the collateral under this chapter. The court thus concluded that Sandman's payment of the letter of credit as a guarantor permitted him to foreclose on the letter's collateral, either under a transfer of collateral theory or under an equitable subrogation theory.

In his attempt to recharacterize the guaranty agreement as something other than a guaranty, Williams points to language in the document stating that it is "a guaranty of payment and not of collection" and that the liability undertaken shall "be a primary and not a secondary obligation and liability." J.A. at 347, 348. He reasons that these phrases render Sandman a party to the letter of credit agreement so that § 36-9-504(5) does not apply.

We disagree. First, the letter of credit payment and security agreement names Pavilion as the borrower, not Williams, Sandman, and Walker. Although they signed the letter of credit agreement, they did so only in their capacity as general partners in Pavilion and not as individuals. Thus, the face of the letter of credit is evidence which tends to refute Sandman's status as a co-maker.

Moreover, the South Carolina Supreme Court has held that the general rule in South Carolina "is that a guaranty of payment is an obligation separate and distinct from the original note. .. . . We adhere to the principle that the guaranty of payment and the promissory note are two separate contracts." Citizens & Southern Nat'l Bank v. Lanford, 443 S.E.2d 549, 551 (S.C. 1994). In Lanford, the court determined that an individual who guarantees payment of a note is not a party to the note and cannot avail himself of defenses based on impairment of collateral. 443 S.E.2d at 551. This reasoning indicates that the rights and duties of guarantors, even those who guarantee payment, are distinct from the rights and duties of makers. Therefore, Williams' argument to the contrary based on the agreement's guaranty of payment language is without merit.

Williams also stipulated at trial that "Williams, Sandman, and Walker all personally guaranteed the Letter of Credit from South Carolina National Bank to Pavilion." There has been no change in this stipulation, nor does any reason appear to justify release from it. We thus believe the guaranty agreement constitutes a guaranty.

Another reason supports our opinion that § 36-3-601(3)(a) does not apply in this case. That Code section applies only to an "instrument." An instrument under § 36-3-102(1)(e) "means a negotiable instrument." Neither the letter of credit payment and security agreement, nor the letter of credit described in para.1 thereof, nor the collateral assignments of partnership interest involved in this case are negotiable...