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First International Bank & Trust v. Peterson

December 15, 2009

FIRST INTERNATIONAL BANK & TRUST, PLAINTIFF AND APPELLANT
v.
D. DUANE PETERSON, MID AM GROUP, LLC, JAMES R. BULLIS, KEVIN L. CHRISTIANSON, RICHARD R. JORDAHL, ARLAN H. ANDERSON, GREG ANDERSON, AND ROBERT GREEN, DEFENDANTS AND APPELLEES DOUGLAS H. PETERSON, DEFENDANT



Appeal from the District Court of Cass County, East Central Judicial District, the Honorable Frank L. Racek, Judge.

The opinion of the court was delivered by: VandeWalle, Chief Justice.

AFFIRMED.

[¶1] First International Bank & Trust appealed from a judgment denying its motion for summary judgment, granting summary judgment for the guarantors, and dismissing the Bank's claims against each guarantor. The Bank argues the guaranties, by their terms, are enforceable notwithstanding the Bank's successful bid at the foreclosure sale for the full amount of the indebtedness, and the guarantors waived their right to argue that their guaranties were extinguished by the Bank's bid at the foreclosure sale, or should be estopped from doing so, because they did not respond to the Bank's letter. We affirm because the guarantors were discharged when the Bank satisfied the underlying debt by purchasing the property at the foreclosure sale for the full amount of the indebtedness, and the guarantors had no duty to respond to the Bank's letter.

I.

[¶2] Mid Am Group, LLC, borrowed money from the Bank to build condominiums. The Bank received guaranties from the appellees. Mid Am paid the guarantors for providing the guaranties. According to the guaranties, only "full payment and discharge of all indebtedness," would discharge the guarantors. The guaranties further state, "The liability of the Undersigned shall not be affected or impaired by . . . any acceptance of collateral, security, guarantors, accommodation parties or sureties for any or all Indebtedness; . . . any foreclosure or enforcement of any collateral security." The guarantors waived all defenses "except the defense of discharge by payment in full." The guarantors agreed to be liable "for any deficiency remaining after foreclosure of any mortgage or security interest securing Indebtedness."

The guaranties also state:

1 Until the obligations of the Borrower to Lender have been paid in full, the Undersigned waives . . . any right of subrogation, contribution, reimbursement, indemnification, exoneration, and any right to participate in any claim or remedy the Undersigned may have against the Borrower, collateral, or other party obligated for Borrower's debts, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law.

[¶3] Mid Am defaulted on the loan. The Bank brought a foreclosure action against Mid Am and an action against the guarantors. The Bank obtained a judgment against Mid Am for $6,591,770.19. The Cass County Sheriff held a foreclosure sale. Prior to the sale, the Bank's attorney sent a letter to the guarantors' attorneys indicating the Bank intended to make a bid for the full amount of the indebtedness at the foreclosure sale. The Bank explained it would consider the indebtedness to be paid in full and the guaranties discharged if a third party outbid the Bank. However, if the Bank was the highest bidder, the Bank reserved the right to attempt to collect on the guaranties. The Bank did not ask the guarantors to respond to the letter or state their position regarding the Bank's bidding strategy. The guarantors did not respond to the Bank's letter.

[¶4] At the foreclosure sale, after a third party bid six million dollars, the Bank bid the full amount of the indebtedness including interest and fees, totaling $7,325,313.08. The Bank's bid was the highest. The Sheriff's Report of Sale indicates no deficiency remained after the Bank's purchase of the property. The Bank's attorney acknowledged receipt of the money and its application to the judgment against Mid Am.

[¶5] The Bank subsequently moved for summary judgment against all the guarantors. The district court granted summary judgment to the guarantors and dismissed the Bank's complaint. See N.D.R.Civ.P. 56(c) ("Summary judgment, when appropriate, may be rendered against the moving party"). The district court reasoned the guaranties were discharged by the Bank's full payment of the underlying indebtedness at the foreclosure sale. The district court also concluded the guarantors neither waived their right to resist the Bank's complaint, nor did estoppel bar their defense. The district court explained the Bank was "fully aware of all of the circumstances and made the conscious choice to bid at the Sheriff's Sale." Finally, the guarantors did not voluntarily or intentionally relinquish any of their rights. "They simply did not respond to the [Bank]'s letter, which they were not required to do."

II.

[¶6] The Bank argues the guaranties, by their terms, are enforceable despite the foreclosure sale. The parties do not dispute the facts, only the interpretation of the guaranties. Interpretation of a contract is a question of law, and on appeal this Court independently examines and construes the contract "to determine if the district court erred in its interpretation of it." General Electric Credit Corp. of Tenn. v. Larson, 387 N.W.2d 734, 736 (N.D. 1986) (citing Poyzer v. Amenia Seed and Grain Co., 381 N.W.2d 192, 194 (N.D. 1986)). "If a written contract is ambiguous, extrinsic evidence may be considered to determine the parties' intent, and the terms of the contract and the parties' intent are questions of fact." Doeden v. Stubstad, 2008 ND 165, ¶ 14, 755 N.W.2d 859 (citing Spagnolia v. Monasky, 2003 ND 65, ¶ 10, 660 N.W.2d 223). Here, the parties do not argue the guaranties are ambiguous.

[¶7] A guaranty is "a promise to answer for the debt, default, or miscarriage of another person." N.D.C.C. § 22-01-01(2). This Court has previously explained the relationship between a mortgage and a guaranty:

The mortgage and individual guaranties existed only to insure payment of that debt. Although the mortgage and note are separate and independent obligations from the debt, their operation depend entirely on the existence of the debt. Once a debt secured by a mortgage is paid, the mortgage is ...


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