Title: Transamerica Commercial Finance Corp. v. Naef

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Transamerica Commercial Finance Corp. v. Naef1992 WY 156842 P.2d 539Case Number: 91-246Decided: 11/30/1992Supreme Court of Wyoming
TRANSAMERICA 
COMMERCIAL FINANCE CORPORATION, a Corporation, Appellant 
(Plaintiff),

v.

Linda 
NAEF, Appellee (Defendant).

Appeal from DistrictCourtofTetonCounty, D. Terry Rogers, 
J.

 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.

* Chief Justice at time of oral 
argument.

CARDINE, Justice.

 [¶1.]     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 comaker on the note, we affirm the trial court's 
judgment for appellee and dismissal of Transamerica's 
complaint.

 [¶2.]     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.

 [¶3.]     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.

 [¶4.]     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.

 [¶5.]     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."

 [¶6.]     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.

 [¶7.]     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.

 [¶8.]     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.

 [¶9.]     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.

 [¶10.]  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.

 [¶11.]  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).

 [¶12.]  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.

 [¶13.]  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.

 [¶14.]  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."

 [¶15.]  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 received no additional consideration for her 
signature. Therefore, under the authority of the Moorcroft case, she cannot be 
held liable as a guarantor on either the note or the 
guaranty.

 [¶16.]  Transamerica argues, alternatively, that 
Mrs. Naef is liable as an accommodation party. The relevant statute concerning 
accommodation parties in effect at the time the note and guaranty were signed 
was W.S. 34-21-352 (Dec. 1977 Repl.). This statute defined an accommodation 
party as follows: 

(a) An 
accommodation party is one who signs the instrument in any capacity for the 
purpose of lending his name to another party to it.

 [¶17.]  The significance for this case of 
accommodation party status becomes evident when one examines the more recent 
Wyoming 
statute 34.1-3-419 (June 1991 Repl.) which states:

(b) * * 
* The obligation of an accommodation party may be enforced notwithstanding any 
statute of frauds and whether or not the 
accommodation party receives consideration for the accommodation. [emphasis 
added]

Thus, 
if W.S. 34.1-3-419 applies, Linda Naef would be liable even in the absence of 
consideration for her signature.

 [¶18.]  We must first answer the question whether 
this new language in W.S. 34.1-3-419 should receive retroactive application to 
the note and guaranty, which were prepared prior to the amendment of the 
statute. We are guided by the Official Comment to the new statute, which 
states:

Subsection 
(b) of Section 3-419 takes the view stated in Comment 3 to former Section 3-415 that there need be 
no consideration running to the accommodation party: "The obligation of the 
accommodation party is supported by any consideration for which the instrument 
is taken before it is due. Subsection (2) is intended to change occasional 
decisions holding that there is no sufficient consideration where an 
accommodation party signs a note after it is in the hands of a holder who has 
given value." [emphasis added]

 [¶19.]  Although the former official commentary 
referred to in this excerpt was not codified in our previous statute, it does 
give guidance to what the drafters of the earlier law intended. Evidently, the 
requirement that no separate consideration need be given for the signature of an 
accommodation party is a long-standing principle that was not incorporated into 
the text of our statutes until the most recent revision. This being the case, we 
will interpret W.S. 34-21-352 to include the new provision that no separate 
consideration is required. If Mrs. Naef was an accommodation party, she was 
liable on the guaranty and note regardless of whether she received consideration 
for signing them.

 [¶20.]  However, as Mrs. Naef points out, Article 
3 of the Uniform Commercial Code, which includes the provisions governing 
accommodation parties, deals only with negotiable instruments. Wyoming Statute 
34-21-304 (Dec. 1977 Repl.) defines a negotiable instrument as 
follows:

(a) Any 
writing to be a negotiable instrument within this article 
must:

(i) Be 
signed by the maker or drawer; and

(ii) 
Contain an unconditional promise or order to pay a sum certain in money * * *; 
and

(iii) 
Be payable on demand or at a definite time; and

(iv) Be 
payable to order or to bearer.

 [¶21.]  We consider first the guaranty Linda Naef 
signed. It is readily evident that the guaranty was not a negotiable instrument; 
and she could not, therefore, be an accommodation party on it under the Uniform 
Commercial Code. The guaranty did not contain any promise or order to "pay a sum 
certain in money," nor was it payable "to order or to bearer." We cannot, 
therefore, accept Transamerica's argument that Mrs. Naef's signature on the 
guaranty made her an accommodation party under the Uniform Commercial 
Code.

 [¶22.]  Even if Mrs. Naef was not an 
accommodation party on the guaranty, Transamerica argues that she was an 
accommodation party, or even a co-maker, on the promissory note. Transamerica 
highlights our holding in Lawrence v. Farm Credit System Capital Corp., 761 P.2d 640, 651 (Wyo. 1988), that one of several signatories to a promissory note will 
be held liable as a co-maker even if he did not personally receive consideration 
for his signature. However, we believe that under the circumstances of this 
case, Mrs. Naef was neither a co-maker nor an accommodation party on the 
promissory note.

 [¶23.]  Transamerica's branch manager, Robert 
Wood, testified as follows during the trial: 

Q. Is 
there any [Transamerica] practice with respect to having wives sign with a 
husband if the husband is the shareholder?

A. It's 
a common practice. Probably more often than not.

Q. And 
why is that?

A. A 
lot of it deals with the community property laws, transferring of assets, et 
cetera.

* * * * 
* *

Q. 
[Would you have given the corporation a loan] based on Mr. Naef's financial 
statement alone?

A. It's 
possible. But I don't believe that it would have been approved, 
no.

Later, 
on cross-examination, Mr. Wood testified:

Q. Now, 
Transamerica never asked for a financial statement from Linda Naef, did 
it?

A. We 
received a personal financial statement from Richard Naef.

Q. 
Okay. But you never asked for or required a financial statement from Linda Naef, 
did you?

A. It's 
not the common practice. Married individuals are usually 
consolidated.

Q. You 
didn't know whether Mr. Naef was married based on his financial statement, did 
you?

A. 
No.

Linda 
Naef testified as follows concerning the signing of the promissory 
note:

Q. * * 
* Did you have some discussion or participate in some discussion with Mr. Wood 
prior to your signing that? A. Yes, I did. In fact, I was sitting at my chair 
and he came up and wanted my signature, and I told him I had no intention of 
signing that thing because there was no way I could guarantee it. And he said, 
you don't have to. And I says, it says right on there that I have to guarantee 
it with a signature. And he said, that's not important. You have two weeks to 
take care of it.

 [¶24.]  The evidence shows that Mrs. Naef was 
pressured into signing the promissory note without any indication that her 
credit was needed to approve the loan. Although she was an officer of Teton 
Power Products at the time she signed, the trial court found that "[a]t the time 
of the signing of the documents and at all times subsequent thereto, Linda Naef 
owned no interest in the Defendant corporation." Not only was her signature 
gratuitous, it was most probably illegally obtained as a form of discrimination 
based on marital status. Federal Consumer Credit Protection Act, 15 U.S.C. § 
1691 et seq. (1982).

 [¶25.]  Section 1691(a) of the Federal Consumer 
Credit Protection Act states that

[i]t 
shall be unlawful for any creditor to discriminate against any applicant, with 
respect to any aspect of a credit transaction -

     (1) on the basis of 
race, color, religion, national origin, sex or marital status or age (provided 
the applicant has the capacity to contract)[.] [emphasis 
added]

The 
implementing regulations, found at 12 C.F.R. § 202.7(d)(1), 
state:

Except 
as provided in this paragraph, a creditor shall not require the signature of an 
applicant's spouse or other person, other than a joint applicant, on any credit 
instrument if the applicant qualifies under the creditor's standards of 
creditworthiness for the amount and terms of the credit 
requested.

(12 
C.F.R. § 202.7(d) provides certain exceptions from this rule, none of which are 
applicable here.)

 [¶26.]  In Douglas County Nat. Bank v. Pfeiff, 
809 P.2d 1100 (Colo. App. 1991), the Colorado Court of Appeals held that a wife 
who was sued on a note she was required to co-sign to guarantee the debts of her 
husband's business could state a counterclaim for discrimination based on 
marital status under the Equal Credit Guaranty Act. The facts of Pfeiff are 
quite similar to those of this case, and we are persuaded by its reasoning that 
Transamerica violated the Act in this instance.

 [¶27.]  The evidence, then, shows that Mrs. Naef 
had no interest in the business for which she was signing, did not wish to sign, 
and only signed after a Transamerica representative told her that her signature 
was "not important." She had no intent to be a co-maker and was told in essence 
that she would not be. We recognize that these elements, although they suggest 
misrepresentation or overreaching, would not alone be sufficient to render the 
promissory note unenforceable against Mrs. Naef. Cf. Standard Finance Co., Ltd. 
v. Ellis, 3 Haw. App. 614, 657 P.2d 1056 (1983) (fact that husband assured wife 
that her signature was a formality and he alone would be liable on note did not 
make note unenforceable against co-signer wife); Abruzzino v. Farmers' & 
Merchants' Bank, 168 Ga. App. 639, 309 S.E.2d 911 (1983) (wife was liable on 
promissory note she signed for husband's business even though she was not 
actively involved in the business and did not know exactly what she was 
signing). Were these the only facts presented to us, we would probably have to 
hold that Mrs. Naef was liable as an accommodation party. However, when coupled 
with evidence that Transamerica acted under a blanket, illegal and unreasonable 
policy of requiring spousal signatures, the totality of the circumstances 
convince us that Mrs. Naef's signature on the promissory note cannot be enforced 
against her as either a co-maker or an accommodation party. Under these 
circumstances of misrepresentation and illegality, we will affirm the decision 
of the trial court for Mrs. Naef.

 [¶28.]  We hold that the trial court properly 
dismissed Transamerica's suit against Mrs. Naef.

FOOTNOTES

 1 Both the Assumption 
Agreement and the Guaranty Mr. Naef subsequently signed were made in favor of 
Borg-Warner Acceptance Corporation, Transamerica's predecessor in interest. For 
purposes of clarity, we refer only to Transamerica in this 
opinion.