Title: Nauman v. CIT Group/Equipment Financing, Inc.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Nauman v. CIT Group/Equipment Financing, Inc.1991 WY 112816 P.2d 883Case Number: 90-296Decided: 08/29/1991Supreme Court of Wyoming
LAWRENCE E. NAUMAN, ALSO 
KNOWN AS LAWRENCE NAUMAN, JR., AND ETHEL E. NAUMAN, ALSO KNOWN AS ETHEL NAUMAN; 
AND SUNRISE CONSTRUCTION COMPANY, A PARTNERSHIP COMPRISED OF LAWRENCE E. NAUMAN 
AND ETHEL E. NAUMAN, APPELLANTS (DEFENDANTS),

v.

THE CIT GROUP/EQUIPMENT 
FINANCING, INC., FORMERLY KNOWN AS C.I.T. CORPORATION, A NEW YORK CORPORATION, 
APPELLEE (PLAINTIFF).

Appeal from the District 
Court, SweetwaterCounty, Jere Ryckman, 
J.

Georg Jensen, Cheyenne, and Noel S. Hyde of Nielsen & Senior, 
Salt Lake City, Utah, for appellants.

Donn J. McCall and 
Buckner C. Gwyn of Brown & Drew, Casper, for appellee.

Before THOMAS, 
CARDINE, MACY, and GOLDEN, JJ., and HAMM, District Judge (Retired).

OPINION

MACY, Justice.

[¶1.]     This is an appeal from 
a summary judgment granting Appellee CIT Group/Equipment Financing, Inc. a money 
judgment against Appellants Lawrence E. Nauman and Ethel E. Nauman as guarantors 
of a loan to their construction company, Sunrise Construction 
Company.

[¶2.]     We affirm.

[¶3.]     As the district court 
stated, the dispositive issue is:

[W]hether or not a 
creditor, who has made an election for [a] reduced, shorter-term payment in a 
corporate Chapter 11 reorganization, can then hold a personal guarantor liable 
for the original amount of the debt or any outstanding portion 
thereof.

[¶4.]     The Naumans 
incorporated the factual statement contained in the district court's decision 
letter into their brief and relied upon it as being accurate.1 That statement set out the 
following facts. In May of 1982, CIT and Sunrise Construction executed a 
promissory note in the amount of $2,737,693.26 and a "Restated Loan & 
Security Agreement." The agreement provided for the restructuring of Sunrise 
Construction's indebtedness to CIT. The Naumans, directors and sole shareholders 
of Sunrise Construction, also signed a personal guaranty of Sunrise 
Construction's obligations to CIT, secured by a mortgage on property in 
SweetwaterCounty.

[¶5.]     About one year later, 
Sunrise Construction filed a petition for voluntary bankruptcy pursuant to 
chapter 11 of the United 
States bankruptcy code. Under Sunrise 
Construction's proposed plan, CIT's claims were classified as a Class I 
unsecured claim and a Class VI secured claim. The plan included an accelerated 
payment election for Class I creditors, under which a creditor could opt for a 
thirty percent reduction in payment over a shorter period of time. CIT objected 
to the plan and requested a chapter 7 liquidation. CIT wrote to the Naumans and 
Sunrise Construction declaring the note was in default and demanding payment in 
the amount of $1,054,964.41 (the entire unpaid principal balance), plus 
attorney's fees. CIT also warned that legal action would be taken on the 
guaranty securing the collateral if payment was not made. In response, Sunrise 
Construction requested a "cram down" of the reorganization plan. The plan was 
confirmed by an order of the bankruptcy court, and CIT filed its Class I 
election for an accelerated payment.

[¶6.]     In 1989, CIT filed a 
complaint against the Naumans and Sunrise Construction praying for a judgment in 
the amount of $646,750.99 on the May 1982 agreement, note, and guaranty. The 
Naumans and Sunrise Construction answered and advanced seven affirmative 
defenses, including waiver, discharge by accord and satisfaction, discharge by 
material modification, duress, promissory estoppel, breach of fiduciary duty, 
and breach of the implied covenant of good faith and fair dealing. In addition, 
they counterclaimed for damages on the theories of negligent misrepresentation, 
constructive fraud, and breach of the implied covenant of good faith and fair 
dealing. CIT generally denied all of the Naumans' claims. The district court 
granted a summary judgment in favor of CIT and denied the Naumans' motion for a 
summary judgment.

[¶7.]     The Naumans argue that 
CIT voluntarily agreed to accept the accelerated payment and, therefore, should 
not be permitted to recover on the guaranty. We agree with the district court's 
determination that CIT's voluntary election to accept an accelerated payment of 
its unsecured claims under the chapter 11 plan does not dispose of the issue on 
appeal. Under the plan, CIT's interests were impaired because its repayment 
rights established in the promissory note and the "Restated Loan & Security 
Agreement" were altered. See 11 U.S.C. § 1124 (1988). CIT elected to accept the 
accelerated payment after it objected to the proposed plan and after the 
bankruptcy court utilized the "cram down" provision of 11 U.S.C. § 1129 (1988). 
Under the "cram down" provision, a dissenting claimant is forced to accept the 
reorganization plan so long as the minimum standards provided in the statutes 
are met. J. Anderson, Chapter 11 Reorganizations § 14.04 (1983); 9B Am.Jur.2d, 
Bankruptcy §§ 2485-2488 (1991). The fact that CIT voluntarily elected to accept 
an accelerated payment does not determine whether the Naumans' liability as 
guarantors survived the confirmation of the bankruptcy plan. That issue is 
resolved by the terms of the guaranty and the bankruptcy code.

[¶8.]     The Naumans present two 
additional arguments supporting the proposition that their obligations as 
guarantors have been released. First, they contend that 11 U.S.C. § 524(e) 
(1988), which provides that "discharge of a debt of the debtor does not affect 
the liability of any other entity on, or the property of any other entity for, 
such debt," has no application because they were not discharged from any debt by 
the reorganization plan. Second, the Naumans argue that a guarantor is 
discharged from his obligation if there is a material change in the obligation 
unless the guarantor consents to the change. Western Bank v. Aqua Leisure, Ltd., 
105 N.M. 756, 737 P.2d 537 (1987). The Naumans assert that this principle inures 
to their benefit because allowing CIT to compromise its claim against Sunrise 
Construction (resulting in a material change to their obligation as guarantors), 
while at the same time leaving them without recourse against Sunrise 
Construction, produces a grave inequity. The Naumans dispute that they received 
any benefit from the compromise because that benefit went to Sunrise 
Construction and not to them personally.

[¶9.]     We begin our analysis 
of the Naumans' arguments by recognizing that the effect of a confirmation of a 
reorganization plan is spelled out in 11 U.S.C. § 1141 (1988). The effect of a 
discharge is governed by the provisions of 11 U.S.C. § 524 (1988). See J. 
Anderson, supra at § 1.07. That section applies to chapter 11 cases. 11 U.S.C. § 
103 (1988). Despite the Naumans' contention that the plan did not "discharge" 
them from any debts, the effect of a confirmation of the reorganization plan was 
to accomplish a discharge. 11 U.S.C. § 1141; J. Anderson, supra at § 15.02 (1983 
& Supp. 1991). 11 U.S.C. § 524(e) states that a guarantor is liable under 
his contract, even though a bankruptcy relieves the debtor of its obligation. 
Underhill v. Royal, 769 F.2d 1426 (9th Cir. 1985); United States v. Bruno, 747 F.2d 53 (1st Cir. 
1984); Beconta, Inc. v. Schneider, 41 B.R. 878 (Mich. 1984). See also Hayes v. American 
National Bank of Powell, 784 P.2d 599 (Wyo. 1989). A bankruptcy court has no power to 
discharge the liabilities of a bankrupt's guarantor, even if the creditors 
consent as part of the reorganization plan. Underhill, 769 F.2d  at 
1432.

[¶10.]  While the Naumans also argue that the 
result of this case is unfair and inequitable, the guaranty itself provides 
dispositive authority for upholding the guaranty obligation. That document 
states:

[CIT] may at any time and 
from time to time, without our consent, without notice to us and without 
affecting or impairing the obligation of any of us hereunder, do any of the 
following: * * * (b) accept partial payments of said obligations; (c) settle, 
release (by operation of law or otherwise), compound, compromise, collect or 
liquidate any of said obligations and the security therefor in any manner * * 
*.

By the very terms of the 
contract into which the Naumans voluntarily entered, there can be no inequity in 
the requirement that they remain obligated on their unconditional guaranty. The 
First Circuit Court in Bruno, 747 F.2d  at 55, stated with regard to a similar 
argument, "Even if this were a matter of equity, which it is not, we see no 
reason why [the guarantors] should not be liable."

[¶11.]  We hold that, despite the chapter 11 
reorganization and CIT's election to accept an accelerated payment of its 
unsecured claims, the Naumans remain liable on their unconditional guaranty of 
CIT's loans to Sunrise Construction.

[¶12.]  Affirmed.

FOOTNOTES

1 
Such an inclusion of facts by reference does not comply with the Wyoming Rules 
of Appellate Procedure because it does not contain page references to the record 
on appeal as is required by W.R.A.P. 5.01(3). We have repeatedly warned 
appellate counsel that adherence to this rule is required and that failure to 
comply may be fatal to an appeal. Kost v. Thatch, 782 P.2d 230 (Wyo. 1989). Due to the 
diminutive record, we will not dismiss this appeal.