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Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 

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FILED 

UNITED STATES COURT OF APPEALS Ut1ired Stare, Court of J\ppeaJs 

Tenth Circuit 

TENTH CIRCUIT 

FEDERAL DEPOSIT INSURANCE CORPORATION, 

Receiver for Penn Square Bank, N.A., 

Plaintiff-Appellee, 

v. 

JOSEPH P. FALLIN, a/k/a Dr. Joe Fallin, 

Defendant-Appellant, 

PETROTHERM, INC., an Oklahoma 

corporation, 

Defendant. 

AUG 3 0 1989 

ROBERT L. HOECKER 

) Clerk 

) 

) 

) 

) 

) No. 87-1654 

) (D.C. NO. CIV-85-1333-R) 

) (W.D. Oklahoma) 

) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before LOGAN, BRORBY, and EBEL, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The cause is therefore ordered 

* This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

,. 

Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 1 
The Federal Deposit Insurance Corporation (FDIC), receiver 

for the failed Penn Square Bank (the Bank), brought suit against 

Petrotherm, Inc., an Oklahoma Corporation, and also against Ron 

Stewart and Joseph P. Fallin, to collect on a promissory note and 

guaranty agreements executed in favor of the Bank. The court 

entered default judgment against Petrotherm, Inc., and dismissed 

Stewart for lack of service. The trial court also entered 

judgment in favor of the FDIC against Joseph P. Fallin, 

determining him liable to the FDIC on its guaranty for the balance 

due on the note of Petrotherm, Inc. Fallin filed a motion for a 

new trial, which the court denied, and Fallin appeals. 

Jurisdiction is based upon 28 u.s.c. § 1291. 

I. Facts 

In 1981, Fallin and Stewart organized a general partnership, 

Petrotherm, to rework existing oil and gas leases. Fallin and 

Stewart were the sole partners. By note dated October 2, 1981, 

the partnership borrowed $80,000 from the Bank. The Bank 

identified the note as # 29088. On the same day, each partner 

executed an unlimited continuing guaranty agreement in accordance 

with Okla. Stat. Ann. tit. 15, § 336 (1981). 1 The guaranty 

agreement signed by Fallin recited that it was given for the 

purpose of enabling ''Petrotherm" to obtain credit from the Bank. 

1 Although the partners executed identical agreements, we shall 

address only the agreement executed by Fallin. 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 2 
On or about March 24, 1982, Fallin and Stewart formed a 

corporation named Petrotherm, Inc. On April 1, 1982, as president 

of the corporation, Fallin executed a promissory note, # 31504, in 

favor of the Bank for $180,000. Fallin was the sole signatory on 

this note. This note, stamped by the Bank as a renewal of note 

# 29088, recited that $80,000 was for the renewal of note # 29088 

and the balance represented new funds for the corporation. The 

Bank did not require Fallin and Stewart to execute new or 

additional guaranties. When 

July 2, 1982, the FDIC acquired 

the Bank went into receivership on 

the promissory note evidencing 

indebtedness which was in default, the unpaid balance thereof 

being $100,000. On September 24, 1982, Fallin and Stewart sold 

their business by a sale agreement covering both the partnership 

and the corporation. The agreement referred to the business sold 

collectively as "Petrotherm." 

The trial court concluded that the change in business entity 

from partnership to corporation did not defeat Fallin's liability 

under the continuing guaranty. Consequently, the court entered 

judgment against Fallin for $100,000 plus interest, costs and 

attorney fees. In other words, the trial court found the 

guarantor liable for the entire unpaid principal due upon the note 

executed by the corporation. 

II. Issue 

Fallin contends that the trial court committed error "in 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 3 
finding that Petrotherm, Inc. was an incorporation of a 

partnership and that therefore the guaranty of the debt of the 

partnership continued to oblige the guarantor to guarantee the 

debt of the corporation." By his statement of the issue, it is 

apparent that Fallin misperceives the analysis of the trial court. 

The trial court did not set forth a causal relationship between 

the change in business entity and the continued effectiveness of 

the guaranty. Rather, the trial court addressed the independent 

strength of the guaranty and concluded that the change in the 

business entity, i.e. from partnership to corporation, did not 

defeat the guaranty. We shall address the issue as follows: 

Whether the trial court erred in concluding that the change in 

business entity, i.e. from partnership to corporation, did not 

extinguish the guaranty or limit it to the unpaid portion of the 

partnership debt. 2 We agree with the trial court that the change 

did not extinguish or limit the guaranty. 

III. Standard of Review 

The district court's findings of facts may be overturned on 

appeal only if they are clearly erroneous. Fed. R. Civ. P. 52(a); 

Willner v. University of Kansas, 848 F.2d 1023, 1030 (10th Cir. 

2 Obviously, Fallin remained liable for the unpaid portion of the 

original partnership debt. The issue is whether or not Fallin is 

liable for the unpaid portion of the corporate debt. The record 

bears no indication that the parties or the trial court considered 

facts or legal consequences, if any, of apportionment, allocation, 

or application of loan payments to partnership debt or new 

corporation debt. We decide this case based upon the issue and 

record as presented. 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 4 
1988) (citing Anderson v. City of Bessemer City, 470 U.S. 564, 574 

(1985)). A finding is clearly erroneous only if '"the reviewing 

court on the entire evidence is left with the definite and firm 

conviction that a mistake has been committed."' Id. at 1030 

(quoting Anderson, 470 U.S. at 573). In the instant case, the 

trial court based its determinations upon stipulated facts. Under 

current standards, submission of a case upon stipulated facts 

neither changes the standard nor lessens the deference we give to 

the trial court's findings. Anderson, 470 U.S. at 574-75. But 

see Sears v. Atchison, Topeka & Santa Fe Ry. Co., 645 F.2d 1365 

(10th Cir. 1981), cert. denied, 456 U.S. 964 (1982). The trial 

court's conclusions of law, however, we consider de novo. In re 

Ruti-Sweetwater, Inc., 836 F.2d 1263, 1266 (10th Cir. 1988). 

IV. Disregard of Corporate Separateness 

Fallin asserts that the trial court erred in finding that 

Petrotherm, Inc. was an incorporation of the partnership. The 

challenged portion of the trial court's findings reads as follows: 

On October 21, 1981, no 

entitled Petrotherm, Inc. 

corporation existed 

On or about March 24, 1982, Fallin and Stewart 

incorporated the partnership. The corporation was named 

Petrotherm, Inc. The Corporation had the same business 

purpose as Petrotherm partnership and Fallin and Stewart 

were the sole shareholders and principal officers of 

Petrotherm, Inc. 

Petrotherm (the partnership) and Petrotherm, Inc. 

(the corporation) are from a practical standpoint the 

same entity. Petrotherm, Inc. is just an incorporation 

of Petrotherm partnership. The owners are the same and 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 5 
both used the same bank account at Penn Square. No 

evidence shows that the corporation did not acquire all 

of the assets and liabilities of the partnership. The 

corporation assumed the partnership debt with Penn 

Square. One of its first acts after incorporation was 

renewal of the partnership note, #29088. 

Fallin 

24, 1982. 

partnership 

referred to 

and Stewart sold their business 

The sale agreement covered 

and the corporation which was 

as Petrotherm. 

on September 

both the 

collectively 

The court found that the partnership and the corporation were, 

from a practical standpoint, the same entity. The court found 

that Fallin and Stewart were the sole partners and then the sole 

shareholders and principal officers. The corporation had the same 

business purpose and assets as the partnership. Further, the 

corporation used the same bank account as the partnership and 

assumed the partnership debt owing to the Bank. In summary, the 

partnership and the corporation had the same owners, managers, 

assets, liabilities, bank accounts, and business purposes. This 

is not a case where disregarding corporate separateness will 

pierce the corporate veil and affect the assets or liabilities of 

Petrotherm, Inc. Rather, we must discern whether the parties to 

the guaranty agreement, using the term 'Petrotherm' in the 

agreement, intended it to apply in the event of a change in the 

legal organization of the business from a partnership to a 

corporation. Relevant to this, the district court found that 

Petrotherm, Inc. was the same business entity as Petrotherm 

partnership, with merely a different name and legal form of 

organization, and we are not persuaded by the record that the 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 6 
finding is clearly erroneous. 

V. Continuing Guaranty 

Fallin next asserts that under the terms of the guaranty, he 

is not liable for the indebtedness created by Petrotherm, Inc. 

Without citing authority, Fallin claims that ''the law" does not 

permit the trial court's reading of the guaranty terms, and 

requires execution of a new and distinct guaranty when a new 

entity becomes obligated on a new debt. Under the facts of this 

case, we are not persuaded by his argument. 

The parties agree the law of the forum controls. The intent 

of the parties to a guaranty agreement is to be taken from the 

whole instrument, First Nat'l Bank & Trust Co. v. Stinchcomb, 734 

P.2d 852, 853 (Okla. Ct. App. 1987), and under Oklahoma law, 

guaranty agreements are to be construed "most strongly" against 

the guarantor, First Nat'l Bank v. Citizens & Southern Bank, 651 

F.2d 696, 698 (10th Cir. 1981). In this case, the Bank's officers 

clearly thought that the guaranty carried over to the corporation. 

On the Bank's credit policy memorandum approving the 'renewal' of 

the $80,000 note and the authorization of additional credit it 

identified the borrower as 'Petrotherm, Inc.,' noted that 

Petrotherm had recently been formed as a partnership, and noted 

that the debt and line of credit were guaranteed by Fallin and 

Stewart by unlimited guaranties. Also, it is "unrealistic to 

assume the bank would have taken the note of a newly founded, 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 7 
closely-held corporation and not required guaranty commitments." 

American Bank of Commerce v. Boger-Hare Mfg. Co., 633 P.2d 1270, 

1273 (Okla. Ct. App. 1981). Despite Fallin's present intent to 

limit his liability, the clear language of the guaranty agreement 

obligated him to guarantee Petrotherm's indebtedness now and in 

the future, and he had a duty to apprise himself of the contents 

of the contract. Stinchcomb, 734 P.2d at 854. 

The trial court found that the guaranty which Fallin signed 

dated October 2, 1981 was a continuing guaranty under Oklahoma 

law. Okla. Stat. Ann. tit. 15, § 336 states as follows: 

Continuing guaranty 

A guaranty relating to a future liability of the 

principal, under successive transactions, which either 

continues his liability or from time to time renews it 

after it has been satisfied, is called a continuing 

guaranty. 

The guaranty signed by Fallin shows ''Petrotherm" as the debtor. 

By the express terms of the guaranty, Fallin "unconditionally 

guarantees to [the Bank] that [Petrotherm] will pay and 

discharge all indebtedness upon which [Petrotherm] now is or may 

hereafter, from time to time, become obligated to [the Bank], 

either as principal, guarantor, endorser, or in any other capacity 

II The document further recites: "This is an individual, 

absolute, unconditional continuing guarantee of payment II 

Without notice to Fallin, the Bank could "renew or extend from 

time to time any obligation of [Petrotherm] .... " Further, Fallin 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 8 
could "withdraw from liability for additional indebtedness 

accepted by or incurred" to the Bank, by actual written notice to 

the Bank. The amount of "credit extended by or liability 

incurred" to the Bank was listed as "unlimited." 

Fallin's guarantee of Petrotherm's debt was a 

Clearly, 

statutorily 

authorized guaranty which anticipated increased liability on the 

part of Fallin. 

Under the statutorily mandated terms of the continuing 

guaranty, Fallin could have revoked the continuing guaranty at any 

time. Okla. Stat. Ann. tit. 15, § 337 provides as follows: 

Revocation of continuing guaranty 

A continuing guaranty may be revoked at any time by the 

guarantor, in respect to future transactions, unless 

there is a continuing consideration as to such 

transaction which he does not renounce. 

The trial judge found, and Fallin does not contest, the fact that 

Fallin did not revoke the continuing guaranty. 

Three additional facts indicate an intent on Fallin's part to 

have the guaranty carry over to the corporation and to support the 

district court's finding that Fallin should be held on the 

continuing guaranty. First, Fallin and Stewart ignored the formal 

distinction between partnership and corporation, as evidenced by 

their contract to sell the assets of the Petrotherm partnership 

and Petrotherm, Inc., to Jim Callahan, with payment to be made 

directly to Fallin and Stewart. Had they been observing corporate 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 9 
formalities, they would have designated the sale to be of the 

stock of the corporation or directed payment for corporate assets 

be made to the corporation. Second, Fallin appeared to ignore the 

separateness of the two entities when, acting for the corporation, 

he negotiated a "renewal" of the $80,000 note. Technically, if a 

new obliger (here the corporation) signs a note it should not be 

considered a renewal of a note on which another party is obliger. 

Finally, there is the redundancy of having guarantees by general 

partners of partnership debt. Because partners have unlimited 

liability on partnership obligations in all events, the execution 

of guaranties would indicate the partners contemplated a change of 

business form and intended the guaranties to carry over to the new 

entity. 

For these reasons we are persuaded that the trial court's 

findings are sound and its conclusions are correct. 

AFFIRMED. 

Entered for the Court: 

WADE BRORBY 

United States Circuit Judge 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 10 
No. 87-1654 - Federal Deposit Insurance Corporation v. Joseph P. 

Fallin 

EBEL, Circuit Judge, dissenting: 

The majority frames the issue in this case as "[w]hether the 

trial court erred in concluding that the change in business 

entity, i.e. from partnership to corporation, did not extinguish 

the guaranty or limit it to the unpaid portion of the partnership 

debt." (Maj. Op. at 4.) The majority concludes that the change 

in business form did not extinguish or limit the guaranty because 

both the Bank and Fallin intended the guaranty to carry over to 

the corporation. (Maj. Op. at 7, 9.) I cannot agree. 

Although there is evidence that the Bank intended Fallin's 

personal guaranty to cover the debts of the corporation, I find no 

evidence that Fallin had such an intent. Nor do I find the three 

facts advanced by the majority to support that proposition 

persuasive. 

The majority first points out that Fallin and his partner 

Stewart "ignored the formal distinction between partnership and 

corporation, as evidenced by their contract to sell the assets of 

Petrotherm partnership and Petrotherm, Inc., to Jim Callahan, with 

payment to be made directly to Fallin and Stewart." (Maj. Op. at 

9.) However, the sale to Callahan did not involve or implicate 

the Bank or Fallin's guaranty, and it is simply no evidence as to 

how broadly Fallin intended his personal guaranty to apply. 

Furthermore, the sale occurred after Fallin executed his personal 

guaranty and is thus not particularly probative of his intent or 

Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 11 
''state of mind" when he guaranteed Petrotherm's debts. 1 Moreover, 

Fallin and Stewart may have had legitimate business reasons for 

receiving payment directly from Callahan. However, because that 

was not at issue in the case, Fallin tendered no evidence on that 

point. 2 

Second, the majority points out that ''Fallin appeared to 

ignore the separateness of the two entities when, acting for the 

corporation, he negotiated a 'renewal' of the $80,000 note." 

(Maj. Op. at 10.) I do not take issue with the fact that Fallin 

remains liable on his guaranty for the $80,000 partnership note 

that was renewed. However, the new note for $180,000 was executed 

by Petrotherm, Inc. rather than Petrotherm, the maker of the first 

note. This appears to me to have been a deliberate choice on the 

part of Fallin to change the borrower and is evidence of an intent 

to separate the entities rather than evidence that Fallin was 

merging the existence of the partnership and corporation for 

purposes of his personal guaranty. 

1 Even if there had been evidence of such an intent, it is 

questionable whether it would give rise to a legally enforceable 

guaranty of the corporate debt because there is no writing to 

evidence that guaranty. See Okla. Stat. Ann. tit. 15, § 324 ("a 

guaranty must be in writing, and signed by the guarantor"}. 

2 In any event, even if Fallin did treat the corporation and 

partnership as the same entity, that evidence would go to the 

question of alter ego and piercing the corporation veil instead of 

the intent of Fallin with respect to his continuing guaranty. 

Although I believe that Oklahoma clearly would not pierce the 

corporate veil of Petrotherm, Inc. under the facts contained in 

this record nor would it find that Petrotherm, Inc. was the alter 

ego of Petrotherm the partnership, I do not address that issue 

because that is not the basis of the majority's affirmation of the 

judgment below. 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 12 
Third, the majority points out ''the redundancy of having 

guarantees by general partners of partnership debt." (Maj. Op. at 

10.) Although requesting partners' individual guaranties of 

partnership debt does look like a belt and suspenders arrangement, 

the Bank might have required the guaranty simply as a matter of 

internal policy or to simplify collection on any partnership debt 

in the case of default. Regardless of the Bank's reasons for 

requiring the guaranty of the partnership debt, there is no 

evidence that at the time the guaranty was executed either party 

contemplated the formation of a corporation or that the guaranty 

would apply to the debt of a separate corporate entity. Had the 

Bank desired that guaranty to cover the debts of a different 

entity, it could have created such a guaranty or sought a new 

guaranty. It did neither, and it must bear the consequences of 

its own inaction. I would not hold Fallin liable under a guaranty 

that he did not execute. 

For the foregoing reasons, I am not persuaded by the 

majority's arguments that Fallin intended his guaranty to cover 

the debts of Petrotherm, Inc. Therefore, I must respectfully 

dissent. 

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Appellate Case: 87-1654 Document: 01019973396 Date Filed: 08/30/1989 Page: 13