Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almb-1_05-ap-01134/USCOURTS-almb-1_05-ap-01134-0/pdf.json

Parties Involved:
Ann Snell Jordan
Defendant
McClure-Johnston Company, Inc.
Plaintiff

Document Text:

UNITED STATES BANKRUPTCY COURT

MIDDLE DISTRICT OF ALABAMA

In re Case No. 04-11372-DHW

Chapter 7

ANN SNELL JORDAN,

Debtor.

____________________________

McCLURE-JOHNSTON COMPANY, INC.,

Plaintiff,

v. Adv. Proc. No. 05-1134-DHW

ANN SNELL JORDAN,

Defendant.

MEMORANDUM OPINION

Before the court is the March 24, 2006 motion of the plaintiff,

McClure-Johnston Company, Inc. (“McClure-Johnston”), for summary

judgment (Doc. #29). A hearing on the motion was held April 10, 2006.

Following the hearing, the parties were given time to file their

respective briefs of law. McClure-Johnston filed a brief, but Ann Snell

Jordan (“defendant” or “debtor”) did not.

Jurisdiction

The court’s jurisdiction in this matter is derived from 28 U.S.C.

§ 1334 and from the United States District Court for this district’s order

referring title 11 matters to the Bankruptcy Court. Further, because a

complaint to determine the dischargeability of a debt is a core

proceeding under 28 U.S.C. § 157, this court’s jurisdiction is extended

to the entry of a final order or judgment. 

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1

 In the application for credit, a box entitled “Proprietorship” is

checked as a description of the Mark Jordan Co. business. The boxes for

“Partnership” and “Corporation” were not checked.

Undisputed Facts

On June 22, 1993, Mark Jordan signed on behalf of the Mark

Jordan Co. an application for credit with McClure-Johnston. See

Plaintiff’s Exh. A.1 The credit application form contains a space for the

identification of “Principals-Owners.” Mark Jordan is the only listed

principal-owner.

Both Mark Jordan and his then wife, the defendant, Ann Snell

Jordan, signed a personal guaranty agreement covenanting to pay the

debt of Mark Jordan Co. should there be a default. The guaranty

agreement was executed on the same date as the credit application.

The guaranty agreement provides as follows:

This Guaranty shall not be revoked by the death of one or

more of the undersigned, and shall continue in full force

and effect until such time as the Creditor shall receive

written notice of revocation, and such revocation shall not

in any way relieve the undersigned from liability for any

indebtedness incurred prior to the actual receipt of said

notice.

See Plaintiff’s Exh. B.

On June 25, 2004, Ann Snell Jordan filed a chapter 7 petition for

relief in this court without having revoked the guaranty agreement.

The case trustee filed a Report of No Distribution (Doc. #13) reflecting

that no dividend would be paid to unsecured creditors. An order of

discharge entered on June 6, 2005. 

The debtor did not list McClure-Johnston as a creditor in the

bankruptcy case. Therefore, McClure-Johnston did not receive notice

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of the bankruptcy. 

Beginning on November 19, 2004, and continuing through March

17, 2005, McClure-Johnston made five loans to the Mark Jordan Co.

totaling $9,041.55. There was a default in the repayment of these

loans, and McClure-Johnston filed suit in the District Court of Houston

County against the debtor based upon her personal guaranty.

Conclusions of Law

I. Summary Judgment

The standard for summary judgment established by Fed. R. Civ.

Proc. 56 is made applicable to adversary proceedings in bankruptcy by

Fed. R. Bankr. Proc. 7056. The rule provides in part: 

The judgment sought shall be rendered forthwith if the

pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and

that the moving party is entitled to judgment as a matter of

law.

Fed. R. Civ. Proc. 56(c).

Summary judgment is appropriate when “there is no genuine issue

as to any material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 322,

106 S.Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986).

II. Plaintiff’s Contention 

McClure-Johnston maintains thatthe personal guaranty agreement

signed by the debtor is a “continuing guaranty.” McClure-Johnston

defines a continuing guaranty as one that “contemplates a series of

future transactions” and is “not limited in time or amount and is

operative until revoked.” See Shur-Gain Feed Div. Williams Davies Co.,

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2

 Although not relevant here, certain debts are excepted from

discharge under 11 U.S.C. § 523(a).

Inc. v. Huntsville Prod. Credit Ass’n, 372 So.2d 1317, 1320 (Ala. Civ.

App. 1979); Plaintiff’s Memorandum Brief (Doc. # 35). McClureJohnston reasons that the debts arising under the continuing guaranty

after the debtor filed the chapter 7 petition are postpetition debts not

subject to discharge in this bankruptcy case. 

III. Discussion

A discharge in chapter 7 discharges the debtor of all prepetition

debts.2 The statute provides:

. . . a discharge under subsection (a) of this section

discharges the debtor from all debts that arose before the

date of the order for relief under this chapter, and any

liability on a claim that is determined under section 502 of

this title as if such claim had arisen before the

commencement of the case . . .

11 U.S.C. § 727(b).

Both of the terms “debt” and “claim” are defined by the

Bankruptcy Code, and the terms are coextensive. “Debt” is defined as

“liability on a claim.” See 11 U.S.C. § 101 (12). The term “claim” is

defined as a “right to payment, whether or not such right is reduced to

judgment, liquidated, unliquidated, fixed, contingent, matured,

unmatured, disputed, undisputed, legal, equitable, secured, or

unsecured.” See 11 U.S.C. § 101(5)(A) (emphasis added). Congress

gave these terms the broadest possible definitions so as to enable the

debtor to deal with all legal obligations in a bankruptcy case. See

Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 558,

110 S. Ct. 2126, 2130, 109 L. Ed. 2d 588 (1990). Hence, the statute is

clear that a contingent debt may be discharged in a chapter 7 case

provided the debt arose before the order for relief. 

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The question here is whether the debtor’s liability on the

contingent claim arose when the guaranty agreement was executed in

1993 or when the loans were made to the principal obligor (Mark Jordan

Co.) after the debtor had filed the chapter 7 petition. In order to

answer that question the court must turn to state law. See Olin Corp.

v. Riverwood Int’l Corp. (In re Manville Forest Products Corp.), 209

F.3d 125, 128 (2nd Cir. 2000) (holding that the existence of a claim is

determined by federal law but the time a claim arises is determined by

relevant non-bankruptcy law).

Alabama state law recognizes a species of guaranty referred to as

a continuing guaranty. Shur-Gain Feed, 372 So.2d at 1320. One

treatise explains as follows:

A guaranty may be either a “restricted guaranty,” which is

limited to a single transaction, or a “continuing guaranty,”

which is not limited to a single transaction but, rather,

contemplates a future course of dealing encompassing a

series of transactions. The contract is restricted if it is

limited to the guaranty of a single transaction or to a

limited number of specific transactions and is not effective

as to transactions other than those guaranteed. On the

other hand, a contract is continuing if it contemplates a

future course of dealing during an indefinite period, or if it

is intended to cover a series of transactions or a succession

of credits, or if its purpose is to give to the principal debtor

a standing credit to be used by him from time to time. A

continuing guaranty covers all transactions, including those

arising in the future, which are within the contemplation of

the agreement. A continuing guaranty can include

subsequent indebtedness without new consideration being

given. A continuing guaranty is, therefore, simply a

divisible offer of a series of separate unilateral contracts,

and contemplates a series of transactions between the

debtor and the creditor rather than a single debt, and

each transaction creates a new contract. 

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38 Am. Jur. 2d Guaranty § 20 (1999) (emphasis added).

A number of courts have held that the contingent claim under a

guaranty contract arises upon the execution of the contract. See Covey

v. Northwest Community Bank (In re Helen Gallagher Enterprises, Inc.),

126 B.R. 997, 1000 (Bankr. C.D. Ill. 1991); Kapela v. Newman, 649 F.2d

887 (1st Cir. 1981); Woolley v. Sprague (In re Sprague), 104 B.R. 352

(Bankr. D. Or. 1989). The guaranties involved in these cases, however,

are restricted ones. That is, the guaranties concern a single or limited

number of specific transactions. Hence, the contingent liability was

held to have arisen at the time the guaranty was executed. 

The case sub judice is distinguishable in that the guaranty is a

continuing one. Under a continuing guaranty, the guarantor’s

contingent liability arises at the time of the making of each guaranteed

loan. Each loan transaction is considered a separate, unilateral

contract. Hence, the contingent liability arises at the time of the loan

as opposed to the time the guaranty is executed. Because these loans

to Mark Jordan Co. were made after the debtor filed for bankruptcy

relief, the debtor’s liability under the guaranty agreement for these

debts arose postpetition and is not subject to discharge under § 727.

Conclusion

For these reasons McClure-Johnston’s motion for summary

judgment is due to be granted. A separate order will enter pursuant to

Fed. R. Bankr. Proc. 9021 granting plaintiff’s motion for summary

judgment and holding that the debtor’s liability under the guaranty

agreement for the instant debts is not subject to the discharge order.

Done this the 15th day of June, 2006.

/s/ Dwight H. Williams, Jr.

United States Bankruptcy Judge

c: Britt Batson Griggs, Plaintiff’s Attorney

 Patrick B. Jones, III, Defendant’s Attorney

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