Opinion ID: 2800710
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: [¶14.] First Dakota submits that “the foreclosure proceedings adjudicated only the claims between First Dakota as the lender and Huron Hospitality as the borrower.” Thus, according to First Dakota, the circuit court erred when it ruled that First Dakota’s credit bid at the foreclosure sale extinguished the Guarantors’ obligations under the commercial guaranties. First Dakota directs this Court to the waiver language in the guaranties that authorized First Dakota to elect to foreclose on the property in any fashion that it deemed appropriate. It then claims that its election to foreclose on the property was not to affect the Guarantors’ obligations. First Dakota further cites cases from other courts for the proposition “that the extinguishment or satisfaction of the borrower’s debt does not extinguish contractual obligations under a guaranty.” -6- #27189 [¶15.] The Guarantors, however, claim they are not seeking protection through the foreclosure action. Rather, they contend that their obligations under the guaranties depend entirely on whether there is any indebtedness of Huron Hospitality to First Dakota. Based on the guaranty language and undisputed facts, the Guarantors aver no indebtedness exists, because First Dakota (1) chose to foreclose on the property, (2) specifically sought to recover “the total balance due,” plus attorneys’ fees, interest, and expenses, (3) bid the full amount at the foreclosure sale, and (4) specifically directed that the proceeds of the foreclosure sale be applied to the amount due to First Dakota by Huron Hospitality. [¶16.] “A guaranty is a promise to answer for the debt, default, or miscarriage of another.” SDCL 56-1-1; W. Petroleum Co. v. First Bank Aberdeen, 367 N.W.2d 773, 776 (S.D. 1985). It is collateral to the principal obligation. Robbins & Stearns Lumber Co. v. Thatcher, 453 N.W.2d 613, 615 (S.D. 1990). “The liability of a guarantor will not be enlarged beyond the plain and certain import of the guaranty contract and any ambiguous or uncertain terms in a guaranty will be interpreted most strictly against the party who prepared it.” Id. [¶17.] From our review of the language of the guaranty contracts, the Guarantors’ obligation is unambiguously connected to the existence of the indebtedness of Huron Hospitality to First Dakota. In particular, the guaranties provide that each Guarantor “absolutely and unconditionally guarantees full and punctual payment and satisfaction of the Indebtedness of Borrower to Lender.” However, First Dakota contends that the Indebtedness under the guaranties means something different than money owed by Huron Hospitality to First Dakota. In -7- #27189 First Dakota’s view, the Indebtedness under the guaranties is the full amount the Guarantors agreed to pay if Huron Hospitality failed to pay. First Dakota submits, therefore, that it is completely immaterial to this case that First Dakota extinguished Huron Hospitality’s debt through foreclosure of the Hotel—the Indebtedness under the guaranties remains. [¶18.] “INDEBTEDNESS” is defined in the Commercial Guaranty to include amounts that are owed or will be owed by Huron Hospitality to First Dakota. Here, there is no amount owed or owing. However, Indebtedness further includes “other obligations and liability of” Huron Hospitality “and any present or future judgments against” Huron Hospitality “originated by Lender or another or others; barred or unenforceable against Borrower for any reason whatsoever; for any transactions that may be voidable for any reason (such as infancy, insanity, ultra vires or otherwise); and originated then reduced or extinguished and then afterwards increased or reinstated.” (Emphasis added.) First Dakota relies on this language for the proposition that the Guarantors’ obligation continues despite the fact that Huron Hospitality’s debt was extinguished in the foreclosure sale. This conclusion might be true under different facts. Here, however, First Dakota directs this Court to no evidence that Indebtedness, as it is defined in the guaranties, exists. Besides there being no amounts owed or owing from Huron Hospitality to First Dakota, there is also no “obligation or liability against Borrower” that is “barred or unenforceable against Borrower for any reasons whatsoever.” See Guaranty, INDEBTEDNESS. On the contrary, the sheriff’s return from the foreclosure sale provided that, as a -8- #27189 result of a sale to the highest bidder, no surplus or deficiency resulted. Further, First Dakota has not sold the Hotel. [¶19.] Nonetheless, First Dakota contends that the Guarantors specifically waived the right to claim that First Dakota’s election to enter a credit bid at the sheriff’s sale would have any effect on the Guarantors’ obligation under the guaranties. First Dakota quotes the waiver language that “Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of (A) any ‘one action’ or ‘anti-deficiency’ law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender’s commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale[.]” See Guaranty, GUARANTOR’S WAIVER, Second (A) (emphasis added). First Dakota directs this Court to cases from other jurisdictions and submits that, based on the waiver language, it could “handle the foreclosure as it deemed advisable” and not extinguish the Guarantors’ contractual obligation under the guaranties. We disagree. [¶20.] First Dakota reads this waiver language too broadly and without regard to the facts of this case. The Guarantors are not attempting to assert a right or defense to First Dakota’s claim under a “one action” rule. A “one action” rule provides that “a creditor must seek to recover on the property through judicial foreclosure before recovering from the debtor personally.” McDonald v. D.P. Alexander & Las Vegas Boulevard, LLC, 123 P.3d 748, 750 (Nev. 2005); contra SDCL 21-47-5. The purpose of this rule is to prevent creditors from “attempting -9- #27189 double recovery by seeking a full money judgment against the debtor” while also “seeking to recover the real property securing the debt.” McDonald, 123 P.3d at 751. Similarly, the Guarantors do not rely on a defense under an “anti-deficiency law”—no deficiency existed after the foreclosure sale. See, e.g., SDCL 21-47-15 to - 17; Miners & Merchants Bank v. Braden Forestry Servs., Inc., 374 N.W.2d 123, 125 (S.D. 1985). Moreover, the Guarantors are not asserting a right or defense under “any other law which may prevent Lender from bringing any action, including a claim for a deficiency, against Guarantor, before or after Lender’s commencement or completion of any foreclosure action.” See Guaranty, CONTINUING GUARANTEE OF PAYMENT AND PERFORMANCE. Rather, the Guarantors assert that First Dakota cannot enforce the guaranties under these facts because there exists no Indebtedness as it is defined under the guaranties and Huron Hospitality has no remaining obligation to First Dakota. [¶21.] Moreover, the cases relied on by First Dakota are distinguishable. In Du Quoin State Bank v. Daulby, the bank brought a foreclosure action against the borrower and ultimately purchased the mortgaged property for the full amount of the borrower’s debt. 450 N.E.2d 347, 348 (Ill. App. Ct. 1983). The bank re-sold the property and incurred a deficiency. Relying on the provision of the guaranty that the guarantor’s liability “would not be affected or impaired by ‘any sale . . . or other disposition of any said indebtedness . . . or of any security or collateral thereof,’” the bank demanded the guarantor pay the deficiency. Id. The Illinois court upheld the bank’s enforcement of the guaranty based on the specific guaranty contract language. Id. at 348-49. Here, although the guaranty gave First Dakota the -10- #27189 authority to direct the manner of the sale of the Hotel, “as Lender in its discretion may determine,” it did not provide that the Guarantors’ liability would not be affected or impaired by any such sale. See Guaranty, GUARANTOR’S AUTHORIZATION TO LENDER (F). Furthermore, this case is factually dissimilar. Here, the Hotel has not been sold by First Dakota and First Dakota is not proceeding against the Guarantors for any deficiency. Rather, First Dakota possesses the Hotel and is seeking a judgment against each Guarantor in the amount of $3,241,883.03—the total due on the promissory note. [¶22.] In Victory Highway Village, Inc. v. Weaver, the borrower defaulted on a loan with the Small Business Administration (SBA). 634 F.2d 1099, 1100 (8th Cir. 1980). Thereafter, the SBA purchased the property at a foreclosure sale and later sold the property at an auction. The sale resulted in a deficiency balance on what would have been the borrower’s loan obligation. In a subsequent suit, a federal district court ruled that the SBA waived its right to collect a deficiency judgment against the borrower under Minnesota law and ordered that the borrower’s indebtedness be discharged. See Dalton Motors, Inc. v. Weaver, 446 F. Supp. 711 (D. Minn. 1978). Two guarantors of borrower sought release from their obligation under the guaranty agreements. The guarantors relied on the fact that the SBA waived its right to collect the deficiency against the borrower and the fact that the borrower’s debt was extinguished. Victory Highway Village, Inc., 634 F.2d at 110001. The Eighth Circuit Court of Appeals held that Minnesota’s waiver law did not apply to the guarantors and that the language of the guaranty contracts “were unconditional in nature” and “specific and straightforward.” Id. at 1102. The -11- #27189 court, therefore, ruled “that under the provisions of the guaranty contract, even construed in light of Minnesota law, the guarantors were not discharged by the statutory waiver against a deficiency judgment from the principal[.]” Id. at 1103. Here, however, the Guarantors are not relying on a statutory waiver defense, there is no deficiency, and the language of the guaranty contract is different. [¶23.] By comparison, the Guarantors direct this Court to State Bank of Young America v. Fabel, 530 N.W.2d 858 (Minn. Ct. App. 1995). The lender commenced foreclosure proceedings against mortgaged property and purchased the borrower’s property at a sheriff’s sale for slightly more than was owed on the mortgage. Id. at 860. Thereafter, the lender sold the property and realized a deficiency, which amount it sought to obtain from the guarantors. The guarantors moved to dismiss, claiming the proceeds of the sale extinguished the borrower’s debt. The court noted that the case did not involve a situation where there was a deficiency from the foreclosure sale—the underlying debt was fully recovered. Id. at 863. The court further relied on the guaranty language, which did not extend the guarantors’ obligation beyond the existence of principal and interest to be paid, and ruled that the guaranty could not be enforced. Similarly, here, the Guarantors guaranteed Huron Hospitality’s debt—“they did not guarantee that [First Dakota] would not experience a loss in its subsequent sale of the property. Nor did they guarantee that [First Dakota] would make sound business decisions.” See id. at 862; First Fed. Sav. & Loan Ass’n v. Scherle, 356 N.W.2d 894 (N.D. 1984). [¶24.] Even so, First Dakota contends that if we affirm the circuit court’s ruling, we will “create a new rule requiring any lender that commences a -12- #27189 foreclosure action to get a deficiency judgment against the borrower to preserve its rights under any guaranty.” Our decision is controlled by the facts of this case and the language of the guaranties, which are distinguishable from the facts in Du Quoin, 450 N.E.2d at 348 and Victory Highway Village, Inc., 634 F.2d at 1103. Because there is no debt before us that is alleged to be barred or unenforceable, the circuit court did not err when it ruled that First Dakota could not enforce the guaranties against the Guarantors and granted the Guarantors summary judgment. [¶25.] GILBERTSON, Chief Justice, and ZINTER, SEVERSON, and