Opinion ID: 1539669
Heading Depth: 1
Heading Rank: 6

Heading: Rights of Contribution Among the Three Guarantors

Text: Rejecting the guarantors' demands for equitable indemnification from each other as unwarranted, the trial court adjudged them liable to each other for contribution in the amounts necessary to equalize each guarantor's out-of-pocket payment. Accordingly, the court ruled that Cheah, Yu and Lee were each liable inter se for one-third of the damages (back rent, business taxes and attorney's fees) awarded to 617 H Street Associates, and that Cheah owed Yu and Lee one-third of the $158,000 they had expended for repairs. [34] Our review of the court's rulings on indemnification and contribution is de novo. [35] We affirm the denial of indemnification. We remand, however, for the court to consider whether the guarantors' liability for contribution should be in proportion to their ownership interests in Green Leaves. To obtain full indemnification, a guarantor usually must look to the principal obligor whose debt the guarantor has discharged. The guarantor's right to reimbursement from the principal obligor is contractual; [e]ven in the absence of express agreement, an implied contract to reimburse in these circumstances arises when the contract of guaranty is made. [36] A comparable contractual obligation to indemnify is not implied between or among guarantors. Instead, cosureties are treated as though they agreed among themselves to share the cost of their performance, [37] and a guarantor who has paid more than his proportionate or fair share of the guaranteed debt therefore is entitled only to contribution (but not full reimbursement) from the other guarantors. In the absence of a contractual obligation, a duty to indemnify grounded in equity may be found to exist if full reimbursement (rather than proportionate contribution) is required to prevent injustice. [38] This situation arises when the indemnitor is significantly more blameworthy than the indemnitee. [39] In this case the trial judge found insufficient equitable justification to deviate from the general rule of contribution among cosureties by ordering Yu and Lee to indemnify Cheah or vice versa. We cannot disagree with the judge's evaluation. Cheah claims he depended on Yu and Lee to run Green Leaves's restaurant for him, [40] while Yu and Lee claim they relied on Cheah in light of their own lack of business experience and acumen. The fact remains that the three guarantors failed to communicate and clarify their roles and responsibilities, and all three were inattentive to their new business. Each one neglected the obligation he or she personally assumed by becoming a guarantor to ensure that Green Leaves obtained adequate fire insurance coverage for the leased premises. The guarantors never conferred about what insurance coverage was needed, how it would be obtained, or who would purchase it. They did nothing to check whether the requisite insurance was in place. Thus, we readily agree with the trial court that all the guarantors were at fault, regardless of their lack of sophistication or their involvement in other activities. The record does not compel a finding that any guarantor was significantly less at fault than another. We therefore uphold the trial court's determination not to order equitable indemnification. Contribution is governed by equitable principles, [41] subject to any express or implied agreements between or among the parties sharing the liability. [W]here the parties have a contract governing an aspect of the relation between themselves, a court will not displace the terms of that contract and impose some other [equitable] duties not chosen by the parties. [42] Accordingly, [a]s a general rule a guarantor who has paid more than his or her proportionate share of the debt guaranteed may obtain from his or her co-guarantors contribution of an amount sufficient to make the payment of all equal or sufficient to satisfy the requirements of an agreement fixing the relative liability of the guarantors. [43] In ordering equal contribution in this case, the trial judge followed the general equitable rule of equal contribution among equally situated co-obligors. However, it appears the judge did not consider the implications of the guarantors' unequal relations to each other as co-owners of Green Leaves. Courts in other jurisdictions have held that [s]ince the right to contribution is inherently equitable in nature, the rule logically follows that where co-obligors have received unequal benefits from the common obligation, the portion of the contribution that each must bear is according to the benefits that each has received. [44] This equitable principle appears applicable here. Because Cheah owned half of the company, while Yu and Lee each had only a quarter share, they stood to benefit unequally from their common assumption of Green Leaves's lease obligations: had the enterprise been successful, Cheah's share of the profits would have been twice that of Yu or Lee. Similarly, if Green Leaves had been able to pay its debts itself or indemnify its guarantors, Cheah, Yu and Lee would have borne the loss in proportion to their shareholdings. Considerations of fairness suggest that the guarantors therefore should contribute to the common liability in proportion to their ownership interests, rather than equally. [45] Moreover, an implied agreement among guarantors of a corporate debt to contribute in proportion to their shareholdings may be inferred from the general relationship among the cosureties or ... the circumstances surrounding the particular suretyship transaction. [46] The Restatement offers an illustration that is directly on point: To induce C to lend D Corporation $ 3,000, S[1], S[2], and S[3] agree to be cosureties with respect to this debt. S[1], S[2], and S[3] enter into no express agreement as to their contributive shares. S[1], S[2], and S[3] are the sole shareholders of D Corporation; S[1] owns 50 percent of the shares, S[2] owns 30 percent of the shares, and S[3] owns 20 percent of the shares. D defaults having paid none of the debt, with the result that S[1], S[2], and S[3] are liable to C for a total of $ 3,000. The fact finder may find an implied agreement that the cosureties' contributive shares are to be in proportion to their ownership interests.[ [47] ] Given the fact-dependent nature of both the equitable inquiry and the inference of an implied agreement, we decline to decide the question of the guarantors' contributive shares in the first instance. We recognize that there might be equitable considerations or understandings among the guarantors, of which we are unaware, that the parties could identify and the trial court should take into account. We therefore direct the court on remand to revisit the matter and determine whether Cheah, Yu and Lee should contribute equally or in proportion to their ownership interests in Green Leaves.