Court Opinion

ID: 990199
Source: CourtListenerOpinion
Date Created: 2013-07-03 23:17:32.341871+00
Date Added: 2024-06-11T10:05:40.442685
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DEUTSCHE CREDIT CORPORATION,
Plaintiff-Appellee,

v.
                                                                        No. 95-2529
CHESAPEAKE YACHT SALES,
INCORPORATED; LEO J. MAURICIO;
DONNA C. MAURICIO,
Defendants-Appellants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
William M. Nickerson, District Judge.
(CA-92-2377-WN)

Argued: April 3, 1996

Decided: August 12, 1996

Before MICHAEL and MOTZ, Circuit Judges,
and PHILLIPS, Senior Circuit Judge.

_________________________________________________________________

Affirmed in part, reversed in part, and remanded by unpublished opin-
ion. Senior Judge Phillips wrote the opinion, in which Judge Michael
and Judge Motz joined.

_________________________________________________________________

COUNSEL

ARGUED: Alfred L. Scanlan, Jr., Colleen Ann Cavanaugh, SCAN-
LAN & ROSEN, P.A., Baltimore, Maryland, for Appellants. Douglas
Andrew Rubel, PROTAS & SPIVOK, CHARTERED, Bethesda,
Maryland, for Appellee. ON BRIEF: Sander Mednick, Annapolis,
Maryland; Michael P. Darrow, HILLMAN, BROWN & DARROW,
P.A., Annapolis, Maryland, for Appellants.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PHILLIPS, Senior Circuit Judge:

Deutsche Credit Corporation (Deutsche), as holder of two
defaulted notes from Chesapeake Yacht Sales, Inc. (Chesapeake),
sued Leo and Donna Mauricio, alleging that they are liable as guaran-
tors of those notes. On cross-motions the district court granted sum-
mary judgment in favor of Deutsche. The Mauricios now appeal,
contending that the court erred in holding 1) that they were liable as
guarantors on the defaulted notes and 2) that Deutsche could recover
interest on those notes at a rate of three percent above prime rather
than two percent above prime. We affirm as to the Mauricios' liability
on one note, reverse as to the other, and affirm on the question of the
appropriate interest rate.

I.

Leo Mauricio is a part owner of Chesapeake, and, together with his
wife Donna, owns the Maryland marina in which Chesapeake sells
new and used yachts. In order to purchase yachts for resale, Chesa-
peake entered into a number of floor plan financing agreements with
lenders. Transactions relating to two of these floor plans gave rise to
this case.

First, in January of 1988, Chesapeake entered into a"Viking Six
Month Floor Plan" with Centron Financial Services. Under this plan,
Centron was to provide Chesapeake with financing to allow it to pur-
chase new Viking yachts. Later that same month, the Mauricios

                    2
signed a "Guaranty" agreement, under which they guaranteed pay-
ment of all of Chesapeake's present and future debts to Centron.1

The next fall, Chesapeake entered into another floor-plan agree-
ment with both Security Marine Creditcorp, Inc. (Security Marine)
and Centron. Under Security Marine's "Six Month Floor Plan,"
Security Marine would finance Chesapeake's purchase of new Viking
yachts, and Centron would serve as a "broker," performing various
intermediary duties between Security Marine, Chesapeake, and
Viking. In November of 1989, the Mauricios signed a second guar-
anty, this time in favor of Security Marine, in which they guaranteed
payment of all of Chesapeake's present and future debts to that lender.2

In the summer of 1990, Chesapeake purchased two new yachts
from Viking, one a sixty-three foot model, the other a seventy-two
foot model. Security Marine financed the sixty-three foot yacht under
its 1989 floor plan agreement, taking Chesapeake's note for the full
purchase price. Centron apparently financed purchase of the seventy-
two foot yacht, and simultaneously, on July 31, 1990, assigned to
Deutsche "all of its rights, title and interest in the floor plan account
of Chesapeake Yacht Sales," so that Deutsche was named as payee of
_________________________________________________________________
1 The Centron guaranty read in relevant part:

          The undersigned . . . do hereby unconditionally Guarantee the
          prompt and punctual payment to you, your successors and
          assigns, of any and all present and future indebtedness, absolute
          or contingent of [Chesapeake] to you, and of all evidence of such
          indebtedness, and of any and all extensions and renewals thereof.

JA 36.
2 The Security Marine guaranty read in relevant part:

          [W]e, the undersigned . . . agree to be, . . . jointly, severally and
          directly liable to you for the due performance of[Chesapeake's]
          Security Obligations both present and future, and any and all
          subsequent renewals, continuations, modifications, supplements
          and amendments thereof, and for the payment of any and all
          debts of [Chesapeake] of whatever nature, whether matured or
          unmatured, whether absolute or contingent and whether now or
          hereafter existing or arising . . . acquired by you by assignment,
          transfer or otherwise.

                     3
Chesapeake's note for this Yacht's purchase. JA 37. Then, on Octo-
ber 1, 1990, Security Marine assigned to Centron"all of [Security
Marine's] rights, title and interest in the [sixty-three-foot yacht] Note
of Chesapeake Yacht Sales, Inc." and Centron immediately again
assigned to Deutsche "all its rights, title and interest in the wholesale
floor plan account of Chesapeake Yacht Sales, Inc." JA 66.

Because Chesapeake had not yet sold the sixty-three foot yacht
when the first payment on the note became due, it requested and
Deutsche granted an extension of the financing period. Incident to this
extension, the parties agreed to raise the interest rate from the face
rate of two percent above prime to three percent above. JA 640.

In June of 1991, an interested buyer offered to trade in his used
fifty-foot yacht--with cash boot--for the seventy-two foot yacht. All
agreed to the deal. Deutsche then cancelled the seventy-two foot
yacht note and financed Chesapeake's purchase of the trade-in yacht.
At the end of the day, then, Chesapeake had the used fifty-foot yacht
and Deutsche had Chesapeake's note for the purchase price of that
yacht.

Chesapeake ultimately defaulted on the notes secured by the sixty-
three and fifty-foot yachts. Deutsche then demanded that the Mauri-
cios make good on their guarantees of Chesapeake's debts. When the
Mauricios refused to pay, Deutsche repossessed and sold the two
yachts, each sale resulting in a deficiency.

Deutsche then sued Chesapeake and the Mauricios as guarantors of
Chesapeake's debts in the United States District Court for the District
of Maryland, seeking to recover the deficiency on both notes, plus
interest, costs, and attorneys' fees. Default judgment was entered
against Chesapeake. On the remaining parties' cross-motions for sum-
mary judgments, the district court denied the Mauricios' motion and
granted Deutsche's, holding that the Mauricios were liable as Chesa-
peake's guarantors for the deficiencies on both notes. Following a
determination of damages, and entry of final judgment, the Mauricios
took this appeal.

II.

The Mauricios first contend that the district court erred in holding
them liable as a matter of law to Deutsche as guarantors of Chesa-

                     4
peake's obligations under the notes covering the sixty-three and fifty-
foot yachts, and, accordingly, in granting Deutsche's summary judg-
ment motion. While the Mauricios admit that they did execute two
guaranties of Chesapeake's debts, they contend that no rights under
those guaranties were assigned to Deutsche and that even if some
rights were assigned, they did not apply to the two promissory notes
in question.

Because the material facts are not in dispute this case may properly
be resolved by summary judgment. See Fed. R. Civ. P. 56(c);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
Reviewing the district court's judgment de novo, we agree with the
district court that, as a matter of controlling Maryland substantive
law, Deutsche is entitled to recover against the Mauricios for the defi-
ciency on Chesapeake's debt under the defaulted note secured by the
sixty-three foot yacht. We agree with the Mauricios, however, that
they are not liable as guarantors for the deficiency on Chesapeake's
note secured by the fifty-foot yacht.

A.

The district court correctly held that the Mauricios were liable as
guarantors of the note secured by the sixty-three foot yacht. As earlier
noted, in 1989 the Mauricios executed a guaranty to Security Marine
that they would pay any future debts Chesapeake incurred to that
lender. Accordingly, when, in July of 1990, Security Marine financed
Chesapeake's purchase of the sixty-three foot yacht, the Mauricios,
under the terms of their guaranty, became "jointly, severally and
directly liable to [Security Marine]" for the payment of that debt. JA
197. And, because under Maryland law "[a]ssignment of a debt is
held to operate as an assignment of a guaranty of the debt,"
Bachmann v. Glazer & Glazer, 559 A.2d 365, 370 (Md. 1989), Secur-
ity Marine's assignment to Centron of the note secured by the sixty-
three foot yacht note, and Centron's subsequent re-assignment of the
note to Deutsche, transferred to Deutsche the original note holder's
rights under the Mauricio's guaranty. In consequence, Deutsche was
entitled to judgment against the Mauricios for the amount of the defi-
ciency on the defaulted note so secured.

The Mauricios seek to avoid this conclusion by contending that this
guaranty was not intended to apply to loans, such as that secured by

                    5
this note, that were made under Security Marine's 1989 floor plan
agreement. But the guaranty flatly provides otherwise; by its terms it
plainly applies to all of Chesapeake's future debts to Security Marine,
not just to particular types of debts under particular contracts.

The Mauricios were therefore properly held liable as guarantors for
the deficiency on the note secured by the sixty-three foot yacht.

B.

The district court erred, however, in concluding that as a matter of
law, the Mauricios were liable to Deutsche as guarantors of the
defaulted note secured by the fifty-foot yacht. We hold, to the con-
trary, that, under Maryland law, Deutsche had no guaranty rights
against the Mauricios with respect to loans that Deutsche itself made
to Chesapeake.

Such rights could only have arisen in Deutsche from a direct guar-
anty made by the Mauricios to Deutsche, or by assignment from
someone to whom a guaranty had been made that was legally assign-
able. There is no claim of a direct guaranty to Deutsche, so any rights
it had could only have arisen from a legally valid assignment by Cen-
tron or Security Marine of the Mauricios' guaranties to them. The dis-
trict court concluded that such rights had been validly assigned. We
disagree. Under Maryland law, neither of the assignments made by
Centron to Deutsche in respect of Chesapeake's indebtednesses was
effective to assign any guaranty rights against the Mauricios respect-
ing the note secured by the fifty-foot yacht.

Whether a particular assignment is effective to assign a guaranty
respecting a particular debt depends on two things: (1) whether the
assignment in terms covers the guaranty, and (2) whether the guaranty
is a legally assignable one. Deutsche relies on two assignments as the
source of its right to recover from the Mauricios as guarantors of the
note securing the fifty-foot yacht: (1) Centron's July 31, 1990 assign-
ment to Deutsche and (2) Centron's October 1, 1990 assignment to
Deutsche simultaneously with Security Marine's assignment to Cen-
tron, of their respective "rights, titles, and interests" in Chesapeake's
indebtednesses.

                     6
1.

Looking first to Centron's July 31, 1990 assignment, we conclude
that, even if it could be interpreted as intended to include the Mauri-
cio guaranty to Centron, the guaranty was not legally assignable.
While, as indicated in Part II.A., an assignment of debt carries with
it an assignment of any guaranty of that debt, this does not mean that
a guaranty may be assigned independently of any underlying debt.
The general rule is, in fact, to the contrary where the guaranty is "spe-
cial," i.e., made only to particular potential lender or lenders. As
expressed in black-letter form:

          [I]f a guaranty covers future credit which is to be extended
          by a specific individual, it may not be transferred to another
          person so as to enable him to become the creditor who is
          secured by the guaranty.

38 Am. Jur. 2d Guaranty § 35.3

The Centron guaranty is such an instrument. It specifies that it is
made "to induce . . . Centron Financial Services, Inc. to make loans
and in consideration of loans heretofore and hereafter made by [Cen-
tron] to Chesapeake." JA 36. Further, it promises "prompt and punc-
tual payment . . . of any and all present and future indebtedness . . .
of [Chesapeake] to you," i.e. Centron. Id. (emphasis added). The guar-
anty does contemplate that once Centron extended credit to Chesa-
peake, Centron might assign the debt, for the guaranty was for
payment to Centron, "its successors and assigns." Id. The guaranty
nowhere includes, however, a promise to pay debts arising between
Chesapeake and anyone other than Centron. Under the general rule,
therefore, the Centron guaranty, covering only credit extended by
_________________________________________________________________

3 As a corollary to the general rule that special guaranties are not
assignable, it is commonly said that "general" guaranties--guaranties
made to anyone who extends credit to a particular entity--are assignable.
38 Am. Jur. 2d Guaranty § 35 (1968). This is of course anomalous: By
its terms a general guaranty needs no assignment to be available to any-
one. See id. (noting the anomaly, but reciting the convention).

                     7
Centron, could not be assigned by Centron so as to enable Deutsche
to become a creditor secured by the guaranty.4

We are satisfied that Maryland courts would so hold, though on a
basis more explanatory of the actual reason for non-assignability of
guaranties independently of consummated debt. Maryland law prop-
erly treats guaranties of future debt as simply a species of "continu-
ing" or "standing" offers to make a series of individual, unilateral
contracts. See Weil v. Free State Oil Co., 87 A.2d 826, 830 (Md.
1956). Under general contract law principles, such offers are accepted
by the extension of credit by the offeree. See id. ("to be accepted from
time to time by [credit extension]"). See generally Restatement (Sec-
ond) of Contracts § 31, cmt. b (1981) ("continuing guaranty" consti-
tutes a "standard example of a divisible offer to make a series of
contracts"). And, until such a continuing offer is accepted, it remains
only an offer of contract which, as with contract offers in general, is
not assignable. See Routzahn v. Cromer, 150 A.2d 912, 915 (Md.
1959) ("an offer made to one person cannot be accepted by another");
Restatement (Second) of Contracts § 52 ("an offer can be accepted
only by a person whom it invites to furnish consideration"); 38 Am.
Jur. 2d Guaranty § 35 ("offer of guaranty is, in and of itself, not
assignable").
_________________________________________________________________
4 There are exceptions to the general non-assignability rule that are rec-
ognized in some jurisdictions. See, e.g. , Essex Int'l Inc. v. Clamage, 440
F.2d 547, 550 (7th Cir. 1971) (under Illinois law, assignment effective
unless it causes "material change" in debtor-creditor-guarantor relation-
ship); Kraft Foodservice, Inc. v. Hardee, 457 S.E.2d 596, 598 (N.C.
1995) (assignable unless inconsistent with statute or public policy, or
unless executed in reliance on personal confidence in original creditor);
Sinclair Marketing, Inc. v. Siepert, 695 P.2d 385, 389 (Idaho 1985) (fact
question dependent upon parties' intent).

While broad language of these decisions implies a rule of general
application, each actually involved assignments incident to corporate
asset sales or contract exchanges between related corporations. Each
therefore rests, at least in part, on a concern that guarantors should not
be released when a creditor merely changes its name or corporate form.
E.g. Essex, 440 F.2d at 550. The assignments here are by contrast
between unrelated entities and not incident to corporate asset sales. The
"mere change in name or form" concern is not, therefore, present here
even were Maryland law accepting of these exceptions.

                    8
Accordingly, under Maryland law, as generally, Centron's July 31,
1990 assignment to Deutsche of all its "rights, title and interests" in
Chesapeake's indebtedness was ineffective to assign to Deutsche any
power to bind the Mauricios as guarantors of any future debts of
Chesapeake to Deutsche.

2.

The only other possible source of a guaranty right in respect of
Chesapeake's debt to Deutsche for the latter's financing of the fifty-
foot yacht, is Centron's October 1, 1990 assignment to Deutsche of
"all its rights, title and interest in the wholesale floor plan account of
Chesapeake Yacht Sales." JA 66. This assignment was ineffective to
create any power in Deutsche to bind the Mauricios as guarantors of
any future debts arising from Deutsche's own extension of credit to
Chesapeake for the same reason discussed in Part II.B.1. The Mauri-
cios' standing offer of guaranty to Centron was not assignable to
Deutsche to create any power of acceptance.

Nor could Security Marine's contemporaneous assignment to Cen-
tron have somehow altered this conclusion. That assignment, by its
terms, only purported to assign to Centron "all of [Security Marine's]
rights, title and interest in the Note [that securing the sixty-three foot
yacht loan] of Chesapeake Yacht Sales, Inc." JA 67. This of course
had nothing to do with the fifty-foot yacht debt.

For these reasons, Deutsche was not, as a matter of law, entitled to
recover the deficiency on the fifty-foot yacht indebtedness from the
Mauricios as guarantors. The district court's summary judgment for
Deutsche as to that debt deficiency must therefore be reversed.

III.

The Mauricios challenge the district court's ruling, adopting the
magistrate judge's recommendation, that Deutsche was entitled to
recover interest at the rate of three percent above prime rather than
two percent as originally provided. We affirm that ruling as it applies
to the deficiency on the sixty-three foot yacht note.

                     9
Although the note in issue originally specified a rate of two percent
over prime, the magistrate judge found that, after Chesapeake
defaulted on that note, it had agreed with Deutsche that interest would
thereafter be due at three percent over prime. The Mauricios now
argue that, if such an agreement was made, it amounted to a change
in the terms of that note, which, in turn, would release them from their
obligation as guarantors of the note. See Art Plate Glass & Mirror
Corp. v. Fidelity Construc. Corp., 69 A.2d 808 (Md. 1949) (guarantor
may not, without his consent, be bound beyond original terms of con-
tract). We disagree.

The language of the Mauricio's guaranty to Security Marine--
which applies to the note in question--defeats this argument. In the
Security Marine guaranty, the Mauricios agreed to pay not only all of
Chesapeake's debts to Security Marine, but also"any and all subse-
quent renewals, continuations, modifications, supplements, and
amendments thereof." J.A. 197 (emphasis added). Because the Mauri-
cios agreed from the beginning to guarantee repayment of any of
Chesapeake's debts to Security Marine or any modification of those
debts--like the change in interest rate here--they cannot now argue
that such a modification was a change in the underlying debt that
released them from liability. See Greenwell v. American Guar. Corp.,
277 A.2d 70, 74 (Md. 1971) (where guarantee itself allows for
changes in principal agreement, such changes do not release guarantor
from liability). Accordingly, we reject the Mauricios' challenge to the
interest rate applicable to the debt due under the note on the sixty-
three foot yacht.

IV.

For reasons given, we reverse that portion of the district court's
judgment holding the Mauricios liable as guarantors of the note
financing the fifty-foot yacht; affirm that portion holding the Mauri-
cios liable as guarantors of Chesapeake's obligations under the note
financing the sixty-three foot yacht; and affirm the district court's rul-
ing that interest on the amount recoverable as debt deficiency is com-
putable at three percent above prime. The action is remanded for entry
of a judgment in accordance with this opinion.

SO ORDERED

                     10