Court Opinion

ID: 9479320
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:14:36.916675+00
Date Added: 2024-06-11T17:46:57.111611
License: Public Domain

POOLE, Circuit Judge:
Appellee Springs Industries, Inc. (“Springs”) manufactured “ultra-suede” fabric which it sold to Kris Knit, Inc. (“Kris Knit”) for use in Kris Knit’s manufacturing operation. In March 1977, appellant Jack Chambers, the director and principal shareholder of Kris Knit, signed an agreement to personally guarantee Kris Knit’s commercial account with Springs. Chambers signed the agreement to enable Kris Knit to purchase ultra-suede on credit from Springs.
The guarantee agreement provided, in relevant part:
I the undersigned agree to be ... jointly and severally primarily and unconditionally liable to [Springs] for the due performance of [Kris Knit’s] present and future agreements, contracts or purchase orders with [Springs], including any and all renewals, continuations, modifications, supplements and amendments thereof....
This is a continuing agreement and shall apply to future as well as present transactions, notwithstanding the death of any of the undersigned ... until actual receipt by [Springs] from the undersigned by registered mail of written notice of termination....
This instrument cannot be changed or terminated orally [and] shall be interpreted according to the laws of the State of New York....
Springs’ Opposition Brief at 42.
In November 1977, Chambers withdrew from participation in Kris Knit and sold his interest therein to Lianne Von Fricht. Chambers contends that, upon selling his interest in Kris Knit, he orally informed a representative of Springs that he wished to terminate his guarantee agreement. After Chambers’s departure, Springs continued to sell its products to Kris Knit. Springs and Kris Knit eventually modified their sales arrangement such that Kris Knit also purchased ultra-suede from Springs on a wholesale basis. Kris Knit’s commercial indebtedness to Springs increased substantially as a result of the wholesale sales.
*1131In 1986, Kris Knit became insolvent while owing Springs approximately $63,-000. After Kris Knit failed to pay the balance due, Springs notified Chambers that he was liable for Kris Knit’s debt.1 Chambers refused to pay, and Springs instituted this action.
On December 12, 1986, Springs filed a complaint in the Central District of California against Kris Knit and Jack Chambers, seeking recovery for breach of contract. Kris Knit failed to answer the complaint. Chambers claimed that Springs was precluded from recovery under two separate theories. First, Chambers alleged that he had orally terminated the guarantee agreement in 1977. Second, Chambers contended that the material alteration in the course of dealing between Springs and Kris Knit had excused him from his guarantee. Springs countered that Chambers’s guarantee was a fully-integrated, unambiguous agreement which, under New York law, could only be terminated by written notice as specified in the guarantee agreement. On July 12, 1988, the district court granted Springs’s motion for summary judgment and entered a judgment of $91,280 against Chambers. Chambers now appeals the district court’s grant of summary judgment.
DISCUSSION
In granting Springs’ motion for summary judgment, the district court held that under New York law2 the guarantee could be terminated only by written notice. Chambers quarrels with this conclusion and contends that he raised genuine issues of material fact concerning: (1) whether the guarantee was orally terminated in 1977; and (2) whether the material alteration in the course of dealing between Springs and Kris Knit discharged Chambers from his guarantee. This court reviews a grant of summary judgment de novo. Bonner v. Lewis, 857 F.2d 559, 561 (9th Cir.1988). This court also reviews a district court’s interpretation of state law de novo. State Farm Fire and Casualty Co. v. Estate of Jenner, 856 F.2d 1359, 1362 (9th Cir.1988).
In Chemical Bank v. Sepler, 60 N.Y.2d 289, 457 N.E.2d 714, 469 N.Y.S.2d 609 (1983), an officer of a closely-held corporation (Sepler), signed an agreement to guarantee the corporation’s obligations to Chemical Bank. The agreement provided that Sepler was liable to the bank for all existing and future obligations of the corporation to the bank and that the guarantee could be terminated only by written notice sent by registered mail. Id., 60 N.Y.2d at 293, 457 N.E.2d 714, 469 N.Y.S.2d 609. The bank made a loan to the corporation which was repaid within two years. After the loan was repaid, several of the corporation’s suppliers sold to the bank their accounts receivable due from the corporation. The corporation eventually defaulted on these obligations and the bank brought suit against Sepler. Sepler argued that he should not be liable to the bank because he guaranteed only particular loans of the corporation which had already been repaid. The New York Court of Appeals disagreed and held that:
Where, as here, a guarantee is continuing, applicable to after-acquired obligations and terminable only by writing, it may not be said to have terminated due to lack of further consideration, or cessation of what one party may have regarded as the ‘business relationship.’ A single, unlimited, continuing guarantee, supported by consideration given once and for all time, is not automatically terminated by a change in the parties’ relationship.
Id. at 294, 457 N.E.2d 714, 469 N.Y.S.2d 609 (footnote omitted).
Under Chemical Bank, neither Chambers’s attempted oral termination nor the modified course of dealing between *1132Springs and Kris Knit excused Chambers from his guarantee agreement. Chambers’s attempted oral termination in 1977 was ineffective because the guarantee agreement expressly provided that it could not be orally terminated and that it would remain in force until Springs received written notice of termination by registered mail. In the face of these express contractual provisions, any attempt to orally terminate the contract was “at odds with both the terms of the [guarantee] and the applicable law.” Id.
The modification in the course of dealing between Springs and Kris Knit was also insufficient to excuse Chambers from his guarantee. Chambers cites Becker v. Faber, 280 N.Y. 146, 19 N.E.2d 997 (1939), for the proposition that an alteration in the underlying contractual agreement excuses the guarantor of his obligation. However, where the guarantee agreement unambiguously states that the guarantee applies to any modification of terms, the guarantor is not excused by subsequent modifications. See Machinery Funding Corp. v. Stan Loman, Inc., 91 A.D.2d 528, 456 N.Y.S.2d 401, 402 (N.Y.App.Div.1982). The guarantee agreement stated that Chambers would be liable to Springs for Kris Knit’s present and future obligations including any and all renewals and modifications. Although enforcement of the guarantee against Chambers may be inequitable in light of the subsequent modifications in Springs’ and Kris Knit’s course of dealing, Chambers at all times “had the power to extinguish any perceived inequity: [he] could simply have served a written notice of termination upon [Springs]. [His] failure to do so cannot give rise to an equitable claim.” Chemical Bank, 60 N.Y.2d at 294-95, 457 N.E.2d 714, 469 N.Y.S.2d 609.
A fair reading of the New York Court of Appeals’ decision in Chemical Bank requires us to hold that Chambers remained liable under the guarantee agreement, notwithstanding his attempted oral termination and the modified course of dealing between Springs and Kris Knit.3 While application of Chemical Bank may seem to produce a harsh result, we are bound by the determination of the New York Court of Appeals in this diversity case. Because Chambers has alleged no facts which, under New York law, would terminate his liability under the guarantee agreement, the district court properly granted summary judgment to Springs.
AFFIRMED.

. Von Fricht was unable to pay the debt because she had declared bankruptcy earlier in 1986.

. The guarantee agreement provided that it “shall be interpreted according to the laws of New York”. The district court and the parties all agreed that New York law should be applied to resolve the dispute. Due to the unambiguous choice of law provision stated in the contract and in the absence of any considerations which would counsel application of the law of another forum, we find that New York law is appropriate for the present case.

. The dissent ignores Chemical Bank and instead relies upon Bankers Trust Hudson Valley, N.A. v. Christie, 68 A.D.2d 969, 414 N.Y.S.2d 787 (N.Y.App.Div.), on reargument, 72 A.D.2d 614, 420 N.Y.S.2d 521 (N.Y.App.Div.1979). In Bankers Trust, the court determined that an officer/shareholder of a closely-held corporation, who had agreed to personally guarantee the obligations of the corporation, could terminate his guarantee agreement in a manner inconsistent with the express provisions of the agreement. Bankers Trust, 414 N.Y.S.2d at 789. In contrast, Chemical Bank held that the personal guarantee of a similarly situated guarantor could be terminated only as provided by the express terms of the guarantee agreement. Chemical Bank, 60 N.Y.2d at 293-95, 457 N.E.2d 714, 469 N.Y.S.2d 609. To the extent that Bankers Trust, a 1979 decision of the Appellate Division of the New York Supreme Court, conflicts with Chemical Bank, a 1983 decision of the New York Court of Appeals, Bankers Trust is overruled. Therefore, the dissent's reliance on Bankers Trust is without foundation.
The dissent’s attempt to invoke the doctrines of waiver and estoppel is similarly unfounded. Chemical Bank explicitly held that a guarantor’s failure to terminate a guarantee agreement in accordance with the provisions of the agreement could not give rise to an equitable claim. Id. at 294-95, 457 N.E.2d 714, 469 N.Y.S.2d 609. Although we agree that the equities of this case provide a strong argument for the use of waiver and estoppel, under Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), we are compelled to follow the New York Court of Appeals’ unambiguous holding in Chemical Bank.