Court Opinion

ID: 2963448
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:09:52.044681+00
Date Added: 2024-06-11T15:01:07.981261
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

          No. 94-2104

                         WESTCHESTER FIRE INSURANCE COMPANY,

                                Plaintiff - Appellee,

                                          v.

                      RICHARD H. CAMPBELL & DEBORAH D. CAMPBELL,

                               Defendants - Appellants.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                              FOR THE DISTRICT OF MAINE

                     [Hon. Morton A. Brody, U.S. District Judge]
                                            ___________________

                                 ____________________

                                        Before

                                Boudin, Circuit Judge,
                                        _____________

                 John R. Gibson* and Campbell, Senior Circuit Judges.
                                               _____________________

                                _____________________

               Stephen  G. Morrell,  with whom  Laurie A.  Dart and  Eaton,
               ___________________              _______________      ______
          Peabody, Bradford & Veague, P.A., were on brief for appellants.
          ________________________________
               Keith R.  Jacques, with whom  Jensen Baird Gardner  & Henry,
               _________________             _____________________________
          was on brief for appellee.

                                 ____________________

                                     June 1, 1995
                                 ____________________

                              
          ____________________

          *  Of the Eighth Circuit, sitting by designation.

                    JOHN  R. GIBSON,  Senior  Circuit Judge.   Richard  and
                                      _____________________

          Deborah Campbell appeal the summary judgment entered against them

          in  favor of Westchester Fire Insurance Company on a guaranty the

          Campbells executed for the benefit of their family-owned company,

          R. H.  Campbell, Inc.   We  affirm the  judgment of  the district

          court.

                    The facts are undisputed.  In 1987 the Campbells signed

          an  agreement   with  Universal  Bonding  Insurance   Company  to

          indemnify Universal  against loss  on any  surety bonds  it might

          execute on behalf of R. H. Campbell, Inc.1  The  agreement had no

          termination date, and neither party terminated it.  The agreement
                              
          ____________________

          1  The operative language of the agreement provided:

                      [S]hould the  [Universal Bonding] Company
                      execute  or procure the  execution of the
                      suretyship for which  application is  now
                      pending,  or  which   may  be   hereafter
                      applied for . . . the  undersigned [i.e.,
                      the Campbells] . . . hereby undertake and
                      agree:

                                        . . .

                      That the  indemnitor  will . . .  at  all
                      times indemnify and  save the  [Universal
                      Bonding]   Company   harmless  from   and
                      against  every  claim, demand,  liability
                      [or]  loss . . . sustained or incurred by
                      the Company by  reason of having executed
                      or  procured the execution  of said bonds
                      or obligations . . . .  

          The agreement also stated:

                      The indemnitor and  his successors  agree
                      to indemnify and save harmless the Surety
                      from  and  against any  and  all demands,
                      liabilities,  loss,   costs,  damages  or
                      expenses    of    whatever   nature    or
                      kind. . . .

                                         -2-

          defined as  the "Surety" entitled to  indemnification: "Universal

          Bonding Insurance  Company, its reinsurers, and  any other person

          or entity  which the surety may  procure to act as  Surety or co-

          surety on any bond or any other person or entity who executes any

          bond at its  request."   In 1990 Westchester  issued payment  and

          performance  bonds  for  R.  H. Campbell,  Inc.,  at  Universal's

          request, in reliance on the guaranty  Universal had obtained from

          the Campbells.   Richard Campbell was aware that  his corporation

          was  obtaining the  bonds at  the time  Westchester issued  them,

          since  he signed the bonds in his  capacity as president of R. H.

          Campbell, Inc.

                    Westchester  was eventually  required  to pay  almost a

          million  dollars in claims, expenses,  and attorneys' fees on its

          surety bonds.   Consequently,  Westchester sued the  Campbells on

          the guaranty  agreement.  The district  court granted Westchester

          summary  judgment.  Westchester Fire Ins. Co. v. Campbell, 863 F.
                              _________________________    ________

          Supp. 32 (D. Maine 1994).

                    The Campbells argue that under Maine  law, specifically

          Norton v. Eastman, 4 Me. 521  (1827), a guarantor on a continuing
          ______    _______

          guaranty  is entitled  to notice  of acceptance  of his  offer of

          guaranty.    They argue  that they  did  not receive  notice that

          Westchester  issued its bonds in reliance on their guaranty.  The

          Campbells  quote  from  American  Agricultural  Chemical  Co.  v.
                                  _____________________________________

          Ellsworth, 83 A. 546  (Me. 1912):  "Until acceptance  and notice,
          _________

          the writing of  guaranty is merely  a proposal, making  necessary

                                         -3-

          acceptance by the other party to complete the contract."  Id.  at
                                                                    ___

          547.

                    However, there are  several situations in which  notice

          of acceptance  is unnecessary,  since acceptance can  be inferred

          from  the circumstances of the  offer of guaranty.   In Ellsworth
                                                                  _________

          the Maine Supreme Judicial Court stated:

                           There  are  some  exceptions to  the
                      general rule [requiring notice], three of
                      which  the plaintiff relies  upon in this
                      case.   One is when  the consideration of
                      the guaranty  is a valuable  one, moving,
                      directly or indirectly  to the  guarantor
                      from the creditor.   Another is when  the
                      guaranty is  made at  the request of  the
                      creditor.    And  a  third  is  when  the
                      agreement  to  accept,  or  the  contract
                      guaranteed,  is contemporaneous  with the
                      guaranty.    In  such  cases   notice  of
                      acceptance    of    the    guaranty    is
                      unnecessary.

          Id. at 547.
          ___

                    This  case  presents  the  first  exception  listed  in

          Ellsworth,  since  the Campbells  agreed  in  the 1987  guaranty:
          _________

          "Undersigned  warrant  that  each  of them  is  specifically  and

          beneficially interested  in  the obtaining  of each  Bond."   The

          import  of this  language  is  that  the  consideration  for  the

          guaranty--that  is,  the  Surety's  issuance  of  the  bonds--was

          valuable  consideration  benefitting  the  Campbells  themselves.

          This exception  makes perfect  sense, because when  the guarantor

          benefits  from the surety's execution of the bond, he has already

          received something under  the arrangement and is  not entitled to

          withdraw from it.   Moreover,  the very receipt  of that  benefit

          functions as notice of acceptance of the guaranty, making further

                                         -4-

          notice superfluous.   Here, the Campbells  were sole shareholders

          of R. H. Campbell, Inc.,  and as such had an obvious  interest in

          the  issuance  of  bonds enabling  R.  H.  Campbell,  Inc. to  do

          business.    Under these  circumstances,  the  Campbells are  not

          entitled  to  insist  on   further  notice  of  acceptance  under

          Ellsworth.2
          _________

                     Westchester  also  states without  objection  from the

          Campbells,  that  the  Campbells  executed the  guaranty  at  the

          request of the creditor, thus  coming within the second exception

          to  the notice  requirement.   See Ellsworth,  83 A. at  547; see
                                         ___ _________                  ___

          generally, Annotation,  Necessity  of Giving  Creditor Notice  of
          _________               _________________________________________

          Acceptance  of Guaranty,  6 A.L.R.  3d 355,    10 (1966  and 1994
          _______________________

          Supp.); Restatement  (Second) of  Contracts   54, cmt.  d (1981).

          Westchester's  assertion is  corroborated  by the  fact that  the

          guaranty agreement consists of a Universal Bonding form signed by

          the Campbells.  Thus, the Campbells' arguments based on Maine law

          are unavailing.

                              
          ____________________

          2    These  facts  also establish  another  generally  recognized
          proviso  to  the  notice  of  acceptance  requirement:    when  a
          guarantor is an  insider of the principal  corporation, notice of
          acceptance  to the  guarantor  is considered  redundant once  the
          corporation  has received  notice.   See  Richard  F. Dole,  Jr.,
                                               ___
          Notice Requirements of  Guaranty Contracts, 62 Mich. L.  Rev. 57,
          __________________________________________
          79-80 (1963); Annotation, Necessity  of Creditor Giving Guarantor
                                    _______________________________________
          Notice of  Acceptance of   Guaranty, 6 A.L.R. 3d  355,   13 (1966
          ___________________________________
          and 1994 Supp.); Restatement (Second)  of Contracts   54, cmt.  d
          (1981).  In this  case, the Campbells were the  sole shareholders
          and  were officers  and directors  of the  principal corporation.
          Richard Campbell was aware that the corporation was obtaining the
          bonds.   Campbell's knowledge  of the transaction  between debtor
          and  creditor  is  an  adequate  basis  for  inferring notice  of
          acceptance.   See, e.g., Cobb v. Texas Distrib., Inc., 524 S.W.2d
                        ___  ____  ____    ____________________
          342, 345 (Tex. Civ. App. 1975).

                                         -5-

                    Finally, to  the extent the Campbells  are arguing that

          Westchester  should have  notified  them  about each  transaction

          concluded in  reliance on their  guaranty, they have  waived such

          notice.   Their  guaranty agreement  states:   "Undersigned waive

          notice of . . . Surety's  loaning funds to Principal."   Since in

          executing the payment and  performance bonds the surety lent  its

          credit to  R. H. Campbell, Inc.,  it was in effect  lending R. H.

          Campbell  funds.     Certainly,  this  was  the  effect   of  the

          transaction  from  the  guarantor's  point  of  view,  since  the

          guarantor's concern is whether the principal will contract a debt

          he cannot repay.   Therefore,  our decision is  bolstered by  the

          fact  that  the  Campbells  waived  notice  of   principal-surety

          transactions in their  guaranty agreement.   See Davis v.  Wells,
                                                       ___ _____     _____

          104 U.S. 159, 169 (1881).

                    We affirm the judgment of the district court.

                    Affirmed.
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