Court Opinion

ID: 2964821
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:31:38.171931+00
Date Added: 2024-06-11T11:43:02.040927
License: Public Domain

USCA1 Opinion

	

                           UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                ____________________
       No. 97-1113
                    FEDERAL DEPOSIT INSURANCE CORPORATION, ETC.,
                                Plaintiff, Appellee,
                                         v.
                            HOPPING BROOK TRUST, ET AL.,
                               Defendants, Appellants.
                                ____________________
                    APPEAL FROM THE UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF MASSACHUSETTS
                 [Hon. George A. O'Toole, Jr., U.S. District Judge]
                                ____________________
                                       Before
                               Torruella, Chief Judge,
                         Campbell, Senior Circuit Judge, and
                                Stahl, Circuit Judge.
                                ____________________
            Christopher M. Perry,with whom Brendan J. Perry, Terrance P.
       Perry and Brendan J. Perry & Associates were on brief for appellants.
            Jaclyn C. Taner, with whom Ann S. DuRoss, Assistant General
       Counsel, and Colleen B. Bombardier, Senior Counsel, Federal Deposit
       Insurance Corporation, were on brief for appellee.
                                ____________________
                                    July 3, 1997
                                ____________________
                                          1

                      Per  Curiam.    This  case  concerns  the  personal
            guaranties 
                      by 
                         James 
                              W. 
                                 Flett and John J. Arno of a loan made to
            Hopping Brook  Trust by the  Home National  Bank of  Milford,
            Massachusetts
                        .  The facts of the case are clearly set forth in
            the 
               district 
                        court's opinion, F.D.I.C. v. Hopping Brook Trust,
            941 F.  Supp. 256 (D.  Mass. 1996).   Because we believe  the
            district  court analyzed  the appealed  issues correctly,  we
            affirm on the basis of the district court's opinion.  We  add
            only a few paragraphs for clarification.
                      Flett and Arno premise their contention that  their
            obligations  under the  guaranties were  discharged on  three
            arguments.  
                      First, they assert that Mass. Gen. Laws ch. 244,  S
            17B  required the F.D.I.C.  to notify them  of its intent  to
            foreclose the mortgage.1  The Massachusetts courts have  held
            that 
                S 
                  17B 
                     does 
                          not 
                              require the notification of guarantors, see
            Senior Corp. v. Perine, 452 N.E.2d 1160, 1161 (Mass. App. Ct.
            1983). 
                   
                   Flett and Arno argue, nonetheless, that S 17B required
            notifying 
                     them 
                         because, 
                                  despite the use of the term "guarantor"
            in the agreements, they are not really guarantors but primary
            obligors.  They point to language in the guaranties providing
            1.  Mass. Gen. Laws c. 244, S 17B states, in relevant part,
            "No action for a deficiency shall be brought . . . by the
            holder of a mortgage note or other obligation secured by
            mortgage of real estate after a foreclosure sale by him
            . . . unless a notice in writing of the mortgagee's intention
            to foreclose the mortgage has been mailed . . . to the
            defendant sought to be charged with the deficiency . . . ."  
                                         -2-
                                          2

            for  "primary, direct  and  immediate"  liability,  and  cite
            Chestnut Manor, Inc.  v. Abraham, 452 N.E.2d 258, 259  (Mass.
            App. Ct. 1983),  for the proposition that guarantors who  are
            directly  and  unconditionally  liable  are  really   primary
            obligors. 
                      Flett's and Arno's  reliance on Chestnut Manor,  an
            intermediate appellate decision not involving the application
            of 
              S 
                17B, 
                     is 
                       misplaced. 
                                   
                                   While the short exposition in Chestnut
            Manor
                 
                 leaves 
                        it unclear why the "guarantors" in that case were
            held to be primary obligors, an earlier Massachusetts Supreme
            Judicial Court  case cited in  Chestnut Manor indicates  that
            Flett and Arno were,  in any event, genuine guarantors.   See
            Charlestown 
                       Five Cents Sav. Bank v. Wolf, 36 N.E.2d 390 (Mass.
            1941) (superseded by statute on a separate issue).
                      In Wolf, the  Massachusetts Supreme Judicial  Court
            stated:
                      The intention of  the parties  as to  the
                      character of the liability assumed by the
                      defendant[] . .  . is  to be  ascertained
                      from  a  fair  construction  of  all  the
                      language appearing in the note and in the
                      [guaranty], according to the usual  rules
                      of interpretation,  in the  light of  the
                      subject  matter involved  and  by  giving
                      appropriate 
                                 effect to all the words in the
                      note and in the [guaranty] where that  is
                      reasonably practicable.
            Wolf, 36 N.E.2d at 391.  
                      The 
                         state's 
                                 highest court went on to reason that the
            use of the term "guaranty" and the inclusion of certain types
                                         -3-
                                          3

            of waivers  in the  agreement would  only make  sense if  the
            agreement was in fact a guaranty.  The Supreme Judicial Court
            wrote:
                      The  word "guarantee"  appearing  in  the
                      memorandum suggests, not a primary, but a
                      collateral  undertaking  .  .  .  .   The
                      phrases, "waiving demand and notice", and
                      "No extension  or indulgence  or  partial
                      release shall prevent my remaining  fully
                      liable",  are  superfluous  if,  as   the
                      plaintiff contends, the parties  intended
                      that 
                          the 
                              defendant[] . . . should become a
                      comaker of the note.  A demand or  notice
                      is not necessary in order to hold a party
                      who is primarily liable  on a note and  a
                      comaker of a note would not be discharged
                      by any  indulgence or  extension of  time
                      granted by the payee to another  comaker.
                      But  the  phrases  above  quoted   would,
                      however, have  real significance  if  the
                      obligation of the defendant[] . . .   was
                      that of a guarantor.
          Id. at 391-92 (citations omitted).
                      Similarly,  in this  case, the  agreement was  titled
          "Guaranty," 
                     contained 
                              an 
                                 explicit waiver of "presentment and demand
          for payment  and  protest of  non-payment"  (paragraph 4  of  the
          guaranties), and stated that  the guarantors would remain  liable
          even 
              if 
                 the 
                    lender 
                           "waive[d] compliance with, or any default under,
          or 
            grant[ed] 
                      any 
                         other 
                               indulgences with respect to, the Note or any
          agreement or instrument  securing the Note," (paragraph 2 of  the
          guaranties).  These waivers would have been superfluous if  Flett
          and Arno were primary obligors  rather than guarantors.  Id.   We
          agree with  the district court that  Flett and Arno were  genuine
          guarantors.  See Hopping Brook Trust, 941 F.Supp. at 261 n.1.
                                         -4-
                                          4

                      Flett's and Arno's second argument, not discussed  by
          the district court, is that they are discharged under a provision
          of Massachusetts' version of  the Uniform Commercial Code,  Mass.
          Gen. Laws ch. 106, S 3-606.2  The short answer to this contention
          is that  Article 3  of the U.C.C.  does not  apply to  guaranties
          because 
                 guaranties 
                           are 
                               not negotiable instruments.  See Pemstein v.
          Stimpson, 630 N.E.2d 608, 613 (Mass. App. Ct. 1994).  Flett's and
          Arno's attempts to avoid this rule  of law by claiming not to  be
          guarantors but primary obligors  fails for the reasons  discussed
          above.
                      Flett's and Arno's third and final contention is that
          they 
              are 
                 discharged 
                            under the common law because of an amendment to
          the 
             Construction 
                         Loan 
                              Agreement effected some three weeks after the
          other agreements were signed.  The amendment provided,  "Borrower
          shall 
               pay 
                   to 
                     Lender, 
                             on 
                                a partial release basis, the sum of $40,000
            2.  Mass. Gen. Laws ch. 106, S 3-606 states, in relevant
            part:
               (1) The holder discharges any party to the instrument
               to the extent that without such party's consent the
               holder
                    (a) without express reservation of rights
                    releases or agrees not to sue any person
                    against whom the party has to the knowledge
                    of the holder a right of recourse or agrees
                    to suspend the right to enforce against such
                    person the instrument or collateral or
                    otherwise discharges such person, except that
                    failure or delay in effecting any required
                    presentment, protest or notice of dishonor
                    with respect to any such person does not
                    discharge any party as to whom presentment,
                    protest or notice of dishonor is effective or
                    unnecessary . . . .
                                         -5-
                                          5

          per acre  on the  sale or transfer  by Borrower  of any  property
          covered under and secured by the Mortgage."  Flett and Arno argue
          that  this amendment  materially  and prejudicially  altered  the
          underlying 
                    loan 
                        which 
                              they had guarantied, resulting in a discharge
          under the doctrine of Warren  v. Lyons, 25 N.E. 721 (Mass.  1890)
          (holding that a  guarantor's obligations may  be discharged by  a
          prejudicial change  to  the  guarantied agreement  to  which  the
          guarantor did not consent).
                      To  the district  court's  clear explanation  of  its
          rejection of this argument we add only that language in paragraph
          2  of the  guaranties  expressly waived  any  claim of  legal  or
          equitable discharge.  The guaranties stated, "The obligations  of
          guarantor 
                   under this guaranty shall be unconditional, irrespective
          of the genuineness, validity, regularity or enforceability of the
          Note or  any  other  [sic] circumstances  which  might  otherwise
          constitute  a  legal  or  equitable  discharge  of  a  surety  or
          guarantor." 
                      
                      Such 
                          broad 
                                waivers are enforceable under Massachusetts
          law. 
               
               See
                   
                   Sha
                      wmut Bank, N.A. v. Wayman, 606 N.E.2d 925, 927 (Mass.
          App. Ct. 1993).
                      Affirmed.
           
                                         -6-
                                          6