Self-Help Ventures Fund v. Custom Finish, LLC

682 S.E.2d 746, 199 N.C. App. 743, 2009 N.C. App. LEXIS 1562

• Court: Court of Appeals of North Carolina
• Decided: September 15, 2009
• Docket: COA08-1482
• Status: Published

Opinions

JACKSON, Judge.

Clarence W. Adams and Gladys L. Adams (“defendants”) appeal from the trial court’s order granting summary judgment for Self-Help Ventures Fund (“plaintiff’). For the following reasons, we affirm in part and dismiss in part.

On 14 August 2002, plaintiff made a loan to Custom Finish, LLC (“Custom”), for a principal amount of $223,000.00. Custom executed a promissory note (“the Note”), not signed by defendants, to plaintiff. Defendants, with others who are not parties to this appeal, each separately executed and delivered unconditional guaranties (“Guaranties”) for the Note to plaintiff. On 26 September 2002, plaintiff assigned and delivered both the Note and defendants’ Guaranties to the United States Small Business Administration (“SBA”).

On 3 March 2008, the SBA assigned and delivered the Note and a deed of trust to plaintiff. However, the SBA did not execute a separate reassignment of defendants’ Guaranties to plaintiff.

The promisor, Custom, defaulted under the terms of the Note. When plaintiff sought payment from the Note’s guarantors, defendants also defaulted.

On 2 April 2008, plaintiff accelerated the Note’s outstanding balance and filed suit, seeking judgment against all defendants, jointly and severally, in the amount of $166,815.00, plus interest, attorneys’ fees, and court costs. On 11 April 2008, summonses were served upon defendants. On 15 May 2008, an assistant clerk of Superior Court of Durham County entered default against defendants. On 20 May 2008, defendants, appéaring pro se, filed an application for extension of time to file their answer dated 15 May 2008.

On 21 May 2008, the trial court entered an order denying defendants’ application for an extension of time to file their answer. On 24 June 2008, defendants filed a motion to set aside the entry of default judgment. Defendants scheduled the hearing on their motion to set aside the default judgment for 9 September 2008. On 27 August 2008, plaintiff filed a motion for summary judgment against defendants and noticed the motion for hearing on 9 September 2008.

On 9 September 2008, the trial court conducted a hearing on plaintiff’s motion for summary judgment and defendants’ motion to set aside the default judgment. The trial court entered its order granting plaintiff’s motion for summary judgment, declining to rule on defendants’ motion to set aside the default judgment. Defendants appeal.

We review the trial court’s order for summary judgment de novo to determine whether there is a genuine issue of material fact and whether either party is entitled to judgment as a matter of law. See McDowell v. Randolph County, 186 N.C. App. 17, 20, 649 S.E.2d 920, 923 (2007). In this appeal, there is no dispute as to any genuine issues of material fact; therefore, we need to determine only whether summary judgment was entered properly in plaintiff’s favor or whether it should have been entered in defendants’ favor. See Geitner v. Mullins, 182 N.C. App. 585, 589, 643 S.E.2d 435, 438, disc. rev. denied, 361 N.C. 692, 652 S.E.2d 263 (2007).

Defendants argue that the trial court erred in granting plaintiff’s motion for summary judgment on the ground that plaintiff was not a party in interest. Defendants contend that because the SBA did not execute a separate assignment of defendants’ Guaranties when assigning the Note back to plaintiff, those Guaranties did not follow the Note, and therefore, the plaintiff was not a party in interest. We disagree.

Initially, we note that the Uniform Commercial Code (“UCC”) generally governs commercial transactions involving promissory notes. See, e.g., N.C. Gen. Stat. § 25-1-101 through -1-310; § 25-3-101 through -3-605; § 25-9-101 through -9-710 (2007). Notwithstanding, the UCC also provides that “[u]nless displaced by the particular provisions of this Chapter, the principles of law and equity . . . supplement its provisions.” N.C. Gen. Stat. § 25-l-103(b) (2007). The parties have not cited provisions within the UCC that control the case sub judice, and our research has revealed none. Accordingly, we apply the rules established at common law to resolve the questions presented in the instant case. Furthermore, although the dissent characterizes the issue presented on this appeal as one of first impression, we believe that principles already well-settled within our State, further informed by persuasive authority from our sister States, provide ample instruction so as to require our affirmation of the trial court’s grant of summary judgment in plaintiff’s favor.

Rule 17(a) of the North Carolina Rules of Civil Procedure provides that

[e]very claim shall be prosecuted in the name of the real party in interest; but... a party with whom or in whose name a contract has been made for the benefit of another . . . may sue in his own name without joining with him the party for whose benefit the action is brought])]

N.C. Gen. Stat. § 1A-1, Rule 17 (2007). Plaintiff, as assignee of the Note in the instant case, represents the real party in interest.

Our Supreme Court has explained,

[a] “guaranty” is a contract, obligation or liability arising out of contract, whereby the promisor, or guarantor, undertakes to answer for the payment of some debt, or the performance of some duty, in case of the faihire of another person who is himself in the first instance liable to such payment or performance.

Trust Co. v. Clifton, 203 N.C. 483, 485, 166 S.E. 334, 335 (1932) (citing Chemical Co. v. Griffin, 202 N.C. 812, 164 S.E. 577 (1932); Cowan v. Roberts, 134 N.C. 415, 46 S.E. 979 (1904); Carpenter v. Wall, 20 N.C. 279 (1838)).

“A guarantor’s liability depends on the terms of the contract as construed by the general rules of contract construction.” Carolina Place Joint Venture v. Flamers Charburgers, Inc., 145 N.C. App. 696, 698, 551 S.E.2d 569, 571 (2001) (citing Jennings Communications Corp. v. PCG of the Golden Strand, Inc., 126 N.C. App. 637, 641, 486 S.E.2d 229, 232 (1997)). “When the language of a contract is clear and unambiguous, construction of the contract is a matter for the court.” Hagler v. Hagler, 319 N.C. 287, 294, 354 S.E.2d 228, 234 (1987). “It is a well-settled principle of legal construction that ‘[i]t must be presumed the parties intended what the language used clearly expresses, and the contract must be construed to mean what on its face it purports to mean.’ ” Id. (quoting Indemnity Co. v. Hood, 226 N.C. 706, 710, 40 S.E.2d 198, 201 (1946) (citations omitted)). Moreover, “[a]ll contemporaneously executed written instruments between the parties, relating to the subject matter of the contract, are to be construed together in determining what was undertaken.” Yates v. Brown, 275 N.C. 634, 640, 170 S.E.2d 477, 482 (1969) (citing Combs v. Combs, 273 N.C. 462, 160 S.E.2d 308 (1968); Smith v. Smith, 249 N.C. 669, 107 S.E.2d 530 (1959)).

In the instant case, the language of the guaranty contracts is clear and unambiguous; there is no genuine issue of material fact. Further, the Note and defendants’ Guaranties were executed contemporaneously. Therefore, the Court presumes that defendants intended what the language of the Guaranties clearly expresses. Relevant provisions of the Note state:

1. PROMISE TO PAY:

In return for the Loan, Borrower promises to pay to the order of [Certified Development Company (“CDC”)] the amount of Two hundred twenty-three thousand and 00/100 Dollars, interest on the unpaid principal balance, the fees specified in the Servicing Agent Agreement, and all other amounts required by this Note.

6. CDC’S RIGHTS IF THERE IS A DEFAULT:

B. Collect all amounts owing from any Borrower or Guarantor,

9. SUCCESSORS AND ASSIGNS:

Under this Note, Borrower and Operating Company include the successors of each, and CDC includes its successors and assigns.

(Emphasis added). Relevant provisions of defendants’ Guaranties state:

1. GUARANTEE:

Guarantor unconditionally guarantees payment to Lender of all amounts owing under the Note. This Guarantee remains in effect until the Note is paid in full. Guarantor must pay all amounts due under the Note when Lender makes written demand upon Guarantor. Lender is not required to seek payment from any other source before demanding payment from Guarantor.

8. SUCCESSORS AND ASSIGNS:

Under this Guarantee, Guarantor includes heirs and successors, and Lender includes its successors and assigns.

(Emphasis added).

The well-settled rule in North Carolina is that

a guaranty of payment is an absolute or unconditional promise to pay some particular debt, if not paid by the principal debtor at maturity, and it is generally held that such a guaranty is assignable and enforceable by the same persons who are entitled to enforce the principal obligation, which it is given to secure.

State v. Bank, 193 N.C. 524, 526, 137 S.E. 593, 594 (1927) (citations omitted) (emphasis added). Furthermore, “[a] guaranty is assignable with the obligation secured thereby, and goes with the principal obligation.” Trust Co. v. Trust Co., 188 N.C. 766, 771, 125 S.E. 536, 538 (1924) (internal quotation marks omitted) (emphasis added).

These rules accord with the general rule that

a security interest is generally recognized as incidental to and passing with the title to property. This effect has been explained in American Jurisprudence, a treatise on assignments:

“The assignment of a debt ordinarily carries with it all liens and every remedy or security that is incidental to the subject matter of the assignment and that could have been used, or made available, by the assignor as a means of indemnity or payment, even though they are not specifically named in the instrument of assignment, and even though the assignee at the time was ignorant of their existence. Such rights will pass notwithstanding the assignment is not by any instrument in writing, or that the assignor retains possession of the collateral, his possession being considered in the nature of a trust for the benefit of the assignee of the debt.”

General Electric Credit Corp. v. Allegretti, 515 N.E.2d 721, 725-26 (Ill. App. Ct. 1987) (quoting 6 Am. Jur. 2d Assignments § 121 (1964)) (emphasis added). Further, a transfer of a principal obligation operates as an assignment of an associated guaranty. See Sinclair Marketing, Inc. v. Siepert, 695 P.2d 385 (Idaho 1985). Similarly, a transfer of a promissory note also operates as an assignment of an associated guaranty, Hazel v. Tharpe & Brooks, 283 S.E.2d 653 (Ga. Ct. App. 1981), even without reference in the assignment of the note to the guaranty. Metropolitan Casualty Ins. Co. v. Soucy et., 16 Ohio Law Abs. 538 (1934).

In keeping with these general principles and precedent established within North Carolina, our Supreme Court has held that

rights under a special guaranty — that is, a guaranty addressed to a specific entity — are assignable unless: assignment is prohibited by statute, public policy, or the terms of the guaranty; assignment would materially alter the guarantor’s risks, burdens, or duties; or the guarantor executed the contract because of personal confidence in the obligee. This rule is consistent with the common law of contracts, accommodates modern business practices, and fulfills the intent of parties to ordinary business agreements.

Kraft Foodservice, Inc. v. Hardee, 340 N.C. 344, 348, 457 S.E.2d 596, 598-99 (1995) (citations and internal quotation marks omitted).

In the case sub judice, defendants have not provided legal support for the contention that the Guaranties do not follow the Note. Notwithstanding their failure to provide support, defendants assert that the Guaranties were not automatically assigned along with the Note. However, there is no evidence in the record suggesting that the assignment of the Guaranties would (1) violate a statute, public policy, or the terms of the Guaranties; (2) materially alter defendants’ risks, burdens, or duties; or (3) violate personal confidence defendants placed in the obligee. See id.

Rather, the record provides uncontested evidence of a default by the borrower and a subsequent assignment of the Note back to plaintiff by the SBA. When the Note was executed initially, plaintiff was designated as the CDC. Later, when the Note was assigned by the SBA, plaintiff became the assignee. Because defendants’ Guaranties are contemporaneously executed written agreements to the Note, they are construed together with the Note. Yates, 275 N.C. at 640, 170 S.E.2d at 482. Sections six and nine in the Note expressly provide that the CDC or assignees of the CDC may collect all amounts owing from Guarantors. Because plaintiff was the CDC when defendants executed their Guaranties, and because plaintiff was the CDC after the SBA’s assignment of the Note, enforcing defendants’ Guaranties fulfills the intent of the parties expressed within the contract.

Finally, because plaintiff is entitled to enforce the principal obligation, plaintiff also is entitled to enforce the guaranty notwithstanding the fact that, the reassignment of the Note did not include an express reassignment of the guaranty. Bank, 193 N.C. at 526, 137 S.E. at 594; Hazel, 283 S.E.2d at 653. Therefore, upon the Note’s assignment to plaintiff by the SBA, defendants unconditionally guaranteed payment to plaintiff, whereupon plaintiff became a party in interest, as set forth in Rule 17(a) of the North Carolina Rules of Civil Procedure. N.C. Gen. Stat. § 1A-1, Rule 17 (2007).

Next, defendants argue that the trial court erred in not ruling upon defendants’ motion to set aside entry of default before considering plaintiff’s motion for summary judgment. We disagree.

In the instant case, the record contains no indication that defendants objected at trial to the trial court’s ruling upon plaintiff’s motion for summary judgment before considering defendants’ motion to set aside entry of default. Accordingly, this issue has not been preserved for our review, and it is dismissed. See N.C. R. App. P. 10(b)(1) (2007); State v. Wiley, 355 N.C. 592, 565 S.E.2d 22 (2002); Williams v. Walker, 185 N.C. App. 393, 648 S.E.2d 536 (2007).

For the foregoing reasons, we affirm in part and dismiss in part.

Affirmed in part; Dismissed in part.

Judge HUNTER, Jr., Robert N. concurs. Judge WYNN dissents in a separate opinion.