Westchester Fire v. Campbell

• Court: Court of Appeals for the First Circuit
• Decided: June 1, 1995
• Docket: 94-2104
• Status: Published

Opinion

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,
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                 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.


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                                     June 1, 1995

                                 ____________________


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          *  Of the Eighth Circuit, sitting by designation.



JOHN  R. GIBSON,  Senior  Circuit Judge.   Richard  and
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          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

                              
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          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. . . .



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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,
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          the writing of  guaranty is merely  a proposal, making  necessary


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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



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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
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          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.



                              
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          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).



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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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