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 . . . ."
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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
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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.
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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 . . . .
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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.
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