Opinion
No. 107,448.
2013-04-26
ENTERPRISE BANK & TRUST, (As Substituted For First National Bank of Olathe), Appellee, v. Steven VanLERBERG, Successor Co–Trustee of the Albert C. VanLerberg Revocable Trust Agreement Dated 1/27/2000, As May Be Amended, et al., Defendants, (Gregory D. Prieb; Gregory D. Prieb and Paulette M. Prieb, Co–Trustees of the Gregory D. Prieb Inter Vivos Trust Agreement; Arbor Lake, LLC; Steven VanLerberg and Joanne M. Preston, Successor Co–Trustees of the Albert C. VanLerberg Revocable Trust; and Roger Campbell), Appellants.
Appeal from Johnson District Court; David W. Hauber, Judge. Lawrence L. Ferree and Ronald C. Rundberg, of Ferree, Bunn, O'Grady & Rundberg, Chartered, of Overland Park, and J. Donald Lysaught, Jr., of Evans and Mullinex, P.A., of Shawnee, for appellants. Barry L. Pickens and J. Loyd Gattis, of Spencer Fane Britt & Browne LLP, of Kansas city, Missouri, for appellee.
Appeal from Johnson District Court; David W. Hauber, Judge.
Lawrence L. Ferree and Ronald C. Rundberg, of Ferree, Bunn, O'Grady & Rundberg, Chartered, of Overland Park, and J. Donald Lysaught, Jr., of Evans and Mullinex, P.A., of Shawnee, for appellants. Barry L. Pickens and J. Loyd Gattis, of Spencer Fane Britt & Browne LLP, of Kansas city, Missouri, for appellee.
Before McANANY, P.J., HILL and LEBEN, JJ.
MEMORANDUM OPINION
PER CURIAM:
This action is an attempt by a lender to recover money from three men who gave personal guarantees for any unpaid indebtedness of a company the three had created. When the new company defaulted on its loan, the district court allowed the lender to proceed directly against the personal guarantors first, without forcing the bank to sue the company first and foreclose the real estate mortgage before seeking satisfaction from the guarantors. Because the agreements of the parties specifically allowed this procedure, we hold the district court did not err when it denied relief to the guarantors. Consequently, we affirm.
New financing arises from a foreclosure.
Roger Campbell, Greg Prieb, and Albert VanLerberg agreed with First National Bank of Olathe to form a new business association in order to buy some real estate in Johnson County that the bank had purchased at a sheriff's sale. The land had been owned by a limited liability company, Prairie Star West, LLC, which was controlled by Campbell, Prieb, and VanLerberg.
First National had lent money to Prairie Star, secured by a note and mortgage. It was during the foreclosure of this mortgage that the three began their negotiations about creating a new business association so they could compromise the Prairie Star litigation. The parties agreed that First National would lend money to this new association so it could buy the land from the Bank.
The business association the three created to buy the real estate was Arbor Lake, LLC. Arbor Lake signed a business loan agreement with First National and gave a promissory note to the Bank. According to the loan agreement, no loan funds were disbursed to Arbor Lake until First National received signed guarantees from Campbell, Prieb, and VanLerberg. In turn, Campbell, Prieb, and VanLerberg gave personal guarantees to First National promising to be responsible for repayment of the loan to the new company.
Later, when the First National Bank of Olathe was in receivership, Enterprise Bank & Trust acquired Arbor Lake's promissory note to First National.
Arbor Lake has failed to make a payment on the note since October 2010. After Arbor Lake quit paying on the loan, First National brought an action against the guarantors Prieb, Campbell, and VanLerberg—based on their guaranty agreements. First National did not sue Arbor Lake, nor did it seek foreclosure on its mortgage.
Prieb answered by claiming that First National was required to seek satisfaction on the loan from Arbor Lake before pursuing the guarantors. VanLerberg and Campbell claimed in their response that First National was guilty of misrepresentation, unclean hands, and breach of the implied covenants of good faith and fair dealing. VanLerberg and Campbell countersued First National on those grounds as well. As the lawsuit progressed, all three guarantors have claimed First National failed to mitigate its damages and failed to properly foreclose the real estate mortgage. They also contend the guarantee agreements lacked consideration.
The appropriate portions of the agreements of the parties follow.
The June 5 Agreement
On June 5, 2009, Campbell, Prieb, and VanLerberg entered an agreement with First National “for the purpose of compromising” in the Prairie West litigation. Under the agreement, First National agreed to purchase the Prairie Star property at a sheriff's sale for the full amount of its money judgment in the Prairie Star action. Campbell, Prieb, and VanLerberg agreed to form an entity that would then purchase the property for $4,106,093.71. The entity would obtain a loan from First National for the purchase and sign a promissory note to this effect. First National would have a “first priority mortgage” on the entity's newly acquired property in the amount of the promissory note.
The June 5 agreement noted some “[k]ey aspects” of the promissory note including a principal amount of $4,156,093.71 (the total purchase price of $4,106,093.71 plus $50,000 to secure the use of a neighboring pool) and an interest rate of 4 percent in the first year (and future rates to be set by First National's prime rate thereafter).
The June 5 agreement also indicated Campbell, Prieb, and VanLerberg would guaranty the entity's obligation under the promissory note in the following percentages: Prieb would guarantee 25 percent, Campbell would guarantee 12.5 percent, and VanLerberg would guarantee 25 percent.
The Promissory Note
In a document dated July 22, 2009, Arbor Lake promised to pay First National the principal amount of $4,156,093.71, plus interest. The note provided for an interest rate of 4 percent in the first year, and a rate based on Olathe's prime rate thereafter. The note stated that in the event of default, the interest rate would increase to 18 percent. The note was signed by Campbell, on behalf of Arbor Lake.
The Business Loan Agreement
In a document dated July 22, 2009, Arbor Lake and First National acknowledged the commercial loan made to Arbor Lake. Arbor Lake agreed that prior to disbursement of any loan proceeds, the guarantors would furnish executed guaranties to First National based on each guarantor's percentage of Arbor Lake's “Indebtedness.”
The Guarantees
The three guarantors each signed guaranty agreements, which were delivered to First National on July 22, 2009. The agreements state:
“For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of Guarantor's Share of the Indebtedness of Borrower to Lender, and Guarantor's Share of the performance and discharge of all Borrower's obligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the Indebtedness or against any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness.”
Arbor Lake seeks to intervene.
Arbor Lake tried to intervene in the lawsuit so it could obtain a fair value determination of the collateral before any judgment was taken against the guarantors. Because this was a contract action between a lender and the guarantors and not a foreclosure action, the district court denied Arbor Lake's request to intervene. When it made this ruling, the court relied upon the language of the guarantee agreements that indicated the lender was not required to first collect from Arbor Lake or foreclose on the collateral before collecting from the guarantors. Indeed, the agreements state the guarantors were giving the lender an absolute and unconditional guaranty to pay.
Prieb sought partial summary judgment and a restraining order from the court against First National. He wanted the court to restrain the lender from proceeding against him until a judicial determination of the fair value of the collateral could be made. According to Prieb, First National was required to start foreclosure proceedings against Arbor Lake first. If the value of the collateral was insufficient to cover the indebtedness, then the lender could pursue satisfaction from the guarantors. The court denied the application for a restraining order and motion for summary judgment on the same grounds it used when it denied Arbor Lake's motion to intervene.
Ultimately, the court ruled in favor of First National's successor, Enterprise, on its claims. The court rejected each of the challenges raised by the guarantors, including the claim there had been a material change in the interest rate, that the guarantee agreements were incomplete, that there was no consideration for the agreements, and that the lender breached the covenant of good faith and fair dealing. The court entered judgment against the guarantors in conformity with their personal percentages of the obligation under the agreements.
We pause to make a quick holding here at the start. We are not persuaded by Enterprise's argument that we should deem the issues raised by the guarantors abandoned because they did not comply with Supreme Court Rule 6.02(a)(5) ( 2012 Kan. Ct. R. Annot. 38). Even though the guarantors failed to cite the district court's rulings on the issues, they offered substantial legal arguments on each issue and supported these arguments with pertinent legal authority. In all the cases cited by Enterprise, a party either failed to make any meaningful legal argument or failed to cite any legal authority to support his or her claims. See, e.g., State v. Mitchell, 284 Kan. 374, 377, 162 P.3d 18 (2007); Mid–Continent Specialists, Inc. v. Capital Homes, 279 Kan. 178, 191, 106 P.3d 483 (2005); State v. Holmes, 278 Kan. 603, 622, 102 P.3d 406 (2004). That is not the case here.
The guarantors ask us to overturn the judgment of the district court because:
• Arbor Lake should have been allowed to intervene.
• The district court erred when it denied the guarantors' summary judgment.
• The interest rate in the promissory note is unenforceable.
• The guaranty agreements are incomplete and therefore unenforceable.
• The guaranty agreements are not supported by consideration.
• First National breached the implied covenants of good faith and fair dealing.
We will address the first two issues together, the next two separately, and the final two together.
The court did not err when it denied the restraining order, summary judgment, and intervention by Arbor Lake.
There are two statutes that control the intervention of new parties into a pending lawsuit—one law concerns mandatory interventions and one deals with permissive interventions. K.S.A.2012 Supp. 60–224(a) states that on timely motion, the court must permit anyone to intervene who: (1) has an unconditional right to intervene under a statute; or (2) “claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter substantially impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.”
Then, K.S.A.2012 Supp. 60–224(b)(l) provides that on a timely motion, the court may permit anyone to intervene who: (1) has a conditional right to intervene by a statute; or (2) has “a claim or defense that shares with the main action a common question of law or fact.” The court exercises its discretion when determining whether it should allow intervention under 60–224(b) and must consider whether intervention will unduly delay or prejudice the adjudication of the original parties' rights. K.S.A.2012 Supp. 60–224(b)(3).
Whether the evidence demonstrates that the requirements of K.S.A.2012 Supp. 60–224(a), mandatory intervention, have been met is a mixed question of fact and law. Landmark Nat'l Bank v. Kesler, 289 Kan. 528, 533, 216 P.3d 158 (2009). When reviewing the denial of a motion to intervene as a matter of right under K.S.A.2012 Supp. 60–224(a), this court reviews the district court's factual findings for substantial competent evidence and reviews the court's legal conclusions de novo. See 289 Kan. at 533.
In cases of permissive intervention, we view the question of granting or denying intervention as a matter of judicial discretion. According to the Supreme Court in Fischer v. State, 296 Kan., Syl. ¶ 8, 295 P.3d 560 (2013), judicial discretion is abused if the judicial action is:
• arbitrary, fanciful, or unreasonable, i.e., if no reasonable person would have taken the view adopted by the trial court;
• based on an error of law, i.e., if the discretion is guided by an erroneous legal conclusion; or
• based on an error of fact, i.e., if substantial competent evidence does not support a factual finding on which a prerequisite conclusion of law or the exercise of discretion is based.
Here, under both statutes, the district court denied Arbor Lake's intervention into the lawsuit. The court would not allow intervention as a matter of right or of grace.
When it denied intervention, the district court focused on the following clear provision in the guaranty agreements:
“This is a guaranty of payment and performance and not of collection, so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the Indebtedness or against any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness.” (Emphasis added.)
The court reasoned that a guaranty obligation is independent of an obligation between a principal debtor and a bank. The court noted that the guarantors and the lender expressly agreed the lender would not be required to elect its remedies or proceed against the collateral or Arbor Lake before proceeding against any guarantor.
There is no contention here that Arbor Lake has a statutory right to intervene. Nor can we see that Arbor Lake's rights are impaired or its property is impeded by this action of a lender seeking satisfaction under a personal guarantee. We see no evidence in the record that would trigger the mandatory intervention statute. In fact, assuming personal judgments for the lender, and satisfaction of those judgments, Arbor Lake's indebtedness under the note would be reduced by 62.5 percent. In addition, Arbor Lake still owns the real estate as this action is not an in rem proceeding but rather a private contract action between the lender and the guarantors.
The guarantee agreements themselves serve as substantial competent evidence to support the district court's denial of Arbor Lake's motion for mandatory intervention under K.S.A.2012 Supp. 60–224(a). Our interpretation of the guarantee contracts, a matter of law, corresponds with that of the district court. The agreements plainly state the lender can pursue satisfaction of this debt against the guarantors, “even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the Indebtedness or against any collateral securing the Indebtedness....”
We find no error in the district court denying Arbor Lake's intervention into this lawsuit under K.S.A.2012 Supp. 60–224(a). We move now to the question of permissive intervention.
One of the reasons the district court used to deny the motion for intervention is based on Arbor Lake's failure to file a proposed pleading with its motion to intervene. K.S.A.2012 Supp. 60–224(c) provides: “A motion to intervene must be served on the parties as provided in K.S.A. 60–205, and amendments thereto. The motion must state the grounds for intervention and be accompanied by a pleading that sets out the claim or defense for which intervention is sought.” (Emphasis added.) The guarantors admit Arbor Lake failed to file a proposed pleading as required but argue it was unnecessary because “it was obvious” why Arbor Lake was attempting to intervene.
We agree with the district court that Arbor Lake's failure to file a proposed pleading when it sought to intervene in this lawsuit between a lender and three guarantors is a valid reason for denying intervention. K.S.A.2012 Supp. 60–224(c) means what it says. The guarantors' argument that it “was obvious” what Arbor Lake was trying to do sucks the life out of the statute. How is a court to decide if a party should intervene if no proposed pleading is filed along with such a motion? The law does not require district judges to be mind readers. We view this failure to file a proposed pleading with this motion to intervene to be just as deficient as a motion for summary judgment that is filed and has no uncontroverted findings of fact as required by Supreme Court Rule 141(a) (2012 Kan. Ct. R. Annot. 247).
Other cases have held the district court does not abuse its discretion in denying a motion for intervention where a party failed to comply with K.S.A. 60–224(c). See Jones v. Bordman, 243 Kan. 444, 449–51, 759 P.2d 953 (1988), where the court held that the party was not an intervenor where it never made an oral or written motion to intervene; Memorial Hospital Ass'n, Inc. v. Knutson, 239 Kan. 663, 666, 722 P.2d 1093 (1986), where the court held that the district court did not abuse its discretion in denying a motion to intervene where the party only made an oral motion and did not serve the motion on the parties as required by K.S.A. 60–224(c); Wilson & Walker v. State, 230 Kan. 49, 56, 630 P.2d 1102 (1981), where the court held that the trial court did not err in denying an oral motion to intervene where no motion was served on the parties.
We cannot say that the district court's denial was an abuse of discretion.
It is fair to say the guarantors desired judicial action in this case that would force the lender to seek its recovery from Arbor Lake and the collateral before collecting on the personal guarantees. Prieb's motions for a restraining order and summary judgment, both properly denied by the district court, demonstrate this desire. The guarantors' intent here is clear. If the court had granted those motions, then any possible judgments against them would be reduced by whatever amount was recovered from Arbor Lake or the forced sale of the real estate collateral. The trouble with this desire is that it seeks the over-extension of an equity statute, K.S.A. 60–2415(b), to such an extent that it nullifies much of the contract of the parties.
The legislature has recognized that the traditional equitable powers of the court must be preserved when dealing with executions and orders of sale. K.S.A. 60–2415(b) allows a court to decline the confirmation of the forced sale of property when the winning bid is substantially inadequate. In addition, the court could set an upset price or a minimum amount that must be bid if the forced sale is to be confirmed. In such cases, the statute also permits the courts to hold a hearing on the matter in order to establish the value of the property. This is chiefly the relief that Prieb sought in his motion for summary judgment.
Had the lender here sought to affect the collateral in any fashion, we can see where the use of this procedure would be necessary. But the contracts themselves demonstrate why K.S.A. 60–2415(b) is inapplicable here.
The first section of the guarantee agreements states:
“For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of Guarantor's Share of the Indebtedness of Borrower to Lender, and Guarantor's Share of the performance and discharge of all Borrower's obligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the Indebtedness or against any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness.” (Emphasis added.)
Part of the third section states:
“Lender shall determine Guarantor's share of the Indebtedness when Lender makes demand on Guarantor. After a determination, Guarantor's Share of the Indebtedness will only be reduced by sums actually paid by Guarantor under this Guaranty, but will not be reduced by sums from any other source including, but not limited to, sums realized from any collateral securing the Indebtedness or this Guaranty, or payments by anyone other than Guarantor, or reductions by operation of law, judicial order or equitable principles.” (Emphasis added.)
Section eight, entitled “Guarantor's Waivers,” states:
“Except as prohibited by applicable law, Guarantor waives any right to require Lender ... (C) to resort for payment or to proceed directly or at once against any person, including Borrower ...; (D) to proceed directly against or exhaust any collateral held by Lender from Borrower ....
“Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of (A) any ‘one action’ or ‘anti-deficiency’ law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (B) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness; ... or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness.” (Emphasis added.)
Section nine provides:
“Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law.”
It is fundamental in our law that a contract should be enforced according to its terms. Hall v. Shelter Mutual Ins. Co., 45 Kan.App.2d 797, 800–01, 253 P.3d 377 (2011), rev. denied 293 Kan. –––– (February 17, 2012). It is not the business of the courts to add to or otherwise alter the terms the parties have worked out for themselves. Investcorp v. Simpson Investment Co., 277 Kan. 445, 462–63, 85 P.3d 1140 (2003). Courts will allow parties to choose the terms by which they are bound under written agreements. TMG Life Ins. Co. v. Ashner, 21 Kan.App.2d 234, 244, 898 P.2d 1145 (1995). And in the absence of fraud, a bad bargain will not relieve a party from specific performance of a contract. See Estate of Link v. Wirtz, 7 Kan.App.2d 186, 190–91, 638 P.2d 985,rev. denied 231 Kan. 800 (1982). The guarantors do not claim the agreements were the result of fraud, duress, or anything of that sort.
We see no error in the denial of Prieb's motions for a restraining order and summary judgment.
Finally, we hold the “Guarantor's Waivers” section in each of the contracts constituted a waiver of any claims for violation of the one-action rule, the doctrine of election of remedies, and the rule against claim splitting. Simply put, under the guaranty agreements, the guarantors waived all “rights or defenses” based on “impairment of collateral,” including rights or defenses based on any “one action” or “anti-deficiency” law or any law that prevented First National from bringing a claim for deficiency against the guarantors either before or after a foreclosure action. The guarantors also waived all rights or defenses based on an election of remedies by First National.
The default interest rate is enforceable.
The guarantors challenge the enforceability of the agreements in several ways. They first claim the default interest rate of 18 percent is unenforceable because the June 5 agreement makes no mention of this specific term. The guarantors say the inclusion of this term in the promissory note materially altered the agreement of the parties and the term cannot be enforced against them. This is a question of law subject to our unlimited review without deference to the district court's interpretations. Shamberg, Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009).
A quick review of the documents is helpful at this point. The June 5 agreement sets forth “[k]ey aspects” of the promissory note, including the following:
“(2) Interest Rate in First Year. The interest is at the rate of 4% per annum on the principal balance, from July 22, 2009 (estimated date of Sheriff's sale) until July 22, 2010, payable quarterly, in advance.
“(3) Interest Rate After First Year. Beginning on July 22, 2010, and continuing until maturity, interest is at Bank's prime, floating daily, with a floor of 4%, payable quarterly, in advance.”
The guarantors correctly point out that the June 5 agreement makes no mention of a default interest rate. However, the promissory note identifies the applicable interest rate as 4 percent but also provides for a default interest rate of 18 percent:
“INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 18.000 percent per annum based on a year of 360 days.”
The guarantors argue that because this is an action on the guarantees—which they say are “independent from” the promissory note—the court cannot look to documents such as the promissory note to “insert missing information into the guarantees.” But in Ryco Packaging Corp. v. Chapelle Int'l Ltd., 23 Kan.App.2d 30, 36–37, 926 P.2d 669 (1996), rev. denied 261 Kan. 1086 (1997), this court rejected such a notion, stating: “When a guaranty agreement is executed at about the same time as the underlying transaction between the creditor and debtor, the guaranty is read in conjunction with the underlying documents.”
To reach this conclusion, the court noted the “cardinal rule of contract interpretation is that the court must ascertain the parties' intention and give effect to that intention.” 23 Kan.App.2d at 36. The court said that documents which are executed at different times, but in the course of the same transaction and concerning the same subject matter, should be construed together to determine the intent of the parties to the contract. 23 Kan.App.2d at 36.
This logic is in line with our Supreme Court's statement in Overland Park Savings & Loan Ass'n v. Miller, 243 Kan. 730, 738, 763 P.2d 1092 (1988), where the court said a contract of guaranty is to be construed according to the intention of the parties, which is determined by a reasonable interpretation of the language used in light of the circumstances.
Applying these principles here means the June 5 agreement should not be read in isolation from the promissory note. Although the June 5 agreement did not mention a default interest rate, the promissory note executed by Arbor Lake did. Notably, the June 5 agreement merely referred to “[k]ey aspects” of the promissory note. The parties clearly did not intend that the June 5 agreement was to reflect every term of the loan transaction. The primary purpose of the agreement was the compromise of the Prairie Star West foreclosure litigation with more specific agreements to come. While it is true that the June 5 agreement stated it represented “the entire agreement” between the parties and the agreement could not be “amended or modified” except in writing, a refusal to enforce basic terms of the promissory note would defeat the clear intention of the parties and the note was in writing. In our view, the June 5 agreement was not intended to contain every term of the promissory note and the promissory note contained significant details not mentioned in the June 5 agreement.
Under the guaranty agreements, the guarantors guaranteed “full and punctual payment” of each guarantor's “Share of the Indebtedness of Borrower to Lender.” The contracts defined “Indebtedness” to include the outstanding principal owed on the promissory note plus any accrued unpaid interest. The promissory note obligated Arbor Lake to pay interest on the unpaid principal—which would be calculated at a rate of 18 percent in the event of default. By signing the guaranty agreements, the guarantors contractually obligated themselves to pay this 18 percent interest rate in the event of default. The fact that the June 5 agreement does not reflect this consequence does not relieve them to pay what was owed on the note.
The guarantors claim repeatedly that the promissory note was not attached to the June 5 agreement the day they signed the agreement. The district court found First National's evidence on this point “more credible.” The court stated: “In short, the Court does not believe that defendants did not have the exhibits either available to them or made known to them by their counsel.” We will not reweigh the evidence or make credibility determinations on appeal. See Board of Sedgwick County Comm'rs v. Winter, 25 Kan.App.2d 508, 511, 966 P.2d 675 (1998).
We question if this point is significant. In Ryco, this court said a guaranty should be read in conjunction with the underlying documents. In that case, the guarantee agreement and the promissory note were signed “several days” apart. Based on Ryco, it does not matter whether the guarantors had physical access to the promissory note on the day they signed the June 5 agreement. The clear intent of the parties to the contracts was that the guarantors would be responsible for accrued unpaid interest. A representative of Arbor Lake signed the note—which clearly included the default interest rate provision within weeks of the guarantors signing the June 5 agreement. These documents must be read together.
We see no error here by the district court. Said another way, the guarantors have not demonstrated the agreement of the parties was materially altered so that their obligations should be recalculated at a 4 percent interest rate.
The guaranty agreements are not void due to incompleteness.
The guarantors suggest the guaranty agreements are incomplete—as there are blank spaces near the top. They argue this renders the agreements void.
The guarantors are talking about the following:
“Principal Loan Date Maturity Loan No Call/Coll Account Officer” Initials RC–C 1a2/40
* * *
“Reference in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item.” (Emphasis added.)
Indeed, there is no information typed in the spaces under the headings for principal, loan date, maturity, loan number, account, or initials.
We find this objection trivial. As the district court pointed out, the agreements specifically state the section of the document at issue is marked “for the lender's use only.” Thus, any argument suggesting the section should have included operative language is not persuasive. Also, the guarantors' complaint about the district court's reference to “boxes” under the headings is unpersuasive. True, the section at issue contains blank spaces as opposed to actual boxes. This argument elevates form over substance.
More importantly, the caselaw used by the guarantors for support differs from this case. In Kenby Oil Co. v. Lange, 30 Kan.App.2d 439, 42 P.3d 201 (2002), the lender asked an agent for the borrower to sign a personal guaranty. Although the agent signed the guaranty, the space on the form for the title of the borrower ( i.e ., the name of the agent's company) was left blank. The lender later filled in the space with the name of the borrower. When the borrower failed to repay the lender, the lender sued the agent on his guarantee. The district court held the guarantee was unenforceable based on the statute of frauds (codified at K.S.A. 33–106) because it was incomplete. The court reasoned that the guaranty did not describe whose obligation the agent was agreeing to guarantee, holding this omission was material and fatal. On appeal, this court affirmed the lower court, stating: “The law does not favor incomplete guaranties. Sophisticated vendors that leave blanks in guaranties do so at their peril. Kansas courts do not approve guaranties that are in any way incomplete.” 30 Kan.App.2d at 443.
The Kenby court discussed two other cases: Kutilek v. Union National Bank of Wichita, 213 Kan. 407, 516 P.2d 979 (1973), and Walton v. Piqua State Bank, 204 Kan. 741, 466 P.2d 316 (1970). In Kutilek, the guaranty agreement at issue contained two blank spaces at the time it was signed: the space for the loan amount requested and the space for the total limit of the guarantor's liability. The Kansas Supreme Court upheld the lower court's conclusion that the unfilled blanks were material omissions, rendering the document unenforceable under the statute of frauds. 213 Kan. at 412.
In Walton, the court held a guaranty agreement was unenforceable for failure to comply with the statute of frauds where the document did not (1) name or identify the lender; (2) state whose debt was guaranteed; (3) list the amount of debt guaranteed; or (4) make reference to the principal obligation, the terms or conditions of repayment, the consideration, or the date of the contract. 204 Kan. at 748.
None of these three cases mention whether there were underlying documents signed by the parties. Here, there were several documents involved in the transaction. Significantly, the guarantors do not contend that the promissory note fails to include the key terms of the parties' agreement. As discussed, a guaranty should be read in conjunction with the underlying documents. Ryco, 23 Kan.App.2d at 36–37. Further, the guarantors have made no claim of a violation of the statute of frauds as in Kutilek or Walton.
The guarantors claim that First National “left out information” that would link the guaranties to the promise of a loan described in the June 5 agreement. There is no mystery here. The guaranty agreements stated the guarantors promised full payment of the “Guarantor's Share[s] of the Indebtedness ... under the Note and the Related Documents.” The guaranty agreements defined the word “Note” to mean all of the borrower's promissory notes evidencing loan obligations in favor of the lender. The guaranty agreements defined “Borrower” to mean Arbor Lake and all the cosigners/comakers of the note, and lender to mean First National. These guarantee agreements are clearly linked to the promissory note.
The fact that the guaranty agreements do not refer to a specific principal amount does not render them unenforceable as the guarantors claim. The guaranty agreements defined the “Indebtedness” of Arbor Lake—which the guarantors agreed to guarantee as “all of the principal amount outstanding from time to time” and any unpaid interest “arising from any and all debts, liabilities and obligations of every nature or form, now existing or hereafter arising or acquired, that Borrower individually or collectively or interchangeably with others, owes or will owe Lender .” The agreements state “Indebtedness” includes any future advances, loans, or transactions that renew, extend, or modify Arbor Lake's debts, liabilities, or obligations. And as discussed, the guarantee agreements were clearly linked to the promissory note—which stated a principal amount of $4,156,093.71. In fact, the guarantors ignore the fact that they contracted for an open-ended guaranty.
The essential terms of the guaranty agreements are stated with reasonable certainty. The agreements identify each party to the agreements, state what debt is to be guaranteed, indicate each guarantor's portion of the debt, and refer to the promissory note and related documents. See Botkin v. Security State Bank, 281 Kan. 243, 250–51, 130 P.3d 92 (2006), where the court held that a guaranty agreement is enforceable where the document identified the signer and purpose, identified the principal, stated what debt was to be guaranteed, and mentioned the underlying security. The information in the guaranty agreements is similar to that in Botkin, where the guaranty agreement did not provide a specific loan amount but stated the debt guaranteed was “ ‘each and every debt’ “ of the borrower. The agreements signed by the guarantors are not void and unenforceable for failure to include key terms.
Finally, the claim of ambiguity with regard to the varying percentages of indebtedness the guarantors agreed to is deemed abandoned. The guarantors have not cited any legal authority on the issue of ambiguity—only incompleteness which is an entirely different issue. See State v. McCaslin, 291 Kan. 697, 709, 245 P.3d 1030 (2011), where the court held that a point raised incidentally in a brief and not argued is deemed waived and abandoned.
Sufficient consideration supported the guaranty agreements.
The guarantors claim the guaranty agreements are unenforceable because they were not supported by consideration. They suggest the stated consideration, “for good and valuable consideration,” was illusory.
We cannot find in the record on appeal where the district court made any findings or conclusions about consideration. Our Supreme Court has refused to consider an issue raised on appeal in these circumstances. In Manhattan Ice & Cold Storage v. City of Manhattan, 294 Kan. 60, 81, 274 P.3d 609 (2012), the court said:
“The problem for us on appeal is that landowner directs us to no ruling by the district court on [the issue], and our search of the record has uncovered none. Under Supreme Court Rule 6.02 (2011 Kan. Ct. R. Annot. 39), this court presumes the district court did not rule on an issue when an appellant fails to provide a record citation to the ruling in its brief. [Citations omitted.] Without a ruling from the district court on this issue, we cannot proceed with formless appellate review.”
The guarantors have not pointed to any ruling by the district court on the consideration issue, and it appears that no such ruling was made. Therefore, following the directions of our Supreme Court we will not proceed with a formless appellate review of the issue.
We find no breach of the implied covenants of good faith and fair dealing.
For some time now, Kansas courts have inferred a duty of good faith and fair dealing in every contract. A breach of that duty renders the agreement unenforceable. The principle of good faith and fair dealing is that parties should not intentionally and purposely do anything to prevent another party from carrying out his or her part of an agreement or do something which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. Daniels v. Army National Bank, 249 Kan. 654, 658, 822 P.2d 39 (1991) (quoting Bonanza, Inc. v. McLean, 242 Kan. 209, 222, 747 P.2d 792 [1987] ).
The guarantors claim that First National breached the implied covenant of good faith and fair dealing by: (1) failing to disclose it was under a supervisory agreement that restricted its lending abilities; and (2) failing to consider any construction loans in the Arbor Lake subdivision, which would have allowed Arbor Lake to pay off its loan. We view these as questions of fact. See Bank of America v. Narula, 46 Kan.App.2d 142, 168–69, 261 P.3d 898 (2011). This court reviews a district court's findings of fact to determine if they are supported by substantial competent evidence and are sufficient to support the court's conclusions of law. 46 Kan.App.2d at 153.
The district court rejected the guarantors' claim, finding:
• Two construction loan applications submitted by VanLerberg were reviewed and declined because First National did not believe VanLerberg was financially qualified.
• A construction loan application submitted by Prieb was accepted and reviewed by First National but not approved.
• The above applications were submitted after Arbor Lake was in default on its loan.
• There is no evidence First National ever refused to accept and review a loan application.
• According to a First National representative, it had the ability to make construction loans from 2009–2011 if it made economic sense.
• Between June 2009 and December 2010, First National made 20 construction loans; between January 2011 and the date First National failed, it made 7 more loans.
• The court strived to determine whether First National made any express agreements from which good faith obligations may arise, but it only heard the guarantors' claims of “undefined and vague assurances” by First National.
• There was no evidence First National obligated itself to extend any loans beyond the one for the purchase of the Arbor Lake property.
• The June 5 agreement advised the guarantors that First National was not in a position to approve construction “spec” loans at the time and that First National would review potential loans a case-by-case basis.
• Part of the Arbor Lake development problem was the size and cost of the houses required for the development. It was suggested that Arbor Lake could have amended the home restrictions to suit the type of houses being built at the time ( i.e., smaller houses), but the guarantors did not use their advantageous position in the home association to force this change.
The guarantors do not refute the district court's findings. They simply say they were unaware of First National's lending restrictions and claim the June 5 agreement was negotiated with the understanding that First National would consider construction loans in good faith.
When the guarantors tell us that they were “not aware of the restrictions placed on the bank's lending,” they ignore the provision in the June 5 agreement stating: “The Bank is unable to commit to any spec construction loans to Entity at this time. Bank will accept construction loan applications from Entity, to be reviewed on a case-by-case basis.”
Additionally, the guarantors fail to mention or refute the district court's findings:
• that their construction loan applications were submitted after Arbor Lake was in default;
• that First National never refused to accept and review a loan application;
• that First National had the ability to make construction loans from 2009–2011 if they made economic sense; and
• First National made 27 construction loans between June 2009 and the date on which First National failed.
All of these undisputed findings refute a finding of lack of good faith on the part of the lender.
At this point, we are mindful of the waiver provisions in the guaranty agreements:
“Except as prohibited by applicable law, Guarantor waives any right to require Lender (A) to continue lending money or to extend other credit to Borrower; ... or (F) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.”
“Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of ... (C) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's liability from any cause whatsoever, other than payment in full of the Indebtedness; ... or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness.”
The guarantors have failed to show the district court erred in determining First National did not breach the implied duty of good faith and fair dealing, and they have waived their right to raise the question. Interestingly, the guarantors have made no claim for relief on this point. We see no reason to reverse on these grounds.
Affirmed.