Opinion
No. COA12–1412.
2013-07-2
TD BANK, N.A., Plaintiff, v. Walter T. McGEE, Defendant.
Ward and Smith, P.A., by Lance P. Martin, Benjamin E.F.B. Waller, and Norman J. Leonard, for plaintiff-appellee. David R. Payne, P.A., by David R. Payne, for defendant-appellant.
Appeal by defendant from judgment entered 23 July 2012 by Judge Mark E. Powell in Henderson County Superior Court. Heard in the Court of Appeals 22 April 2013. Ward and Smith, P.A., by Lance P. Martin, Benjamin E.F.B. Waller, and Norman J. Leonard, for plaintiff-appellee. David R. Payne, P.A., by David R. Payne, for defendant-appellant.
MARTIN, Chief Judge.
Defendant Walter T. McGee appeals from summary judgment in favor of plaintiff T.D. Bank, N.A. ordering defendant, as guarantor of four past-due promissory notes, to pay plaintiff the sums due on each note, plus interest and attorney's fees.
Defendant is the president of two North Carolina companies: Asheville Downtown Holdings, Ltd., and Biltmore Investments, Ltd. These companies operate a series of trailer parks in North Carolina and South Carolina. Between 2005 and 2006 these companies executed and delivered a total of four commercial promissory notes to Carolina First Bank. Plaintiff is successor by merger to, and is formerly known as, Carolina First Bank.
Note 1, Note 2, and Note 4 were all accompanied by a guaranty agreement executed by defendant and are undisputed on appeal. Note 3 was also accompanied by a guaranty agreement executed by defendant. However, unlike the other notes, on 28 April 2008, Carolina First Bank and Biltmore Investments entered into an agreement that modified and renewed Note 3. As part of the Note 3 renewal, Biltmore Investments and Carolina First Bank executed an Assignment of Leases and Rents (“Rent Assignment”). The purpose of the Rent Assignment was to reduce the risk of the loan by assigning certain rental units of Biltmore Investments' trailer park operation as security for the Note 3 renewal.
All four notes provide that non-payment of monthly installments, non-payment of the outstanding balance upon maturity, or the insolvency or bankruptcy of the notemaker constitute events of default. All four of the guaranties provide, “[defendant] absolutely and unconditionally” promises to “pay and guaranty the full and prompt payment” of the notes. Additionally, the guaranties state if the notemaker files bankruptcy “the maturity of the Debt, so far as [defendant's] liability is concerned, shall be accelerated and the Debt shall be immediately payable by [defendant].”
Subsequently, all four of the notes went into default. Note 1 and Note 2 matured on 17 March 2010 and were not paid. Payments for Note 3 and Note 4 ceased after February 2010. In addition, Biltmore Investments filed Chapter 11 bankruptcy on 26 January 2011 and Asheville Downtown filed Chapter 11 bankruptcy on 1 April 2011.
In their bankruptcy petitions, Biltmore Investments and Asheville Downtown scheduled their debts pursuant to all four of the notes in question as undisputed. Defendant, acting as president of the companies, declared the bankruptcy petitions as “true and correct.”
On 16 May 2011, plaintiff filed suit against defendant to recover on each of the four notes. Then, on 22 May 2011, plaintiff filed a motion for summary judgment on all four of its claims for relief, one claim for each loan.
In response to plaintiff's motion for summary judgment defendant alleged the Rent Assignment, executed as part of the Note 3 renewal, was altered after he signed it. Specifically, defendant alleged the Rent Assignment was altered to include a mark appearing on the lower left-hand corner of the first page and a different legal description of the encumbered property than defendant had intended. Defendant entered an affidavit and investigative report by Theresa Dean, “a forensic document examiner,” which avers the initialing marks appearing on the first page of the Rent Assignment “are not authentic and were not signed by [defendant].” Defendant argued the allegedly altered Rent Assignment raised a genuine issue of material fact as to the enforceability of defendant's Note 3 guaranty.
On 9 July 2012, the trial court held a hearing on the motion for summary judgment. On 23 July 2012, the trial court granted plaintiff's motion for summary judgment and ordered defendant to pay plaintiff the amount remaining on each loan, including interest and attorney's fees. Defendant appeals.
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Initially, we note that on appeal defendant does not dispute that he is a guarantor of payment on Biltmore Investments' Promissory Note 3, nor that Note 3 is in default. Additionally, defendant does not contend that Biltmore Investments did not consent to the alterations in the Rent Assignment as included in the Note 3 renewal. In fact, defendant, acting as president of Biltmore Investments, and under the penalty of perjury, declared in the company's bankruptcy petitions that Note 3 was “undisputed, true, and correct .” Rather, defendant contends the trial court erred in granting summary judgment in favor of plaintiff because evidence that defendant, as guarantor, did not consent to the alteration of the Rent Assignment was sufficient to raise a genuine issue as to whether Note 3 had been “materially altered.” We disagree.
“Our standard of review of an appeal from summary judgment is de novo; such judgment is appropriate only when the record shows that ‘there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.’ “ In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)). “[A]n issue is material if the facts alleged would constitute a legal defense, or would affect the result of the action, or if its resolution would prevent the party against whom it is resolved from prevailing in the action.” Merritt, Flebotte, Wilson, Webb & Caruso, PLLC v. Hemmings, 196 N.C.App. 600, 604, 676 S.E.2d 79, 83 (citations and internal quotation marks omitted), disc. review denied,363 N.C. 655, 686 S.E.2d 518 (2009).
“ ‘[A] material alteration of a contract between a principal debtor and creditor without the consent of the guarantor discharges the guarantor of [his] obligation.’ “ Sherwin–Williams Co. v. ASBN, Inc., 163 N.C.App. 547, 550, 594 S.E.2d. 135, 137 (2004) (second alteration in original) (quoting Devereux Props., Inc. v. BBM & W, Inc., 114 N.C.App. 621, 623, 442 S.E.2d 555, 556,disc. review denied, 337 N.C. 690, 448 S.E.2d 519 (1994)). A “material alteration” is one that results in “a material deviation from the original agreement upon which the guaranty was based.” Nationsbank of N.C., N.A. v. Brown, 118 N.C.App. 576, 579, 455 S.E.2d 890, 892 (1995). However, “[t]he general rule does not state that there can be no modifications to the original contract; it simply states that there can be no material alterations without a guarantor's consent....” Kirkhart v. Saieed, 98 N.C.App. 49, 54–55, 389 S.E.2d 837, 840 (1990). Additionally, “[c]onsent to modification [is] not necessary if the modification would serve to benefit the guarantor.” Devereux Props., Inc., 114 N.C.App. at 624, 442 S.E.2d at 557 (citing First Union Nat'l Bank of N.C. v. King, 63 N.C.App. 757, 759–60, 306 S.E.2d 508, 510 (1983)). “[T] he policy behind these rules is to protect a guarantor from alterations to the underlying contract which increase the guarantor's risk over that which was assumed in the original agreement.” Id. (citing U.S. Shoe Corp. v. Hackett, 793 F.2d 161, 162–63 (7th Cir.1986)).
In Kirkhart v. Saieed, following the primary obligor's initial default, the noteholder and primary obligor agreed to a loan modification whereby, among other things, certain property units would be released as security for the loan. Kirkhart, 98 N.C.App. at 51, 389 S.E.2d at 838. The property would then be sold and part of the proceeds from the sale would be applied to the principal balance of the original loan. Id. However, before the property could be sold, the primary obligor filed for bankruptcy and the noteholder attempted to enforce the note's guaranty agreements made by the defendants. Id. at 51, 54, 389 S.E.2d at 838, 840. At trial, and on appeal, defendants asserted the loan modifications between the primary obligor and the noteholder constituted a material alteration that released them from their guaranty obligations. Id. at 54, 389 S.E.2d at 840.
This Court held the modification was not a material alteration. Id. at 54–55, 389 S.E.2d at 840. We found it significant that the modification of the loan “did not change the terms of the original note,” only involved a single change, and ultimately benefited the guarantor. Id. at 54, 389 S.E.2d at 840 (“The only thing that changed under the agreement was that a portion of the sales from certain units would be applied to reduce the principal of the note. Had this occurred ... defendants would have benefited by a reduction in the principal amount owed.”).
Here, as in Kirkhart, defendant does not dispute the terms of the note in question or that he authorized a personal guaranty agreement for that note. Instead, defendant contends plaintiff and Biltmore Investments added more property as security to Note 3 without his consent as guarantor of the loan. However, such an alteration could only benefit defendant. By adding additional Biltmore Investments property as security for Note 3, defendant's liability could only be reduced. With more properties listed as security for the loan, plaintiff would have more assets to which it could look to satisfy Note 3 before seeking payment from defendant. Thus, even assuming arguendo defendant could prove he did not consent to the alterations in the Rent Assignment, such an alteration would still fall short of being “material” because the single disputed alteration did not change the original Note 3 terms and was ultimately to the benefit of defendant. Therefore, we hold the alteration was not material and defendant is not released from his obligation under the Note 3 guaranty agreement. See id. at 54–55, 389 S.E.2d at 840;see also Devereux Props., Inc., 114 N.C.App. at 624–25, 442 S.E.2d at 556–57.
Defendant asserts that “an irregularity in the bank's documentation of its transactions with the primary debtor” can constitute a material alteration relieving a guarantor from his obligation, and relies on O'Grady v. First Union National. Bank of North Carolina, 296 N.C. 212, 250 S.E.2d 587 (1978), to support this assertion. In O'Grady, the Supreme Court considered whether a guaranty agreement that expressly guaranteed the joint debts of three primary obligors extended to a promissory note legitimately authorized by only two of the three primary obligors. Id. at 227–28, 250 S.E.2d at 597–98. However, rather than holding an irregularity may discharge a guarantor from his obligation, the Court held the extension was impermissible because it increased the liability of the guarantor “beyond the strict terms of the contract.” Id. Thus, defendant's reliance on O'Grady is misplaced.
Defendant's remaining arguments on appeal were not made to the trial court and are raised for the first time on appeal. “Only those pleadings and other materials that have been considered by the trial court for purposes of summary judgment and that appear in the record on appeal are subject to appellate review.” Rentenbach Constructors, Inc. v. CM P'ship, 181 N.C.App. 268, 277, 639 S.E.2d 16, 22 (2007) (internal quotation marks omitted). Furthermore, “[our Supreme Court] has long held that where a theory argued on appeal was not raised before the trial court, the law does not permit parties to ‘swap horses between courts in order to get a better mount’ in the [appellate courts].” State v. Sharpe, 344 N.C. 190, 194, 473 S.E.2d 3, 5–6 (1996) (quoting Weil v. Herring, 207 N.C. 6, 10, 175 S.E.2d 836, 838 (1934)). Therefore, defendant's remaining arguments are dismissed.
Affirmed. Judges BRYANT and DAVIS concur.
Report per Rule 30(e).