[31 ASR2d 60]
DEVELOPMENT BANK OF
v.
HAJ CORPORATION dba POLY IMPEX, ICEWICH FALE, and PEPACO,
HANS A. LANGKILDE, W. JOSEPH LANGKILDE, SASA LANGKILDE, and PEPACO, a Sole
Proprietorship, Defendants
__________________________
W. JOSEPH LANGKILDE,
Cross-Claimant
[31 ASR2d 61]
v.
HAJ CORPORATION dba POLY IMPES, ICEWICH FALE, and PEPACO,
and HANS A. LANGKILDE, Cross-Defendants
____________________________
v.
W. JOSEPH LANGKILDE, Counterdefendant
High Court of
Trial Division
CA No. 94-94
November 6, 1996
[1]
A guaranty is a contract and the rights of guarantors must be
determined from the language of the contract.
[2]
A guaranty of payment, unlike a guaranty of collection, is
an absolute promise by the guarantor to pay the debt, when due, if it is not
paid by the borrower. Upon the
borrower's default, the guaranty of payment enables the creditor to collect debt
from the guarantor without seeking collection from the
borrower.
Before
Counsel:
For Plaintiff, Katopau T. Ainuu
For Defendants Hans A. Langkilde, Sasa Langkilde, and
Pepaco, a Sole Proprietorship, Asaua Fuimaono
For Defendant W. Joseph Langkilde, Barry I. Rose
Opinion and Order:
On May
26, 1994, plaintiff Development Bank of American Samoa ("DBAS") commenced this
action to recover indebtedness to DBAS from defendants HAJ Corporation ("HAJ")
dba Poly Impex, Hans A.[31 ASR2d 62]
Langkilde ("Hans"), and W. Joseph Langkilde ("Joseph"). Hans and Joseph separately answered the
complaint, but HAJ neither answered nor otherwise appeared in response to the
complaint.
On
November 8, 1994, with leave of the court, DBAS filed the first amended
complaint, adding Icewich Fale and Pepaco as fictitious names used by HAJ, and
defendants Sasa Langkilde ("Sasa") and Pepaco as a sole proprietorship ("Pepaco
SP").
On
November 17, 1994, Joseph moved for default judgment against HAJ for failure to
answer his cross-complaint. We
heard this motion on December 28, 1994, and awarded default judgment in Joseph's
favor against HAJ on January 3, 1995.
On
December 13, 1994, DBAS moved for default judgment against HAJ, Hans, Sasa, and
Pepaco SP for failure to answer the first amended complaint. Since Sasa and Pepaco SP answered the
first amended complaint on January 26, 1995, DBAS pursued default at the hearing
on January 27, 1995, on the motion only against HAJ and
Hans.
On
March 9, 1995, we awarded DBAS default judgment against HAJ in the principal
amount of $68,497.87, plus prejudgment interest, costs, and reasonable
attorney's fees. However, at the
January 27 hearing, we declined to default Hans, since his answer to the initial
complaint was fundamentally responsive to the amended complaint, but directed
him to answer the amended complaint.
When he failed to answer by March 9, we gave him a deadline of March 17,
1995. Hans answered the amended
complaint on March 16, 1995.
On
September 29, 1995, we separated trial of the cross-complaint and counterclaim,
pursuant to the parties' stipulation.
The original action on the amended complaint then came regularly for
trial on February 8 and 9, 1996, to determine Hans' and Joseph's individual
liability for HAJ's adjudicated indebtedness. Hans, Joseph, and all counsel were
present. We took the matter under
advisement, considered the evidence, and make the following findings,
conclusions, and order.
The
parties stipulated that although HAJ once did business as Pepaco, Sasa took over
this particular activity, but it no longer operates. DBAS also indicated that it would not
presently proceed with its claim against Sasa and Pepaco SP. Hence, given HAJ's default on DBAS's
claim, we must only determine the responsibility, if any, that Hans or Joseph
has, or both of them have, in their individual capacities, for HAJ's debt to
DBAS. Essentially, the issues turn
on the interpretation and application[31 ASR2d 63] of the documents signed by
DBAS, Hans, and Joseph during the course and conduct of HAJ's business
operations.
1. HAJ's
corporate history.
First,
however, we will briefly review HAJ's history. We take judicial notice of RFD Produce v. HAJ, CA No. 116-93 at
2-3 (Trial Div. July 28, 1995)(order permanently
staying execution against vehicle) for some facts relevant to this
purpose.
HAJ
was incorporated in
The
incorporators, shareholders, and officers were three brothers, Hans as
president, Joseph as vice president, and J. Anthony Langkilde ("Anthony") as
secretary/treasurer. Until 1988,
all three brothers were involved in daily corporate concerns. The shares were informally divided,
without written agreement or stock certificates, among Hans, 40%, Joseph, 20%,
and Anthony, 40%. In 1988, Anthony
left HAJ and, by written agreement signed by him and Hans, surrendered his ownership interest in exchange for
extinguishment of his indebtedness to the corporation. Hans and Joseph retained their
respective officer roles and remained active in daily corporate affairs. The shares, again informally, were
equally redivided between Hans and Joseph.
In
1990, however, Hans became the general manager of the Rainmaker Hotel. Although Hans remained a principal,
Joseph carried on most corporate matters until 1993. However, by letter to Hans, dated
February 9, 1993, Joseph resigned from HAJ. Hans tried to continue HAJ's businesses,
but eventually the businesses lost their vitality and are now
defunct.
2. HAJ
dealings with DBAS.
On
December 19, 1990, pursuant to a corporate borrowing resolution, HAJ,
represented by Hans and Joseph, obtained a revolving line of credit with DBAS up
to $100,000 exclusively for inventory purchase. A promissory note was to evidence each
advance of funds, due and payable in full in 90 days, plus interest, computed
daily on the unpaid balance at the lesser of the maximum lawful rate or the
prime rate for commercial loans published in the Wall Street Journal plus 3%. All advances and accrued interest were
to be paid in full when the agreement terminated on November 15, 1991.[31 ASR2d 64]
On
December 19, 1990, HAJ, by Hans and Joseph, also signed a security agreement
with DBAS, pledging equipment, inventory, and receivables as collateral for the
line of credit. Additionally, Hans
and Joseph signed a continuing guaranty, under which they were personally
responsible for HAJ's timely payments of the line of credit and future debts,
and jointly and severally liable for all or any part of these debts in the event
of HAJ's default. DBAS agreed to
extend or continue the line of credit and other financial arrangements to HAJ in
consideration of receiving the guaranty.
The
court has not been provided with any detailed history of HAJ's dealings with
DBAS from December 19, 1990, until February 19, 1992, when Joseph wrote on HAJ's
behalf to DBAS, and February 24, 1992, when DBAS responded. DBAS then granted HAJ's request to
extend the period of HAJ's repayment of the outstanding line of credit
obligation and to permit further line of credit advances, apparently for 60
days, while DBAS was considering renewal of the line of
credit.
The
next activity in evidence was HAJ's request, by Joseph, to DBAS on May 18, 1992,
to "roll over" $13,500, presumably HAJ's then current debt to DBAS. Then three line of credit draws
followed, represented by HAJ's promissory notes, two dated September 1, 1992, in
the principal amounts of $30,517 and $12,185.72, and the third dated September
28, 1992, in the principal amount of $25,699.15. Each note included interest at 12%,
pursuant to the prime rate plus 3% formula, and was payable in full
approximately 90 days later. Hans
and Joseph signed the three notes on HAJ's behalf. They also signed the second note in
their individual capacities. It is
the sum of these notes, $68,399.87, which DBAS claimed in this action as the
principal amount owed to it.
In
January 1993, and a second time in early February 1993, DBAS notified HAJ,
through Joseph, of the nonpayment of the notes for these three advances. Then, on February 9, 1993, Joseph
resigned from HAJ. His resignation
letter also unilaterally disclaimed "any debts incurred by HAJ Corp." He simultaneously notified DBAS, Amerika
Samoa Bank, and the Bank of Hawaii of his resignation and liability
disclaimer. Hans, by letter
actually dated February 8, 1993, also advised DBAS of the resignation and
Joseph's withdrawn authority to act on HAJ's behalf.
On
March 5, 1993, Hans again wrote to DBAS and, expressing reliance on the line of
credit and confidence in HAJ's business future, asked to work out a way to
continue the line of credit arrangement. On May 20, DBAS responded by entering a
new line of credit agreement, substantially the same as the 1990 agreement, but
signed only by Hans[31 ASR2d 65] on
HAJ's behalf. Although April 6,
1993 is the stipulated termination date, April 6, 1994 actually defined the
intended life of this agreement.
On May
26, 1994, when the three notes remained unpaid, DBAS commenced this action. On August 16, 1994, Joseph's counsel
advised DBAS that it could obtain a prejudgment attachment on HAJ's assets
without posting a bond and that Joseph was prepared to provide a list of those
assets. Joseph did prepare a list
of HAJ's assets as of January 23, 1993.
A writ of attachment was issued on January 13, 1995, but no property was
successfully levied.
The
line of credit agreement, continuing guaranty, and three promissory notes
entitle DBAS to recover attorney's fees and collection costs in the event of
default.
The
central issue in this case is the validity and scope of the continuing guaranty
signed by Hans and Joseph. Neither
has asserted that the guaranty was invalid ab initio. Rather, both argue that the guaranty
expired on November 15, 1991, with the initial line of credit agreement. Joseph also argues that his letter of
resignation effectively absolved him of any personal liability on the
debts. Finally, both Hans and
Joseph assert the defenses of laches and unclean hands based upon DBAS's failure
to timely obtain a writ of attachment on assets of the now defunct HAJ
Corporation.
[1] First. we note that a guaranty is a
contract and the rights of guarantors must be determined from the language of
the contract.
1.
Future Liability
On the
question of future liability, the continuing guaranty is unambiguous. It states that the "liability under this
Guaranty is continuing" and mentions nothing about the coterminality of the
guaranty with the initial line of credit agreement. Indeed, the very title of the agreement
contains this indication. We find
no reason to second guess this plain and unambiguous
language.
The
guaranty does set forth ways to limit future liability, including written
notice to DBAS that the guarantor is ending his future liability. Joseph's letter of February 9, 1993,
effectively limited his liability at that time. However, as the guaranty makes clear,
that written notice had no[31ASR2d 66] effect on the liability
that existed prior to that date.
Since the debts at issue were all incurred prior to Joseph's letter, his
notice has no effect on the outcome of our decision.
2.
Laches and Unclean Hands
[2] A guaranty of payment, unlike a guaranty of collection, is
an absolute promise by the guarantor to pay the debt, when due, if it is not
paid by the borrower. Upon the
borrower's default, the guaranty of payment enables the creditor to collect debt
from the guarantor without seeking collection from the borrower. See e.g. 38 Am. Jur. 2d Guaranty § 112 (1968); Phillips Factors Corp. v.
The
continuing guaranty is also unambiguous on the issue of principal
liability. It sets forth the
liability of Hans and Joseph as "primary, absolute and unconditional." It is quite clearly a guaranty of
payment. Indeed the guaranty
specifically waives the right of Hans and Joseph to require the DBAS to "take
action against the Borrower or any other person or entity, or foreclose upon,
sell or dispose of any collateral, before collecting the indebtedness from
me."
The
arguments by Hans and Joseph based on the defense of laches and unclean hands,
therefore, lack merit. If DBAS is
not required to take any action to collect the debt from the borrower, it
surely has no affirmative duty to timely pursue a writ of attachment on HAJ's
assets.
Based
on the foregoing we find Hans and Joseph personally liable to DBAS, under their
continuing guaranty, in the principal amount of $68,497.87, accumulated interest
as of November 4, 1994 of $13,436.54 and continuing interest of $17.12 from
November 4, 1994 to the date this judgment is entered. DBAS is also awarded collection costs
and reasonable attorneys' fees, and shall submit a schedule of these costs and
fees for the court's approval.
It is
so ordered.