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Housatonic Bank and Trust Co. v. Fleming

Decided: June 22, 1989.


On appeal from the Superior Court, Law Division, Bergen County.

Michels, Long and Keefe. The opinion of the court was delivered by Keefe, J.s.c. (temporarily assigned).


On April 23, 1982, the defendant Joseph W. Fleming executed an agreement which made him a guarantor for loans made by plaintiff Housatonic Bank and Trust Company to the Glasslight Company, Inc., William C. Reppenhagen and Jacqueline Reppenhagen. The instrument provided that defendant's guarantee was not to exceed $50,000.00 "at any one time." The agreement further provided in part:

[T]he [guarantor] hereby authorize [plaintiff] at any time and in such manner and upon such terms as it may see fit to extend the time for payment or to change the manner or terms of payment or to accept renewals for or different evidences of indebtedness for any such advances as have been made or hereafter be made to [debtor] without any notice to the [guarantor]; and the [guarantor] further agrees that such extension of time or the change in the manner and terms of the payment or acceptance of renewals or different evidences of indebtedness shall not, in any way, release the [guarantor] from or reduce [his] liability on this guaranty.

This guaranty shall be a continuing guaranty and shall remain in full force and effect until written notice shall have actually been received by [plaintiff] that it has been revoked . . . but such revocation shall not release [guarantor] from any liability for advances prior to the receipt of said notice of revocation or upon any . . . instruments or evidences of indebtedness held by [plaintiff] at the time of the receipt of such notice. (emphasis added).

On August 15, 1985, defendant's attorney wrote to plaintiff, informing plaintiff that defendant revoked his guaranty. The relevant portion of the letter stated:

Please be advised that Mr. Fleming hereby cancels his guaranty with respect to any future borrowings or other obligations of the Gaslight Company to your bank effective as of the date of your receipt of this letter.

On October 15, 1985, Glasslight Company*fn1 executed a renewal promissory note payable within 90 days. According to plaintiff, and not disputed by defendant, this note was the renewal of a rewritten loan and discount note dated May 14, 1985.

Plaintiff filed a complaint against defendant, demanding payment of the renewal note and another note which is not the subject of this appeal. Defendant filed an answer in which he asserted that his obligations under the guaranty were discharged by the written revocation as to the renewal note of October 15, 1985. Plaintiff thereafter filed a motion for summary judgment. Defendant filed a brief in opposition, but no certification. The trial judge granted judgment in favor of the plaintiff as to the uncontested note but denied plaintiff's motion with respect to the renewal note. The trial judge, relying on Adelman v. Franklin Washington Trust Co., 137 N.J. Eq. 257 (Ch.1945), found that defendant was not liable. He also found that defendant's liability under the circumstances of this case would be "contrary to the obvious intent of the guaranty agreement or at best an ambiguity which should be resolved against plaintiff who drew the guaranty agreement."

Plaintiff appeals from that decision and contends that the trial judge's interpretation of the guaranty was contrary to the clear wording of the agreement, because the renewal note was for a past indebtedness while defendant's revocation was effective only as to an indebtedness incurred after the revocation. Defendant, on the other hand, asserts that the trial judge was correct in holding that the renewal of a promissory note, without the express consent of the guarantor, relieves the guarantor of liability. He also argues that the "reasonable expectations" of the parties favor his ability to limit liability and have his revocation honored. We agree with plaintiff's argument and reverse.

The well settled law of the State is that the language of a guaranty agreement must be interpreted against the bank who prepared the form, and at whose insistence the language was included. Josefowicz v. Porter, 32 N.J. Super. 585, 590 (App.Div.1954). It is also said that a guarantor is favored in the law, that he is not bound beyond the strict terms of his promise and that his obligation cannot be extended by implication. Franklin Bank and Trust Co. v. Reed, 496 N.E.2d 596, 602 (Ind.Ct.App.1986), vacated on other grounds 508 N.E.2d 1256 (Ind.1987). Any ambiguity in a guaranty agreement should be construed in favor of the guarantor. Summit Bank v. The Creative Cook, 730 S.W. 2d 343, 346 (Tex.Ct.App.1987). On the other hand, a guaranty is a contract and must be interpreted according to its clear terms so as to effect the objective ...

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