SE Property Holdings, LLC v. Sandy Creek II, LLC et al

Filing 127

ORDER granting 78 plaintiff's Motion for Summary Judgment against George W. Skipper III. The court will enter final judgment specifying the amount of damages after a determination is made concerning the issue of attorneys' fees and costs. Signed by Judge Kristi K. DuBose on 8/23/2013. (srr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
SE PROPERTY HOLDINGS, LLC,
Plaintiff,
v.
SANDY CREEK II, LLC, et al.,
Defendants.

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CIVIL ACTION NO. 12-00303-KD-M

ORDER
This action is before the Court on the Motion for Summary Judgment against Defendant
George W. Skipper, III (“Skipper”) and supporting documents (Docs. 78-80) filed pursuant to
Rule 56 of the Federal Rules of Civil Procedure by Plaintiff SE Property Holdings, LLC
(“SEPH”), Skipper’s Response and supporting documents in opposition (Doc. 101), and SEPH’s
Reply in support (Doc. 102).1 Upon consideration, and for the reasons set forth herein, the Court
finds that SEPH’s motion for summary judgment against Skipper is due to be GRANTED.
I.

Procedural History
On May 3, 2012, SEPH initiated this action by filing a Complaint (Doc. 1) against

Skipper and the other Defendants.

The Complaint alleged breach of promissory notes by

Defendant Sandy Creek II, LLC (“SC II”) (identified as “Borrower” in the Complaint) (Count 1)
and breach of guaranty agreements by all other Defendants (identified as “Guarantors” in the
Complaint”) (Count 2). SEPH also demanded that the Court order an accounting and inspection
of certain financial transactions by the Defendants (Count 3).2 Skipper filed his Answer on June
28, 2012. (Doc. 32).
1

This case was previously stayed against Skipper due to his bankruptcy filing. (Doc. 51). However,
SEPH has since obtained relief from the automatic stay to pursue this action against Skipper. (Doc. 77).
In addition, the Court had previously referred all claims against Skipper in this action to his bankruptcy
action for appropriate disposition. (Doc. 71). That reference has since been withdrawn. (Doc. 125).

2

After a review of the record, the Court finds, as SEPH alleges (Doc. 1 at 3, ¶ 11), that it has subject
matter jurisdiction over this action due to diversity pursuant to 28 U.S.C. § 1332.

On April 2, 2013, SEPH filed its Motion for Summary Judgment against Skipper. (Doc.
78), moving for summary judgment in its favor on its breach-of-guaranty claim against him.3
Skipper filed his Response on May 1, 2013 (Doc. 101), and SEPH filed its Reply on May 9, 2013
(Doc. 102). The motion is now ripe for adjudication.4
II.

Standard of Review
“The court shall grant summary judgment if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). Rule 56(c) governs procedures and provides as follows:
(1) Supporting Factual Positions. A party asserting that a fact cannot be or is
genuinely disputed must support the assertion by:
(A) citing to particular parts of materials in the record, including
depositions, documents, electronically stored information, affidavits
or declarations, stipulations (including those made for purposes of
the motion only), admissions, interrogatory answers, or other
materials; or
(B) showing that the materials cited do not establish the absence or
presence of a genuine dispute, or that an adverse party cannot
produce admissible evidence to support the fact.
(2) Objection That a Fact Is Not Supported by Admissible Evidence. A party
may object that the material cited to support or dispute a fact cannot be
presented in a form that would be admissible in evidence.
(3) Materials Not Cited. The court need consider only the cited materials, but it
may consider other materials in the record.

3

Technically, SEPH’s motion “requests that the Court enter final summary judgment as to []Count One
of its Complaint against the Defendant George W. Skipper, III.” (Doc. 78). Count One asserts a claim
only against SC II. However, SEPH’s supporting brief and the various responses to the motion makes it
clear that SEPH requests summary judgment on its breach-of-guaranty claim against Skipper in Count 2
of the Complaint.

4

On January 10, 2013, SEPH filed a Motion for Summary Judgment against all Defendants except for
Skipper (Doc. 63), moving for summary judgment in its favor on its breach-of-contract claims against
those Defendants. Some of those Defendants also filed their own motions (Docs. 86-88, 90-93) moving
for partial summary judgment in their favor on SEPH’s claims against them. The Court has previously
ruled on those motions. (Doc. 114).

2

(4) Affidavits or Declarations. An affidavit or declaration used to support or
oppose a motion must be made on personal knowledge, set out facts that
would be admissible in evidence, and show that the affiant or declarant is
competent to testify on the matters stated.
Fed. R. Civ. P. 56(c).
A party seeking summary judgment bears the initial responsibility of informing the
district court of the basis for its motion and identifying those portions of the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits, if
any, which it believes demonstrate the absence of a genuine issue of material fact. Clark v.
Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991) (quoting Celotex Corp. v. Catrett, 477
U.S. 317, 323 (1986)). The mere existence of a factual dispute will not automatically necessitate
denial; rather, only factual disputes that are material preclude entry of summary judgment.
Lofton v. Sec’y of Dep’t of Children & Family Servs., 358 F.3d 804, 809 (11th Cir. 2004).
If a non-moving party fails to make a sufficient showing on an essential element of its
case with respect to which it has the burden of proof, the moving party is entitled to summary
judgment. Celotex, 477 U.S. at 323. In reviewing whether a non-moving party has met its
burden, the Court must stop short of weighing the evidence and making credibility
determinations of the truth of the matter. Instead, the evidence of the non-movant is to be
believed, and all justifiable inferences are to be drawn in its favor. Tipton v. Bergrohr GMBHSiegen, 965 F.2d 994, 998-99 (11th Cir. 1992) (internal citations and quotations omitted).
III.

Facts
SEPH is the successor in merger for Vision Bank. (Doc. 79-1 at 1, ¶ 1 – Harmon Aff.;

Doc. 98-1 (expressly incorporated in Reply, Doc. 102 at 5)). Vision Bank made two loans to SC
II: 1) a $5 million loan to purchase real property (“property loan”) (Doc. 101-33 - Skipper Ex.
33), which was executed on September 30, 2005, and matured on April 1, 2006, and 2) a $2

3

million loan to begin developing the property (“construction loan”), which was executed on
October 13, 2006, and matured on April 1, 2007 (Docs. 101-11 & -12 – Skipper Exs. 10-11).
(See also Doc. 101-2 – Braswell Depo.). In 2008, Vision Bank sold $4.5 million of the $5
million property loan to other banks pursuant to participation agreements. (Docs. 101-34 – -38;
101-2 at 11, 46, 59-60). Both loans were secured by mortgages on the real property (Doc. 101-2
at 34-35) and were executed with SC II as the borrower. (Docs. 101-11 & -33). The property
loan named Skipper as a guarantor (Doc. 101-33 at 1-2, ¶ 3), with Skipper executing a
Continuing Guaranty in September 2005 (hereinafter, the “2005 Unlimited Guaranty”) (Doc. 792 at 6-10). The construction loan also named Skipper as a guarantor, with Skipper executing a
Limited Continuing Guaranty in October 2006 (hereinafter, the “2006 Limited Guaranty”). (Id.
at 11-15).
The 2005 Unlimited Guaranty provides, in relevant part, as follows:
1. Guaranty. For valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the undersigned, GEORGE W. SKIPPER, III
(hereinafter called "Guarantor"), unconditionally guarantees and promises to pay
to VISION BANK, a corporation (hereinafter called "Bank"), or order, on
demand, in lawful money of the United States, any and all Indebtedness, as
hereinafter defined, of SANDY CREEK II, LLC, an Alabama limited liability
company (hereinafter called "Borrower"), to Bank. The word “Indebtedness” is
used herein in its most comprehensive sense and pertains to a loan in the principal
amount of Five Million Dollars ($5,000,000.00) being made by Bank to Borrower
on or about the date hereof (the “Loan”). “Indebtedness” includes any and all
advances, debts, obligations and liabilities of Borrower to Bank heretofore, now,
or hereafter existing, made, incurred, or created, whether voluntary or
involuntary, arising under, pursuant to or in connection with the Note (as
hereinafter defined) and/or any and all other Loan Documents (as hereinafter
defined), whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, not limited to but including principal,
interest, costs of collection, attorney’s fees and all other lawful charges . . .
“Note” refers to the $5,000,000.00 principal amount Promissory Note dated on or
about September 30, 2005, from Borrower to the Bank, as the same may from
time to time be amended, restated, extended, consolidated, replaced and/or
renewed, together with all such amendments, restatements, extensions,
consolidations, replacements and/or renewals. “Loan Documents” (or singularly
a “Loan Document”) refers to the Note, the Mortgage and Security Agreement
(“Mortgage”) dated on or about the date hereof between Borrower and Bank and
relating to the Loan, and all other documents and instruments related to the Loan
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or any of the indebtedness and obligations at any time arising thereunder or the
security therefor.
2. Guaranty Continuing and Unlimited; Termination. The liability of the
Guarantor shall cover all Indebtedness, as that term is defined above, of Borrower
to Bank and shall be unlimited. This is a continuing Guaranty relating to all
Indebtedness, including but not necessarily limited to that Indebtedness arising
under successive transactions which shall either continue the Indebtedness or
from time to time renew it after it has been satisfied . . .
3. Guarantor's Obligations Independent: Statute of Limitations. The
obligations of the Guarantor hereunder are independent of the obligations of
Borrower and any other guarantor, and a separate action or actions may be
brought and prosecuted against the Guarantor whether action is brought against
Borrower or any other guarantor or whether Borrower or any other guarantor be
joined in any such action or actions; and the Guarantor waives the benefit of any
statute of limitations.
...
6. Waivers. Guarantor waives any right to require Bank to (a) proceed against
Borrower or any other guarantor; (b) proceed against or exhaust any security held
from Borrower; or (c) pursue any other remedy in Bank's power whatsoever . . .
(Id. at 6-7).
The 2006 Limited Guaranty provides, in relevant part, as follows:
1. GUARANTY. For valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the-undersigned GEORGE W. SKIPPER, III
(hereinafter called "Guarantor"), jointly and severally unconditionally guarantees
and promises to pay to VISION BANK (hereinafter called "Bank"), or order, on
demand, in lawful money of the United States, any and all Indebtedness, as
hereinafter defined, of SANDY CREEK II, LLC, an Alabama limited liability
company (hereinafter called "Borrower"), to Bank. The word “Indebtedness” is
used herein in its most comprehensive sense and includes a loan to be made by
Bank to Borrower within 10 days after the date hereof in the amount of up to Two
Million Dollars ($2,000,000.00) (the “Loan”) and any and all advances, debts,
obligations and liabilities of Borrower to Bank heretofore, now, or hereafter
existing, made, incurred, or created, whether voluntary or involuntary, and
whether or not arising under, pursuant to or in connection with the Loan
Agreement (as hereinafter defined) the Note (as hereinafter defined) and/or any
and all other Loan Documents (as hereinafter defined), whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
not limited to but including principal, interest, costs of collection, attorney’s fees
and all other lawful charges . . . “Loan Agreement” refers to the Loan Agreement
for Construction Financing to be dated on or about the date the Loan is first
funded between Borrower and Bank, and “Note” refers to the Two Million Dollar

5

($2,000,000.00) maximum principal amount Promissory Note to be dated on or
about the date of the Loan Agreement from the Borrower to the Bank, as the same
may from time to time be amended, restated, extended, consolidated, replaced
and/or renewed, together with all such amendments, restatements, extensions,
consolidations, replacements and/or renewals. “Loan Documents” (or singularly
a “Loan Document”) refers to the Loan Agreement, the Note and all other
documents and instruments related to the Note and/or any of the indebtedness and
obligations at any time arising thereunder or the security therefor, and including,
without limitation to the generality of the foregoing, a Mortgage and Security
Agreement from Borrower to Bank dated on or about September 30, 2005, as
modified by instruments between Borrower and Bank to be dated the date of the
Note, as the said documents and instruments may from time to time be amended,
restated, extended and/or consolidated.
2. GUARANTY CONTINUING AND UNLIMITED. The liability of the
Guarantor shall be joint and several, shall cover all Indebtedness, as that term is
defined above, of Borrower to Bank and, subject to the applicable limitations
described in Section 14 below, shall be unlimited. This is a continuing Guaranty
relating to all Indebtedness, including but not necessarily limited to that
Indebtedness arising under successive transactions which shall either continue the
Indebtedness or from time to time renew it after it has been satisfied . . .
3. GUARANTOR'S OBLIGATIONS INDEPENDENT: STATUTE OF
LIMITATIONS. The obligations of the Guarantor hereunder are independent of
the obligations of Borrower, and a separate action or actions may be brought and
prosecuted against the Guarantor whether action is brought against Borrower or
any other Guarantor or whether Borrower or any other Guarantor be joined in any
such action or actions; and the Guarantor waives the benefit of any statute of
limitations or other defenses affecting its liability hereunder or the enforcement.
...
6. WAIVERS. GUARANTOR WAIVES ANY RIGHT TO REQUIRE BANK
TO (A) PROCEED AGAINST BORROWER OR ANY OTHER GUARANTOR;
(B) PROCEED AGAINST OR EXHAUST ANY SECURITY HELD FROM
BORROWER; OR (C) PURSUE ANY OTHER REMEDY IN BANK'S POWER
WHATSOEVER . . .
14. LIMITATIONS OF LIABILITY. The limitations of liability under this
Guaranty set forth in this Section 14 do not apply to the Borrower or to any other
guarantor of Borrower’s Indebtedness to the Bank. Guarantor shall be liable for,
and the liability of Guarantor shall be limited to, (i) an amount equal to
Guarantor’s Specified Portion of the principal of the Note from time to time
outstanding; (ii) 100% of all interest on the Loan accrued or accruing at any time,
whether before or after acceleration or other maturity of the Note, prior to the
payment-in-full by Guarantor of his or her liability under clauses (i), (ii), (iii) and
(iv) of this sentence, (iii) 100% of all costs and expenses (including reasonable
actual attorney’s fees) of collection related or attributable, directly or indirectly, to

6

the enforcement of Guarantor’s obligations under this Guaranty, and (iv) 100% of
all other costs and expenses (including reasonable actual attorney’s fees) of
collection relating to all principal, interest and other charges under the Note
and/or relating to any other Indebtedness and paid or incurred by the Bank prior to
the payment-in-full by Guarantor of his or her liability under clauses (i), (ii) and
(iii) of this sentence.
As used in this Section 14, the “Specified Portion” of Guarantor shall be as set
forth below:
GUARANTOR

SPECIFIED PORTION OF PRINCIPAL

George W. Skipper, III

Six Hundred Thousand Dollars
($600,000.00)

...
15. MISCELLANEOUS: JOINT AND SEVERAL LIABILITY. Each
Guarantor’s liability hereunder shall be joint and several . . . No provision of this
Guaranty shall be deemed in conflict with any other provision hereof, of the note
or any other Loan Document, and the Guarantor acknowledges that no such
provision or any interpretation thereof shall be deemed to diminish the rights of
the Bank under the terms and conditions or any other provisions hereof or thereof.
...
(Id. at 11-15).
Vision Bank never communicated directly with Skipper, instead delegating the task of
preparing and executing the guaranties to its attorneys. (Doc. 101-2 at 7-8, 80-83, 93 – Braswell
Depo.). Vision Bank’s attorneys sent the guaranties to Joe Raley Builders, developer of the
Sandy Creek project; an employee of the company, Barbara Merryman (“Merryman”), was then
instructed by Joe Raley (“Raley”) to obtain signatures from Skipper and the other guarantors.
(Doc. 101-4 at 2, 14 – Raley Depo.).
Both loans were renewed or modified multiple times over the years – the property loan in
April 2006; both loans in April 2007, April/May 2008, and July 2008.

Each renewal or

modification was made without obtaining guarantor approval. During the 2008 loan renewals,
Vision Bank was aware that sales for the Sandy Creek development were slow, that development

7

itself was not going as planned, and that the real estate market in general was falling. Vision
Bank also obtained several appraisals of the collateral property – July 2005 ($9.84 million),
August 2008 ($5.5 million), June 2009 ($4.25 million), September 2009 ($2,786,800) (obtained
by participating bank), October 2011 ($1.07 million). (Doc. 101-2 – Braswell Depo; Docs. 10146 – -51). Skipper claims he was never informed of these appraisals.
In July 2009, Skipper signed a “Supplement to Loan Documents” relating to the two
loans, which stated in relevant part: “Borrower and all of the Included Guarantors acknowledge
and agree that . . . the Loans and First Note and Second Note have matured and are in default and
are due and payable in full . . .” (Doc. 79-2 at 1-4). That same month, SC II executed two
Amended Promissory Notes in favor of Vision Bank (these are the notes on which SEPH bases
its breach-of-contract claims): one for the principal amount of $3,521,057.89 (“amended
property loan”) (Doc. 79-1 at 5-7) and the other for the principal amount of $1,999,645.83
(“amended construction loan”) (id. at 8-10). As with the original loans, Skipper was named as a
guarantor for both amended loans. New guaranties were not executed for either of the Amended
Promissory Notes.
The Amended Promissory Notes are in default, and all Defendants have refused SEPH’s
demand for payment. (Doc. 79-1 at 2, ¶¶ 6-7 – Harmon Aff.). SEPH claims that, as of January
9, 2013, the balance due under the amended property loan is $2,827,827.01 ($2,657,442.18 in
principal and $170,384.83 in interest, with interest continuing to accrue “at a default rate of Wall
Street Prime plus 4.5%, currently 8% ($590.54 per diem)” ), and that the balance due under the
amended construction loan is $2,099,379.07 ($1,859,429.94 in principal and $239,949.13 in
interest, with interest continuing to accrue “at a default rate of Wall Street Prime plus 4.5%,
currently 8% ($413.21 per diem)”). SEPH claims that Skipper is liable for the full amount due
on the amended property loan, under the terms of the relevant Amended Promissory note and the
2005 Unlimited Guaranty (id., ¶ 8), and that he is liable for $839,949.13 of principal and accrued
interest pursuant to the terms of the 2006 Limited Guaranty (id. at 3, ¶ 9).

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To date, SEPH has not foreclosed on the collateral real property.
IV.

Analysis
a. Applicable Law
Before addressing the parties’ substantive contentions, the Court must decide what law

governs the claims in this diversity action. The claims in this action are based on contract law.
“[A] federal court in a diversity case is required to apply the laws, including principles of
conflict of laws, of the state in which the federal court sits.” Manuel v. Convergys Corp., 430
F.3d 1132, 1139 (11th Cir. 2005) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487,
496 (1941)).

Alabama courts follow the traditional conflict-of-law principle of lex loci

contractus. Lifestar Response of Ala., Inc. v. Admiral Ins. Co., 17 So. 3d 200, 213 (Ala. 2009).
Accordingly, in Alabama, contract claims are governed by the laws of the state where the
contract was made, unless the contracting parties chose a particular state’s laws to govern their
agreement. E.g., Cherry, Bekaert & Holland v. Brown, 582 So. 2d 502, 506 (Ala. 1991). In this
action, all loan documents at issue expressly provide that they are to be governed by the laws of
Alabama, and no party has argued that the law of any other jurisdiction should apply. Therefore,
the Court will apply Alabama law to the claims in this action.
b. Arguments
In the Complaint, SEPH alleges that it “is the holder of the Notes and each Guaranty[,]”
that Skipper is “in default under the Notes and Guaranties[,]” and that it has “demanded payment
from” Skipper, who has “failed to pay.” (Doc. 1 at 4-5, ¶¶ 15, 17, 19). Under Alabama law, “
‘[e]very suit on a guaranty agreement requires proof of the existence of the guaranty contract,
default on the underlying contract by the debtor, and nonpayment of the amount due from the
guarantor under the terms of the guaranty.’ ” Sharer v. Bend Millwork Sys., Inc., 600 So. 2d 223,

9

225-26 (Ala. 1992) (quoting Delro Indus., Inc. v. Evans, 514 So. 2d 976, 979 (Ala. 1987)).5 “
‘Rules governing the interpretation and construction of contracts are applicable in resolving a
question as to the interpretation or construction of a guaranty contract.’ ” Eagerton v. Vision
Bank, 99 So. 3d 299, 304 (Ala. 2012) (quoting Gov’t St. Lumber Co. v. AmSouth Bank, 553 So.
2d 68, 75 (Ala. 1989)).
SEPH argues that it is due summary judgment in its favor on its breach-of-guaranty
claims against Skipper based on the express, binding, and enforceable terms of the Amended
Promissory Notes, the 2005 Unlimited Guaranty, and the 2006 Limited Guaranty, and because
Skipper has “expressly acknowledged” that he is in default on the guaranties (Doc. 79 at 5, ¶ 5).
Upon consideration of the evidence presented, the Court finds that SEPH has met its
initial burden of establishing that the loans are in default, in that Skipper “agrees that he signed
or executed loan documents and that the notes associated with these loan documents are in
default, but [he] cannot agree or dispute the amounts claimed by SEPH.” (Doc. 101 at 9. See
also Doc. 101-1 at 14-15 – Skipper Depo.).

5

Moreover, “to recover under a . . . continuing guaranty, an additional element, notice to the guarantor of
the debtor's default, must be proved.” Sharer, 600 So. 2d at 226 (quotation omitted). However, “[t]he
language of the guaranty is controlling in determining whether the holder of the guaranty is under a duty
to notify the guarantor of a default by the principal, and notice need not be given when the terms of the
guaranty expressly dispense with the need for it.” Id. Paragraph 6 of both the 2005 Unlimited Guaranty
and the 2006 Limited Guaranty provides, in relevant part: “Guarantor waives all presentments, demands
for performance, notices of non-performance, protests, notices of protest, notices of dishonor, and
notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional
Indebtedness” (emphasis added). The Alabama Supreme Court has held that similar language in a
continuing guaranty waived the requirement to provide notice of default. See id. (“The guaranty
agreement Sharer executed provides in pertinent part: []‘We waive, in connection with the indebtedness
and with our obligation under this Guaranty, all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty
and of the existence, creation or incurring of any new or additional indebtedness.’ [](Emphasis supplied.)
. . . Because Sharer waived his right to notice of Sash and Door's nonperformance on the underlying
contract, we hold that Bend and Pozzi were not required to prove that they gave Sharer such notice.”). As
such, because Skipper has waived the requirement, SEPH need not show it provided notice to Skipper of
SC II’s default on the notes in order to enforce the guaranties.

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However, Skipper claims genuine issues of material fact as to whether he is discharged
from his obligations under the guaranties due to material alterations made and caused by Vision
Bank without his consent – specifically, by Vision Bank’s several renewals of the loans without
informing Skipper that the value of the collateral property had dropped. Skipper also claims
genuine issues of material fact as to whether he is subject to the 2005 Unlimited Guaranty,
arguing that, by its express language, the 2006 Limited Guaranty modified the 2005 Unlimited
Guaranty such that Skipper’s payment obligation on both loans is limited to that set forth in the
limited guaranty ($600,000). Finally, Skipper argues that, even if he is liable to SEPH under the
guaranties, 1) he is due a setoff on any amount owed because SEPH failed to act in a
commercially reasonable manner by not foreclosing on the collateral real property, and 2) SEPH
has not presented sufficient evidence to justify either its entitlement to collect on the guaranties.
i. Material Alterations to Guaranties
Both loans at issue were secured by a mortgage on real property. According to Skipper’s
factual narrative, at the time the property loan was executed, the collateral real property was
appraised at $9.84 million, thus making the $5 million property loan “double collateralized.”
Both loans were renewed several times over the years – in April 2006, late April/early May
2008, July 2008, August/September 2008, and July 2009 (when the Amended Promissory Notes
on which SEPH relies in its Motion for Summary Judgment were executed). Each of these
renewals, according to Skipper, was carried out without obtaining the consent of the guarantors
and in spite of Vision Bank’s knowledge that lot sales and development at the Sandy Creek
project were slow and that the overall real-estate market was in decline. Moreover, Vision Bank
obtained new appraisals of the collateral property prior to the August/September 2008 and July
2009 renewals showing that the value of the collateral had dropped, first to $5.5 million and then
to $3.95 million. (Doc. 101 at 3-5, ¶¶ 5, 10).
Skipper has cited Eagerton v. Vision Bank, 99 So. 3d 299 (Ala. 2012), reh'g denied, (June

11

29, 2012), in support of his contention that material changes have rendered the guaranties
unenforceable. In that case, the Alabama Supreme Court stated as follows with regard to
guaranty contracts:
The general rule is that “[a] guarantor is discharged if, without his or her consent,
the contract of guaranty is materially altered.” 38A C.J.S. Guaranty § 97, at 704
(2008). In Medley v. SouthTrust Bank of the Quad Cities, 500 So. 2d 1075 (Ala.
1986), this Court stated that any alteration beyond the terms of the guaranty
contract, regardless of injury or benefit to the guarantor, is fatal:
“It is fundamental that the liability of a guarantor will not be extended by
implication beyond the terms of his contract. It matters not that he or she
sustains no injury or even that it may be for his or her benefit. This Court
has said that the guarantor ‘has a right to stand upon the very terms of his
contract, and if he does not assent to any variation of it, and a variation is
made, it is fatal.’ Russell v. Garrett, 208 Ala. 92, 96–97, 93 So. 711
(1922), quoting Manatee County State Bank v. Weatherly, 144 Ala. 655,
39 So. 988 (1905). See, also, Furst v. Shows, 215 Ala. 133, 110 So. 299
(1926).”
500 So. 2d at 1081 (emphasis added). In other words, the general rule regarding
guaranties is so strict that courts will not stop to inquire whether any alteration
was injurious or beneficial to the guarantor.
Eagerton, 99 So. 3d at 305-06.
Skipper contends there is a genuine issue of material fact as to whether the several loan
renewals by Vision Bank “constituted material changes to the loan agreements and guaranties
because of the drastic drop in the value of the collateral securing the Sandy Creek loan.” Should
these renewals constitute material changes, the guaranties would be unenforceable “[b]ecause
Vision Bank did not obtain consent agreements from [Skipper] affirming the guaranties . . . ”
(Doc. 101 at 13).
SEPH argues that Eagerton is distinguishable from the present case and that the terms of
the guaranties in this case make any drop in the value of the loan collateral irrelevant to their
enforceability. The Court agrees. Eagerton also involved guaranties related to two loans, “the
original loan” and “the second loan.” Whereas other guarantors had executed “unlimited”

12

guaranties with regard to the two loans, “[o]n each of their guaranty contracts, [Appellants ]the
Eagertons . . . limited their liability to ‘indebtedness’ arising out of . . . the original loan, as well
as any ‘extensions, renewals or replacements thereof.’ ” 99 So. 3d at 305. With the participation
of the lender, but not the Eagertons, the original loan was later consolidated with the second loan
in a Chapter 11 bankruptcy proceeding, and the lender sought payment from the Eagertons on the
consolidated loan pursuant to their guaranty contracts. Id. at 302-03. The Alabama Supreme
Court, however, agreed with the Eagertons’ argument that “the consolidation of the original loan
with the second loan[] created a new ‘indebtedness’ and/or contract not encompassed by their
guaranty contracts” and “that the creation of this new indebtedness, without their knowledge or
consent, operated to discharge them from any further obligations under their guaranty contracts.”
Id. at 306. Specifically, the court found that the bankruptcy loan consolidation constituted a
“modification,” rather than an “extension[], renewal[] or replacement[,]” of the original loan. As
the Eagertons “did not guarantee . . . the original loan[] ‘with modifications[,]’ . . . once the
original loan was modified pursuant to [the] Chapter 11 reorganization, the Eagertons were
discharged from any further obligations under their guaranty contracts securing the original
loan.” Id. at 307.
In this case, no “new indebtedness” was created by the repeated renewal of the loans.
The decline in value of the collateral property had no effect on the indebtedness owed by
Skipper. As the express terms of the guaranties provide, SEPH is under no obligation to use the
collateral property to satisfy the loans before seeking payment from the guarantors. Both the
2005 Unlimited Guaranty and 2006 Limited Guaranty state: “It is the intent hereof that the
obligations of the Guarantor hereunder shall be and remain unaffected (a) by the existence or
non-existence, validity or invalidity of any pledge, assignment or conveyance given as security . .

13

.” (Doc. 79-2 at 7, ¶ 4, 12, ¶ 4). Moreover, in executing the guaranties, Skipper expressly 1)
“authorize[d] [Vision ]Bank, without notice or demand and without affecting his liability
hereunder, from time to time to . . . (b) take and hold security for the payment of the Guaranty or
the Indebtedness guaranteed, and exchange, modify, enforce, waive and release any such security
. . .” (id. at 7, ¶ 5, 12, ¶ 5 (emphasis added)), and 2) “waive[d] any right to require Bank to . . .
(b) proceed against or exhaust any security held from Borrower . . .” (id. at 7, ¶ 6, 12, ¶ 6).
Under these terms, regardless of whether the collateral property increases or decreases in
value, SEPH is entitled to forego foreclosure on the collateral and instead seek full payment on
the loans from Skipper. As such, “the liability of [the] guarantor[s] [has] not be[en] extended by
implication beyond the terms of [their] contracts” by the changing value of the collateral
property. Eagerton, 99 So. 3d at 306 (quotation omitted). See also John Glenn et al., 38A C.J.S.
Guaranty § 97 (2013) (“Whether an alteration in a guaranty contract is material depends upon
whether after the alteration it expresses the same contract, and whether it will have the same
operation and effect. If the alteration in a guaranty changes the guarantor's liability it is material.
. . . It has been said that an alteration of a guaranty agreement is not ‘material,’ as basis for
discharging the guarantor, unless the guarantor is placed in the position of being required to do
more than his or her original undertaking.” (footnotes omitted)). Therefore, Skipper has failed to
demonstrate material alterations to the guaranties.
ii. 2006 Limited Guaranty Modifies 2005 Unlimited Guaranty
Even if the guaranties are enforceable, Skipper argues that he is liable only for the
amount provided for in the 2006 Limited Guaranty, which by its “plain language . . .
supercedes” the 2005 Unlimited Guaranty “by limiting the obligations of Skipper on both loans
to a specified principal amount.” (Doc. 101 at 14).
In Alabama, “[p]arties may modify the terms of their agreement and ‘if the terms of a

14

subsequent agreement contradict the earlier agreement, the terms of the later agreement
prevail.’” McLemore v. Hyundai Motor Mfg. Ala., LLC, 7 So. 3d 318, 332-33 (Ala. 2008)
(quoting Cavalier Mfg., Inc. v. Clarke, 862 So. 2d 634, 641 (Ala. 2003) (plurality opinion)). See
also RRE Crestwood Holding, LLC v. CV Apartments, LLC, No. 2:11-CV-01466-AKK, 2012
WL 3139588, at *4 (N.D. Ala. July 26, 2012) (“[W]hen ‘two agreements cover the same subject
matter and include inconsistent terms, the later agreement supersedes the earlier agreement.’ ”
(quoting Cavalier Mfg., 862 So. 2d at 641) (plurality opinion) (emphasis added) (quoting for
proposition CMI Int'l, Inc. v. Intermet Int'l Corp., 251 Mich. App. 125, 130, 649 N.W.2d 808,
812 (2002))). “Both parties must mutually assent to a modification.” Ex parte Amoco Fabrics &
Fiber Co., 729 So. 2d 336, 340 (Ala. 1998). See also Whorton v. Bruce, 17 So. 3d 661, 665
(Ala. Civ. App. 2009) (“ ‘[I]t is an elementary principle of contract law that in order for a
contract to be validly modified, there must be mutual assent to the new terms by both parties. ...
It is incumbent on the party claiming the modification to show that the new agreement was
mutually agreed to.’ ” (quoting Wiregrass Constr. Co. v. Tallapoosa River Elec. Coop., Inc., 365
So. 2d 95, 98 (Ala. Civ. App. 1978))). Though Skipper spends significant page space arguing
ambiguity in support of his contention that the 2006 Limited Guaranty supersedes the 2005
Unlimited Guaranty, “ ‘[i]t is a general rule that a party claiming that a contract modifies a prior
contract must show that the later contract is definite and certain as to the terms of modification,
and the modification extends only so far as the terms are definite, certain and intentional.’ ”
McLemore, 7 So. 3d at 333 (quoting Johnson-Rast & Hays, Inc. v. Cole, 310 So. 2d 885, 889
(Ala. 1975) (citing 17 C.J.S. Contracts § 347, p. 424)).
In both the 2005 Unlimited Guaranty and the 2006 Limited Guaranty, Skipper
“unconditionally guarantees and promises to pay to VISION BANK . . . or order, on demand, in
lawful money of the United States, any and all Indebtedness, as hereinafter defined, of SANDY
CREEK II, LLC . . . to Bank.” As Skipper points out, “Indebtedness” as defined in the 2006
Limited Guaranty is very broad and can be read to encompass the property loan as well as the

15

construction loan, especially when compared with the more confined definition of
“Indebtedness” contained in the 2005 Unlimited Guaranty.
“Indebtedness” in the 2005 Unlimited Guaranty specifically “pertain[s] to” the $5 million
property loan and “includes any and all advances, debts, obligations and liabilities of [SC II] to
[Vision ]Bank heretofore, now, or hereafter existing, made, incurred, or created, . . . arising
under, pursuant to or in connection with” the $5 million property loan.

In contrast,

“Indebtedness” in the 2006 Limited Guaranty “includes” the construction loan as well as “any
and all advances, debts, obligations and liabilities of [SC II] to [Vision ]Bank heretofore, now,
or hereafter existing, made, incurred, or created, . . . whether or not arising under, pursuant to
or in connection with” the construction loan. The 2005 property loan can be considered an
“advance[], debt[], obligation[] [or] liability[y] of [SC II] to [Vision ]Bank heretofore . . . made,
incurred, or created, . . . not arising under, pursuant to or in connection with” the construction
loan.

As such, the 2006 Limited Guaranty could be read to modify the terms of the 2005

Unlimited Guaranty by limiting Skipper’s liability for “any and all Indebtedness” of SC II to
Vision Bank “heretofore . . . or hereafter existing, made, incurred, or created,” including the
original property loan and the amended property loan.
SEPH “assum[es] arguendo that the language in the 2006 limited guaranty [is] broad
enough to overlap with the underlying debt covered by the 2005 guaranty” but argues that
“[t]here is nothing in the 2006 guaranty that purports to revoke or supplant the 2005 unlimited
guaranty of” the property loan. In support, SEPH cites Ferguson v. Cadle Co., 816 So. 2d 473,
476 (Ala. 2001), in which it claims “the Supreme Court of Alabama has expressly held that a
later ‘guaranty cannot, in and of itself, negate the earlier guaranty.’ ” That holding, however,
does not have the broad application SEPH argues; it is instead limited to the specific facts of that
case, where the earlier guaranty contained express language stating that “the only way to revoke
16

that guaranty [wa]s by written notice actually received by the Bank.” Ferguson, 816 So. 2d at
476 (quotation marks omitted). Because the record in Ferguson contained no evidence of such a
condition being met, the court found that the later guaranty did not revoke or replace the earlier
one. This result is consistent with the Alabama Supreme Court’s holding that “a provision in a
continuing guaranty agreement that requires a particular method of revocation must be given
effect as written . . .” Barnett Millworks, Inc. v. Guthrie, 974 So. 2d 952, 957 (Ala. 2007).
SEPH does not point to any such provision in any of the guaranties at issue. The other cases to
which SEPH cites in support of this contention are not relevant, as they do not address contract
modification under Alabama law. See Alton Banking & Trust Co. v. Schweitzer, 121 Ill. App.
3d 629, 634 (1984) (rejecting theories of merger and novation under Illinois law in finding that a
later guaranty did not replace a previous one); RRE Crestwood, 2012 WL 3139588, at *4
(finding that Alabama merger doctrine did not apply to three guaranties because each related to a
different obligation).
However, “[t]erms of a written instrument should be construed in pari materia and a
construction adopted that gives effect to all terms used.” Sullivan, Long & Hagerty v. S. Elec.
Generating Co., 667 So. 2d 722, 725 (Ala. 1995). A review of the document indicates that the
express terms of the 2006 Limited Guaranty do not allow for modification of Skipper’s liability
in the 2005 Unlimited Guaranty. Specifically, paragraph 15 of the 2006 Limited Guaranty
provides: “No provision of this Guaranty shall be deemed in conflict with … any other Loan
Document, and the Guarantor acknowledges that no such provision or any interpretation thereof
shall be deemed to diminish the rights of the Bank under the terms and conditions of any other
provisions … thereof.” (Doc. 79-2 at 14-15 (emphasis added)). The term “Loan Documents,”
as set out in paragraph 1 of the 2006 Limited Guaranty, refers to, inter alia, “all other

17

documents and instruments related to the Note and/or any of the indebtedness and obligations
at any time arising thereunder or the security therefor, and including, without limitation to the
generality of the foregoing, a Mortgage and Security Agreement from Borrower to Bank
dated on or about September 30, 2005, as modified by instrument between Borrower and Bank
to be dated the date of the Note, as the said documents and instruments may from time to time be
amended, restated, extended and/or consolidated.” (Id. at 11 (emphasis added)).
The Amended Promissory Note for the 2005 property loan states that its indebtedness is
secured by a “certain Mortgage and Security Agreement . . . dated on or about September 30,
2005, from Borrower to Bank . . .” (Doc. 79-1 at 5-6, ¶ 3).

It also states that it “has been

guarantied by [Skipper and others] pursuant to separate continuing guaranties heretofore
executed by said Guarantors . . .” (Id. at 5, ¶ 3). As such, the 2005 Unlimited Guaranty can
plainly be considered a “document[] or instrument[] related to . . . [the] Mortgage and Security
Agreement from Borrower to Bank dated on or about September 30, 2005,” supra, and is
therefore a “Loan Document” under the 2006 Limited Guaranty. Because the provisions of any
such “Loan Document” cannot be “deemed in conflict with” the provisions of the 2006 Limited
Guaranty, nor can the provisions of the 2006 Limited Guaranty be read to “diminish the rights
of” SEPH under any “Loan Document,” supra, the terms of the 2006 Limited Guaranty do not
“contradict,” and therefore do not modify or supercede, the terms of the 2005 Unlimited
Guaranty, see McLemore, 7 So. 3d at 332-33.
iii. Commercially Unreasonable Behavior
Skipper also argues that SEPH is not entitled to recover the full amount due on the loans
because it (and Vision Bank) acted in a commercially unreasonable manner by failing to
foreclose on the collateral property, even though it was aware that the property’s value was
declining.

Alabama law states: “Every aspect of a disposition of collateral, including the
18

method, manner, time, place, and other terms, must be commercially reasonable.” Ala. Code §
7-9A-610(b). However, “a secured party's failure to have conducted a sale or disposition of
collateral in a commercially reasonable manner does not absolutely bar the secured party from
recovering the deficiency between the amount due on the secured debt and the proceeds of the
sale or disposition of the collateral. Rather, the debtor is entitled to set off any loss proven at trial
against the deficiency owed to a secured party.” Folks v. Tuscaloosa Cnty. Credit Union, 989
So. 2d 531, 535 (Ala. Civ. App. 2007) (citing Stone v. Cloverleaf Lincoln-Mercury, Inc., 546 So.
2d 388, 390 (Ala. 1989)). See also Abston v. Cent. Bank of the S., 492 So. 2d 1298, 1300 (Ala.
1986) (“[A] debtor may be entitled to a reduction in the amount of a deficiency remaining after
the sale of collateral as damages for a creditor's commercially unreasonable behavior in the sale
of repossessed collateral.” (citing Valley Mining Corp., Inc. v. Metro Bank, 383 So. 2d 158 (Ala.
1980)).
Skipper has cited no Alabama case law applying this concept either to real property
collateral or to behavior occurring outside the actual “sale or disposition of collateral,” and the
Court’s own research has uncovered none. As has been discussed supra, Skipper expressly
waived any requirement of SEPH to foreclose on the collateral property. Moreover,
compelling a lender to foreclose on collateral instead of suing to recover unpaid
debts (in the absence of any contract provision imposing such a condition
precedent) would stretch the concept of mitigation beyond all reasonable
boundaries. See, e.g., SE Property Holdings, LLC v. Foley, 2012 WL 1382523,
*4 (S.D. Ala. Apr. 20, 2012) (rejecting argument that lender had a duty to
mitigate damages by foreclosing on property rather than allowing interest to
accrue at default rate); REL Development, Inc. v. Branch Banking & Trust Co.,
699 S.E.2d 779, 781–82 (Ga. App. 2010) (where contract provisions give lender
the right to choose between foreclosure and filing suit, “the bank was under no
duty to appellant to proceed against the collateral to collect payment,” such that
“the bank had no obligation to mitigate its damages in relation to the collateral”);
Fifth Third Bank v. Canvasser, 2011 WL 2347707, *2 (Mich. App. June 14,
2011) (finding no merit to defendants' contention that plaintiff lender breached
duty to mitigate by suing instead of foreclosing on collateral, reasoning that

19

“plaintiff suffered damages as soon as the promissory notes were defaulted on;
foreclosure is merely one possible remedy, and under the contracts, plaintiff had
its choice of remedies. Electing one rather than another does not per se constitute
a failure to mitigate.”). Besides, Alabama courts have expressly declined to
impose any such mandatory duty of foreclosure in the mortgage context. See
Triple J Cattle, Inc. v. Chambers, 551 So. 2d 280, 282 (Ala. 1989) (“Upon a
default by the mortgagor, the mortgagee has three remedies, and he may pursue
any one or all of them until the debt is satisfied.... He is not required to foreclose
the mortgage first, but may bring his action on the note alone.”).
Whitney Bank v. Point Clear Dev., LLC, Civ. A. No. 11-0657-WS-M, 2012 WL 2277597, at *5
(S.D. Ala. June 18, 2012) (Steele, C.J.) (emphasis added).
As such, Skipper’s argument that he is due a set off for commercially unreasonable
behavior is without merit.
iv. Entitlement to Collect on the Loans
Skipper argues that SEPH “fail[s] to present sufficient undisputed facts in support of [its]
claims - - particularly in regards to damages and whether SEPH has the contractual authority or
standing to pursue the breach of contract claims.” (Doc. 101 at 20-21). First, he points to
testimony of Alexander Braswell, SEPH’s corporate representative under Rule 30(b)(6) of the
Federal Rules of Civil Procedure, stating that Vision Bank sold $4.5 million of the $5 million
property loan to participating banks, retaining $500,000 (10%) of the original principal.
Pursuant to this testimony, Skipper argues that “SEPH has presented no evidence to the Court as
to its legal entitlement to recover damages on the debt which SEPH (or its purported predecessor
in interest, Vision Bank) has actually recovered long ago from the sale thereof to participating
banks[,]” claiming that the 2005 Unlimited Guaranty is “wholly silent as to the existence of
participating banks and the rights of Vision Bank (or SEPH) to recover principal sold to
participating banks from guarantors.” (Id. at 21). In response, SEPH asserts:
As between SEPH and Skipper, the parties in privity to the contracts at issue, the
guaranty agreements expressly define the amounts that Skipper owes to SEPH.
Any agreements that SEPH may have made with participant banks for the sale of
portions of the underlying debt are not at issue in this case, nor is any contractual
obligation that SEPH may have with the participant banks concerning repayment
of the loan proceeds. Issues relating to the division of proceeds between SEPH
20

and the participant banks are irrelevant to SEPH’s motion for summary judgment
as to the breach of contract by Skipper.
(Doc. 102 at 8).
Notwithstanding these assertions, the loan participation agreements for the property loan
each provide: “Originating Bank [Vision Bank] shall, subject to the provisions of this
Agreement, retain all rights with respect to enforcement, collection, and administration of the
Loan and the security underlying the Loan therefore, in accordance with the terms of this
Agreement.” (Docs. 101-34 – 101-38, ¶ 16.c.). Skipper has not identified any language in the
participation agreements that would otherwise limit SEPH’s right to claim the full amount owed
on the property loan.
Skipper also argues that SEPH has failed to show that it has been assigned or otherwise
“stepped into the shoes” of Vision Bank in relation to the guaranties or that it is otherwise the
successor in interest to those rights. However, SEPH has presented 1) the affidavit of Karen
Harmon, assistant secretary of SEPH, who states that SEPH is the “successor in merger for
Vision Bank” (Doc. 79-1 at 1, ¶ 1), and 2) a certified copy of the “Certification of Merger and
Transfer” between Vision Bank and SEPH (Doc. 98-1).

Skipper merely faults Harmon’s

affidavit statement for being “conclusory,” and he has not moved to strike or otherwise challenge
the Certification of Merger and Transfer. The Court finds that either of these pieces of evidence
is sufficient to prove the point asserted – that SEPH is the successor in merger of Vision Bank
and that Skipper has presented insufficient evidence to create an issue of fact. Under Alabama
law, “all rights, immunities, and franchises of the merged entities, of a public as well as a private
nature; and all debts and obligations due the merged entities, are taken and deemed to be
transferred and vested in the surviving or resulting entity without the necessity of any deed or
other instrument of conveyance to the surviving or resulting entity . . .” Ala. Code § 10A-18.02(i)(2). Thus, the Court finds there is no genuine issue of material fact as to SEPH’s
entitlement to enforce the loans made by Vision Bank in this case.

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V.

Conclusion
In accordance with the foregoing analysis, it is ORDERED that Plaintiff SEPH’s Motion

for Summary Judgment against Defendant George W. Skipper, III (Doc. 78) is GRANTED.6
DONE and ORDERED this the 23rd day of August 2013.
/s/ Kristi K. DuBose
KRISTI K. DuBOSE
UNITED STATES DISTRICT JUDGE

6

The Court will enter a final Judgment specifying the amount of damages after a determination is made
concerning the issue of attorneys’ fees and costs. Attorneys’ fees and costs will be considered after
completion of the case. Such consideration will be upon motion of Plaintiff SEPH, which shall include
supporting documentation for such request.

22