Pszanka et al v. Sutton Living Trust

Filing 13

MEMORANDUM OPINION AND ORDER. Signed by U.S. District Judge Karen E. Schreier on 11/8/17. (DJP)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION
MICHAEL JOHN PSZANKA and
MICKIE LYNN PSZANKA,
Appellants,
vs.

5:16-CV-05106-KES

MEMORANDUM OPINION
AND ORDER

SUTTON LIVING TRUST
and FORREST C. ALLRED, Trustee,
Appellees.

On August 15, 2011 (petition date), appellants Micki Lynn Pszanka and
her husband, Michael John Pszanka, filed for relief under chapter 7 of the
Bankruptcy Code. On June 27, 2013, the Sutton Living Trust (Trust) filed a
proof of claim for $27,683.56 and on October 27, 2015, it amended its proof of
claim to $298,071.66. The bankruptcy trustee and debtors objected to the
Trust’s proof of claim. The case was submitted to the Bankruptcy Court on
stipulated facts. On November 10, 2016, the Bankruptcy Court overruled the
trustee’s objection. The appellants timely filed their notice of appeal. Under 28
U.S.C. § 158(c)(1), the appellants elected to allow this United States District
Court to hear their appeal.

FACTUAL BACKGROUND 1
The Trust owned commercial real property located in Rapid City, South
Dakota. The Trust entered into a contract for deed with Triple L, Inc., where it
agreed to sell the commercial property to Triple L. Appellant Mickie Lynn
Pszanka owned Ripple Gee, LLC. With the Trust’s consent, Ripple Gee agreed to
purchase the commercial property from Triple L. The Trust and Triple L
entered into an addendum to the contract for deed to accommodate Triple L’s
assignment of the contract for deed to Ripple Gee and to extend the term of the
contract for deed. Triple L then assigned its interest in the contract for deed to
Ripple Gee, and Ripple Gee assumed Triple L’s duties and responsibilities
under the contract for deed. In connection with the assignment, Mickie
Pszanka personally guaranteed Ripple Gee’s obligations to the Trust under the
contract for deed. The guaranty provides as follows:
For and in consideration of the benefit of receiving an assignment
of the Buyer’s interest in that certain Contract for Deed dated
September 2, 2009 between Sutton Living Trust (Seller) and Triple
L, Inc. (Buyer) and in further consideration of the loan from Sutton
Living Trust to Ripple Gee, LLC and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the
undersigned Guarantor hereby personally guarantees the full and
faithful performance and observance of all covenants, terms, and
conditions of that certain Contract for Deed and Addendum thereto
(“Contract”) between Sutton Living Trust as Seller and Triple L,
Inc., as Buyer, which contract has been assigned from Triple L,
Inc. (“assignor”), to Ripple Gee, LLC (“assignee”), to be performed
by Buyer, expressly including, without being limited to, all
payments to be made and any other obligations to be performed. If
the Contract shall be modified in any respect by agreement
between Assignee and Seller, the obligations hereunder of
Guarantor shall extend and apply with respect to the full and
The facts are based on the parties’ stipulated facts as submitted to the
bankruptcy court. Docket 1-1.
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faithful performance and observance of all the covenants, terms
and conditions of the Agreement and of any such modifications
thereof.
Prior to the petition date, Ripple Gee defaulted on the contract for deed.
In lieu of foreclosure, the Trust requested that Ripple Gee quitclaim the
property to the Trust. After receiving the quitclaim deed, the Trust sold the
property to Aspen Ridge Lawn and Landscaping, LLC. As of the petition date,
Ripple Gee owed $460,218.88 on the contract for deed. The Trust sold the
property to Aspen Ridge for $208,900.00. The Trust incurred $13,286.04 in
transaction costs related to the sale to Aspen Ridge. Between the time the Trust
took possession of the property and the time it sold the property to Aspen
Ridge, the Trust incurred $33,466.74 in expenses to maintain and insure the
property. The Trust then filed an amended proof of claim for $298,071.66 to
cover the remaining amount owed on the contract for deed and to cover the
expenses incurred in transaction costs, maintenance, and insurance. Trustee,
Forrest C. Allred, objects to the Trust’s claim.
STANDARD OF REVIEW
“When a bankruptcy court’s judgment is appealed to the district court,
the district court acts as an appellate court and reviews the bankruptcy court’s
legal determinations de novo and findings of fact for clear error.” Fix v. First
State Bank of Roscoe, 559 F.3d 803, 808 (8th Cir. 2009)(quoting In re Falcon
Prods., Inc., 497 F.3d 838, 840-41 (8th Cir. 2007)). Here, the only issue before
the court is one involving a legal determination, so the court will review the
issue de novo.
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DISCUSSION
Appellants contend that the Pszanka guaranty was a conditional
guaranty that only guaranteed the performance of Ripple Gee, and thus, Mickie
Lynn Pszanka is not liable to the Trust because her guaranty terminated when
the underlying contract for deed terminated due to the delivery of a quitclaim
deed. Docket 5 at 3, 10-12. “According to South Dakota law, acceptance of a
quitclaim deed rescinds a purchase agreement and a contract for deed, along
with the rights thereunder.” Johnson v. Light, 723 N.W.2d 125, 128 (S.D.
2006). So acceptance of the quit claim deed extinguished any claims the Trust
may have had against Ripple Gee. The question then becomes whether the
guaranty creates liability on the part of Mickie Pszanka that survived the
rescission of the contract for deed.
“A guaranty is a promise to answer for the debt, default, or miscarriage
of another.” SDCL § 56-1-1. Under SDCL § 56-1-18, a guarantor’s obligation
cannot be larger in amount nor more burdensome than that of the principal.
But the Supreme Court of South Dakota has recognized that “SDCL § 56-1-18
applies to the ordinary guaranty and should not be interpreted as preventing
the parties to freely assume more of an obligation than that imposed in
ordinary circumstances.” Int’l Multifoods Corp. v. Mardian, 379 N.W.2d 840,
844 (S.D. 1985). In fact, the guaranty language “can indeed create greater
liability on the part of the guarantor.” Id. “[O]nce the validity of the guaranty is
recognized, the terms of the [guaranty] itself determine the duty of the
guarantor.” Sunbank of S.D. v. Precision Specialty Prods., Inc., 429 N.W.2d 73,
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75 (S.D. 1988). Thus, the issue is what duties are imposed on the guarantor
based on the language of the guaranty.
I.

The Pszanka guaranty is unconditional.
Appellants argue that the Pszanka guaranty is conditional because there

is no language in the guaranty that Pszanka unconditionally guaranteed
payment even after the underlying debt was discharged. Appellants rely on
United States v. Tharp, 973 F.2d 619, 623 (8th Cir. 1992), to support their
contention that the Pszanka guaranty was a conditional guaranty. In Tharp,
the Eighth Circuit Court of Appeals stated:
We are aware of the general rule that the release or discharge of
the principal obligor also discharges the guarantor unless the right
of recourse against the guarantor is expressly reserved in the
guaranty agreement. Here, however, the language contained in the
guaranty agreement clearly provides for the unconditional liability
of the guarantors, regardless of whether the obligation of the
principal debtor has been released, discharged or altered in any
matter.
Id. at 623. The language of the guaranty agreements stated that the guarantor
“unconditionally guarantees” payment of the promissory notes and allowed the
lender to change the terms of the agreement with the principal debtor without
discharging the guarantor. Id. at 620. As a result, the Court found that the
language of the guaranty agreements provided for an unconditional guaranty
and thus, the guarantors were liable even though the principal obligor was
discharged. Id. at 621.
Here, appellants argue that the Pszanka guaranty is distinguishable
because it “went no further than to guarantee the performance by Ripple Gee”
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and did not contain language that Pszanka “unconditionally” guaranteed
payment. Docket 5 at 14. The Pszanka guaranty, however, states that “the
undersigned Guarantor personally guarantees the full and faithful performance
and observance of all covenants, terms, and conditions of that certain Contract
for Deed and Addendum . . . to be performed by Buyer, expressly including,
without being limited to, all payments to be made and any other obligations to
be performed.” Docket 6-2 at 8. The guaranty also states that “[i]f the contract
shall be modified . . . the obligations hereunder of Guarantor shall extend and
apply with respect to the full and faithful performance and observance of all
the covenants, terms and conditions of the Agreement and of any such
modifications thereof.” Id. Thus, the Pszanka guaranty specifically guarantees
payment as well as performance and ensures the performance even if the
underlying contract for deed is modified. So while the Pszanka guaranty does
not specifically state that it is unconditional, it nevertheless without limit
guarantees the payment and performance of all obligations under the contract
for deed. Thus, the Pszanka guaranty is unconditional.
II.

Pszanka’s liability was not discharged when Ripple Gee’s
responsibility was discharged.
Appellants also argue that once Ripple Gee’s performance was

discharged, the Pszanka guarantee was canceled. Appellants rely on Mardian to
support their contention. In Mardian, the guarantors argued that they could
assert the principal debtor’s defenses of breach of warranty and failure of
consideration. But the South Dakota Supreme Court held that the unequivocal
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language of the guaranties waived the guarantors’ rights to assert those
defenses in an action by the creditor. Mardian, 379 N.W.2d at 844. Thus,
because of the language contained in the guaranties, the guarantors were
found to be liable on their guaranties even though the principal debtor was not
liable. Id. Similarly here, the language of the guaranties controls and Pszanka
is still liable even though the principal debtor is relieved of liability.
Appellants also argue that this case is similar to First Dakota National
Bank v. Graham, 864 N.W.2d 292, 293 (S.D. 2015). Docket 5 at 15. In Graham,
a hospitality company obtained a loan from a bank in exchange for a
promissory note and mortgage to purchase a hotel. Id. at 293. The bank also
obtained separate commercial guaranties from the hospitality company
shareholders that guaranteed “full and punctual payment and satisfaction of
the Indebtedness of Borrower to Lender.” Id. at 296. A few years later, the
hospitality company defaulted on the note. Id. at 293. The bank obtained a
default judgment against the company and an order directing that the hotel be
sold at public auction. Id. at 294. At the public auction, the bank bid on the
hotel for the full amount owed on the note. Id. The bank then sought to enforce
each commercial guaranty against the shareholders. Id. The South Dakota
Supreme Court found no liability, based on the language in the guaranty
contracts, because “the [g]uarantors’ obligation [was] unambiguously
connected to the existence of the indebtedness of [the hospitality company] to
[the bank].” Id. at 296. Because the indebtedness of the hospitality company
(Borrower) was fully extinguished when First Dakota (Lender) bid in the full
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amount of the debt at the foreclosure auction, there was no remaining
indebtedness of the borrower that was guaranteed to be paid by the guarantors
under the terms of the guaranty. Id. at 297.
Here, there is an amount owed to the Trust on the contract for deed and
the guaranty states “the undersigned guarantor hereby personally guarantees
the full and faithful performance and observance of all covenants, terms, and
conditions . . . to be performed by Buyer, expressly including without being
limited to, all payments to be made and any other obligations to be performed.”
Docket 6-2. This is not like the terms of the guaranty in Graham, which were
limited to guaranteeing payment of the borrower’s indebtedness. Instead, the
terms of the guaranty state that Pszanka will ensure performance—including
payments—under the contract for deed. Pszanka guaranteed all payments
under the contract for deed and the contract for deed has not been fully paid.
Thus, Pszanka is obligated to pay the remaining amount owed to the trust.
CONCLUSION
In conclusion, the Pszanka guaranty is an unconditional guarantee
without limitation in which Pszanka personally guaranteed all payments and
other obligations under the contract for deed. Furthermore, under the terms of
the guaranty, Pszanka’s liability was not discharged when Ripple Gee’s liability
was extinguished. Thus, this court affirms the decision of the bankruptcy
court.

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IT IS ORDERED that Trustee Forrest C. Allred’s Objection to Proof of
Claim #10 of Sutton Living Trust is overruled, and the claim filed by Sutton
Living Trust is allowed as filed.
DATED November 8, 2017.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE

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