
USCA1 Opinion

	




                           UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                ____________________       No. 97-1113                    FEDERAL DEPOSIT INSURANCE CORPORATION, ETC.,                                Plaintiff, Appellee,                                         v.                            HOPPING BROOK TRUST, ET AL.,                               Defendants, Appellants.                                ____________________                    APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                 [Hon. George A. O'Toole, Jr., U.S. District Judge]                                ____________________                                       Before                               Torruella, Chief Judge,                         Campbell, Senior Circuit Judge, and                                Stahl, Circuit Judge.                                ____________________            Christopher M. Perry,with whom Brendan J. Perry, Terrance P.       Perry and Brendan J. Perry & Associates were on brief for appellants.            Jaclyn C. Taner, with whom Ann S. DuRoss, Assistant General       Counsel, and Colleen B. Bombardier, Senior Counsel, Federal Deposit       Insurance Corporation, were on brief for appellee.                                ____________________                                    July 3, 1997                                ____________________                                          1                      Per  Curiam.    This  case  concerns  the  personal            guaranties                       by                          James                               W.                                  Flett and John J. Arno of a loan made to            Hopping Brook  Trust by the  Home National  Bank of  Milford,            Massachusetts                        .  The facts of the case are clearly set forth in            the                district                         court's opinion, F.D.I.C. v. Hopping Brook Trust,            941 F.  Supp. 256 (D.  Mass. 1996).   Because we believe  the            district  court analyzed  the appealed  issues correctly,  we            affirm on the basis of the district court's opinion.  We  add            only a few paragraphs for clarification.                      Flett and Arno premise their contention that  their            obligations  under the  guaranties were  discharged on  three            arguments.                        First, they assert that Mass. Gen. Laws ch. 244,  S            17B  required the F.D.I.C.  to notify them  of its intent  to            foreclose the mortgage.1  The Massachusetts courts have  held            that                 S                   17B                      does                           not                               require the notification of guarantors, see            Senior Corp. v. Perine, 452 N.E.2d 1160, 1161 (Mass. App. Ct.            1983).                                       Flett and Arno argue, nonetheless, that S 17B required            notifying                      them                          because,                                   despite the use of the term "guarantor"            in the agreements, they are not really guarantors but primary            obligors.  They point to language in the guaranties providing            1.  Mass. Gen. Laws c. 244, S 17B states, in relevant part,            "No action for a deficiency shall be brought . . . by the            holder of a mortgage note or other obligation secured by            mortgage of real estate after a foreclosure sale by him            . . . unless a notice in writing of the mortgagee's intention            to foreclose the mortgage has been mailed . . . to the            defendant sought to be charged with the deficiency . . . ."                                           -2-                                          2            for  "primary, direct  and  immediate"  liability,  and  cite            Chestnut Manor, Inc.  v. Abraham, 452 N.E.2d 258, 259  (Mass.            App. Ct. 1983),  for the proposition that guarantors who  are            directly  and  unconditionally  liable  are  really   primary            obligors.                       Flett's and Arno's  reliance on Chestnut Manor,  an            intermediate appellate decision not involving the application            of               S                 17B,                      is                        misplaced.                                                                       While the short exposition in Chestnut            Manor                                  leaves                         it unclear why the "guarantors" in that case were            held to be primary obligors, an earlier Massachusetts Supreme            Judicial Court  case cited in  Chestnut Manor indicates  that            Flett and Arno were,  in any event, genuine guarantors.   See            Charlestown                        Five Cents Sav. Bank v. Wolf, 36 N.E.2d 390 (Mass.            1941) (superseded by statute on a separate issue).                      In Wolf, the  Massachusetts Supreme Judicial  Court            stated:                      The intention of  the parties  as to  the                      character of the liability assumed by the                      defendant[] . .  . is  to be  ascertained                      from  a  fair  construction  of  all  the                      language appearing in the note and in the                      [guaranty], according to the usual  rules                      of interpretation,  in the  light of  the                      subject  matter involved  and  by  giving                      appropriate                                  effect to all the words in the                      note and in the [guaranty] where that  is                      reasonably practicable.            Wolf, 36 N.E.2d at 391.                        The                          state's                                  highest court went on to reason that the            use of the term "guaranty" and the inclusion of certain types                                         -3-                                          3            of waivers  in the  agreement would  only make  sense if  the            agreement was in fact a guaranty.  The Supreme Judicial Court            wrote:                      The  word "guarantee"  appearing  in  the                      memorandum suggests, not a primary, but a                      collateral  undertaking  .  .  .  .   The                      phrases, "waiving demand and notice", and                      "No extension  or indulgence  or  partial                      release shall prevent my remaining  fully                      liable",  are  superfluous  if,  as   the                      plaintiff contends, the parties  intended                      that                           the                               defendant[] . . . should become a                      comaker of the note.  A demand or  notice                      is not necessary in order to hold a party                      who is primarily liable  on a note and  a                      comaker of a note would not be discharged                      by any  indulgence or  extension of  time                      granted by the payee to another  comaker.                      But  the  phrases  above  quoted   would,                      however, have  real significance  if  the                      obligation of the defendant[] . . .   was                      that of a guarantor.          Id. at 391-92 (citations omitted).                      Similarly,  in this  case, the  agreement was  titled          "Guaranty,"                      contained                               an                                  explicit waiver of "presentment and demand          for payment  and  protest of  non-payment"  (paragraph 4  of  the          guaranties), and stated that  the guarantors would remain  liable          even               if                  the                     lender                            "waive[d] compliance with, or any default under,          or             grant[ed]                       any                          other                                indulgences with respect to, the Note or any          agreement or instrument  securing the Note," (paragraph 2 of  the          guaranties).  These waivers would have been superfluous if  Flett          and Arno were primary obligors  rather than guarantors.  Id.   We          agree with  the district court that  Flett and Arno were  genuine          guarantors.  See Hopping Brook Trust, 941 F.Supp. at 261 n.1.                                         -4-                                          4                      Flett's and Arno's second argument, not discussed  by          the district court, is that they are discharged under a provision          of Massachusetts' version of  the Uniform Commercial Code,  Mass.          Gen. Laws ch. 106, S 3-606.2  The short answer to this contention          is that  Article 3  of the U.C.C.  does not  apply to  guaranties          because                  guaranties                            are                                not negotiable instruments.  See Pemstein v.          Stimpson, 630 N.E.2d 608, 613 (Mass. App. Ct. 1994).  Flett's and          Arno's attempts to avoid this rule  of law by claiming not to  be          guarantors but primary obligors  fails for the reasons  discussed          above.                      Flett's and Arno's third and final contention is that          they               are                  discharged                             under the common law because of an amendment to          the              Construction                          Loan                               Agreement effected some three weeks after the          other agreements were signed.  The amendment provided,  "Borrower          shall                pay                    to                      Lender,                              on                                 a partial release basis, the sum of $40,000            2.  Mass. Gen. Laws ch. 106, S 3-606 states, in relevant            part:               (1) The holder discharges any party to the instrument               to the extent that without such party's consent the               holder                    (a) without express reservation of rights                    releases or agrees not to sue any person                    against whom the party has to the knowledge                    of the holder a right of recourse or agrees                    to suspend the right to enforce against such                    person the instrument or collateral or                    otherwise discharges such person, except that                    failure or delay in effecting any required                    presentment, protest or notice of dishonor                    with respect to any such person does not                    discharge any party as to whom presentment,                    protest or notice of dishonor is effective or                    unnecessary . . . .                                         -5-                                          5          per acre  on the  sale or transfer  by Borrower  of any  property          covered under and secured by the Mortgage."  Flett and Arno argue          that  this amendment  materially  and prejudicially  altered  the          underlying                     loan                         which                               they had guarantied, resulting in a discharge          under the doctrine of Warren  v. Lyons, 25 N.E. 721 (Mass.  1890)          (holding that a  guarantor's obligations may  be discharged by  a          prejudicial change  to  the  guarantied agreement  to  which  the          guarantor did not consent).                      To  the district  court's  clear explanation  of  its          rejection of this argument we add only that language in paragraph          2  of the  guaranties  expressly waived  any  claim of  legal  or          equitable discharge.  The guaranties stated, "The obligations  of          guarantor                    under this guaranty shall be unconditional, irrespective          of the genuineness, validity, regularity or enforceability of the          Note or  any  other  [sic] circumstances  which  might  otherwise          constitute  a  legal  or  equitable  discharge  of  a  surety  or          guarantor."                                             Such                           broad                                 waivers are enforceable under Massachusetts          law.                               See                                      Sha                      wmut Bank, N.A. v. Wayman, 606 N.E.2d 925, 927 (Mass.          App. Ct. 1993).                      Affirmed.                                                    -6-                                          6
