Park v. Stanford, 2011 UT 41 (July 2011)
http://www.utcourts.gov/opinions/supopin/Park072211.pdf
Business Law Topics:
Guarantees, Debt Payments
Facts:
Snowmass, LLC (“Snowmass”) agreed to purchase a piece of commercial property from Kang and Marsha Park (the “Parks”). In connection with the purchase, Snowmass executed a promissory note and trust deed in favor of the Parks. Gary Stanford (“Stanford”) and Richard Buckway, the two members of Snowmass, also signed the note as personal guarantors. Stanford’s guaranty limited his liability to $500,000. At some point Stanford’s partner dropped out of Snowmass and Stanford remained the sole member of the LLC for several years. During this time he made numerous payments to the Parks – sometime with personal funds, other times with business funds. Eventually Snowmass failed to make payments due under the note and the Parks sued Stanford to recover on his personal guaranty. In defense, Stanford argued that he had already made in excess of $750,000 in payments in his capacity of guarantor. The Parks maintained that the payments identified by Stanford were applied to the Snowmass debt rather than towards a reduction his personal guaranty. The Court of Appeals and Supreme Court acknowledged that this was an issue of first impression in Utah.
Procedural Posture:
The trial court granted summary judgment in favor of the Parks, Stanford appealed. The Court of Appeals affirmed the trial court’s ruling and the Utah Supreme Court granted certiorari.
Good Business Law Rules:
1. “[A] guarantor is entitled to credit toward a personal guaranty for past payments when a reasonable basis exists for the recipient accepting the payments to know they were submitted in satisfaction of the guaranty.” ¶ 26.
2. Although “a prior agreement or contractual provision governing the application of a guarantor’s payments is not required” the “existence of an agreement or contractual provision would be, at the least, highly relevant.” ¶ 25.
3. “[T]he general rule in the debtor-creditor context is that a debtor may direct applications of payments to a particular debt.” ¶ 24.
Holding:
At least some payments made by Stanford in which he was listed as the remitter raised genuine issues of material fact under the reasonable basis test and the case was therefore reversed and remanded for further development of the record. Note that Judge Kay (sitting for Justice Durrant and Justice Parrish) dissented.