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Pszanka v. Sutton Living Trust

United States District Court, D. South Dakota, Western Division

November 8, 2017

MICHAEL JOHN PSZANKA and MICKIE LYNN PSZANKA, Appellants,
v.
SUTTON LIVING TRUST and FORREST C. ALLRED, Trustee, Appellees.

          MEMORANDUM OPINION AND ORDER

          KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE.

         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 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.

         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, 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 ...

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