An Assignment Of A Promissory Note Carried With It An Assignment Of The Guarantee Thereof Even Where No Assignment Of The Guarantee Was Specified In The Allonge. Jenzack Partners LLC v. Stoneridge Associates, LLC, et. al., 183 Conn. App. 128 (July 3, 2018)
In July 2006, Stoneridge Associates, LLC (“Debtor”) obtained a construction loan in the aggregate principal amount of $1,650,000 from Sovereign Bank (“Bank”), evidenced by a promissory note (the “Promissory Note”). The Promissory Note was secured by various personal guarantees, including a guarantee issued by Jennifer Tine (the “Guarantor”). The Guarantor executed both a limited guarantee (the “Guarantee”) and a mortgage over personal property to secure the obligations under the Promissory Note (the “Mortgage”), each in favor of the Bank. The Guarantee was a nonrecourse guarantee limited solely to Guarantor’s interest in the mortgaged personal property. In August 2009 and May 2010, the Guarantor executed reaffirmations of the Guarantee in connection with modifications of the Promissory Note.
The Bank eventually assigned the Promissory Note to Jenzack Partners, LLC (the “Creditor”) pursuant to an allonge. The Debtor defaulted under the Promissory Note and the Creditor sought to foreclose on the Mortgage, resulting in this dispute regarding assignment of the Guarantee. The Creditor argued that the Bank had assigned all of its interests in the Promissory Note, including interests in each of the underlying guarantees, and thus the Creditor was entitled to collect on the Guarantee and foreclose on the Mortgage. The Guarantor countered that the Creditor lacked standing because the Guarantee was not specifically assigned from the Bank to the Creditor in the allonge and that the assignment was of the Promissory Note only. (The Guarantor also argued against admission of evidence and the award of attorney’s fees, neither of which are discussed here.)
The court first established the nature of guarantees, noting, “Our Supreme Court has recognized the general principle that a guarantee agreement is a separate and distinct obligation from that of the note or other obligation . . . a guarantor's liability does not arise from the debt or other obligation secured by the mortgage; rather, it flows from the separate and distinct obligation incurred under the guarantee contract.” Recognizing that language of neither the allonge nor the Guarantee addressed an assignment of the Guarantee, the court turned to the Restatement (Third) of Suretyship and Guaranty. That treatise provides that “an assignment by the obligee of its rights against the principal obligor arising out of the underlying obligation operates as an assignment of the obligee's rights against the secondary obligor arising out of the secondary obligation . . . A secondary obligation, like a security interest, has value only as an adjunct to an underlying obligation. It can usually be assumed that a person assigning an underlying obligation intends to assign along with it any secondary obligation supporting it. Thus, unless there is an agreement to the contrary or assignment is prohibited pursuant to subsection (1), assignment of the underlying obligation also assigns the secondary obligation.”
Furthermore, following case law precedent, the court looked to the surrounding circumstances and intentions of the parties executing the assignment. Of relevance were the facts that (i) the Promissory Note was not itself secured by a mortgage, whereas the Guarantee was so secured, (ii) the Guarantee specifically limited Guarantor’s liability to Guarantor’s interest in the mortgaged property and (iii) the Guarantor executed multiple reaffirmations of the Guarantee.
Reading the guidelines of Restatement (Third) of Suretyship and Guaranty in conjunction with the surrounding circumstances and intensions, the court held rights under the Guarantee were, indeed, assigned alongside the Promissory Note. The court concluded, “An assignment of the [Promissory Note] without the guarantees would be valueless to the [Creditor] . . . the parties intended the assignment of the [Guarantor’s] limited guarantee as part of the assignment of the [Promissory Note]. Thus, the [Creditor] has standing to foreclose on the [Mortgage].”