Marine Midland Bank, N.A. v. Wickwire, 78 N.Y.2d 182 (1991)
When a promissory note is payable in installments and the creditor has the option to accelerate the entire debt upon default of an installment, the statute of limitations begins to run on each installment separately unless the creditor exercises its option to accelerate; a guarantor’s liability is coextensive with the debtor’s, absent acceleration.
Summary
Marine Midland Bank loaned Campcore $500,000, secured by a promissory note with an acceleration clause. Wickwire guaranteed $105,000 of the loan. Campcore defaulted on an April 1983 payment, but Marine did not accelerate the debt. Campcore made partial payments until 1987. In 1990, Wickwire sought a declaration that Marine’s claim against his guaranty was time-barred, arguing the statute of limitations began running on the entire debt upon the initial default in 1983. The New York Court of Appeals reversed the lower courts, holding that separate causes of action accrued as each installment became due, and the statute of limitations did not bar Marine’s claim because it never accelerated the debt. The guarantor’s liability extended only to amounts due and payable.
Facts
In July 1978, Marine Midland Bank loaned Campcore, Inc. $500,000, secured by a promissory note. The note allowed Marine the option to accelerate the entire balance upon nonpayment of principal or interest. Wickwire guaranteed $105,000 of Campcore’s debt, promising “full and prompt payment to Bank when due, whether by acceleration or otherwise.” Marine agreed to notify Wickwire of any default within 30 days. On April 1, 1983, Campcore defaulted on a $6,000 principal payment plus interest. From October 1983 to October 1987, Campcore made partial payments but never became current. In January 1988, Marine notified Campcore that the loan had matured and demanded full payment.
Procedural History
In August 1990, Phoenix Acquisition Corp. and Dome Corp. sued to rescind the mortgage securing the loan. In October 1990, Wickwire cross-claimed, seeking a declaration that Marine’s claim against his guaranty was time-barred. The Supreme Court granted Wickwire’s motion for summary judgment. The Appellate Division affirmed. Marine appealed to the New York Court of Appeals.
Issue(s)
Whether Campcore’s default on one installment payment triggered the Statute of Limitations accrual against the entire debt, even though Marine Midland Bank chose not to exercise its option to accelerate the balance of the indebtedness?
Holding
No, because separate causes of action accrued as installments of the loan indebtedness became due and payable and the creditor-Marine did not exercise their right to accelerate the loan.
Court’s Reasoning
The court reasoned that the contractual language of the promissory note and guaranty dictate the scope of the guarantor’s legal obligation. Because Marine Midland Bank did not accelerate the entire debt, Wickwire was only liable for the installment that was due and payable and in default. The Statute of Limitations began to run only for that specific amount. The court stated, “The fact that Marine had a bargained-for, exclusive acceleration option to call the entire indebtedness due immediately upon any default does not, by operation of law, trigger the accrual of a cause of action for portions of the indebtedness which neither the debtor nor the guarantor were then liable to pay.”
The court rejected Wickwire’s argument that his obligation as guarantor was broader than the debtor’s, finding that the guaranty obligated him to make payments “when due, whether by acceleration or otherwise,” meaning his liability was coextensive with Campcore’s, up to $105,000 plus interest. The court interpreted the phrase “to the extent above provided” in conjunction with the primary guaranty obligation clause, “when due, whether by acceleration or otherwise” to refer only to amounts due and payable to the limit of $105,000.
The court also addressed the policy implications, stating that if a creditor’s action against a guarantor accrues wholly and immediately at the point of the first default in payment, creditors would be left with no alternative or incentive but to accelerate the entire debt or risk losing all opportunity to pursue the guaranty. This would disincentivize flexible arrangements between debtors and creditors to resolve issues amicably. Finally, the court addressed the issue of whether the notice requirement in the guaranty was a condition precedent to the enforcement of the guaranty and found that it was not.