Hotel Corp of MS v. Hotel Franchising ( 1999 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 98-60414
Summary Calendar
HOTEL CORPORATION OF MISSISSIPPI,
Plaintiff,
VERSUS
DAYS INN OF AMERICA, INC.,
Defendant - Counter Claimant - Appellee,
VERSUS
SHELDON HARNASH,
Counter Defendant - Appellant.
Appeal from the United States District Court
for the Southern District of Mississippi
(1:96-CV-452-G-R)
June 11, 1999
Before DAVIS, DUHÉ, and PARKER, Circuit Judges.
Per Curiam:1
Sheldon Harnash (“Harnash”) appeals the summary judgment in
favor of Days Inn of America (“DIOA”). We find no reversible error
and affirm.
BACKGROUND
In 1989, Harnash and George Gibalski (“Gibalski”) formed the
1
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
Hotel Corporation of Mississippi (“HCM”). Harnash and Gibalski
each owned one-half of HCM’s shares. In 1991, HCM entered into a
ten-year license agreement (“License Agreement”) with Days Inns of
America Franchising, Inc. (“DIAF”). Harnash and Gibalski signed a
personal guaranty (“Guaranty Agreement”) of HCM’s obligations under
the License Agreement. In 1992, DIAF was sold to Days Inns
Acquisition Corp., which then changed its name to Days Inns of
America. Harnash sold his interest in HCM in 1993.
The License Agreement authorized HCM to operate a Days Inn
hotel franchise and allowed HCM to receive reservations from the
Days Inn reservation system. In exchange, HCM agreed, inter alia,
to pay monthly royalty and recurring fees. In 1993, DIOA
terminated the License Agreement because HCM repeatedly failed to
pay recurring fees. HCM and DIOA subsequently entered into a
reinstatement agreement (“Reinstatement Agreement”) that treated
the termination as if it had never occurred. DIOA terminated the
License Agreement again in 1996 after HCM failed to pay recurring
fees and sold the hotel facility.
HCM sued DIOA’s parent corporation, Hotel Franchising Systems,
Inc. (“HFS”), in Mississippi state court, alleging breach of
contract, intentional interference with contractual and economic
relations, and unfair competition. HFS removed the action to
federal district court. Subsequently, DIOA intervened and filed an
answer and a counterclaim against HCM. DIOA also asserted third
party claims against Harnash and Gibalski as guarantors. The
parties filed cross motions for summary judgment. The district
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court granted DIOA’s motion for summary judgment and denied the
motions for summary judgment filed by HCM, Harnash, and Gibalski.
Among other things, the district court held that Harnash was liable
to DIOA as a guarantor of the License Agreement. Harnash appeals.
DISCUSSION
Harnash states that the issue on appeal is whether he is
liable under the terms of the Reinstatement Agreement. We
disagree. The district court did not hold Harnash liable under the
terms of the Reinstatement Agreement. Rather, the district court
held that the Guaranty Agreement rendered Harnash liable under the
terms of the License Agreement as modified by the Reinstatement
Agreement.
In the Guaranty Agreement, Harnash agreed to be bound by the
terms of the License Agreement and by any amendments or supplements
to it.2 This type of guaranty, which “is not confined to a
particular transaction but rather contemplates a future course of
dealing,” is known as a continuing guaranty, FDIC v. Woolard, 889
F.2d 1477, 1479 (5th Cir. 1989) (applying Texas law); see
Restatement (Third) of Suretyship & Guarantee § 16 (1995) (stating
that “[a] continuing guaranty is a contract pursuant to which a
person agrees to be a secondary obligor for all future obligations
of the principal obligor to the obligee.”), and is binding until
2
The Guaranty Agreement provides that it shall by “governed by
and construed under the laws of the state of Georgia.” The
district court applied Mississippi law, however, and the parties do
not complain on appeal.
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revoked. See id. The Guaranty was not revoked and, therefore,
remained binding on Harnash.
Harnash raises several defenses, none of which have merit.
First, he contends that he is not liable because he did not sign
the Reinstatement Agreement and did not know about it. These facts
are irrelevant. In the Guaranty, Harnash agreed that he would
remain obligated to DIOA notwithstanding future modifications or
supplements to the License Agreement. He also waived notice of
amendments to the License Agreement. The Reinstatement Agreement
was, by its express terms, a modification of and a supplement to,
the License Agreement.
Second, Harnash argues that the Reinstatement Agreement
materially altered the License Agreement, thus, relieving him of
liability. See Tower Underwriter’s, Inc. v. Culley, 53 So. 2d 94
(Miss. 1951). This argument fails because Harnash expressly
consented to such amendments in the Guaranty Agreement. See FDIC,
889 F.2d at 1479 (stating that “a guarantor can expressly agree to
future renewals or extensions and thereby waive any discharge
defense.”); United States v. Rollinson, 866 F.2d 1463, 1472-73
(D.C. Cir. 1989) (holding that deferrals of principal payments and
modifications of the original note did not release guarantors who
had authorized such modifications).
Third, Harnash argues that he sold his interest in HCM prior
to the execution of the Reinstatement Agreement. Harnash’s sale of
his corporate stock did not absolve him from liability as a
guarantor. See Ivy v. Grenada Bank, 401 So. 2d 1302, 1302-03 (Miss.
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1981) (holding that a defendant who signed a continuing guarantee
to establish a line of credit for a corporation was liable even
after he sold his stock in the corporation).
Fourth, Harnash maintains that the Reinstatement Agreement was
a novation that discharged him from liability. We disagree.
Harnash waived the defense of novation in the Guarantee Agreement
and, therefore, cannot rely on it.
Finally, Harnash argues that summary judgment was improper
because fact questions exist regarding the intent of the parties,
the extent of Harnash’s liability, and the amount of damages.
Harnash fails to point to evidence in the record establishing those
fact questions, however. See Solo Serve Corp. v. Westowne
Associates, 929 F.2d 160, 165 (5th Cir. 1991) (stating that the
defendant “must point to evidence in the record sufficient to
establish the alleged facts to avoid summary judgment.”). For
example, Harnash maintains that DIOA’s failure to include him as an
“Undersigned Guarantor” in the Reinstatement Agreement creates a
fact issue about whether the parties intended to bind him. The
problem with Harnash’s argument is that the Guaranty Agreement
clearly binds Harnash notwithstanding later modifications to the
License Agreement. Harnash offers no evidence to the contrary.
CONCLUSION
We affirm the summary judgment in favor of DIOA.
AFFIRMED.
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