Robbins Tire & Rubber v. Winnfield Retread
1991 WL 45790, 577 So. 2d 1189, 1991 La. App. LEXIS 639 (1991)
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Rule of Law:
A continuing suretyship agreement that contractually requires written revocation remains enforceable against the surety, and a creditor is not equitably estopped from enforcement by mere silence or by modifying security arrangements with the principal debtor, so long as the surety is not ultimately prejudiced.
Facts:
- In 1980, Straughan, Inc., through its president Thomas Straughan, executed a continuing 'Guaranty Agreement' for the debts of Winnfield Retread, Inc. owed to Robbins Tire & Rubber Co., Inc.
- The agreement specified that it would remain in full force and effect until revoked in writing by Straughan, Inc.
- Approximately three years later, Thomas Straughan sold his ownership interest in Winnfield to a new owner, Mr. Stroud.
- Straughan verbally notified Robbins of the ownership change but did not send a written revocation of the guaranty agreement.
- Following the sale, Robbins continued to extend credit to Winnfield under its new ownership.
- In 1986, Robbins obtained additional security from Winnfield, including a chattel mortgage, an assignment of accounts receivable, and a real estate mortgage.
- Subsequently, Robbins cancelled the real estate mortgage to facilitate a loan for Winnfield's new owner.
- In 1987, Winnfield defaulted on a debt of $23,828.78 owed to Robbins.
Procedural Posture:
- Robbins Tire & Rubber Co., Inc. sued its principal debtor, Winnfield Retread, Inc., and the surety, Straughan, Inc., in a Louisiana district court (trial court) to recover an unpaid debt.
- The trial court entered a default judgment against Winnfield Retread, Inc.
- Following a trial on the merits between Robbins and Straughan, Inc., the trial court ruled in favor of the surety, holding that the doctrine of equitable estoppel barred Robbins from enforcing the guaranty.
- Robbins Tire & Rubber Co., Inc., as appellant, appealed the trial court's judgment to the Court of Appeal of Louisiana, Second Circuit, with Straughan, Inc. as the appellee.
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Issue:
Is a creditor equitably estopped from enforcing a continuing suretyship agreement when the surety sold its interest in the principal debtor, verbally notified the creditor of the sale, and the creditor remained silent about the agreement's continuing validity, even though the surety never provided the contractually required written revocation?
Opinions:
Majority - Hightower, Judge
No. A creditor is not equitably estopped from enforcing a suretyship agreement under these circumstances. The doctrine of equitable estoppel requires a representation by conduct or words, justifiable reliance, and a detrimental change in position. Here, Robbins made no representation that the agreement was terminated; its silence did not constitute a representation. The law imposes no duty on a creditor to notify a surety of its unterminated liability. Furthermore, any reliance by Straughan, Inc. would have been unjustified because the contract expressly placed the responsibility for written revocation solely upon the surety. Straughan, Inc. had a ready means of determining the true facts by simply following the contract's terms. The court also rejected the defense that the surety's obligation was extinguished by the release of the real estate mortgage, finding that the surety was not prejudiced. Because Robbins took additional security after the suretyship began, the surety's overall position was improved, not impaired, even after the release of one piece of that security.
Analysis:
This decision reinforces the strict construction of continuing suretyship agreements and places the burden of termination squarely on the surety, as defined by the contract's express terms. It clarifies that a creditor's passive conduct, such as silence following a change in the debtor's ownership, does not constitute a representation sufficient to invoke the defense of equitable estoppel. The ruling establishes that courts will not use equity to save a sophisticated party from its failure to adhere to clear contractual obligations. It also highlights that a surety's claim of extinguishment due to impairment of security requires proof of actual prejudice, meaning the surety's position must be made worse than it was at the inception of the agreement.
