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First-Citizens Bank & Trust Co. v. Morari - 6/15/2017

Arizona Court of Appeals Division Two holds that guarantors’ spouses who did not sign the guaranties cannot be held liable under Arizona law nor bound by California choice-of-law provisions in the guaranties.


After a corporation defaulted on its loan obligations, Plaintiff bank brought suit for breach of contract against the corporation and three personal guarantors, as well as the personal guarantors’ spouses.  The trial court dismissed the action as to the spouses because they had not signed the guaranties, as is required under Arizona law.  The guarantors and their spouses are residents of California, where the law requires the signature of only one spouse to bind the marital community.  The bank argued that California law should apply.

In a contract action, in the absence of an effective choice of law by the parties, Arizona courts apply the law governing the principal obligation secured by the guaranties unless another state has a more significant relationship.  The principal obligation was governed by Arizona law:  the loan agreement between the corporation and the bank included an Arizona choice of law provision, and Arizona is where the real property purchased with the loan money is located, where the borrower is domiciled, and where the deed of trust was recorded.  The significant relationship to Arizona warrants application of Arizona law.  Thus, the Court of Appeals affirmed the trial court’s dismissal. 

The bank argued that some additional guaranties contained California choice-of-law provisions.  But the spouses did not sign those additional guaranties.  A choice-of-law provision is effective only as to the parties to that contract and the spouses were not parties to the contracts.  Therefore the spouses cannot be bound by the choice-of-law provisions they contain.

Judge Miller authored the opinion of the court, in which Judges Staring and Espinosa concurred.

Posted by: Andrea M. Taylor

 

Posted On: 7/10/2017