Branch Banking and Trust Company v. Hui S. Smith et al.

The defendant Mounib Aoun executed a guaranty in the amount of $418,750.00 (plus interest, costs, and fees) for a loan Garrett Enterprises, LLC, secured by real estate of the LLC. In 2012, the loan was in default, owing over $1.4 million, and BB&T foreclosed, ultimately purchasing the property at foreclosure sale for $800,000.00, leaving a deficiency of “approximately $700,000.00.

Thereafter, BB&T brought a claim for the deficiency against each of the individual guarantors, each of whom responded, and BB&T moved for summary judgment.

The Court held that Aoun was entitled to assert the statutory defense of § 45-21.36 despite his status as a “mere guarantor.” Although the Court acknowledged that several of its previous opinions had limited the defense to persons holding an interest in the subject property, it held that the North Carolina Supreme Court’s holding in Virginia Trust Company v. Dunlop, 214 N.C. 196, 198 S.E. 645 (1938) directed its conclusion that the statutory defense was available to a guarantor with-out an interest in the property. BB&T argued that Dunlop was not controlling as dicta, but the Court of Appeals held that because the case presented the Supreme Court with a situation in which “[a]n irrelevant pleading must be struck,” and the trial court had refused the creditor’s motion to strike the guarantor-defendant’s pleading on the § 45-21.36 defense, the decision that the trial court was not in error constituted a “clear and unequivocal ruling” that a guarantor without an interest in the subject property may assert the defense. Therefore, the Court of Appeals held that Dunlop controlled its decision.

The Court did note, however, that the same issue is currently before the North Carolina Supreme Court in the case of High Point Bank & Trust Co. v. Highmark Props., LLC, ___ N.C. App. ___, 750 S.E.2d 886 (2013), petition for discretionary review allowed, 367 N.C. 321, 755 S.E.2d 627 (2014).

Finally, the Court found that the defendant had not waived its ability to assert the defense in its guaranty agreement with BB&T because, based on the language of the waiver clause, the defendant only waived “any obliga-tion by the Bank under law to first pur-sue its remedies against the Borrower-LC and the collateral before pursuing Appellant.”

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