### No. 12702 

### INTHE SUPREME COURT OF THE 

### STATE OF MONTANA 1974

EVAN 

### M. MILLER, Plaintiff and Appellant,

PETE WALTER and 

### BANK OF COLUMBIA FALLS, a banking corporation, Defendants and Rzspondents.

Appeal from: District Court of the Eleventh Judicial District, Honorable Robert C. 

### Sykes, Judge presiding. Counsel of Record: For Appellant: Graybill, Graybill, Ostrem and Warner, Great Falls,

Montana Leo Graybill, 

### Jr. argued, Great Falls, Montana For Respondents: White, Vadala, Springer and Astle, Kalispell,

Montana David L. Astle argued, Kalispell, Montana PatrickM. 

### Springer appeared, Kalispell, Montana

Submitted: September 12, 1974 Decided : 

## WT8

## 11974Mr. JusticeWesley Castles delivered the Opinion of the Court. This isan appeal from a judgment of the district court of the eleventhjudicial district, inthe County of Flathead, rendered for the defendant Bank of Columbia Falls as against the plaintiff Evan M. Miller. A defaultjudgment rendered for plaintiff, Evan M. Miller, against the defendant, Pete Walter, has not been appealed. InJuly 1972, A1 Sihrer owned a 1965Mack logging truck which 

### wasmortgaged tothe defendant Bank of Columbia Falls (hereinafter referred toas the Bank) for the sum of $5,000. On July 18, 1972, Sihrer sold the truck todefendant Walter. Also on July 18, 1972, Walter gave a security interest inthe truck to the Bank for a loan of $6,000. $5,000 of this loan went directly topay off the Bank's loan to Sihrer. The other $1,000 was deposited intoWalter's checking account with the Bank. This $1,000 arose out of the discussionWalter had with the Bank tothe effect that the truck needed a new engine and was for that purpose. On that date, the Bank wrote the following letter:



### "bank of COLUMBIA FALLS "P. 0. BOX 280

### / TELEPHONE (406) 892-3281 

### / COLUMBIA FALLS, 

### MONTANA 59912 "HOWARD AUSTIN, Executive Vice President "July 18, 1972

"Mr. Pete Walter "Route 4 "Kalispel1

## ,Montana 59901 "Dear Pete: "This istoadviseyou that theBank of Columbia Falls has comnitted fora loan of $1,000 forthe purchase of the Cummings engine tobe used asa replacement engine inyour truck. It

### is understood thatthiswill be put with the $1,000 thatyou have coming fromyour accounts receivablefora total of $2,000 tobe used inthe purchase of 

### this item. "It is

### our recommendation thata portion of these funds be held back fora certain number of days togiveyourself a chance to install themotor fora trial period. 

### On this basis, we arewillingtoguarantee these funds towhomever you purchase this engine from subject tothe above conditions. "Very trulyyours, "Is/ Howard Austin "Howard Austin "Exec. Vice President

The district court made the following conclusion of 

### law:

"5. That 

### it was not the intention of the defendant Bank of Columbia Falls that exhibit "A" be a letter of credit or guarantee but a means by which the purchase of said engine could be accomplished." Although Walter had previously located an engine in Miller's shop inHavre, Austin testified that he did not recall whether there had been any discussion between himself and Walter

as to a particular engine tobe purchased with the loan. On July 20, 1972, Walter went to Havre and purchased the engine for $2,000 and a starter for $100. Miller testified that, on the strength of the letter, which he read, he let Walter take the engine and the starter, Walter paying only $1,000 by his personal check at that 

### time. Miller testified that he would not have letWalter take the engine and starter without paying the fullprice if it had not been for the letter. Millerthen attached the 

### letter to the sales slipwhich he retained. Walter later installed the engine in the truck. On September 21, 1972, shortly after installation, the Bank repossessed the truck for nonpayment by Walter of his obligation tothe Bank. Sometime prior toSeptember 27, 1972, but after the Bank repossessed the truck, Miller contacted Walter about payment of the balance due on the engine and learned of the Bank's repossession. Miller then contacted the Bank about the matter. On December 29, 1972, the Bank sold the truck to satisfyits security interest. Miller brought this action inthe district court torecover damages for nonpayment of the $1,000 due on the engine and the $100 due on the starter. A default judgment was entered against Walterfor the 

### sum of $1,100. Walter is bankrupt. The casewas heard by the court without a jury and judgment 

### was rendered for the Bank. Miller filed a motion toamend judgment to substitute plaintiff's proposed findings of fact and conclusions of law. The court by order dated December 27, 1973, denied Miller's motion. From the Judgment and order Miller appeals. The issuesraised herein areas follows: 1. Whether the Bank's letter constitutes a guaranty of the purchase price of the engine purchased by Walter from Miller. 2. If the letter is a guaranty, whether it is binding against the Bank inlight of the fact that Millerdid not communicate notice of acceptance of the alleged guaranty toBank. 3. Whether Bank isresponsible for payment of the purchase price of the engine merely because it held a security interest inthe truck. From a reading of the letter that isthe subject of this dispute and the facts above enumerated, thisCourt holds as a matter of law that the letter is a guaranty. Section 30-101, R.C.M. 1947, defines "guaranty" tobe 

### " 

## * * * a promise to answer for the debt, default, or miscarriage of another person." The Bank specificallyuses the word "guarantee". In addition, the last sentence of the letter is rendered absolutelymeaningless if not construed

as a collateral promise toanother: The Bank had already stated inthe firstparagraph that they were committed tothe loan to Walter. The promise was toanswer for the debt of "another", Walter, 

### inthat it was a guarantee "to whomever you 

## -purchase this engine from

## * * 

## *." The Bank's contention that there could be no guaranty because the Bank did not intend the letter tobe a guaranty and thus there 

### was no meeting of theminds iswithout merit. The mutual assent essential tothe formation of a contract, inthiscase a contract of guaranty, must be gathered from the outward objectivemanifestations of theparties and not by the subjectiveundisclosed intentof one of the parties. Montana-Dakota Power Co. v. Johnson, 95 Mont. 16, 22, 23 P.2d 956. ~yoming Farm Bureau Mutual Ins. Co. v. Smith, 259 F.Supp. 870, 873

(D. Mont.), affld377 F.2d 918 (9th Cir.) ;Williston on Contracts, Vol. 1, section 98 (rev. ed. 1936) p. 314. The Bank next contends that even though the letter is a guaranty, notice of acceptance of the guaranty was not given to the Bank asrequired by section 30-106, R.C.M. 1947. It reads: "A mere offer toguaranty isnot binding until notice of 

### its acceptance is communicated by the guarantee tothe guarantor; but an absolute guaranty isbinding upon the guarantor without notice of acceptance." Assuming for the purpose of this argument that the letter

was not an absolute guaranty but was merely an offer toguaranty,

we hold that the notice of Miller's acceptance was communicated tothe Bank atthe very latest, shortly after the Bank's repossession of the truck and that such notice satisfies the requirements of the statute. 

### In support of our holding, 

### we citefrom 1Corbin on Contracts, Section 68: "Any attempt toreview and criticize the innumerable cases inthe field of suretyship and guaranty must be l e f t t omonographic treatises on that special topic. The confusion and conflict in that field seem tobe due in large part to a similar confusion inthe general doctrines applicable to allagreements. "It

### is beyond question that inmany thousands of cases an offer to become guarantor for another has been made in such terms as to induce the offeree to advance money, goods, or services on credit without first sending any notice of acceptance tothe offeror. Later, when demand is made for himtopay the debt of another in accordance with hispromise, the guarantor complains of this lack of notice and asserts that his offer 

### was not accepted as the law requires."With respect tothis, there isnothing peculiar tothe relation of suretyshipthat requires the application of rules different from those applicable inother contracts. One who offerstobe surety or guarantor for another can prescribe or suggest the mode of acceptance, just as inother cases. He can prescribe the giving of notice, by mailor otherwise, if he likes. Invery numerous cases, however, he makes no such suggestion; and if the offeree actsas requested, the offer should be held tobe accepted. "In a well known case [Bishopv. Eaton, 161Mass. 496, 37 N.E. 6651, Frank Eaton wrote from Nova Scotia toBishop in Illinois: 'If Harry needs more money, lethim have it, or assisthim toget it, and I 

### will see that it ispaid.' Inreliance on this and atHarry's request, Bishop indorsed Harry's note toStark. This action by Bishop 

### was an operative acceptance that instantly bound Frank Eaton as surety. A telegraphic revocation would have been too late, even though Bishop had not yet written or mailed any notice to Frank that he had complied with the latter'srequest. A unilateral contract had been consummated by an offered promise requesting action, followed by the offeree's action asrequested. Frank Eaton's legal duty assurety for Harry may, indeed, be conditionalon various events, including a notice ortwo, tooccur subsequently; but it is not the occurrence of these events that constitutes acceptance of the offer. "The foregoing reasoning has received much judicial approval; and it is adopted by the American Law Institute. Many of the cases that say that a notice of acceptance isrequired confuse notice as the required form of acceptance of an offer with a later notice asa condition precedent tothe surety's duty to'make payment of the debt. "An offer tobecome surety for another may request some promise inreturn, either by the creditor or by the principal obligor. If it does this, a notice that the requested promise is given must be made inorder toaccept the offer. Mere action in

### reliance on the surety's offer would not be enough. 

## * 

## * *I' The Restatement of Security, S 86, inwhich the 

### terms "guarantor" and "surety" are used synonymously, is inaccord: "Where the surety offers toguarantee an extension of credit tothe principal and the credit is extended as the sole consideration for the surety's promise, the contract is complete upon the extension of credit, but if the suretydoes not know of the extension of credit and has no adequate means of ascertaining with reasonable promptness and certainty that the credit has been extended andthe creditor should know this, the contract of the surety 

### isdischarged unless within a reasonable 

### timeafter the extension of credit the creditor exercises reasonable diligence tonotify the surety thereof. I' From the foregoing analysis, it can be readily seen that section 30-106, R.C.M. 1947, 

### is inaccord. The statutedoes not require "acceptance" tobe communicated tothe guarantor, but merely "notice of 

### its acceptance". Thus the contract of guaranty

was complete when Milleraccepted the offer of guaranty by the actof selling the engine and extending credit toWalter. Thereupon there arose the statutory requirement of notice of acceptance

as a condition precedent to the guarantor's duty tomake payment. Section 30-106, R.C.M. 1947, does not, however, specify within what period of time notice of acceptance must be given by the guarantee tothe guarantor. In the absence of such specification, toquote from the Restatement: 

### " 

## * * * the contract of the surety is discharged unless within a reasonable 

### time after the extension of credit the creditor exercises reasonable diligence tonotify the surety thereof." Miller sold the engine to Walter on July 20, 1972. The Bank repossessed the truck on September 21, 1972. Millercontacted the Bank regarding the matter sometime between September 21 and September 27, 1972. The Bank did not sell the truck until December 29, 1972. There isno contention whatsoever that the Bank did not learn of Miller's acceptance of their offer of guaranty within a reasonable 

### time after his acceptance. Especially is this so ina case such as this where the guarantor 

### is deeply involved financially inthe object towhich the purchased itemis tobe attached. There is not, and indeed there cannot be, any contention that the Bank was inany way injured by Miller's delay ingiving notice of acceptance. On

a loan of $1,000 for the purchase of the engine, the Bank gained the benefit of a $2,000 engine which it later realized when thetruck was repossessed and sold by the Bank. Not only was there

no injury, the Bank reaped a windfall. The Bank next contends that it only guaranteed $1,000 and that 

### its obligationwas fulfilled by the deposit of $1,000 inWalter's checking account. A resolution of this issue turns

on the meaning of "those funds" asused inthe letter. Miller testified: "A. Well, I figured it meant that they had guaranteed the rest of the purchase price." Although he later hedged his answer, to such a point that this Court 

### isunable totell what he meant, Mr. Austin's first

### reaction to the question "What does 'these funds' mean" was: "A. It goes back tothe funds I am talking about inthe firstparagraph. These are the funds that we are talking about in the total picture." It is clear that the phrase "these funds" is ambiguous

astowhether it refers tothe $1,000 loan, the $1,000 accounts receivable or the $2,000 "totalpicture". Any uncertainty ina contract should be interpreted most strongly against the party who caused the uncertainty toexist. Section 13-720, R.C.M. 1947. Thus, 

### we hold that, by guaranteeing "these funds", the Bank guaranteed the total sum of $2,000. This interpretation isbolstered by the fact that the Bank did not hand Walters a cashier's check or in any other way earmark the $1,000; but, rather, placed it inWalter's checking account touse ashe saw fit. From the view we take of the firsttwo issues raised, it becomes unnecessary todiscuss the third issue raised. The judgment is reversed and remanded tothe district court with instructions toenterjudgment for plaintiff Evan M. Miller against defendant Bank of Columbia Falls inthe amount of $1,000. The judgment is reversed.We

### concur:

Chief 

### Justice

\J 

# ........................ Justices