Title: MILLER v WALTER
Citation: N/A
Docket Number: 12702
State: Montana
Issuer: Montana Supreme Court
Date: October 21, 1974

No. 12702 I N T H E S U P R E M E C O U R T O F THE STATE O F M O N T A N A 1974 EVAN M. MILLER, P l a i n t i f f and Appellant, PETE W A L T E R and BANK O F C O L U M B I A FALLS, a banking corporation, Defendants and Rzspondents. Appeal from: D i s t r i c t Court of the Eleventh J u d i c i a l D i s t r i c t , Honorable Robert C. Sykes, Judge presiding. Counsel of Record: For Appellant : Graybill, Graybill, Ostrem and Warner, Great F a l l s , Montana Leo Graybill, Jr. argued, Great F a l l s , Montana For Respondents: White, Vadala, Springer and Astle, Kalispell, Montana David L. Astle argued, Kalispell, Montana Patrick M. Springer appeared, Kalispell, Montana Submitted: September 12, 1974 Decided : WT 8 1 1 9 7 4 M r . J u s t i c e Wesley C a s t l e s d e l i v e r e d t h e Opinion of t h e Court. This i s a n appeal from a judgment of t h e d i s t r i c t c o u r t of t h e e l e v e n t h j u d i c i a l d i s t r i c t , i n t h e County of Flathead, rendered f o r t h e defendant Bank of Columbia F a l l s a s a g a i n s t t h e p l a i n t i f f Evan M. M i l l e r . A d e f a u l t judgment rendered f o r p l a i n - t i f f , Evan M. M i l l e r , a g a i n s t t h e defendant, P e t e Walter, has n o t been appealed. I n J u l y 1972, A 1 S i h r e r owned a 1965 Mack logging t r u c k which w a s mortgaged t o t h e defendant Bank of Columbia F a l l s (here- i n a f t e r r e f e r r e d t o a s t h e Bank) f o r t h e sum of $5,000. O n J u l y 18, 1972, S i h r e r s o l d t h e t r u c k t o defendant Walter. Also on J u l y 18, 1972, Walter gave a s e c u r i t y i n t e r e s t i n t h e t r u c k t o t h e Bank f o r a l o a n of $6,000. $5,000 of t h i s loan went d i r e c t l y t o pay o f f t h e Bank's loan t o S i h r e r . The o t h e r $1,000 was deposited i n t o W a l t e r ' s checking account with t h e Bank. This $1,000 a r o s e o u t of t h e d i s c u s s i o n Walter had w i t h t h e Bank t o t h e e f f e c t t h a t t h e t r u c k needed a new engine and was f o r t h a t purpose. O n t h a t d a t e , t h e Bank wrote t h e following letter: " b a n k o f C O L U M B I A F A L L S "P. 0. BOX 280 / TELEPHONE (406) 892-3281 / C O L U M B I A FALLS, MONTANA 59912 " H O W A R D AUSTIN, Executive Vice President "July 18, 1972 "Mr. Pete W a l t e r "Route 4 "Kal ispel 1 , Montana 59901 "Dear Pete: "This i s to advise you that the Bank of Columbia Falls has comnitted for a loan of $1,000 f o r the purchase of the Cummings engine to be used as a replacement engine in your truck. I t i s understood that t h i s will be put with the $1,000 that you have coming from your accounts receivable f o r a total of $2,000 t o be used i n the purchase of this item. " I t i s our recommendation that a portion of these funds be held back for a certain number of days t o give yourself a chance to install the motor f o r a t r i a l period. On t h i s basis, w e are w i l l i n g t o guarantee these funds t o whomever you purchase t h i s engine from subject t o the above conditions. "Very t r u l y yours, " I s / Howard Austin "Howard Austi n "Exec. Vice President The d i s t r i c t c o u r t made t h e following conclusion of l a w : "5. That it was not t h e i n t e n t i o n of t h e defendant Bank of Columbia F a l l s t h a t e x h i b i t "A" be a letter of c r e d i t o r guarantee but a means by which t h e purchase of s a i d engine could be accomplished." Although Walter had previously located an engine i n Miller's shop i n Havre, Austin t e s t i f i e d t h a t he d i d not r e c a l l whether t h e r e had been any discussion between himself and Walter as t o a p a r t i c u l a r engine t o be purchased with t h e loan. O n J u l y 20, 1972, Walter went t o Havre and purchased t h e engine f o r $2,000 and a s t a r t e r f o r $100. M i l l e r t e s t i f i e d t h a t , on t h e s t r e n g t h of t h e letter, which he read, he l e t Walter t a k e t h e engine and t h e s t a r t e r , Walter paying only $1,000 by h i s personal check a t t h a t t i m e . M i l l e r t e s t i f i e d t h a t he would n o t have l e t Walter t a k e t h e engine and s t a r t e r without paying t h e f u l l p r i c e i f it had not been f o r t h e l e t t e r . M i l l e r then attached t h e letter t o t h e sales s l i p which he r e t a i n e d . Walter later i n s t a l l e d t h e engine i n t h e t r u c k . O n September 2 1 , 1972, s h o r t l y a f t e r i n s t a l l a t i o n , t h e Bank repossessed t h e truck f o r nonpayment by Walter of h i s o b l i g a t i o n t o t h e Bank. Sometime p r i o r t o September 27, 1972, but a f t e r t h e Bank repossessed t h e t r u c k , Miller contacted Walter about payment of t h e balance due on t h e engine and learned of t h e Bank's repossession. M i l l e r then contacted t h e Bank about t h e matter. O n December 2 9 , 1972, t h e Bank s o l d t h e t r u c k t o s a t i s f y i t s s e c u r i t y i n t e r e s t . M i l l e r brought t h i s a c t i o n i n t h e d i s t r i c t c o u r t t o recover damages f o r nonpayment of t h e $1,000 due on t h e engine and t h e $100 due on t h e s t a r t e r . A d e f a u l t judgment was entered a g a i n s t Walter f o r t h e sum of $1,100. Walter is bankrupt. The c a s e was heard by t h e c o u r t without a jury and judgment w a s rendered f o r t h e Bank. Miller f i l e d a motion t o amend judgment t o s u b s t i t u t e p l a i n t i f f ' s proposed findings of f a c t and conclusions of l a w . The court by order dated December 27, 1973, denied Miller's motion. From t h e Judgment and order Miller appeals. The i s s u e s r a i s e d herein a r e as follows: 1. Whether t h e Bank's l e t t e r c o n s t i t u t e s a guaranty of t h e purchase p r i c e of t h e engine purchased by Walter from M i l l e r . 2 . I f t h e l e t t e r is a guaranty, whether it is binding a g a i n s t t h e Bank i n l i g h t of t h e f a c t t h a t M i l l e r d i d not com- municate n o t i c e of acceptance of t h e alleged guaranty t o Bank. 3 . Whether Bank i s responsible f o r payment of t h e pur- chase p r i c e of t h e engine merely because it held a s e c u r i t y in- terest i n t h e truck. From a reading of t h e letter t h a t i s t h e s u b j e c t of t h i s d i s p u t e and t h e f a c t s above enumerated, t h i s Court holds as a matter of law t h a t t h e l e t t e r is a guaranty. Section 30-101, R.C.M. 1947, defines "guaranty" t o be " * * * a promise t o answer f o r t h e debt, d e f a u l t , o r miscarriage of another person." The Bank spec- i f i c a l l y uses the word "guarantee". I n addition, t h e last sentence of t h e letter is rendered absolutely meaningless i f not construed a s a c o l l a t e r a l promise t o another: The Bank had already s t a t e d i n t h e f i r s t paragraph t h a t they were committed t o t h e loan t o Walter. The promise was t o answer f o r t h e debt of "another", Walter, i n t h a t it was a guarantee " t o whomever you - purchase t h i s engine from * * *." The Bank's contention t h a t t h e r e could be no guaranty be- cause t h e Bank did not intend t h e l e t t e r t o be a guaranty and thus t h e r e w a s no meeting of t h e minds i s without merit. The mutual a s s e n t e s s e n t i a l t o t h e formation of a c o n t r a c t , i n t h i s c a s e a c o n t r a c t of guaranty, must be gathered from t h e outward o b j e c t i v e manifestations of t h e p a r t i e s and not by t h e subjec- t i v e undisclosed i n t e n t of one of t h e p a r t i e s . Montana-Dakota Power Co. v. Johnson, 95 Mont. 16, 2 2 , 23 P.2d 956. ~yoming Farm Bureau Mutual Ins. Co. v. Smith, 259 F.Supp. 870, 873 (D. Mont.), a f f l d 377 F.2d 918 (9th C i r . ) ; Williston on Contracts, Vol. 1, s e c t i o n 98 (rev. ed. 1936) p. 314. The Bank next contends t h a t even though t h e l e t t e r is a guaranty, notice of acceptance of t h e guaranty was not given t o t h e Bank a s required by s e c t i o n 30-106, R.C.M. 1947. It reads: "A mere o f f e r t o guaranty is not binding u n t i l notice of its acceptance is communicated by t h e guarantee t o t h e guarantor; but an absolute guaranty i s binding upon t h e guarantor without n o t i c e of acceptance." Assuming f o r t h e purpose of t h i s argument t h a t t h e l e t t e r was not an absolute guaranty but was merely an o f f e r t o guaranty, we hold t h a t t h e n o t i c e of M i l l e r ' s acceptance was communicated t o t h e Bank a t t h e very l a t e s t , s h o r t l y a f t e r t h e Bank's reposses- sion of t h e truck and t h a t such notice s a t i s f i e s t h e requirements of t h e s t a t u t e . I n support of our holding, w e c i t e from 1 Corbin on Con- t r a c t s , Section 68: "Any attempt t o review and c r i t i c i z e t h e innumer- a b l e cases i n t h e f i e l d of suretyship and guaranty must be l e f t t o monographic t r e a t i s e s on t h a t s p e c i a l topic. The confusion and c o n f l i c t i n t h a t f i e l d seem t o be due i n l a r g e p a r t t o a s i m i l a r confusion i n t h e general d o c t r i n e s applicable t o a l l agreements. " I t is beyond question t h a t i n many thousands of cases an o f f e r t o become guarantor f o r another has been made i n such t e r m s a s t o induce t h e o f f e r e e t o advance money, goods, o r s e r v i c e s on c r e d i t without f i r s t sending any n o t i c e of ac- ceptance t o t h e o f f e r o r . Later, when demand is made f o r h i m t o pay t h e debt of another i n ac- cordance with h i s promise, t h e guarantor complains of t h i s lack of n o t i c e and a s s e r t s t h a t h i s o f f e r w a s n o t accepted a s t h e law requires. "With respect t o t h i s , t h e r e i s nothing p e c u l i a r t o t h e r e l a t i o n of suretyship t h a t r e q u i r e s t h e application of r u l e s d i f f e r e n t from those applic- a b l e i n o t h e r contracts. One who o f f e r s t o be s u r e t y o r guarantor f o r another can prescribe o r suggest t h e mode of acceptance, j u s t a s i n o t h e r cases. H e can prescribe t h e giving of notice, by m a i l o r otherwise, i f he l i k e s . I n very numerous cases, however, he makes no such sugges- t i o n ; and i f t h e o f f e r e e a c t s as requested, t h e o f f e r should be held t o be accepted. "In a well known case [Bishop v. Eaton, 161 Mass. 496, 37 N.E. 6651, Frank Eaton wrote from Nova Scotia t o Bishop i n I l l i n o i s : ' I f Harry needs more money, l e t him have it, o r a s s i s t him t o g e t it, and I w i l l see t h a t it i s paid.' I n r e l i a n c e on t h i s and a t Harry's request, Bishop indorsed Harry's note t o Stark. This a c t i o n by Bishop w a s an operative acceptance t h a t i n s t a n t l y bound Frank Eaton a s surety. A telegraphic revocation would have been too l a t e , even though Bishop had not y e t w r i t t e n o r mailed any n o t i c e t o Frank t h a t he had complied with the l a t t e r ' s request. A u n i l a t e r a l c o n t r a c t had been consummated by an offered promise requesting a c t i o n , followed by t h e o f f e r e e ' s a c t i o n a s requested. Frank Eaton's l e g a l duty a s s u r e t y f o r Harry may, indeed, be condition- a l on various events, including a n o t i c e o r two, t o occur subsequently; but it is not t h e occurrence of t h e s e events t h a t c o n s t i t u t e s acceptance of t h e o f f e r . "The foregoing reasoning has received much j u d i c i a l approval; and it is adopted by t h e American Law I n s t i t u t e . Many of t h e cases t h a t say t h a t a n o t i c e of acceptance i s required confuse n o t i c e a s t h e required form of acceptance of an o f f e r with a l a t e r n o t i c e a s a condition precedent t o t h e s u r e t y ' s duty t o 'make payment of t h e debt. "An o f f e r t o become s u r e t y f o r another may request some promise i n r e t u r n , e i t h e r by t h e c r e d i t o r o r by t h e p r i n c i p a l obligor. I f it does t h i s , a n o t i c e t h a t t h e requested promise is given must be made i n order t o accept t h e o f f e r . Mere a c t i o n i n re- l i a n c e on t h e s u r e t y ' s o f f e r would not be enough. * * *I' The Restatement of Security, S 86, i n which t h e t e r m s "guarantor" and "surety" are used synonymously, is i n accord: "Where the s u r e t y o f f e r s t o guarantee an extension of c r e d i t t o t h e p r i n c i p a l and t h e c r e d i t i s ex- tended a s t h e s o l e consideration f o r t h e s u r e t y ' s promise, t h e c o n t r a c t is complete upon t h e exten- s i o n of c r e d i t , but i f t h e s u r e t y does not know of t h e extension of c r e d i t and has no adequate means of ascertaining with reasonable promptness and c e r t a i n t y t h a t t h e c r e d i t has been extended and t h e c r e d i t o r should know t h i s , t h e c o n t r a c t of t h e s u r e t y is discharged unless within a reasonable t i m e a f t e r t h e extension of c r e d i t t h e c r e d i t o r exercises reasonable diligence t o n o t i f y t h e s u r e t y thereof. I' From t h e foregoing a n a l y s i s , it can be r e a d i l y seen t h a t s e c t i o n 30-106, R.C.M. 1947, is i n accord. The s t a t u t e does not r e q u i r e "acceptance" t o be communicated t o t h e guarantor, but merely "notice of its acceptance". Thus t h e c o n t r a c t of guaranty was complete when M i l l e r accepted t h e o f f e r of guaranty by t h e a c t of s e l l i n g the engine and extending c r e d i t t o Walter. There- upon t h e r e arose t h e s t a t u t o r y requirement of n o t i c e of acceptance as a condition precedent t o t h e guarantor's duty t o make payment. Section 30-106, R.C.M. 1947, does not, however, specify within what period of time notice of acceptance must be given by t h e guarantee t o t h e guarantor. I n t h e absence of such s p e c i f i - c a t i o n , t o quote from the Restatement: " * * * t h e c o n t r a c t of t h e s u r e t y is discharged unless within a reasonable t i m e a f t e r t h e extension of c r e d i t t h e c r e d i t o r exercises reasonable d i l i - gence t o n o t i f y t h e s u r e t y thereof." Miller sold t h e engine t o Walter on J u l y 20, 1972. The Bank repossessed t h e truck on Sep- tember 21, 1972. M i l l e r contacted t h e Bank regarding t h e matter sometime between September 21 and September 27, 1972. The Bank d i d not sell t h e truck u n t i l December 29, 1972. There i s no con- t e n t i o n whatsoever t h a t t h e Bank d i d not l e a r n of M i l l e r ' s accep- tance of t h e i r o f f e r of guaranty within a reasonable t i m e a f t e r h i s acceptance. Especially is t h i s so i n a case such a s t h i s where t h e guarantor is deeply involved f i n a n c i a l l y i n t h e o b j e c t t o which t h e purchased i t e m is t o be attached. There i s not, and indeed t h e r e cannot be, any contention t h a t t h e Bank was i n any way injured by Miller's delay i n giving n o t i c e of acceptance. O n a loan of $1,000 f o r t h e purchase of t h e engine, the Bank gained t h e b e n e f i t of a $2,000 engine which it l a t e r r e a l i z e d when t h e t r u c k was repossessed and s o l d by t h e Bank. Not only was t h e r e no i n j u r y , t h e Bank reaped a windfall. The Bank n e x t contends t h a t it only guaranteed $1,000 and t h a t its o b l i g a t i o n was f u l f i l l e d by t h e d e p o s i t of $1,000 i n W a l t e r ' s checking account. A r e s o l u t i o n of t h i s i s s u e t u r n s on t h e meaning of "those funds" a s used i n t h e l e t t e r . M i l l e r t e s t i f i e d : "A. W e l l , I f i g u r e d it meant t h a t they had guaranteed t h e rest of t h e purchase p r i c e . " Although he l a t e r hedged h i s answer, t o such a p o i n t t h a t t h i s Court i s unable t o t e l l what he meant, M r . A u s t i n ' s f i r s t re- a c t i o n t o t h e q u e s t i o n "What does ' t h e s e funds' mean" was: "A. It goes back t o t h e funds I am t a l k i n g about i n t h e f i r s t paragraph. These a r e t h e funds t h a t w e a r e t a l k i n g about i n t h e t o t a l p i c t u r e . " It i s c l e a r t h a t t h e phrase " t h e s e funds" is ambiguous a s t o whether it r e f e r s t o t h e $1,000 loan, t h e $1,000 accounts r e c e i v a b l e o r t h e $2,000 " t o t a l p i c t u r e " . Any u n c e r t a i n t y i n a c o n t r a c t should be i n t e r p r e t e d most s t r o n g l y a g a i n s t t h e p a r t y who caused t h e u n c e r t a i n t y t o e x i s t . Section 13-720, R.C.M. 1947. Thus, we hold t h a t , by guaranteeing " t h e s e funds", t h e Bank guaranteed t h e t o t a l sum of $2,000. This i n t e r p r e t a t i o n i s b o l s t e r - ed by t h e f a c t t h a t t h e Bank d i d n o t hand Walters a c a s h i e r ' s check o r i n any o t h e r way earmark t h e $1,000; b u t , r a t h e r , placed it i n W a l t e r ' s checking account t o use a s he s a w f i t . From t h e view w e t a k e of t h e f i r s t two i s s u e s r a i s e d , it becomes unnecessary t o d i s c u s s t h e t h i r d i s s u e r a i s e d . The judgment i s reversed and remanded t o t h e d i s t r i c t c o u r t with i n s t r u c t i o n s t o e n t e r judgment f o r p l a i n t i f f Evan M. M i l l e r a g a i n s t defendant Bank of Columbia F a l l s i n t h e amount of $1,000. The judgment i s reversed. W e concur: Chief J u s t i c e \ J ........................ J u s t i c e s