Court Opinion

ID: 9792842
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:37:56.631773+00
Date Added: 2024-06-11T08:00:13.728872
License: Public Domain

HERNANDEZ, Judge (dissenting). I dissent as to part “A” and “B” of the majority opinion. To understand my disagreement with the majority it is necessary to set forth the preamble and some of the terms of the agreement between the appellants and Mr. and Mrs. Roberts and part of the promissory note executed simultaneously with the agreement. The preamble reads as follows: Agreement executed this 18th day of February, 1977, between JOE W. ROBERTS and JANICE E. ROBERTS, his wife, hereinafter referred to as “ROBERTS” and CORONA, LTD., a New Mexico corporation, hereinafter referred to as “CORONA”, and JOE W. PRIESTLY and CHARLES E. NUCKOLS, hereinafter referred to as “P-N”. Paragraph 2 reads, in part, as follows: Roberts are willing to sell their fifty percent (50%) partnership interest to Corona for One Hundred Twenty-two Thousand Five Hundred Ninety-five Dollars and six cents ($122,595.06), payable Ten Thousand Dollars ($10,000.00) upon the execution of this Agreement * * * Said obligation shall be represented by a promissory note payable to Roberts and shall bear individual guarantees of P-N. A copy of said promissory note is attached hereto as Exhibit “B” and incorporated herein by reference. In the event of the default on any monthly installment or otherwise, continuing for a period of thirty (30) days after written notice the entire balance, including interest, shall become due and payable at the option of Roberts. Paragraph 6 provides: The individual guarantees of the promissory note by P-N shall become void under the following conditions: If within six months from the date of this Agreement there shall be discovered a deficiency in accounts receivable and equipment inventory, or an average in accounts payable, with a net diminution of assets to the extent of Five Thousand Dollars ($5,000.00), unless said deficiency shall be reimbursed by Roberts, within thirty (30) days written notice of same. Paragraph 13 provides in part: Any notices required hereunder shall be mailed to the following addresses: * * * * * * Joe W. Priestley P. O. Box 8 Corrales, New Mexico 87048 Charles E. Nuckols P. O. Box 3829 Albuquerque, New Mexico 87110 The agreement was signed by Priestley and Nuckols individually without any qualifying language. The promissory note which was incorporated into the agreement by reference provides in pertinent part: After date, as hereinafter set forth, for value received, I, we, or either of us, promise to pay to JOE W. ROBERTS and JANICE E. ROBERTS his wife, at Albuquerque, New Mexico, the sum of One Hundred Twenty-Two Thousand Five Hundred Ninety-five Dollars and Six Cents ($122,595.06) in manner following, that is to say: One Thousand Five Hundred Dollars ($1,500.00) on the 18th day of August, 1977, and One Thousand Five Hundred Dollars ($1,500.00) on the 18th day of each and every month thereafter until the entire balance hereof with the interest thereon, as hereinafter set forth, shall have been fully paid. * * * * * * The makers reserve the right to pay two or more installments at anytime. CORONA LTD. JOE W. PRIESTLEY, A New Mexico corporation individually By CHARLES E. NUCKOLS, JOE W. PRIESTLEY, Pres, individually It is my opinion that the agreement, insofar as Priestley and Nuckols were concerned, was that of “suretyship” as distinct from “guaranty”. Traditionally, the surety’s undertaking and resultant obligation, is direct; and as to the creditor, primary; i. e. “I will pay.” It is usually, though not necessarily, made jointly or jointly and severally with the principal, at the same time and for the same consideration. But it may be made after the principal became bound if based upon a new consideration, as where S promises C to pay P’s debt if C will extend maturity. On the other hand guaranty is a secondary obligation, created by a promise expressly conditioned upon the principal’s default, and necessarily is a separate undertaking from that of the principal. It also may be based upon the same consideration that supports the principal’s promise, as where S contracts with C: “Sell goods to P and if P does not pay you, I will.” L. Simpson, Handbook on the Law of Suretyship (1950). § 14, p. 16. Guaranty is distinguishable from suretyship in that the former is a collateral and independent undertaking creating a secondary liability, while the latter is a direct and original undertaking under which the obligor is primarily and jointly liable with the principal. 38 C.J.S. Guaranty § 6(b), p. 1136. A guaranty “imports the existence of two different obligations — one being that of the principal debtor, and the other that of the guarantor”; the “undertaking of the former is independent of the promise of the latter; and the responsibilities which are imposed differ from those created by the contract to which the guaranty is collateral.” Coombs v. Heers, 366 P.Supp. 851 (D.C.Nevada 1973). Priestley and Nuckols are classified as parties in the preamble. Their signatures to the agreement and the promissory note are unqualified; that is, their signatures are not followed by any qualifying language to indicate that they signed in any special capacity. Granted that paragraph 2 of the agreement contains this sentence, “Said obligation shall be represented by a promissory note payable to Roberts and shall .bear individual guarantees of P-N [Priestley and Nuckols].” The use of the term “guarantees” does not alter their status as sureties in my opinion. “The words ‘guaranty’ or- ‘guarantee’ do not always import a contract of guaranty.’.’ Rather such words may be used with reference to an obligation which is primary in nature as distinguished from one which is secondary. Roberts v. Reynolds, 212 Cal.App.2d 818, 28 Cal.Rptr. 261 (1963). There was but one agreement and Priestley and Nuckols are bound by its terms and conditions as is Corona, Ltd. There was but one debt and Priestley and Nuckols are directly and primarily responsible together with Corona, Ltd., to pay it. Experience has demonstrated that the most prudent business men occasionally sustain loss because a debtor does not pay as he agreed or an employee turns out to be dishonest. To guard against such loss, various forms of security have been devised. Frequently the debtor mortgages or pledges his property. The effect of either is to give to the creditor a sure means of payment to the extent of the value of the property mortgaged or pledged, inasmuch as the creditor may cause it to be sold, if the debtor defaults, and apply the proceeds to the payment of his claim. If the principal cannot provide suitable security of this sort, he induces some person, believed by the creditor or employer to be responsible, to add his promise to the creditor. The effect of the surety’s promise is to give the creditor recourse for payment to two persons instead of one, thereby materially decreasing his risk of loss. .. . average prudence will not save him. This is the basic function of the surety’s promise and should always be borne in mind in the solution of the difficult problems that arise where the surety seeks to avoid payment. L. Simpson, Handbook on the Law of Suretyship (1950) § 1, p. 2. As can be seen, paragraph 6 of the agreement provided that Priestley and Nuckols could rescind their obligation to pay if there was a deficiency in the accounts receivable and equipment inventory, or an average in accounts payable amounting to $5,000 “unless said deficiency shall be reimbursed by Roberts, within thirty (30) days written notice of same.” On July 21, 1977, Corona, Ltd. through its attorneys sent the following letter to Mr. and Mrs. Roberts: You are hereby notified that our client, Corona, Ltd., a New Mexico corporation, hereby rescinds that purchase agreement dated February 18, 1977, whereby Corona, Ltd. agreed to purchase from you your partnership interest in Carico Lake Mining Company. Demand is also made on you for return of the TEN THOUSAND DOLLAR ($10,000.00) down payment. The reason for this rescission is as follows: 1. You have made sales of turquoise to former Carico Lake customers in violation of Paragraph 4.j of the agreement. 2. In connection with the sale of your partnership interest, you grossly misrepresented the amount of the turquoise reserves which are located at the mining claims of Carico Lake Mining Company. 3. There are major discrepancies in the accounts payable and accounts receivable for an estimated diminution in the assets of the corporation of at least $7,447.96. (In accordance with Paragraph 6 of the Agreement, the personal guarantees of Joe Priestley and Charles Nuckols on the promissory note are hereby declared to be void.) 4. There is failure of consideration for the reason that Richard K. Mulvaney has not, and continues to refuse to accept Corona Ltd., as a partner. 5. In connection with the sale of your partnership interest to Corona, Ltd., you violated the Federal Securities Act of 1933, the. Securities and Exchange Act of 1934, the Rules and Regulations promulgated thereunder, and the Securities Act of New Mexico. For these and other reasons, Corona, Ltd., hereby returns to you your partnership interest in Carico Lake Mining Company, demands full refund of the TEN THOUSAND DOLLAR ($10,000.00) down payment, repudiates the promissory note executed in connection with the purchase agreement, and makes demand upon you for such other damages as may be provided by law in an additional amount of Ten Thousand Dollars ($10,000.00). This notice to rescind was ineffective for two reasons. First, because it did not comply with the terms of the agreement as to notice. Tomsheck v. Doran, 126 Mont. 598, 256 P.2d 538, 543 (1953), quoting from Black on Recission and Cancellation of Contracts, 2d Ed., § 572, p. 1409, said “But when a particular form of notice, or notice for a given length of time, is stipulated for in the contract, exact compliance with it is necessary, and the giving of the prescribed notice is absolutely an essential prerequisite to the recission or cancellation of the contract * * * * * [W]here the contractually defined method of termination of the contract is made exclusive by the terms of the contract, such contractually defined method of termination must be complied with in order for a termination of the contract to be valid and effective. j|e * $ s(c ‡ j}: In other words, it is not the breach itself that alone justifies the termination of the Agreement, but, under the terms of the Agreement, it is also the failure * * * to cure the breach after receipt of a notice setting forth contractually required information which, in conjunction with the breach, justifies termination. Hubler Rentals, Inc. v. Roadway Express, Inc., 459 F.Supp. 564 (D.C.Marylagd, 1978). The purpose of notice of default in the usual case is to give the party allegedly in default an opportunity to remedy the default and meet his obligation. Wickahoney Sheep Company v. Sewell, 273 F.2d 767 (9th Cir. 1959). Second, this notice of rescission was not sent in behalf of Priestley and Nuckols. The opening sentence of that letter states who they were representing (Corona, Ltd.). No explanation is given in the letter by what authority they, the attorneys, could make the parenthetical statement in paragraph 3, “In accordance with Paragraph 6 of the Agreement, the personal guarantees of Joe Priestley and Charles Nuckols on the promissory note are hereby declared to be void”. Granted that Priestley and Nuckols were the sole stockholders of Corona, Ltd., they are separate entities. See Scott Graphics, Inc. v. Mahoney, 89 N.M. 208, 549 P.2d 623 (Ct.App.1976). It is my opinion that Priestley and Nuckols were parties to the agreement of February 18, 1977, and bound by all its terms and conditions. The notice was ineffective because it did not comply with the terms of the agreement, assuming arguendo that the attorneys had authority to act in behalf of Priestley and Nuckols. The trial court’s findings in this regard were supported by substantial evidence. I would affirm.