Court Opinion

ID: 3409772
Source: CourtListenerOpinion
Date Created: 2016-07-05 19:27:27.933956+00
Date Added: 2024-06-11T13:50:27.310981
License: Public Domain

I concur in the conclusion reached by Mr. Justice William A. Lee. The instrument upon which this action was instituted was executed at Pocatello on July 7, 1920, and is without doubt a contract of guaranty. A careful analysis of the instrument, discloses that the signers guaranteed the payment of "all notes, drafts, bills of exchange, acceptances, and renewals of the same (1) that may be at any time discounted or purchased by the Mechanics and Metals National Bank for the account, benefit or use of the Stockgrowers  Trust Company, of Pocatello, Idaho, or (2) whereon the name of said bank appears as maker, drawer, acceptor, or indorser."
It is respondent's contention that the promissory note, payment of which is sought to be enforced against them, is not within the guaranty. It is alleged in the complaint *Page 133 
that the Stockgrowers Bank, for and in consideration of a payment to it of the sum of $50,000, made, executed and delivered the promissory note to the Mechanics  Metals Bank. From this allegation it would seem that the note was an original obligation of the Stockgrowers Bank, and that it was not "discounted or purchased by the Mechanics  Metals Bank for the account, benefit or use of the Stockgrowers Bank." An examination of the note discloses that it is a note "whereon the name of said bank (Stockgrowers Bank) appears as maker." It bears date, however, of July 29, 1920, while the guaranty is dated July 7, 1920. The name of the Stockgrowers Bank did not appear on the note as maker or otherwise when the guaranty was signed, and respondent contends that for this reason, the note is not within the guaranty. But appellant claims that the evidence shows that the note of July 29, 1920, was a renewal of another note of prior date, which was in existence when the guaranty was signed and which was included within the terms of the guaranty. While it seems apparent that the guaranty covers renewals of notes, etc., "discounted or purchased by the Mechanics  Metals National Bank for the account, benefit or use of the Stockgrowers Bank," there is a serious doubt whether the guaranty, by its terms, includes renewals of notes, etc., "whereon the name of said bank (Stockgrowers Bank) appears as maker, drawer, acceptor, or indorser." In view, however, of the conclusion to which I have arrived, I do not deem it necessary to determine this question. Conceding for the purpose of argument that the note was a renewal of another note "whereon the name of said bank [Stockgrowers Bank] appears as maker," and which was within the guaranty, what did the guarantors undertake by the contract of guaranty? They guaranteed "the prompt payment at maturity" of the note; and this was the extent and limit of their liability. The note, of which this note is a renewal, is not in evidence, and the record is silent as to its form or provisions.
The evidence shows that the Mechanics  Metals Bank held considerable additional security for the payment of the *Page 134 
guaranteed indebtedness when the guaranty was signed; and that thereafter additional collateral was delivered by the Stockgrowers Bank to the Mechanics  Metals Bank as security for the payment of the indebtedness, represented by this note. It also appears from the evidence that the Mechanics  Metals Bank surrendered to the Stockgrowers Bank considerable of such security, and that the Mechanics  Metals Bank, without the consent of the guarantors, sold such collateral security, to the extent of the face value of approximately $73,000 in the city of New York. It is earnestly contended by respondents that by the surrender and sale of such collateral the guarantors were released to the extent of the value thereof, and that this value is presumed to be the face value of the collateral (promissory notes) surrendered and sold.
It is a fundamental principle of the law of guaranty that, with respect to additional security for the payment of the debt, the creditor stands in the position of a trustee for the guarantor, and if a creditor surrenders or impairs collateral security without the consent of the guarantor, the latter is released to the extent of such negligent loss, impairment or surrender. (Spencer on Suretyship (Guaranty), secs. 245, 246; De Colyar on Guaranties, p. 438 (2); Stearns on Suretyship, 3d ed., sec. 98; 1 Brandt on Suretyship  Guaranty, 3d ed., sec. 480; 28 C. J. 1007, sec. 169; 12 Rawle C. L. 1086, sec. 38;Central State Bank v. Ford, 181 Iowa, 319, 164 N.W. 754;Scandinavian American Bank v. Westby, 41 N.D. 276,172 N.W. 665.) The Mechanics  Metals Bank sold the collateral, held by it as security for the payment of the fifty thousand dollar note, contrary to law and against the wishes and without the consent of the guarantors. I say "contrary to law" because C. S., sec. 6402, prohibits a pledgee from selling such evidences of debt as constituted the collateral security; and, in the absence of an allegation and proof to the contrary, the law of New York is presumed to be the same as the law of this state. The guarantors expressly objected to the sale of the collateral. The only consent ever given to the sale of the *Page 135 
collateral by the Mechanics  Metals Bank was the consent of the Stockgrowers Bank and was expressed in the promissory note, to which the guarantors were not parties. As to the bank, such consent was effective and constituted a waiver of its right to have the collateral collected and applied on the principal debt. But, as to the guarantors, the situation is entirely different. The contract of guaranty is silent with respect to collateral security, or to a sale or surrender thereof, and it cannot be contended that they ever expressly consented to any sale of the security. Their consent cannot be implied or presumed, for this is not a case where the guarantors stood by and permitted collateral security to be impaired or released, without making any objection. The record shows that the guarantors, as soon as they were notified of the impending sale, informed the Mechanics  Metals Bank that they objected to the sale. The date of the note, which was executed and delivered by the Stockgrowers Bank, was July 29, 1920, while the contract of guaranty bears date July 7, 1920. And even though it be conceded that the contract of guaranty included within its terms the subsequent note, I cannot understand how it can be seriously contended that the guarantors did anything more than to guarantee the payment of the note. It certainly cannot be the law that they, in guaranteeing the payment of the note at maturity, thereby impliedly or otherwise consented to have the collateral security unlawfully disposed of, to their great injury, in violation of law. (C. S., sec. 6402.) A debtor may thus waive his own rights, but he cannot, by agreement with his creditor, waive the rights of one who has guaranteed the payment of his debt. There is no rule for the construction and interpretation of contracts of guaranty that my investigations have disclosed under which a creditor may, without the consent of the guarantor, so release or impair the security for the debt without discharging the guarantor to the extent of the value of the security so released or impaired. Since these guarantors never consented to the sale of the security and it was sold in violation of law and over *Page 136 
their protest, as is so well stated in the opinion of Justice William A. Lee, they were discharged from their obligation.