Court Opinion

ID: 9657977
Source: CourtListenerOpinion
Date Created: 2023-08-23 20:42:55.042925+00
Date Added: 2024-06-11T18:13:50.223901
License: Public Domain

WUEST, Acting Justice
(concurring in part, dissenting in part).
I dissent from that part of the majority opinion which holds that the defendants/appellants waived any possible defenses they might have been able to assert on behalf of the principal. The plain language of the guaranties * relied upon by the majority relates to setoffs and counterclaims. The main defense is failure of consideration which is not a setoff or counterclaim.
SDCL 56-1-18 is controlling and provides:
The obligation of a guarantor must be neither larger in amount nor in other respects more burdensome than that of the principal, and if in its terms it exceeds it, it is reducible in proportion to the principal obligation. (Emphasis added.)
In Richter v. Industrial Finance Co., Inc., 88 S.D. 466, 474-75, 221 N.W.2d 31, 36 (1974), we said SDCL 56-1-18 is merely:
[A] codification of the common law in this respect. Generally, the liability of a guarantor cannot exceed the liability of the principal debtor, and all guaranty contracts are conditioned upon the underlying obligation between the creditor and the principal debtor. 38 Am. Jur.2d, Guaranty, §§ 74 and 77. In order for a plaintiff to enforce an underlying obligation against a guarantor, the plaintiff must show that the guaranty debt or obligation is due him, and, if for any reason the principal debtor is not bound to make payment to the creditor or plaintiff, the plaintiff may not hold the guarantor liable. 38 Am.Jur.2d, Guaranty, § 77; Merchants National Bank v. Citizens’ State Bank, 93 Iowa 650, 61 N.W. 1065 [(1895)]. The rule is that a guarantor is liable only in the event and to the extent that his principal is liable.
The reason for the rule is obvious. As stated in Miners & Merchants Bank v. Comer, 82 S.D. 1, 140 N.W.2d 390 [(1966)]:
‘A guaranty is a promise to answer for the debt, default, or miscarriage of another person. SDC 26.0101. It is a contract on the part of one person which is collateral to a primary or principal obligation on the part of another. One who signs a contract of guaranty of payment upon a negotiable instrument assumes a separate, collateral and secondary obligation. He is not an original contractor.’ (Emphasis in original.)
‘Therefore, unless the (principal) debtor is bound under the principal contract, there is no obligation which is guaranteed and the guarantor is not liable to *847the creditor if the (principal) debtor fails to perform.’ 38 Am.Jur.2d, Guaranty, § 51. In Federal Deposit Insurance Corp. v. Stensland, 70 S.D. 103, 15 N.W.2d 8 [(1944) ], the court held that a ‘guaranty partakes the character of the principal contract.’
We followed the Richter decision in Mid-continent Broadcasting Co. v. AVA Corp., 329 N.W.2d 378, 381 (S.D.1983), where we said:
Additionally, Richter v. Industrial Finance Company, Inc., 88 S.D. 466, 474, 221 N.W.2d 31, 36 (1974), holds that a guaranty is ‘conditioned upon the underlying obligation between the creditor and the principal debtor.’
There may be situations wherein a counterclaim or defense is personal to the principal and therefore unavailable to the guarantor, but that is not the situation herein. See Walcutt v. Clevite Corporation, 13 N.Y.2d 48, 241 N.Y.S.2d 834, 191 N.E.2d 894 (1963), modified as to award of costs only at 13 N.Y.2d 903, 243 N.Y.S.2d 511, 193 N.E.2d 511 (1963).
In my opinion, there is a factual issue as to the defenses of failure of consideration, breach of contract, and breach of warranty and I would reverse and remand for trial.

 In consideration of credit to be extended by [Multifoods] to W.M.G. Pork Farms, Inc. ("Debt- or") the undersigned jointly and severally guarantee to [Multifoods] the prompt payment of maturity, without deduction for any claim of setoff or counterclaim of Debtor ... the full amount of indebtedness, direct or indirect, absolute or contingent, secured or unsecured which may now or hereafter exist or be owing from Debtor to [Multifoods]. (Emphasis supplied.)