Court Opinion

ID: 6876847
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:09:02.011098+00
Date Added: 2024-06-11T16:05:30.611530
License: Public Domain

Thompson, C.J.
(dissenting) — The majority opinion holds that the Superior Court erred when it denied Glacier’s motion to dismiss for impairment of collateral. In my view, the question of impairment is irrelevant because the facts establish an unconditional guaranty of payment by Glacier to Century 21.1 therefore respectfully dissent.
*801An unconditional or absolute guaranty is an agreement to pay the debt of the principal upon maturation without any express limitation set forth in the guaranty. Joe Heaston Tractor & Implement Co. v. Securities Acceptance Corp., 243 F.2d 196 (10th Cir. 1957). "The authorities agree that one who unconditionally guaranties an indebtedness is not released or discharged by virtue of. . . release or impairment of. . . collateral by a secured creditor.”1 Walter E. Heller & Co. v. Cox, 343 F. Supp. 519, 526 (S.D.N.Y. 1972), aff’d, 486 F.2d 1398 (2d Cir.), cert. denied, 414 U.S. 827 (1973). See also Istituto Mobiliare Italiano, S.p.A. v. Motorola, Inc., 689 F. Supp. 812, 817 (N.D. Ill. 1988); First State Bank, Hickman v. Peterson, 205 Neb. 814, 816-17, 290 N.W.2d 634, 635 (1980); McKeesport Nat’l Bank v. Rosenthal, 355 Pa. Super. 291, 294, 513 A.2d 434, 436 (1986).
In Heaston Tractor, the guarantor sold its appliance store to the debtor. To obtain the necessary financing from Securities and Acceptance Corporation, the guarantor "unconditionally guaranteed” the payment of the debtor’s accounts, both present and future, owed to the corporation. The corporation made loans to the debtor and took back chattel mortgages, but did not file them. When the debtor defaulted, the guarantor refused to pay, contending it was released from any obligation by the corporation’s failure to file the mortgages.
The court in Heaston Tractor recognized that if the guaranty contemplates security for the debt will be taken, there exists an implied agreement that the security will be preserved by proper filing or recording. Otherwise, the guarantor is relieved to the extent of the loss sustained. Heaston Tractor, at 198-99. However, the foregoing rule has no application if the guaranty is absolute and unconditional. Heaston Tractor, at 199. Under the terms of the guaranty at issue there, the corporation had the authority to change the terms of any of the liabilities and to release any collateral thereto. Heaston Tractor, at 199. The court concluded at page 200 that the parties intended an unconditional guaranty that upon default *802the guarantor would pay the liabilities of the debtor. It reasoned at page 200:
As an integral part of the sale, the Guarantor, by its guaranty, induced the [corporation] to extend floor plan financing to the Debtor and to continue loans which had been assumed by the Debtor on the purchase of the business. Considering the contract as a whole, the purpose for which it was given, together with all the surrounding circumstances existing at the time the guaranty was executed, we think it was the intention of the contracting parties that upon default the Guarantor was unconditionally bound to pay the liabilities of the Debtor as described in the guaranty instrument.
Similarly, in United States v. Shirman, 41 F.R.D. 368, 372 (N.D. Ill. 1966), the guarantors charged that the Small Business Administration had allowed collateral to be dissipated and failed to create and record liens on assets. The court held at page 372 that regardless of the merits of these charges, they were "not germane to the issue of. . . liability under the guaranty” because the guaranty was absolute and unconditional. Specifically, the guarantors had given the bank the "full power” "to deal in any manner with . . . the collateral”, including releasing all or any part of it. (Italics omitted.) Shirman, at 372.
Here, Glacier’s guaranty was oral, as opposed to the written guaranties at issue in the cited cases. Nevertheless, the evidence is sufficient to support the conclusion that Glacier’s guaranty was for payment upon Sun Russet’s default. The guaranty did not contemplate Century 21 having a PACA trust or other collateral to secure payment of any debt Sun Russet might owe it. To the contrary, the facts are that the parties contemplated Glacier would pay Century 21 out of the accounts it owed Sun Russet — accounts which Mr. Byrnes specifically mentioned when he assured Mr. Yoshino that Glacier would see that Century 21 was paid.2
*803Other circumstances surrounding the giving of the guaranty also point to its unconditional nature. Mr. Byrnes was the one who requested Century 21 sell to Sun Russet; Mr. Yoshino did not seek out Glacier. In fact, he had no intention of selling to Sun Russet until Mr. Byrnes contacted him. Mr. Yoshino testified he told Mr. Byrnes he had dealt with Sun Russet in the past and found it to be unreliable. Presumably, PACA trusts were available in those prior dealings, but did not provide sufficient incentive for Mr. Yoshino to continue doing business with Sun Russet. The incentive was provided by Mr. Byrnes’ guaranty of payment. He told Mr. Yoshino "we hold the accounts payable for Sun Russet, and ... we will guarantee that you are paid, if you’ll sell to them”. On the strength of this promise, Century 21 began shipments to Sun Russet, sending copies of all its invoices to Glacier. Mr. Byrnes was the first person Mr. Yoshino turned to when the invoices were overdue. Mr. Byrnes told him he would talk to Sun Russet about its accounts payable. Soon thereafter, Sun Russet filed for bankruptcy.
To paraphrase Heaston Tractor, when Glacier’s guaranty is considered in light of the purpose for which it was given, together with all the surrounding circumstances existing at the time, it is clear that it was not dependent upon Century 21 continuing any PACA trust it might obtain in potatoes it sold to Sun Russet. As previously noted herein, Mr. Byrnes’ guaranty posed no risk to Glacier, given the fact each year it controlled millions in Sun Russet receivables. Since Glacier controlled the purse strings and actually had initial control of Sun Russet funds, it is in no position to complain that Century 21’s failure to continue a PACA trust should release it from its guaranty.
Finally, I do not quarrel with the majority’s statement of the law. Rather, my disagreement is with its application to these facts. The purpose of the discharge rule is to protect the guarantor’s subrogation rights. That purpose is not served by discharging Glacier because Century 21 failed to continue a PACA trust, against which Glacier never intended to exercise its right of subrogation.
*804I would affirm the judgment in favor of Century 21.
Review granted at 125 Wn. 2d 1014 (1995).

Some courts hold the rule is subject to the doctrine of commercial good faith. That is, it will not apply so as to sanction "economic waste and financial hardship”. See, e.g., United States v. Willis, 593 F.2d 247, 255 (6th Cir. 1979).

Mr. Byrnes testified on cross examination that during the course of an average year, Glacier held about $3.5 million in Sun Russet receivables. Potatoes from Sun Russet constituted about 13 percent of Glacier’s yearly business. It handled essentially all of Sun Russet’s product. Mr. Byrnes had served on Sun Russet’s board during most of its existence. He had resigned only a few months before he contacted Mr. Yoshino with his request that Century 21 sell to Sun Russet.