Court Opinion

ID: 3496145
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:03:56.46136+00
Date Added: 2024-06-11T13:43:40.878114
License: Public Domain

On October 27, 1924, Constance G. Needham as vendor contracted to sell a lot in the city of Detroit to Harry F. Swogger and Myrtle B. Swogger, his wife, for the sum of $8,500, of which $1,000 was then paid, and the balance payable in monthly payments of $65, with interest at 6 per cent. if not in default, in which case the rate should be 7 per cent. On November 22d following, the vendor assigned her interest in this contract to Joseph A. Schrage and Elsie Schrage, his wife, the defendants herein. In part payment of the purchase price of a house and lot purchased from the plaintiffs, defendants assigned this contract to them on April 22, 1925, and at plaintiffs' insistence the following agreement was attached thereto and signed by both plaintiffs and defendants:
                                          "Detroit, Mich., "April 22, 1925.
"It is hereby agreed between Joseph A. Schrage and Elsie H. Schrage, his wife, and Harrison G. Palmer and Carrie E. Palmer, his wife, that the attached land contract which has been assigned to Harrison G. Palmer and Carrie E. Palmer by Joseph *Page 562 
Schrage and Elsie Schrage is guaranteed as to payments on same by the purchaser in the following manner. If the purchaser on this contract shall become in default Joseph Schrage and Elsie Schrage agree to make said payments on the condition that they be allowed full power of attorney to start foreclosure proceedings should this contract become in default."
At no time thereafter did the vendees make the monthly payments in full, as required by the terms of this contract. On September 30, 1930, the attorney for the plaintiffs wrote each of the defendants that the payments were in default in the sum of $650, and that, in addition thereto, the plaintiffs had been required to pay $519.34 in taxes and assessments on the lot, and that additional taxes were then due, and made demand for the payment thereof pursuant to the terms of the written guaranty. Payment was not made, and plaintiffs brought this action on November 3, 1930, to recover the amount then claimed to be due on the contract, $1,085.71.
The case was tried before the court without a jury. It appeared that, at the time demand for payment was made, there was more than $5,000 unpaid upon the contract and for taxes paid by the plaintiffs. There was proof that, while the lot was worth the amount due on the contract at the time of its assignment to plaintiffs, its fair value at the time the notice was given and demand made was from $3,000 to $3,500. It also appears that before the trial in the circuit court Mr. and Mrs. Swogger "went through bankruptcy."
The questions presented are whether, under the written guaranty, any duty was imposed upon the plaintiffs to give notice to the defendants of the default of the vendees in meeting their monthly payments, *Page 563 
and, if so, the effect of their neglect to give such notice. It appears that none was given prior to the letters of September 30, 1930. Decision rests upon the nature of the obligation created by the agreement, whether that of surety or guarantor. There has been much confusion in the use of these terms by this and other courts. The distinction, based, as we think, upon principle as well as authority, would seem to be that one who signs an obligation at the request of the payor, either with or without consideration moving to himself therefor, becomes a surety, while one who enters into a contract with a payee, guaranteeing the payment to him of an obligation of a payor, thereby becomes a guarantor. In the case of a surety, the contract is delivered to the payee with his undertaking indorsed thereon or made an integral part thereof. In the case of a guarantor, the contract is entered into between him and the payee. The payor is not a party to it. It is usually, and was here, founded upon a separate consideration from that supporting the promise of the payor. While this distinction has not always been observed by the authorities, and the terms have often been used interchangeably, it was clearly pointed out by Mr. Justice STEERE in Re Kelley's Estate, 173 Mich. 492, 498
(Ann. Cas. 1914 D, 848), as follows:
"While a surety and guarantor are not the same in all respects, they are similar in the particular that each promises to answer for the debt or default of another, the surety assuming liability as a regular party to the primary undertaking, while the guarantor does not, but his liability depends upon an independent, collateral agreement by which he undertakes to pay the obligation if the primary payor fails to do so." *Page 564 
On the duty to give notice of default, he also said (page 502):
"It is true that prompt notice of default in payment is not necessary to charge a guarantor, as in case of an indorser; but it is advisable to give such notice inasmuch as it frequently becomes important to prove notice to meet the presumption of laches arising from long delay. 1 Edwards on Bills, p. 241. Delay may, and often does, amount to laches and bar recovery regardless of the statute of limitations. While the guarantor of payment, not a party to the original note, cannot complain of laches, or want of notice, unless it has worked to his prejudice, on the other hand want of due diligence by the payee, which operates to the injury of the guarantor and occasions him loss which he could otherwise have avoided, operates as a release.
"While this rule is enforced on less provocation in cases of a guaranty of collection than a guaranty of payment, it is equally applicable to the latter. It has been held that the guarantor is released if the payee fails to make demand, give notice of default, or to take any proceedings to collect for a period of five years. Shepard v. Phears, 35 Tex. 763."
In Young v. Merle  Heaney Manfg. Co., 184 Ind. 403
(110 N.E. 669), the court quoted with approval the following from the decision in Furst  Bradley Manfg. Co. v. Black, 111 Ind. 308,313 (12 N.E. 504):
"Where the form of the contract is that of an original and absolute undertaking to pay the debt of another, the liability of the promisor is that of a surety; but where the agreement is that another shall pay in the first instance, and the promisor becomes liable only for the default of the other, the contract is one of strict guaranty." *Page 565 
The court found that the contract in question was one of guaranty, and then said:
"It is well settled that the guarantor was entitled to timely notice of the default of the principal, to the end that she might have taken steps to indemnify herself from the loss which resulted from the want of such notice."
The following from Brandt on Suretyship  Guaranty (3d Ed.), § 2, has frequently been quoted or referred to with approval:
"Difference between surety and guarantor. — The words surety and guarantor are often used indiscriminately as synonymous terms; but while a surety and a guarantor have this in common, that they are both bound for another person, yet there are points of difference between them which should be carefully noted. A surety is usually bound with his principal by the same instrument, executed at the same time and on the same consideration. He is an original promisor and debtor from the beginning, and is held ordinarily to know every default of his principal. Usually the surety will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of the guarantor is his own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often founded on a separate consideration from that supporting the contract of the principal. The original contract of the principal is not the guarantor's contract, and the guarantor is not bound to take notice of its nonperformance. The guarantor is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal." *Page 566 
Quite similar language will be found in Black's Law Dictionary (2d Ed., p. 550), under the heading "Guaranty."
While decision as to the effect of neglect to give such notice might well rest upon the holding in Re Kelley's Estate,supra, it is amply supported by authority. In Taussig v. Reid,145 Ill. 488 (30 N.E. 1032, 32 N.E. 918, 36 Am. St. Rep. 504), the court said:
"We think that the decided weight of authority establishes the rule, that in case of a collateral continuing guaranty, like the one in question, reasonable notice of the default of payment on the part of the principal debtor should be given to the guarantor. And the guarantor will be discharged from payment, so far as he has sustained loss or damage, resulting from a failure of the creditor to give him such notice."
In Cahuzac  Co. v. Samini, 29 Ala. 288, an action on a contract of guaranty of payments for confectioner's supplies, it was said:
"Creditors are required to give to the guarantor reasonable notice of the default of the debtor."
See, also, Globe Bank v. Small, 25 Me. 366; Montgomery v.Kellogg  Sandusky, 43 Miss. 486 (5 Am. Rep. 508); Lemmert v.Guthrie Brothers, 69 Neb. 499 (95 N.W. 1046, 62 L.R.A. 954, 111 Am. St. Rep. 561); Reynolds v. Edney,53 N.C. 406; Kannon v. Neely, 29 Tenn. 288; Cobb v. Vaughan  Co.,141 Va. 100 (126 S.E. 77, 43 A.L.R. 177).
Counsel for plaintiffs strenuously insist that the holding inRe Kelley's Estate, supra, was dictum, and should not be followed; that the rule laid down in Roberts v. Hawkins,70 Mich. 566, states the law as it should be applied in this case. In our opinion, *Page 567 
the language used in the Roberts Case, in defining "guarantor" and "surety," was unfortunate, and not in line with the rule which should be adopted therefor. The holding that the written guaranty of payment, which was indorsed on the note before delivery to the payee, was enforceable notwithstanding a lack of notice of default, is not in conflict with the conclusion here reached, which applies only to a guaranty by separate instrument, not made for the benefit of the payee, but made for the benefit of the guarantor and for a consideration moving to him for the obligation assumed.
It follows from what has been said that the defendants were guarantors for the payments due upon the land contract; that, within a reasonable time after default in payment by the vendees, the plaintiffs should have given them notice thereof; that their neglect to do so has entailed loss upon the part of the defendants of more than the amount of the claim against them here made by plaintiffs, and that by reason thereof the trial court committed no error in entering a judgment for defendants, which should be affirmed, with costs to appellees.
CLARK, C.J., and WIEST, J., concurred with SHARPE, J.