Court Opinion

ID: 9794593
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:08:18.444803+00
Date Added: 2024-06-11T08:18:01.716185
License: Public Domain

SHEPARD, Justice,
dissenting.
Although the majority opinion has accurately recited the facts, it has, I suggest, ignored the. standard which at summary judgment requires that those facts and all inferences legitimately flowing therefrom be construed in a light most favorable to the party against whom summary judgment is sought, i.e., the guarantor. So construed, in my opinion, the facts and the legitimate inferences arising therefrom make summary judgment inappropriate here. I also disagree with the determination of the majority that the guarantor herein received from the creditor Valley Bank all of the protections for which the guarantor bargained under the contract. Hence, I dissent.
The court is again required to articulate the rights of a guarantor of a debt, where the creditor is a financial institution which has impaired the security relied upon by the guarantor and thus infringed the rights of the guarantor. At the outset, it must be noted that the appellant was a gratuitous guarantor rather than a commercial surety. He received no consideration from either the bank or his son, the principal debtor, for his guarantee of the son’s promissory note. Although such status does not relieve him of his contract, nevertheless, as a gratuitous guarantor, he is “a favorite of the law and his liability is not to be extended by implication beyond the express limits or terms of the instrument, or its plain intent.” Industrial Investment Corp. v. Rocca, 100 Idaho *779228, 233, 596 P.2d 100, 105 (1979). See also McGill v. Idaho Bank & Trust Co., 102 Idaho 494, 503, 632 P.2d 683, 692 (1981) (Shepard, J., dissenting).
It must also be noted that the contract of guaranty here was a contract of adhesion and is to be construed against the respondent bank, who was responsible for its drafting and contents. McGill v. Idaho Bank & Trust Co., supra; Industrial Investment Corp. v. Rocca, supra; J.R. Watkins Co. v. Clark, 65 Idaho 504, 147 P.2d 348 (1944).
The guaranty contract here contains language to the effect that the bank need not foreclose against the principal debtor before looking to the guarantor for payment. I cannot conceive, however, that by such language the parties intended that the creditor should be able to purposefully render the security worthless or unavailable and then look to the guarantor. While I agree that the contract provision allows the creditor to choose between the debtor and the guarantor as to which the creditor might first proceed against, it is, I think, absurd to construe that language as does the majority to the end that the bank might totally excuse the debtor from any obligation as to a deficiency, but then proceed against the guarantor. The contract also provides: “Until you [bank creditor] are fully paid by debtor we [guarantor] shall have no right of subrogation nor right to share in the security of debtor.” Under that literal language, the guarantor could not personally bring the deficiency action if the bank, as it did, failed to timely do so. Thus, the guarantor is at the complete mercy of the creditor in not being subrogated and has absolutely no recourse against the debtor. The guarantor could not sue the principal debtor prior to the bank’s being “fully paid by debtor” and now, of course, if the guarantor were to bring action against the principal debtor, he would be met by the defense that the time to bring such an action as set forth by I.C. § 45-1512 had expired.
I suggest that the result is in direct contradiction to the established law. As stated in 38 Am.Jur.2d, Guaranty, § 126 (1968):
“[A]ny rights of the guarantor as against the creditor are determined in the first instance, by the terms of the guaranty contract. Beyond these rights, however, the law imposes on the creditor an obligation not to deal with the debtor, or any security for the debt, in such a manner as to harm the interest of the guarantor.” (Emphasis supplied.)
See also 38 Am.Jur.2d, Guaranty, § 87 (1968).
As was well stated in Universal C.I.T. Credit Corp. v. Whitworth, 77 Idaho 528, 534, 296 P.2d 712, 716 (1956):
“It is a fundamental principle of the law of guaranty that, with respect to additional security for the payment of a 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.” Quoting Mechanics & Metals Nat. Bank v. Pingree, 40 Idaho 118, 232 P. 5 (1924).
See also First Piedmont Bank and Trust Co. v. Doyle, 97 Idaho 700, 551 P.2d 1336 (1976); Industrial Investment Corp. v. Rocca, supra.
If it is assumed that the majority’s interpretation of the contract is correct, then I would hold that the guaranty agreement is unconscionable and against public policy. Particularly do I believe this is true in light of the bargaining relationship of the parties here. The creditor is a financial merchant dealing in loan agreements on a regular basis and charged with superior knowledge of suretyship, foreclosure, and contracts in general. The guarantor, in contrast, has no such expertise, but at the request of the bank placed his signature upon a document drafted by the bank, a contract of adhesion. By law the guarantor could reasonably expect that the bank would protect the interests of the guarantor and at least not inhibit or destroy his rights. If the bank failed in its duty, the guarantor could reasonably expect that the courts would extend relief. Contrary to his reasonable expectations, he is not only denied the protection of the law, but has not received so much as his day in court.
*780I must also dissent from the majority’s holding that no genuine issue of material fact existed to preclude summary judgment. Appellant alleged that at the time the guaranty was elicited, a contemporaneous agreement was reached that the principal debtor would apply the loan proceeds to the construction of what was known as the Highland Hills project, that the proceeds from that Highland Hills project were assigned to the bank, that the bank received those proceeds, which were more than adequate to pay off the guaranteed loan, but that the bank wrongfully applied those proceeds to other accounts.
In my opinion, those allegations supported by affidavit raise specific issues and, in the absence of equally specific denials by affidavit on the part of the bank, stand either admitted or, at the very least, on a motion for summary judgment, are to be construed, together with all of their inferences, in favor of the appellant guarantor. The bank did not specifically deny appellant’s allegations. Rather, it only stated that it was “unable to determine” if those amounts were paid to the bank and it could not “find specific allocation of those amounts.” Such, I would hold, does not specifically controvert appellant’s position as set forth in his affidavit. But, even if it be assumed that such produced a controverted issue of fact, it was required to be tried.
The majority opinion makes much of the fact that the agreement had not been alleged to be reduced to writing. Certainly, the affidavit of appellant alleges that the bank took an assignment and, at the very least, the inference contained therein is that the assignment was in writing. The majority further argues that such defense was “factually unsupported” in that the “evidence” does not indicate that such an agreement survived renewal of the note and guaranty. There is a total lack of any evidence that the agreement of assignment and applications of funds did not survive the renewal of the note and guaranty. Again, taking the evidence and inferences arising therefrom in the light most favorable to the appellant, I believe the majority errs in affirming the summary judgment issued in the face of what was an obvious triable issue of fact and one which was material and perhaps controlling as to the ultimate issue of the liability of the guarantor.