241 N.E.2d 906 | Ohio Ct. App. | 1968
This is an appeal on questions of law from a summary judgment for defendants in the Court of Common Pleas of Cuyahoga County.
It was stipulated by and between the parties to this appeal that the entire bill of exceptions herein should be deemed to consist of "the motions for summary judgment filed on behalf of the plaintiff and the defendants" and "the written briefs and affidavit submitted in support thereof * * * together with the pleadings."
In the trial court, plaintiff had sued defendants on their contracts of guaranty. The defendants answered and cross-petitioned alleging that they had sustained financial damage and impairment of credit reputation by virtue of plaintiff's actions and prayed for money only. Plaintiff filed an answer to the cross-petition.
Defendants filed a motion for summary judgment in the cause of action set forth in plaintiff's petition. Plaintiff then filed its motion for summary judgment in the same cause of action. The trial court denied plaintiff's motion and granted that of the defendants and entered judgment dismissing plaintiff's action on the guaranty contracts. The issues raised by defendants' cross-petition and by plaintiff's answer thereto were not affected by the trial court's order and, accordingly, are not involved in our considerations.
Defendants executed absolute and unconditional guaranties for the payment of the debt under a security agreement financing a "floor-plan" loan from plaintiff, appellant *85 herein, to a corporation engaged in selling motor vehicles and owned by the first defendant, Edward Politzer. The other two defendants, Karen Politzer and Shirley Politzer, were, respectively, his wife and mother. Edward and Karen signed a guaranty for an unlimited amount. Shirley's commitment was to the extent of $40,000.
Section
"Any chattel mortgagee, his executors, administrators, successors, or assigns who takes goods, chattels, or property, covered by the chattel mortgage out of the possession of the mortgagor, his executors, administrators, successors, or assigns by seizure, or repossession, and sells or otherwise disposes of the same before foreclosure of such mortgage in a court of record, shall not pursue or collect any deficiency upon suchmortgage or the obligation secured thereby, from such mortgagor,his executors, administrators, successors, or assigns, any stipulation in such mortgage, or agreement, or provision of law to the contrary notwithstanding. This section does not apply if the mortgagee, his executors, administrators, successors, or assigns, gives at least ten days' written notice to themortgagor, his executors, administrators, successors, orassigns, * * * of the time, place, and the minimum price for which the mortgaged property may be sold, together with a statement that the mortgagor may be held liable for any deficiency resulting from said sale. The mortgagor, hisexecutors, administrators, successors, or assigns, may redeemthe property prior to the time stated in the notice for its sale or disposition, by paying the mortgagee, his executors, administrators, successors, or assigns, the amount due and unpaid on the obligation secured by the mortgage. * * *" (Emphasis added.)
Edward Politzer and Karen Politzer, his wife, purported to waive the notice requirements of Section
The sale of the repossessed chattels resulted in a deficiency in excess of $9,000, for which plaintiff sued all three guarantors, without having complied with the notice requirements of the statute in question. The defendants *86 argued that there had not been compliance with the statute, that such requirements are mandatory and not subject to waiver, and that they were entitled to summary judgment on their behalf. Plaintiff claims that the written waiver signed by the Politzers served as a substitute for plaintiff's compliance with the statute, and that the defendants should not be permitted to escape their liability for the deficiency.
The only two questions before this court are as follows:
1. May the notice provision of Section
2. Where a creditor is barred by Section
Both questions must be answered in the negative.
In Galloway v. Barnesville Loan, Inc. (1943),
Even a surety, who is "primarily and jointly liable with the principal debtor" (26 Ohio Jurisprudence 2d 300, Guaranty, Section 5) is manifestly not within the purview of Section
In 26 Ohio Jurisprudence 2d 331, Guaranty, Section 23, it is said:
"* * * But though a contract of guaranty is a collateral obligation and the liability of the guarantor is, originally, *87 secondary thereunder, yet, after maturity of the debt, default by the debtor, and the performance by the guarantee of any conditions precedent [as with the case of conditional guarantor], the guarantor becomes a debtor of, and primarily liable to, the party guaranteed."
This being so, the liability of the absolute guarantors in this case existed as soon as the principal obligation became due and unpaid. Castle v. Rickly (1886),
Section
"(A) `Payment guaranteed' or equivalent words added to a signature mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenorwithout resort by the holder to any other party." (Emphasis added.)
Since the holder of the note has no obligation even to attempt to collect a deficiency from the maker, it is difficult to perceive how a guarantor can be relieved of his engagement to pay merely because the holder has made an improper attempt to collect from the maker.
Plaintiff contends that, if the notice provision of Section
"* * * Obviously, such notice [as provided for in Section
Thus, while it is clear that the notice provision of Section
In the case of Economy Savings Loan Co. v. Weir,
"1. An accommodation maker of a note secured by a chattel mortgage, who is not a party to the mortgage, is not specifically entitled to the benefits and protection of Section
The court nonetheless held that an accommodation maker is discharged from liability when the mortgagor is relieved of liability for a deficiency under Section
That case is distinguishable from the one before this court, because the statute prohibits merely the collection of a deficiency "upon such mortgage or the obligation secured thereby, from such mortgagor, his executors, administrators, successors, or assigns, * * *." The accommodation maker's liability in the Economy Savings case was predicated upon the note itself. By contrast, the instant case involves a separate guaranty agreement, absolute *89 and unconditional in nature. Moreover, the liability of the guarantors, appellees herein, became primary as soon as default occurred. This being the case, creditor Mutual Finance had no obligation even to attempt to collect the deficiency from the mortgagor. Therefore, no subsequent failure to comply with the statute could eliminate the liability of the guarantors, who became primarily liable on their separate instrument of guarantyas of the moment of the mortgagor's default.
Underlying the distinction between the Economy Savings case
and the one now before us, is the case of Modern Finance Co. v.Reynolds (1958),
Subsequently, the mortgagee took cognovit judgment against the second maker, and sought to collect the deficiency by foreclosing on the chattels mortgaged by her. She defended that action by asserting that the first maker had not been notified prior to the ultimate sale of the auto, and that she, as second maker, had never been notified of either intended sale of said auto.
The Franklin County Court of Appeals refused to consider thelack of notice to the first maker, since he was not a party tothe action, and determined that the second maker had not been entitled by Section
"An examination of the statute under consideration *90
[Section
Thus, even a co-maker has been held not entitled to notice under the statute, on the theory that, if he has no ownership of the mortgaged chattels to be sold, he has no interest intended to be protected by such notice provision. If this be true of one who is a primary obligor, and jointly and severally liable along with the first maker, logic requires that a guarantor, whose property is not mortgaged, and whose liability is originally secondary to that of the maker or makers, be precluded from taking advantage of improper notice to the principal obligor.
Defendants further state that guarantors are entitled to indemnification from the principal debtor, and that if the guarantors have to pay a deficiency to a creditor they can then enforce their rights of indemnification against the principal, notwithstanding that the creditor himself was precluded by Section
Plaintiff counters with its contention that a guarantor's rights against a principal are solely by subrogation; that if the creditor is precluded by Section
The law in Ohio appears to be that a guarantor's rights are those of subrogation, not of indemnity. Gholson v. Savin (1941),
"When the surety in a judgment, who is certified therein to be such, * * * pays the judgment, or part thereof, to the extent of such payment he shall have all the rights and remedies against the principal debtor that the plaintiff had at the time of such payment. * * *."
However, it appears that, even if the guarantor may recover from a principal a deficiency which the guarantor has paid to a creditor, even where the statute precludes the creditor from collecting from the principal, this cannot affect the outcome of the case now before this court. Defendants claim that, if the guarantor is permitted to recover from the principal in such case, the intent of the Legislature would be defeated. They maintain that "such a situation would result in a fraud against the principal debtor as he remains liable to the guarantors for the amount which they paid to the mortgagee when the statute states the principal debtor is relieved from the obligation by the failure of the mortgagee to follow the notice terms of the statute [citing Gholson v. Savin,
Such an interpretation of the statute differs from that of the Ohio courts. The Ohio Supreme Court, in Cities Service OilCo. v. Burkett,
The Gholson case, however, merely states that a guarantor is discharged when the creditor makes a complete settlement with the principal obligor. Here, by contrast, we deal with a situation wherein a creditor has not agreed *92 to discharge the principal obligor, but rather has become prevented by operation of law from enforcing his right to collect a deficiency from a mortgagor. In no way does this invalidate the guaranty agreement.
Both the common law and Section
The case law of Ohio makes it manifest that the notice requirement of Section
Judgment reversed.
WASSERMAN, C. J., and CANARY, J., concur. *93