Palmer v. Schrage

While I am largely in accord with the general principles considered in the opinion of Mr. Justice SHARPE, I am unable to agree with his application of such principles to the facts in this case. Defendants and appellees held the vendors' interest in a land contract dated October 27, 1924. On April 22, 1925, they assigned their interest to plaintiffs, and incident thereto signed the guaranty of payment quoted in my Brother's opinion. At that time the vendees were in default on the contract, *Page 568 which by its terms extended over a period of eight years. The vendees continued to be more or less in arrears until September 30, 1930, at which time plaintiffs gave defendants written notice of a demand of payment under the guaranty. The vendees were then in default by reason of nonpayment of substantially nine $65 monthly payments ($576) which had accrued from January, 1930, to September, 1930. They were also in default for nonpayment of taxes and assessments, one item of which was paid by plaintiffs in 1928, two items in 1929, and the remaining items in 1930. Under the terms of the contract the taxes and assessments so paid by plaintiffs became "a further lien upon the land payable by the purchaser to the seller forthwith." In plaintiffs' suit against defendants as guarantors to recover the unpaid contract instalments, taxes, and assessments, they urge as a defense release from their guaranty by reason of plaintiffs' failure to give defendants notice more promptly of the principal debtors' default. The defense was sustained by the circuit judge, who tried the case without a jury. This defense is based upon testimony of substantial depreciation in value of the contract property during the years 1928 and 1929; and that in consequence thereof defendants have sustained a damage which they claim entitles them to full release from the terms of their guaranty. This guaranty is absolute in its terms, with the exception that it is subject to "the condition that they (defendants) be allowed full power of attorney to start foreclosure proceedings should this contract become in default." This guaranty of payment was the inducement used by the defendants to consummate the sale of their vendors' interest in the guaranteed contract to plaintiffs. It is a contract between the parties couched *Page 569 in plain, simple language. Defendants should not be lightly released therefrom. At most, they would be entitled only to be released from their obligation to the extent that they establish damage resulting to them from plaintiffs' failure to give a more prompt notice of the vendees' default. This is an affirmative defense, and the burden of establishing their damage, if any, is upon defendants. Farmers Mechanics Bank v.Kercheval, 2 Mich. 504. It seems to me they have failed to offer proof from which it can be determined to what extent, if at all, they were damaged by depreciation in the value of this property subsequent to the occurrence of the defaults of which they claim they should have had notice. It may be conceded, as stated in Mr. Justice SHARPE'S opinion, that defendants were guarantors, that within a reasonable time after default defendants were entitled to notice thereof, and if such notice was not given, and defendants in consequence thereof were damaged, they would be released pro tanto from their guaranty. But the degree of promptness required at the hands of plaintiffs in giving notice of default should be determined in the light of the fact that the contract guaranteed by defendants was one which extended over a period of years and was payable in fixed monthly instalments. Also that, as noted above, the guarantors knew the vendees were in default when they transferred the contract, that during the life of the contract the vendees might become insolvent, and as a matter of common knowledge that the value of the property covered by the contract would fluctuate. The hazard was obvious, because, on the date defendants signed the guaranty, the unpaid balance on the contract price ($7,417.08) was substantially equal to the full market value of the property. With *Page 570 these elements of uncertainty involved in the transaction, the defendants used their guaranty as a means of selling their contract to plaintiffs, and unless they show ample reason for being released as guarantors, they should be required to meet their obligation. "A failure to give notice of the principal's default or negligence in giving such notice, in a case where the guarantor is entitled to notice, does not of itself discharge him from liability and bar a recovery upon the guaranty; but there must be not only a want of notice within a reasonable time, but also some actual loss or damage thereby caused to the guarantor, and if such loss or damage does not go to the whole amount of the claim, but is only in part, the guarantor is discharged onlypro tanto." 28 C. J. p. 986; citing many cases, includingRoberts v. Hawkins, supra; Farmers Mechanics Bank v.Kercheval, supra. See, also, note to Pearsell Manfg. Co. v. Jeffreys,183 Mo. 386 (81 S.W. 901), in 105 Am. St. Rep. 496. "Where the creditor does not bind himself to any delay, mere laches in the enforcement of the obligation or indulgence given to the debtor, does not release the guarantor. That the indulgence given to the principal debtor may work to the disadvantage of the guarantor does not generally affect the question." 12 R. C. L. p. 1085. "Mere passiveness on the part of the holder will not release the guarantor, even if the maker of the note was solvent at its maturity, and thereafter became insolvent." Roberts v. Hawkins,supra, 573, citing many cases. See, also, recent case of Granger v. Graef, 203 Iowa, 382 (212 N.W. 730). I fail to find in this record any showing that defendants were prejudiced by not having been more *Page 571 promptly notified of the vendees' default in not making the January, 1930, payment or those that subsequently accrued. All previous defaults in contract instalments had been cured by payments, and do not affect the case now before the court. The record conclusively shows that the maximum depreciation in the valuation of this property had occurred before any of the contract payments now in default became due. Therefore defendants sustained no damage by reason of the fact that plaintiffs did not give them an earlier notice, even if we assume that the notice given was not within a reasonable time after the default. The fact that the vendees became bankrupts subsequent to the giving of the notice and subsequent to the starting of this suit is of no consequence. There is no showing in the record that the vendees were collectible at any time subsequent to the defaults for which plaintiffs seek recovery, and therefore there is no proof of such a change of condition as worked an injury or damage to these guarantor defendants. For the reasons above noted, the case at bar is readily distinguishable from In re Kelley's Estate, 173 Mich. 492 (Ann. Cas. 1914D, 848). I think the same conclusion must be reached as to the items of taxes for which plaintiffs seek recovery. The record shows that the market depreciation in the value of the real estate covered by the contract occurred in July or August of 1928; and defendants' expert witnesses testified that by 1929 there was no market for real estate of this class. Only one of the tax items ($50.38) for which plaintiffs seek to be reimbursed was paid by them in 1928, June 3d. Two items were paid in 1929 and the balance in 1930. Under the circumstances it cannot be said that defendants have established the fact even as to these items that they were damaged by reason of plaintiffs not *Page 572 having given an earlier notice of the vendees' default. This is true, for the reason that the record does not show that defendants would have had any better opportunity to save themselves from loss at any time after the first of these defaults than they had at the time notice was given to them. There is no merit to other grounds of defense urged by these guarantors. The judgment entered in the circuit court is set aside, and the case remanded, with direction to enter judgment in favor of plaintiffs for the amount of the defaults for which these guarantors are liable, $1,801.85. Costs to appellants. McDONALD, PORTER, FEAD, and BUTZEL, JJ., concurred with NORTH, J.