Amick v. Baugh

• Citation: 402 P.2d 342,66 Wn.2d 298
• Decision Date: 20 May 1965
• Docket Number: No. 37423,37423
• Parties: Earl AMICK and Evelyn Amick, husband and wife, Respondents, v. L. M. BAUGH and Jane Doe Baugh, husband and wife, Appellants.
• Court: United States State Supreme Court of Washington

Page 298

66 Wn.2d 298

402 P.2d 342

Earl AMICK and Evelyn Amick, husband and wife, Respondents, v. L. M. BAUGH and Jane Doe Baugh, husband and wife, Appellants.

No. 37423.

Supreme Court of Washington, Department 2.

May 20, 1965.

Lycette, Diamond & Sylvester, Herman Howe, Seattle, for appellants.

Malcolm L. Edwards, Seattle, for respondents.

DONWORTH, Judge.

Defendants appeal from a summary judgment of the trial court entered on October 11, 1963. No material facts are in dispute.

Affidavits of both parties agree as to the following facts:

On October 13, 1960, Thomas E. Dunstan, as maker, executed and delivered to respondent husband a promissory note for $5,000 payable to him. The note was also signed by appellant L. M. Baugh 'as guarantor only.' On November 8, 1960, a similar note for $10,000 was also executed and delivered by Thomas E. Dunstan, as maker, and was signed by appellant L. M. Baugh (guarantor).

On November 5, 1962, respondents, Earl Amick and wife, commenced suit against appellants, L. M. Baugh and wife, on these two promissory notes. The maker of the notes, Thomas E. Dunstan, was not made a party defendant. On November 16, 1962, appellants served upon the attorneys for respondents a Notice to Institute Action against Thomas E. Dunstan, the pertinent portion of which reads:

'YOU ARE HEREBY REQUIRED forthwith to institute action against Thomas E. Dunstan upon those certain promissory notes dated October 13, 1960, and November 8, 1960, respectively, described in the complaint in the above entitled action.'

Respondents did not institute a separate action or join Mr. Dunstan as defendant in this pending action.

On or about February 7, 1963, appellants answered respondents' complaint, alleging, as an affirmative defense, the service of the above demand to institute action against Thomas E. Dunstan, and respondents' failure to comply therewith.

September 16, 1963, respondents filed a motion for summary judgment against appellants. Appellants, on September 27, 1963, filed a cross-motion for summary judgment dismissing respondents' action with prejudice on the ground that they had failed to institute action against Thomas E. Dunstan, the maker of the two notes, although more than 10 months had elapsed since the written demand to institute such action had been served upon them.

The uncontroverted affidavit of respondent husband shows the following additional facts:

1. The notes were each for a sum certain, payable on a specific date fixed in each note.

2. Thomas E. Dunstan has never been released upon the notes which are the subject matter of this lawsuit.

3. No collusion exists between Thomas E. Dunstan and respondents or with any other parties with respect to the payment of the notes which are the subject matter of this action.

4. Thomas E. Dunstan is insolvent and incapable of paying the notes which are the subject matter of this action.

5. The ability of Thomas E. Dunstan to pay these notes is no less than it was at the time respondents served their notice upon appellants to institute against Thomas E. Dunstan.

The uncontroverted affidavit of Thomas E. Dunstan, maker of the note, establishes the following facts:

The notes sued on were given in connection with a sale of real estate. Negotiations between Mr. Dunstan and respondents led to terms which included the payment of $20,000 in cash at the time of the signing of the real-estate contract. Mr. Dunstan was unable to produce this amount in cash. Therefore, he proposed to respondents that his notes in the total amount of $20,000 be accepted in lieu of cash. Respondents refused to accept Mr. Dunstan's notes unless Mr. Dunstan procured a signature guaranteeing the notes. Mr. Dunstan obtained the signature of appellant L. M. Baugh on the two notes involved in this action and the transaction was completed.

The trial court granted summary judgment on both notes in favor of plaintiffs-respondents, based on these pleadings and affidavits.

Appellants' assignments of error raise ony one issue of law, I.e. that the trial court erred when it refused to apply the provisions of RCW 19.72.100 and 19.72.101 to the facts in this case. Appellants' argument is that he is a surety and that, therefore, he is entitled to invoke these statutory enactments.

Respondents claim that the trial court's refusal to apply RCW 19.72.100 and 19.72.101 to the facts of this case was proper because of at least one of three separate reasons. These are:

1. These statutes do not apply to situations involving negotiable instruments.

2. They do not apply to appellants because they are guarantors, not sureties, as a matter of law.

3. They do not operate to discharge appellants if the principal is No less able to pay the notes at the time the surety claims to be discharged so that the surety was not harmed by the failure to sue.

If respondent is correct on any one of these reasons, the trial court must be affirmed.

RCW 19.72.100 and 19.72.101 read as follows:

'Any person bound as surety upon any contract in writing for the payment of money or the performance of any act, when the right of action has accrued, may require by notice in writing the creditor or obligee forthwith to institute an action upon the contract.

'If the creditor or obligee shall not proceed within a reasonable time to bring his action upon such contract, and prosecute the same to judgment and execution, the surety shall be discharged from all liability thereon.'

These statutes have been in effect since 1854 in substantially the same form. They constitute Washington state's version of the doctrine in suretyship law commonly known as the 'Pain v. Packard' rule, which takes its name from Pain v. Packard, 13 Johns.R. 174 (N.Y.S.up.Ct.1816). The history of the rule has been traced in 37 Yale L.J. 971 (1927--1928). The rule is also discussed in two leading texts--Stearns, Suretyship § 6.38 (5th ed. 1951), and Simpson on Suretyship § 42, p. 173 (1950).

From those sources, it appears that the doctrine has been adopted by court decision in three states, including New York. ¹ It has been specifically rejected by court decision in 16 states. ² Eighteen states, including Washington, have adopted the rule of Pain v. Packard by statute. ³ These statutes vary somewhat in wording. Some statutes specifically apply to negotiable instruments and bonds, as well as contracts, and to accommodation makers, indorsers, and guarantors, as well as sureties. Because of these differences, the questions raised by respondent may be expressly resolved by statute in some of those jurisdictions.

We have examined the law in these other jurisdictions and will refer to the pertinent decisions and statutes later in this opinion, because prior Washington cases do not totally answer the problem raised in this case, although some prior Washington cases are relevant.

The parties disagree as to whether appellant husband signed as surety or absolute guarantor. Appellants argue in their brief:

'While the appellant, L. M. Baugh, signed the notes involved in this action as 'guarantor' or 'as guarantor only,' it is obvious that the obligation assumed by him was as a surety for the payment of the notes by the maker, Thomas E. Dunstan, and not as a guarantor.'

Appellants then cite and quote from 38 C.J.S. Guaranty § 6c; 24 Am.Jur., Guaranty § 11, and 38 C.J.S. Guaranty § 6b (in that order), to establish the proposition that, whether a party to a contract is a surety rather than a guarantor is not determined solely by the designation of that party in the contract as 'guarantor' or by similar words. Appellants cite no Washington cases, nor do the footnotes in the texts above referred to cite any Washington cases. The cases cited in those authorities are consistent with prior Washington decisions. However, the determination of whether a party is either guarantor or surety is to be determined from the 'four corners' of the contract, I.e. the contract is to be read and interpreted as a whole. Other evidence is admitted only if there is an ambiguity in the contract. There is no ambiguity in the notes upon which the present case was predicated, nor is fraud involved herein.

Therefore, testimony of the parties to the notes should not be considered as altering the express written obligation of one of the parties to the notes, in the absence of equitable reasons, such as fraud. See Dove v. Cowlitz Valley Bank, 191 Wash. 429, 71 P.2d 555 (1937); In re Hemrich, 187 Wash. 21, 59 P.2d 748 (1936); Farmers State Bank of Newport v. Lamon, 132 Wash. 369, 231 Pac. 952 (1925).

Furthermore, we believe the facts stated in the affidavits of the parties (which is evidence not appearing within the four corners of the notes) support respondent's position that appellant is an absolute guarantor. In Sherman Clay & Co. v. Turner, 164 Wash. 257, 263, 2 P.2d 688 (1931), involving an ordinary contract, we held that the words 'payment guaranteed' clearly showed that the intention of the party using those words was to be bound as an absolute guarantor. In that case, this court stated:

'* * * We are satisfied that the guaranty is absolute and not conditional.

"An absolute guaranty is one by which the guarantor unconditionally promises payment or performance of the principal contract on default of the principal debtor or obligor, the most usual form of an absolute guaranty being that of payment. * * * A guaranty is deemed to be absolute unless its terms import some condition precedent to the liability of the guarantor.' 28 C.J. 895.'

We think that the words used by Mr. Baugh in signing these notes are equally clear. His signature was followed by the sole words 'guarantor' and 'as guarantor only' on the face of each of the two notes, respectively. These words show no other condition than the default of the maker of the note. This is the standard legal effect of these words in commercial law. See Stearns, Suretyship § 4.5 (5th ed. 1951). Also, see the proposed Uniform...