Bank of Kirkwood Plaza v. Mueller, 9760

• Decision Date: 26 June 1980
• Docket Number: No. 9760,9760
• Citation: 294 N.W.2d 640
• Parties: The BANK OF KIRKWOOD PLAZA, Bismarck, North Dakota, a State Banking Corporation, Plaintiff and Appellee, v. E. Carl MUELLER, Dale Mueller, Royhl B. Ebert and Wayne Wikenheiser, Defendantsand Appellants. Civ.
• Court: North Dakota Supreme Court

Page 640

294 N.W.2d 640

The BANK OF KIRKWOOD PLAZA, Bismarck, North Dakota, a State Banking Corporation, Plaintiff and Appellee, v. E. Carl MUELLER, Dale Mueller, Royhl B. Ebert and Wayne Wikenheiser, Defendantsand Appellants.

Civ. No. 9760.

Supreme Court of North Dakota.

June 26, 1980.

Rehearing Denied July 17, 1980.

Kelsch & Kelsch, Bismarck, for plaintiff and appellee; argued by Thomas F. Kelsch, Bismarck.

Rausch & Rausch, and Lundberg, Conmy, Nodland, Rosenberg, Lucas & Schulz, Bismarck, for defendants and appellants; argued by Richard P. Rausch, Bismarck.

PEDERSON, Justice.

This is an appeal from a summary judgment in favor of the Bank of Kirkwood Plaza in an action brought to enforce a guaranty of three promissory notes. Judgment affirmed as modified.

The facts in this case are uncontroverted and there is no claim that a trial on any fact issue should have been held.

On April 5, 1978, Develco, Inc., a North Dakota corporation, executed three promissory notes to the Bank in the total face amount of $125,000 at 10% interest, due on demand, and secured these notes with mortgages on three homes built in Mercer County. That same day, E. Carl Mueller, Dale Mueller, Royhl B. Ebert and Wayne Wikenheiser (hereinafter "guarantors") executed a continuing guaranty agreement with the Bank. Under this guaranty agreement they individually and unconditionally guaranteed the payment of any obligation between the Bank and Develco in the maximum amount of $125,000, plus interest. Only Royhl Ebert signed the promissory notes, and none of the guarantors signed the mortgages.

The Bank made repeated demands on Develco to pay the promissory notes, but Develco refused. Thereafter the Bank made a demand on the guarantors to pay the notes, and the guarantors also refused. The Bank then tendered to the guarantors an assignment of all the Bank's interest in Develco's promissory notes, mortgages, collateral, and any other rights of the Bank against Develco upon the condition that the guarantors pay the promissory notes. The guarantors again refused.

The Bank brought foreclosure actions against Develco on each of the three mortgages. Because the mortgages are subject to the Short-Term Mortgage Redemption Act, Chapter 32-19.1, NDCC, a deficiency judgment was not sought. A sheriff's sale was held on February 11, 1980. The Bank was the purchaser at the sale for the amount of the judgment with interest and costs ($147,842.25).

Prior to the sheriff's sale, the Bank also brought this suit, an independent action in district court against the guarantors based upon the guaranty agreement. The guarantors admitted the giving of the guaranty, but contended that the guaranty agreement was invalid and such action was barred under North Dakota's anti-deficiency statutes.

The Bank moved for summary judgment, which the district court granted. The court held that the obligations imposed by the promissory notes and mortgages were separate and distinct from the obligations imposed by the guaranty agreement and, consequently, that the Bank could sue the mortgagor, Develco, in a foreclosure action and still maintain an action against the guarantors, who were non-mortgagors. Judgment was rendered against the guarantors in the sum of $147,842.25.

On appeal, the guarantors rely on First State Bank of Cooperstown v. Ihringer, 217 N.W.2d 857 (N.D.1974), for the proposition that under the State's anti-deficiency statutes (§ 32-19-04, 32-19-06, 32-19-07, NDCC), the Bank, as holder of the mortgages, is entitled only: (1) to foreclosure or (2) to sue on the note, but with recovery limited to the difference between the amount due on the note plus costs and the fair value of the property determined by a jury. The crux of their argument is that by allowing the Bank to foreclose on the notes and also bring a separate action for a money judgment, the Bank will be allowed a double recovery on the same indebtedness. On the other hand, the Bank contends that if guarantors are shielded from recovery by the anti-deficiency statutes, it will render useless an important business tool.

Generally, the anti-deficiency statutes provide that in case of default, a holder of a real estate mortgage is limited to a foreclosure action, § 32-19-07, NDCC, and additionally, that the court shall not render a deficiency judgment against the mortgagor except under very limited circumstances provided for in the statutes. Section 32-19-06, NDCC. In order to be eligible for a deficiency judgment, the plaintiff must bring a separate action against the parties personally liable for that part of the debt, with recovery limited to the difference between the amount due on the note, plus costs, and the fair market value of the land. Section 32-19-06, NDCC.

In Ihringer, supra, both the husband and wife executed a note, but only the husband executed a mortgage as security for the note. No guarantors were involved. The mortgagee bank did not foreclose on the mortgage but, rather, brought an action against the wife on the note. The issue was whether or not the anti-deficiency statutes applied to an action against a non-mortgagor debtor. This court held that the anti-deficiency statutes applied, and that the mortgagee-bank could sue on the note with recovery in the action against the wife limited to the difference between the amount due on the note, plus costs, and the fair market value of the land. The court determined that the anti-deficiency statutes applied to a non-mortgagor debtor: (1) on the basis of language in § 32-19-06, NDCC, which provides that if the mortgaged property is foreclosed and sold and a deficiency exists, the plaintiff may bring a separate action for a deficiency judgment "against the party or parties personally liable for that part of the debt," and (2) on the basis of the fact that "in view of the . . . outspoken declarations of intent (to allow deficiency judgments only under very limited circumstances), . . . it is doubtful that the legislators of 1951 failed to consider the possibility of suits against nonmortgagors liable on the mortgage notes." First State Bank of Cooperstown v. Ihringer, supra, 217 N.W.2d at 860.

Using the Ihringer analysis, we do not reach the same conclusion with respect to guarantors. First of all, in Ihringer, the action against the wife was based upon the note that she had executed. Consequently, the wife fell within the purview of § 32-19-06, NDCC, as she was a "party personally liable on the debt."

The action in the instant case against the guarantors, on the other hand, is not based on obligations imposed by the notes or the mortgages given to secure the notes, but on a separate and distinct contract of guaranty. A contract of guaranty is defined as follows:

"The contract of a guarantor is his own separate contract. It is in the nature of a warranty by him that the thing guaranteed to be done by the principal shall be done, and not merely an engagement jointly with the principal to do the thing. . . . (Citations omitted.) A liability such as this, although it may result in requiring a guarantor to pay the note, is not predicated upon 'the terms of the instrument,' but upon a contract entirely separate and distinct." Northern State Bank v. Bellamy, 19 N.D. 509, 125 N.W. 888, 890 (1910).

See also § 22-01-01, NDCC. ¹

Thus, although the guarantors may be required to pay the notes in the instant case, the liability is not predicated on the notes or the mortgages, as in Ihringer, but on the separate contract of guaranty.

This same conclusion was reached by the California Court of Appeals in Mariners Savings and Loan Association v. Neil, 22 Cal.App.3d 232, 99 Cal.Rptr. 238, 49 A.L.R.3d 549 (1972). In Mariners, the lender brought...