Branch Banking and Trust Co. v. Creasy, 60

• Decision Date: 15 August 1980
• Docket Number: No. 60,60
• Parties: , 30 UCC Rep.Serv. 545 BRANCH BANKING AND TRUST COMPANY v. Margaret W. CREASY.
• Court: North Carolina Supreme Court

Page 117

269 S.E.2d 117

301 N.C. 44, 30 UCC Rep.Serv. 545

BRANCH BANKING AND TRUST COMPANY v. Margaret W. CREASY.

No. 60.

Supreme Court of North Carolina.

Aug. 15, 1980.

Murchison & Guthrie by Alton G. Murchison, III, Charlotte, for plaintiff-appellant.

Stack & Stephens by Warren C. Stack and Richard D. Stephens, Charlotte, for defendant-appellee.

Edmund D. Aycock, Raleigh, for North Carolina Bankers Ass'n, amicus curiae.

BRITT, Justice.

The sole issue which is presented for review is whether the Court of Appeals erred in holding that summary judgment had been improperly granted in favor of plaintiff. Our consideration of the matter impels the conclusion that the Court of Appeals was in error, and, accordingly, we reverse.

Our resolution of the present case does not require that we review in detail the law of summary judgment. It is now familiar learning that summary judgment is properly entered if it is established that there is no genuine issue of material fact and that any party is entitled to judgment as a matter of law. E. g., Kessing v. National Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971). In deciding the case at bar, we must be sensitive to the standard enunciated in Kessing and applied in subsequent cases. See Odom v. Little Rock & I-85 Corp., 299 N.C. 86, 261 S.E.2d 99 (1980). The party moving for summary judgment has the burden of clearly establishing by the record properly before the court the lack of any triable issue of fact. Page v. Sloan, 281 N.C. 697, 190 S.E.2d 189 (1972). With this framework in mind, we turn now to a consideration of the character of the document which is at the heart of this litigation.

The Court of Appeals held that the materials which were before the trial court were insufficient to establish as a matter of law that plaintiff was a holder in due course of the agreement and was entitled to take it free of the defense of nondelivery. 44 N.C.App. at 294, 260 S.E.2d at 785. In order to reach this conclusion, it is essential that there first be a determination that the paper writing upon which the bank relies is a negotiable instrument.

The Court of Appeals was in error in treating this document as a negotiable instrument.

To be a negotiable instrument, a writing must be signed by the maker or drawer, must contain an unconditional promise to pay a sum certain in money and no other promise except as authorized by statute, must be payable on demand or at a definite time, and must payable to order or bearer. G.S. § 25-3-104 (1965); see Booker v. Everhart, 294 N.C. 146, 240 S.E.2d 360 (1978); see generally R. Anderson, Uniform Commercial Code §§ 3-104:1 to 3-104:25 (2d ed. 1971); F. Hart & W. Willier, Commercial Paper Under the Uniform Commercial Code §§ 2.01 to 2.15 (1976). The "continuing guaranty" which was signed by defendant does not meet these requirements.

First, the document which was signed by defendant does not have the attribute of certainty; it provides that: "The aggregate amount of principal of all indebtedness, obligations and liabilities at any one time outstanding for which the undersigned shall be liable shall not exceed the sum of $35,000."

For the requirement of a sum certain to be met, it is necessary that at the time of payment the holder is able to determine the amount which is then payable from the instrument itself, with any necessary computation, without any reference to an outside source. Official Comment, G.S. § 25-3-106 (1965); Wattles v. Agelastos, 27 Mich.App. 624, 183 N.W.2d 906 (1970). It is necessary for a negotiable instrument to bear a definite sum so that subsequent holders may take and transfer the instrument without having to plumb the intricacies of the instrument's background. Cobb Bank & Trust Co. v. American Mfr's. Mut. Ins. Co., 459 F.Supp. 328 (N.D. Ga. 1978).

The document in question calls for a ceiling on the amount of defendant's liability. It does not specify the amount of the liability that is to be paid. That data may be obtained only after resorting to sources of information which are external to the agreement itself. Such an absence is enough by itself to foreclose any finding that the paper at issue is negotiable.

The document upon which plaintiff relies is inadequate as a negotiable instrument in one other respect: At no place in the agreement is there any provision that it is "payable to order or bearer." For an instrument to be fully negotiable ² within the scope of Article Three, it must be "payable to order or bearer." E. g., Mecham v. United Bank of Arizona, 107 Ariz. 437, 489 P.2d 247 (1971); Hall v. Westmoreland, 123 Ga.App. 809, 182 S.E.2d 539 (1971); F. Hart & W. Willier, supra, § 2.14. Lacking the essential words of negotiability, the paper states that ". . . the undersigned hereby absolutely and unconditionally guarantees to you and your successors and assigns the due and punctual payment of any and all notes, drafts, debts, obligations, and liabilities. . . ."

Having determined that the agreement is not a negotiable instrument, we must now turn to a consideration of its true character.

Although contracts of guaranty and suretyship are, to some extent, analogous, and the labels are used interchangeably, there are, nevertheless, important distinctions between the two undertakings. See generally L. Simpson, Handbook on the Law of Suretyship 6-8 (1950). A guaranty is a promise to answer for the payment of a debt or the performance of some duty in the event of the failure of another person who is himself primarily liable for such payment or performance. E. g., O'Grady v. First Union Nat'l Bank, 296 N.C. 212, 250 S.E.2d 587 (1978); Investment Properties of Asheville, Inc. v. Norburn, 281 N.C. 191, 188 S.E.2d 342 (1972); see also L. Simpson, supra, 10-11. A surety is a person who is primarily liable for the payment of the debt or the performance of the obligation of another. New Amsterdam Cas. Co. v. Waller, 233 N.C. 536, 64 S.E.2d 826 (1951); Dry v. Reynolds, 205 N.C. 571, 172 S.E. 351 (1934); see also L. Simpson, supra, 8-9. While both kinds of promises are forms of security, they differ in the nature of the promisor's liability. A guarantor's duty of performance is triggered at the time of the default of another. Wachovia Bank and Trust Co. v. Clifton, 203 N.C. 483, 166 S.E. 334 (1932); see also Arcady Farms Milling Co. v. Wallace, 242 N.C. 686, 89 S.E.2d 413 (1955). On the other hand, a surety is primarily liable for the discharge of the underlying obligation, and is engaged in a direct and original undertaking which is independent of any default. New Amsterdam Cas. Co. v. Waller, supra ; Dry Reynolds, supra.

While the document at issue is entitled "guaranty agreement", its label is not determinative of its character. It is appropriate to regard the substance, not the form, of a transaction as controlling, and we are not bound by the labels which have been appended to the episode by the parties. E. g., Thompson v. Soles, 299 N.C. 484, 263 S.E.2d 599 (1980). The agreement expressly states that

This obligation and liability on the part of the undersigned shall be a primary and not a secondary obligation and liability, payable immediately upon demand without recourse first having been had by (Branch Banking and Trust) against the Borrower or any person, firm, or corporation; . . . ."

By affixing her signature to the document, defendant manifested her assent to enter into a suretyship contract which imposed primary liability upon her for the payment of her husband's debt to the bank. However, identifying the character of the document does not, by itself, resolve the issue raised by defendant's argument that a genuine issue of material fact exists with respect to the effectiveness of the transfer of the document to plaintiff.

Delivery consists of two elements: First, an intention to pass an item beyond one's control; and, second, physical transfer of the item to another. E. g., Tarlton v. Griggs, 131 N.C. 216, 42 S.E. 591 (1902). There is absolutely no evidence in the record which would tend to show that plaintiff had any notice whatsoever that when defendant returned the signed agreement to the custody of her attorney, she did not have the present intention of passing the document beyond her control. While it is true that there is nothing in the record which would tend to show how the agreement came to be in the hands of plaintiff's cashier, Tyler, it is also true that there is nothing in the record which would indicate that plaintiff had notice of any circumstances which would prompt inquiry on its part. Plaintiff supplied a form contract to its customer, Mr. Creasy, and gave him instructions as to its execution. That same form was returned to it, having been signed and witnessed. It was only upon making demand for payment that plaintiff learned that defendant did not intend that the document be delivered.

When the undertaking of a surety is complete and regular on its face, and the obligee has no notice of conditions which have been imposed by the surety, the creditor is entitled to enforce the promise of the surety. Cowan v. Roberts, 134 N.C. 415, 46 S.E. 979 (1904); Vass v. Riddick, 89 N.C. 6 (1883); Gwyn v. Patterson, 72 N.C. 189 (1875); see generally 10 S. Williston, A Treatise on the Law of Contracts § 1244 (3rd ed. 1967).

By signing the agreement and returning it to her attorney, defendant armed him with what appeared to be an absolute suretyship contract, complete in all respects. The deposition of defendant's attorney, Miller, discloses that defendant did not, at the time she signed the agreement, give him any instructions concerning the document. Nor did she subsequently give him any instructions regarding its disposition. In no way did defendant manifest her intention that the agreement not be delivered to plaintiff. By so doing, she incurred the risk that the document could be delivered to plaintiff's possession on behalf of her husband contrary to her uncommunicated...