Dahmes v. Industrial Credit Co., 37879

• Decision Date: 08 September 1961
• Docket Number: No. 37879,37879
• Citation: 261 Minn. 26,110 N.W.2d 484
• Parties: Melbourne DAHMES, et al., Respondents, v. INDUSTRIAL CREDIT COMPANY, Appellant.
• Court: Minnesota Supreme Court

Page 484

110 N.W.2d 484

261 Minn. 26

Melbourne DAHMES, et al., Respondents, v. INDUSTRIAL CREDIT COMPANY, Appellant.

No. 37879.

Supreme Court of Minnesota.

Sept. 8, 1961.

Syllabus by the Court

1. Where the defense of usury is not available to a corporation, it cannot be invoked by individual guarantors of the corporate obligations since, as a general rule, the obligation of the guarantor is measured by the obligation of the principal. Although the 'guaranty' in the instant case provided that the plaintiffs' liability was 'direct and unconditional,' this language merely rendered the guaranty absolute rather than conditional and did not affect the plaintiffs' status as guarantors. Held, since the plaintiffs' undertaking was a collateral one, the defense of usury, not being available to the principal obligor, was similarly not available to the plaintiffs.

2. The trial court's finding that the notes and mortgages in question were given without consideration is not sustained by the evidence.

3. Plaintiffs' contention that they were fraudulently induced to execute a note and mortgage cannot be sustained as a matter of law.

Jerome B. Simon and Bundlie, Kelley & Maun, St. Paul, for appellant.

Brill & Brill, Minneapolis, for respondent.

Clarence O. Holten and James S. Eriksson, Minneapolis, for James Talcott, Inc., et al. amici curiae.

Dorsey, Owen, Barber, Marquart & Windhorst, Faegre & Benson Minneapolis, Doherty, Rumble & Butler, St. Paul, Robert I. Lang, Minneapolis, for Minnesota Bankers Ass'n, amici curiae.

DELL, Chief Justice.

This is an action to have two promissory notes executed by the plaintiffs and two real estate mortgages securing said notes adjudged null and void. Defendant filed a counterclaim to recover under an alleged guaranty.

In March 1955 the plaintiffs organized a corporation known as Northwest Recapping, Inc., for the purpose of engaging in the business of recapping automobile and truck tires. On March 25, 1955, the plaintiff Melbourne Dahmes was issued 100 shares of the corporation's stock for which he paid $1,000. No other stock was issued. Subsequently Dahmes loaned personal funds to the corporation totaling $36,297,84, receiving the corporation's notes for part of this amount. At all pertinent times Dahmes was president of the corporation and his wife, Leona J. Dahmes, was the secretary-treasurer.

On May 28, 1956, Northwest Recapping, Inc. (hereinafter referred to as the corporation) and the defendant entered into an Accounts Receivable Financing Agreement under which instrument defendant agreed to make loans to said corporation from time to time, secured by an assignment of the corporation's accounts receivable. As further security for said loans the corporation, on the same day, executed a chattel mortgage to the defendant on all of its tools and equipment. At the same time plaintiffs individually executed an instrument designated as a 'GUARANTY,' which provided in part:

'In order to induce INDUSTRIAL CREDIT COMPANY, a Minnesota corporation, to enter into financing agreements with and to make loans, secured by accounts receivable, to NORTHWEST RECAPPING, INC., a Minnesota corporation, and in consideration thereof and of other good and valuable considerations * * * the undersigned (plaintiffs) and each of them jointly and severally guarantee the due payment and performance by said NORTHWEST RECAPPING, INC., of all monies to be paid, and all things to be done, pursuant to each and every condition and covenant contained in said agreement, * * *.

'The undersigned hereby indemnifies the INDUSTRIAL CREDIT COMPANY, and agrees to hold it harmless against, all obligations, demand, losses, or liabilities, by whomsoever asserted, suffered, incurred or paid by INDUSTRIAL CREDIT COMPANY as a result of, or in any way arising out of, or following, or consequential to, transactions under the foregoing agreement.

'The undersigned * * * defer taking payment from NORTHWEST RECAPPING, INC., on its obligations to the undersigned without written approval from INDUSTRIAL CREDIT COMPANY.'

In accordance with said instrument, defendant from time to time advanced money to the corporation equivalent to 80 percent of the latter's assigned accounts receivable. In each of such transactions the corporation executed a note to defendant for the sum advanced. Defendant concedes that all of said notes provide for interest at a rate in excess of 8 percent per annum. ¹

On August 30, 1956, pursuant to L.1947, c. 590, M.S.A. § 514.80 et seq., the corporation entered into a Factor's Lien Agreement with the defendant under which agreement the corporation gave the defendant a continuing lien upon all of its merchandise to secure loans made to it by the defendant.

On March 5, 1957, plaintiffs executed and delivered to the defendant the first of the two notes and mortgages here challenged. The note was for $4,000 and was secured by a mortgage on the plaintiffs' homestead. It contained the following provision:

'This promissory note is given as additional collateral security to secure to INDUSTRIAL CREDIT COMPANY the payment, when due, of all indebtedness or obligations of Northwest Recapping, Inc., a Minnesota corporation, presently owing or hereinafter incurred to INDUSTRIAL CREDIT COMPANY. The amount due under this note shall be the amount stated hereinbefore or the total unpaid indebtedness of the Northwest Recapping, Inc. to INDUSTRIAL CREDIT COMPANY whichever is less.'

At that time the corporation was indebted to the defendant in the sum of $65,668.15. No money was advanced to plaintiffs on this note.

On August 19, 1957, plaintiffs executed and delivered to defendant the second of the notes and mortgages here involved. This note was in the sum of $35,000 and was likewise secured by mortgage on plaintiffs' homestead. It contained the same provision as did the March 5, 1957, note. At that time the corporation was indebted to the defendant in the sum of $84,210.55. Both of the mortgages described were subject to a first mortgage in favor of Northwestern Federal Savings & Loan Association.

On September 9, 1957, a new Accounts Receivable Financing Agreement was entered into between the corporation and the defendant. Under this agreement the corporation agreed to assign to the defendant all of its accounts receivable, present and future, as security for loans to be made to it by the defendant. On the same day a separate instrument was executed by the plaintiffs designated 'GUARANTY,' which contained the following provisions:

'In order to induce Industrial Credit Company, a Minnesota corporation hereinafter called LENDER, to enter into financing agreements with, and to make loans to NORTHWEST RECAPPING INC. * * * hereinafter called BORROWER, and in consideration thereof * * * the undersigned * * * guarantee the due payment and performance by BORROWER of all moneys to be paid, and all things to be done, pursuant to each and every condition and covenant contained in any such agreements, * * *.

'The undersigned hereby indemnifies Industrial Credit Company and agrees to hold it harmless against all obligations, demands, losses or liabilities * * * incurred or paid by Industrial Credit Company * * * arising out of or following or consequential to the making of any loans to BORROWER and the taking of security therefor.

'The undersigned agree: * * * that their liability hereunder is Direct and unconditional and may be enforced Without requiring LENDER first to resort to any other right, remedy or security; * * *.

'The undersigned waive: notice of the making of loans, the creation of indebtedness or of default and all other notices to which they might be entitled.' (Italics supplied.)

On the date of this agreement the corporation was indebted to the defendant in the sum of $104,838.50.

Subsequent to the agreement of September 9, 1957, the defendant continued to make loans to the corporation and the corporation continued to make payments upon its past indebtedness and also on the new loans. Such payments exceeded the sum of $104,838.50 due on September 9, 1957, so that the indebtedness remaining unpaid, for which the foreclosure proceedings on the two mortgages were later instituted, presumably was incurred after the September 9, 1957, agreement. As the defendant made its various loans to the corporation the corporation on each occasion executed its notes therefor and assigned its accounts receivable to secure the notes. All of the notes provided for interest in excess of 8 percent per annum.

On March 4, 1958, the defendant instituted proceedings to foreclose its factor's lien. At that time there was a remainder due the defendant of $82,757.73. On April 9, 1958, it foreclosed the chattel mortgage and, after the foreclosure sale, there was a remainder owing of $88,510.74. On June 25, 1958, it foreclosed the two real estate mortgages on plaintiffs' homestead. After applying $19,380.32, the net amount received by it under said foreclosure proceedings, to the corporation's indebtedness, there remained due and owing the defendant the sum of $20,102.11 which sum was included in the counterclaim interposed against the plaintiffs.

The trial court adjudged the notes, mortgages, and foreclosure proceedings commenced thereon to be null and void, and ordered cancellation of the notes and mortgages. It further denied recovery on defendant's counterclaim for the remainder owing of $20,102.11 and on defendant's claim for advances made by it upon the first mortgage on said premises. The reason for the trial court's decision was: (1) The indebtedness for which the notes were given was usurious; (2) the notes were given without consideration; and (3) the note and mortgage dated August 19, 1957, were procured through the fraud of the defendant. Defendant appeals from the order denying its motion for a new trial.

1. It is conceded that the indebtedness of the corporation to the defendant provided for interest at a rate in...