Etelson v. Suburban Trust Co.

• Decision Date: 11 November 1971
• Docket Number: No. 52,52
• Citation: Etelson v. Suburban Trust Co., 263 Md. 376, 283 A.2d 408 (Md. 1971)
• Parties: , 9 UCC Rep.Serv. 1371 Jerome A. ETELSON et ux. v. SUBURBAN TRUST COMPANY.
• Court: Maryland Supreme Court

Page 376

263 Md. 376

283 A.2d 408, 9 UCC Rep.Serv. 1371

Jerome A. ETELSON et ux. v. SUBURBAN TRUST COMPANY.

No. 52.

Court of Appeals of Maryland.

Nov. 11, 1971.

Joel Savits and Barker & Savits, Bethesda, on brief, for appellants.

Michael G. Trainer and Duckett, Orem, Christie & Beckett, Silver Spring, on brief, for appellee.

Submitted to HAMMOND, C. J., and BARNES, FINAN, SINGLEY and DIGGES, JJ.

FINAN, Judge.

The appellants, Jerome A. and Marilyn F. Etelson, contest a decision of the Circuit Court for Montgomery County (Levine, J.) awarding a judgment in the amount of $2,455.07 against them, as the endorsers of a promissory note, and in favor of the appellee, Suburban Trust Company (Bank).

On July 31, 1969, the Bank made a loan to the J. M. Kalista Company, Inc., a Maryland corporation. Mr. Etelson, as the President of the Kalista Company, executed on behalf of the corporation a promissory note payable to the order of the Bank in the amount of $2,400.00. As security for this transaction the Bank accepted a security interest in a 1969 truck owned by the corporation, and additionally demanded that Mr. and Mrs. Etelson guarantee the payment of the note. Although a financing statement covering the truck was signed by Mr. Etelson on July 31, 1969, the Bank did not attempt to perfect its interest by filing until January 28, 1970, fifteen days after the Kalista Company had been declared bankrupt in the United States District Court for the District of Maryland.

At some time prior to March 5, 1970, and after default by the Kalista Company on the note, the Bank repossessed the truck. On April 6, 1970, the Trustee in Bankruptcy notified the Bank that in view of the late filing date of the financing statement, the Bank had lost the priority of its security interest. The Bank then released the truck to the Trustee in Bankruptcy who subsequently sold it at public auction for $1,400.00.

The Bank then brought an action on the note against the Etelsons, as the endorsers. The Etelsons attempting to rely on §§ 3-606(1)(b), 9-207(1) and 9-302(1) of the Uniform Commercial Code (UCC), Maryland Code (1964 Repl.Vol.), Art. 95B, defended on the grounds that the Bank, by its negligence in failing to make a timely recording of the financing statement, had impaired the security and therefore could not recover from the endorsers, or in the alternative, that the sum of $1,400.00 received from the sale of the truck by the Trustee in Bankruptcy, should be applied against the endorsers' indebtedness to the Bank.

The following significant language appears in the endorsement on the back of the note:

'I/We, the endorser(s), do hereby jointly and severally (1) guarantee the payment of this note; (2) consent to any modification of the terms of the note or the release or exchange of any collateral without notice; and (3) authorize judgment by confession against each of us under the terms on the face of the note.

/s/ Jerome A. Etelson

/s/ Marilyn F. Etelson'

The trial court in rejecting the Etelsons' arguments, which were premised on the ngeligence of the Bank in its untimely filing of the financing statement, commented:

'* * * the failure of the plaintiff (Bank) to record the instrument so as to make the collateral available for partial satisfaction is not available as a defense since the plaintiff (Bank) violated no duty which it owed to the defendants to record timely.'

From a judgment in favor of the Bank in the amount of $2,454.07, the Etelsons appealed.

We have been referred to no Maryland cases, and have found none dispositive of the issue before us. However, there are cases from other jurisdictions upon which the appellants rely which generally hold that where a creditor releases or negligently fails to protect security put in his possession or under his control by the principal debtor, the obligation of the endorser will be extinguished to the extent of the value of the security so released or left unprotected. Shaffer v. Davidson, 445 P.2d 13 (Wyo.1968); Rose v. Homsey, 347 Mass. 259, 197 N.E.2d 603 (1964); Nebraska State Bank of Valparaiso v. May, 117 Neb. 262, 220 N.W. 276 (1928); Highland Inv. Co. v. Kansas City Computing Scales Co., 277 Mo. 365, 209 S.W. 895 (1919); Redlon v. Heath, 59 Kan. 255, 52 P. 862 (1898); Sullivan v. State, 59 Ark. 47, 26 S.W. 194 (1894); to similar effect, see 11 C.J.S. Bills and Notes § 752, pg. 326, n. 87. It would further appear that Anderson's Uniform Commercial Code, Vol. 3, § 3-606:8, pg. 129 (Second Edition), supports this view. ¹

In the instant case, however, the Etelsons by agreeing to the broad language of the endorsement limited the protection to...