Lutz v. Gatlin, 2600-III
Decision Date | 16 January 1979 |
Docket Number | No. 2600-III,2600-III |
Citation | 22 Wn.App. 424,590 P.2d 359 |
Court | Washington Court of Appeals |
Parties | , 26 UCC Rep.Serv. 129 Walter W. LUTZ, Respondent, v. Howard H. GATLIN and Jane Doe Gatlin, husband and wife, Appellants. |
Delay, Curran & Boling, Joseph P. Delay, Spokane, for appellants.
MacGillivray & Jones, Randall L. Stamper, Spokane, for respondent.
The defendant, Howard Gatlin, appeals from a judgment holding him liable as a guarantor on a $4,000 promissory note payable to the plaintiff, Dr. Walter Lutz.
On March 10, 1972, Dr. Lutz loaned $4,000 to Design Specialties, Inc. (Design) for 90 days. Design was a Washington corporation in which Mr. Gatlin held a one-third interest. Design was the sole owner of Centaur Inn of Eureka (Centaur), a California corporation. The note was not paid when due. On September 5, 1972, Dr. Lutz agreed to surrender the promissory note to Design in exchange for a promise to assign a 5 percent equity interest in Centaur Inn. Dr. Lutz had the option, at the end of 90 days, to retain the equity interest or to return the interest and receive $4,000. Roger D. Strickler, then president of Design, signed this agreement and accepted surrender of the note from Lutz. At the end of 90 days, Lutz elected to retain the equity interest. Centaur began losing money in September 1973 and was declared bankrupt in January 1974. Design also failed. Despite repeated requests, Dr. Lutz was never given written acknowledgment of his ownership interest in Centaur. Finally, on September 12, 1974, he informed Mr. Gatlin by letter that he was withdrawing his offer to accept the 5 percent equity interest and made demand for the return of the $4,000 represented by the loan, plus interest. Dr. Lutz was not able to produce the $4,000 note at trial; however, its terms were established by parole evidence.
The court awarded Dr. Lutz $4,000 plus interest and fees on the promissory note. The court held that failure to deliver some written acknowledgment of Dr. Lutz's equitable interest reinstated the original note for $4,000.
Initially, Mr. Gatlin contends that both the statute of frauds and the statute of limitations require dismissal of this action. His argument may be summarized. First, contracts to answer for the debts of another must be in writing. RCW 19.36.010. 1 Mr. Lutz failed to produce the note in question and thus the court erred in allowing its terms to be established by parol evidence. Second, because this was an oral contract, a 3-year statute of limitations applies. RCW 4.16.080(3). 2 Mr. Gatlin argues that the cause of action accrued on June 8, 1972, and expired on June 9, 1975, and therefore this action, commenced in August 1975, is barred by the statute of limitations.
Contrary to the contentions of Mr. Gatlin, the record shows that this is not a case involving an oral contract, but rather a written contract which was subsequently lost or destroyed. Thus, the writing requirement of the statute of frauds was satisfied. In addition, since this action concerns a written instrument, the 6-year statute of limitations applies. RCW 4.16.040. 3
RCW 62A.3-804 provides a method of recovery on instruments which are lost, destroyed or stolen. It provides The owner of an instrument which is lost whether by destruction, theft or otherwise, may maintain an action in his own name and recover from any party liable thereon upon due proof of his ownership, the facts which prevent his production of the instrument and its terms. The court may require security indemnifying the defendant against loss by reason of further claims on the instrument.
To establish a lost instrument, the evidence must be clear, cogent and convincing. 4
With these principles in mind, our primary inquiry thus becomes whether there is substantial evidence to support the findings of the trial court with regard to the terms of the promissory note. Mr. Gatlin objects to the following finding of fact entered by the trial court:
On or about March 10, 1972, plaintiff, Dr. Walter Lutz, made a $4,000 loan to Design Specialties, Inc., said loan was evidenced by a note which was personally guaranteed by Howard H. Gatlin. The note was due on June 8, 1972, with interest at the rate of 12 percent per annum and with a standard provision concerning attorney's fees. The attorney fee provision provided that in the event the plaintiff had to commence suit to collect, that the signators on the note would pay reasonable attorney's fees and costs. The note was not paid on June 8, 1972, by Design Specialties, Inc.
The record shows that Dr. Lutz loaned Design Specialties $30,000 in March 1971 and received a note in exchange. Dr. Lutz's daughter also made a loan to Design for $7,000 and received a similar promissory note. Dr. Lutz made a second loan to Design Specialties in the amount of $4,000 and received a second note. All three notes were similar in form and contained similar terms. Dr. Lutz testified that he surrendered the second note to Mr. Strickler, an officer of Design. Thereafter, no one has been able to locate the note. Mr. Strickler testified as to the execution of the note and his presence at the signing. Mr. Strickler and Dr. Lutz also testified to the contents of the note. Finally, Mr. Gatlin never disputed the existence of the note, but simply stated that he could not remember. Based on the above evidence, we find that there was substantial evidence to support the finding as to the existence and terms of the promissory note.
Mr. Gatlin next assigns error to the court's finding that he had given his personal guaranty on the note. Mr. Gatlin contends that he signed as a surety and not as a guarantor. Thus, this action should have been dismissed for Dr. Lutz's failure to sue the principle, Design.
RCW 62A.3-416(1) explains the meaning and significance of words of guaranty added to a signature. The section provides:
(1) "Payment guarantee" or equivalent words added to a signature mean that the signer engages that if the instrument is not paid when due he will pay it according to its tenor Without resort by the holder to any other party.
(Italics ours.) RCW 62A.3-416(3) states the rule of construction regarding words of guaranty. "(3) Words of guaranty which do not otherwise specify (,) guarantee payment." Thus, when there is ambiguity with respect to the nature of the undertaking, there is a presumption that the person signed as a guarantor and not as a surety.
The record confirms the finding that Gatlin signed the note in the following manner: "Personally guaranteed by Howard Gatlin." Mr. Strickler stated that during the negotiations, Mr. Gatlin:
. . . kept stressing to him (Dr. Lutz) that it was the only investment that Dr. Lutz would ever get involved in that would be 100 percent guaranteed, that he could not lose money and that he stood to make nothing but money. . . . It was all centered around the fact that he was going to guarantee the loan 100 percent.
These statements strongly indicate that Mr. Gatlin signed the note and intended, to personally guarantee the loan. The only rebuttal evidence which Mr. Gatlin offered to these statements was that he did not recall whether he had ever signed the note. We conclude there was sufficient evidence to show that Gatlin signed as a guarantor. There is nothing in the record to overcome the presumption that payment was guaranteed. RCW 62A.3-416(3).
An endorser who guarantees payment waives not only presentment, notice of dishonor and protest, but also all demand upon the maker or drawer. The liability of an endorser becomes indistinguishable from that of a co-maker. Comment 1, Uniform Commercial Code 62A.3-416. Thus, when the note remained unpaid, Dr. Lutz had the option of proceeding against the maker, Design, or the personal guarantor, Mr. Gatlin. Because of the nature of Mr. Gatlin's liability flowing from his signature, he could not complain when Dr. Lutz decided to proceed solely against him.
Next, Mr. Gatlin contends that he was discharged as a guarantor when Dr. Lutz surrendered the $4,000 note to Design. He argues that any material alteration of the terms of an original note will operate to discharge the party signing as a guarantor.
Generally, the liability of a surety is confined to his express undertaking. If a creditor contracts with a principal debtor to extend the time of payment without the consent of the surety, the surety is discharged. 5
On the other hand, a guarantor is not released if he consents to the extension of time. Lincoln v. Transamerica Investment Corp., 89 Wash.2d 571, 574, 573 P.2d 1316 (1978). In addition, principal shareholders who sign a note with a corporation intending to be liable only as a surety or guarantor are not accorded the same favorable treatment which the law affords a voluntary surety.
Where an extension of time is granted to the corporation for a consideration, the stockholder, although he did not consent to the...
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