McClellan Mortg. Co. v. Storey, 1

• Decision Date: 16 July 1985
• Docket Number: CA-CIV,No. 1,1
• Citation: 704 P.2d 826,146 Ariz. 185
• Parties: McCLELLAN MORTGAGE COMPANY, an Arizona corporation, Plaintiff-Appellant, v. Stephen D. STOREY and Jackie Storey, husband and wife, Defendants-Appellees. 7529.
• Court: Arizona Court of Appeals

Page 826

704 P.2d 826

146 Ariz. 185

McCLELLAN MORTGAGE COMPANY, an Arizona corporation, Plaintiff-Appellant, v. Stephen D. STOREY and Jackie Storey, husband and wife, Defendants-Appellees.

No. 1 CA-CIV 7529.

Court of Appeals of Arizona Division 1, Department C.

July 16, 1985.

Law Offices of Charles Anthony Shaw by Daniel F. Furlong, Prescott, for plaintiff-appellant.

Mark N. Goodman, Prescott, for defendants-appellees.

OPINION

CORCORAN, Judge

Appellees Stephen and Jackie Storey (Storeys) were in the business of selling Kirby vacuum cleaners to consumers. Some of the sales were made through the use of retail sales contracts whereby the consumers would make monthly payments toward the purchase of vacuum cleaners. On November 20, 1980, the Storeys entered into a dealer financing agreement with the appellant McClellan Mortgage Company (McClellan) whereby McClellan could, at its discretion, purchase retail sales contracts from the Storeys, discounting the amount financed by 10%. The agreement provided for McClellan to withhold 40% of the amount financed as a reserve account for possible losses. The agreement further provided that McClellan would have recourse against the Storeys as follows:

Dealer [Storeys] unconditionally guarantees the payment of each contract purchased by Lender [McClellan] in accordance with its terms and conditions. Should any contract purchased by Lender become ninety (90) days past due, Lender shall notify Dealer in writing. Fifteen days after such notification, unless sooner paid in cash, or by sale to Lender of another contract(s) of equal or greater amount which is (are) current in payment(s) satisfactory to Lender, then Lender shall charge back the balance of the past due contract to the Dealer reserve account and reassign the past due contract back to Dealer.

On January 20, 1983, McClellan filed suit against the Storeys, alleging that the Storeys had failed to pay to McClellan past due and delinquent accounts totaling $18,852.72. McClellan alleged that it had reassigned to the Storeys past due and delinquent accounts to the extent of the amount remaining in the dealer reserve account and that the $18,852.72 remaining due to it was over and above what had been taken from that account. The Storeys counterclaimed, alleging that McClellan owed them certain sums due under the contract.

On April 19, 1983, the Storeys filed a motion for partial summary judgment, seeking summary judgment as to McClellan's claim against them. The Storeys argued that they had been discharged from all liability to McClellan when the latter failed to sue the consumers who had entered the retail sales contracts upon their request that it do so. The Storeys maintained that their contract with McClellan made them a surety or guarantor of the consumer contracts, and therefore they were entitled to the defense provided in A.R.S. § 12-1641 et seq. A.R.S. § 12-1641 provides:

Any person bound as surety upon a contract for payment of money or performance of an act, when the right of action has accrued, may require, by notice in writing, the creditor or obligee forthwith to bring an action upon the contract. If the creditor or obligee, not being under legal disability, fails to bring the action within sixty days after receiving the notice, and prosecute it to judgment and execution, the surety giving the notice shall be discharged from all liability thereon.

A.R.S. § 12-1646 further provides:

The remedy provided in this article for sureties extends to endorsers, guarantors, drawers of bills which have been accepted, and every other suretyship, whether created by express contract or operation of law.

(Emphasis added.) The Storeys did in fact make demand on McClellan that it sue the consumers on the retail sales contracts to obtain payment and McClellan refused to do so. The trial court found that A.R.S. § 12-1641 provided the Storeys with a defense and therefore granted summary judgment for the Storeys on McClellan's claim against them. McClellan appealed after final judgment was entered pursuant to rule 54(b), Arizona Rules of Civil Procedure.

The question on appeal is whether the trial court erred in finding that the Storeys were entitled to the defense given in A.R.S. § 12-1641. If the Storeys were not entitled to the defense, then the trial court erred in entering summary judgment for the Storeys on McClellan's claim.

We first dispose of McClellan's argument that even if the Storeys are in fact a "guarantor," A.R.S. § 12-1641 does not apply. McClellan argues that even though § 12-1646 specifically states that the remedy provided in this article extends to guarantors, the language in § 12-1646 providing that the remedy also extends to "every other suretyship" indicates that the statute applies only to those guarantors who are also sureties. We do not find this to be a reasonable interpretation of the statute. Under Arizona law, contracts of guaranty are distinguished from contracts of surety. See, e.g., Van Marel v. Watson, 28 Ariz. 32, 38, 235 P. 144, 146 (1925). In Security Ins. Co. v. Johns-Manville Sales Corp., 8 Ariz.App. 18, 21, 442 P.2d 555, 558 (1968), we pointed out this distinction in quoting from 24 Am.Jur. § 11 (1939), page 879:

The surety is a party to an original obligation which binds him as well as his principal, whereas a guarantor is not a party to such an undertaking, the contract by which he is bound being collateral to a primary or original obligation. This is the vital difference between the two contracts.

Therefore, a "guarantor" would never be a "surety" under the normal meaning of these terms. We find it clear that the language "and every other suretyship" is used in the statute merely to show that the statute applies to all types of relationships in which one person agrees to answer for the debt of another, not just those specifically listed in the statute.

We find considerably more merit, however, to McClellan's argument that this case does not involve "surety" or "guaranty." The mere fact that the agreement states that the Storeys "guarantee" payment of each contract assigned to McClellan does not mean that there is a "guaranty" agreement. The court looks to the obligation assumed in a particular case rather than to the distribution of labels. Kintner v. Wolfe, 102 Ariz. 164, 426 P.2d 798 (1967); Shipp v. Ericson, 80 Ariz. 108, 293 P.2d 443 (1955); Security Ins. Co. v. Johns-Manville Sales Corp., supra. It is clear that if this had been the usual sort of case in which guaranty arises, the original contract creating the debt would have been between the consumers and McClellan. The Storeys then would have executed a separate agreement with McClellan guaranteeing payment of the debt incurred by the consumers to McClellan. See Howard v. Associated Grocers, 123 Ariz. 593, 595, 601...