National Bank of Detroit v. Alford, Docket No. 21616

• Decision Date: 14 November 1975
• Docket Number: Docket No. 21616
• Citation: 65 Mich.App. 634,19 UCC Rep.Serv. 297,237 N.W.2d 592
• Parties: NATIONAL BANK OF DETROIT, a National Banking Association, Plaintiff-Appellant, v. Dr. E. S. ALFORD et al., Defendants-Appellees. 65 Mich.App. 634, 237 N.W.2d 592, 19 UCC Rep.Serv. 297
• Court: Court of Appeal of Michigan — District of US

Page 592

237 N.W.2d 592

NATIONAL BANK OF DETROIT, a National Banking Association, Plaintiff-Appellant, v. Dr. E. S. ALFORD et al., Defendants-Appellees.

Docket No. 21616.

65 Mich.App. 634, 237 N.W.2d 592, 19 UCC Rep.Serv. 297

Court of Appeals of Michigan.

Nov. 14, 1975.

Released for Publication Jan. 30, 1976.

Rehearing Denied Jan. 13, 1976.

[65 MICHAPP 635] Martin B. McGaffey, Detroit, for plaintiff-appellant.

Cyril Abramson, Troy, for Dr. Alford.

John F. Gilhool, Southgate, for defendants-appellees.

Before V. J. BRENNAN, P.J., and BASHARA and MAHER, JJ.

PER CURIAM.

On April 22, 1974, a judgment of no cause of action was entered against plaintiff and on August 21, 1974, plaintiff's motion for new trial was denied. It is from that denial plaintiff appeals.

Plaintiff bank loaned $50,000 to Voyager Detroit, Inc., to finance an airplane. In order to secure the loan, Voyager Detroit executed a chattel[65 MICHAPP 636] mortgage and promissory note in favor of plaintiff. Defendants executed a guaranty to plaintiff.

Plaintiff first filed for recordation of the chattel mortgage with the Federal Aviation Authority (FAA) in December of 1966 but it was not actually recorded until January of 1969. In the meantime, California Airmotive Corp. (CAC) filed and recorded a writ of attachment against the aircraft with the FAA in August of 1968 and filed suit in Wayne County against Voyager Detroit. On June 30, 1969, CAC obtained a default judgment against Voyager Detroit in the amount of $25,511.75. Pursuant to the judgment, a writ of execution issued and the plane was sold on August 19, 1969 to CAC, the highest bidder, for $10,000.

On September 4, 1969, plaintiff filed suit against CAC and a restraining order issued, halting finalization of the aircraft's sale. However, plaintiff allowed the suit to go down for lack of progress and the plane was removed from the state.

On January 18, 1971, plaintiff instituted the present action against defendants, seeking the outstanding balance due on the loan to Voyager Detroit, $9,379.76. The trial court found M.C.L.A. § 440.3606; M.S.A. § 19.3606 to apply here and refused to hold defendants liable because of plaintiff's own negligence.

M.C.L.A. § 440.3606(1)(b); M.S.A. § 19.3606(1)(b) provides that:

'The holder discharges any party to the instrument to the extent that without such party's consent the holder * * * unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse.'

Defendants, in this case, are not '(parties) to the instrument' within the meaning of M.C.L.A. [65 MICHAPP 637] § 440.3606; M.S.A. § 19.3606. "Instrument' means a negotiable instrument.' M.C.L.A. § 440.3102(1)(e); M.S.A. § 19.3102(1)(e). The guaranty, signed by defendants, is not a negotiable instrument and the promissory note, in the present case, does not incorporate or even make reference to the guaranty. Although M.C.L.A. § 440.3606; M.S.A. § 19.3606 does not apply here, M.C.L.A. § 440.9207; M.S.A. § 19.9207 does, and the result is the same. See M.C.L.A. § 440.1102; M.S.A. § 19.1102.

Defendants, in this case, guaranteed 'the prompt payment at maturity or any accelerated or extended date of all moneys which are now and/or shall at any time be owing to said bank by said Borrower'. The trial judge concluded that the collateral was impaired due to plaintiff's inaction and that plaintiff 'should not be allowed to hold the guarantors liable because of their (bank's) own negligence'. Implicit in the trial court's holding is that a creditor may not spoil a guarantor's right of subrogation against the principal debtor, even if such loss is occasioned by a creditor's inaction, as opposed to affirmative conduct, and that any injury to the collateral, occasioned by such inaction, should be compensated by way of discharge of liability to the creditor to the extent of the loss. The only problem is that the trial judge relied on M.C.L.A. § 440.3606; M.S.A. § 19.3606 to establish the creditor's duty to take affirmative action to preserve the security in this case and we have found that statute not to apply here. Therefore, is there a duty, absent M.C.L.A. § 440.3606; M.S.A. § 19.3606, on the part of a creditor, to promptly record a chattel mortgage, pursuant to which the promissory note to the principal debtor was issued?

M.C.L.A. § 440.9207(1); M.S.A. § 19.9207(1) provides that:

[65 MICHAPP 638] 'A secured party must use...