Southwest Florida Production Credit Ass'n v. Schirow
| Decision Date | 24 September 1980 |
| Docket Number | No. 79-1400,79-1400 |
| Citation | 388 So.2d 338 |
| Parties | 30 UCC Rep.Serv. 268 SOUTHWEST FLORIDA PRODUCTION CREDIT ASSOCIATION, Appellant, v. Klaus SCHIROW and Marita J. Schirow, his wife et al., Appellees. |
| Court | Florida District Court of Appeals |
Peter J. Forman of Gustafson, Stephens, Ferris, Forman & Hall, P. A., Fort Lauderdale, for appellant.
Roger L. Brown of Bird, Carpenter & Brown, P. A., Fort Lauderdale, for appellees.
This is an appeal from a final judgment in favor of the defendants-appellees in a mortgage foreclosure proceeding brought by the plaintiff-appellant. At issue is whether the provisions of Section 673.606(1), Florida Statutes (1975) apply to a co-maker of a note. We hold that the statute does so apply and affirm the decision of the trial court.
On October 16, 1973, Southwest Florida Production Credit Association, appellant, loaned $134,000.00 to Klaus Schirow, his wife, Marita, C. H. Fawl and his wife, Valeria. The Fawls and Schirows formed a partnership for the purpose of raising cattle, and the loan proceeds were used for the purchase of livestock. As security for the loan, the Fawls executed a second mortgage on their ranch in DeSoto County and the Schirows executed a second mortgage on motel property located in Broward County. A mortgage was also given on the herd of cattle. Fawl assumed management of the business and cattle were purchased in his name only. Southwest subsequently granted extensions for repayment of the loan.
In August, 1974, the Fawls personally borrowed an additional $47,000.00 from Southwest. Thereafter, the Fawls refinanced a total personal loan of $159,600.00 and executed a third mortgage on their ranch in favor of Southwest as security for this loan. After encountering difficulty in repayment of their individual loan from Southwest, the Fawls, with the agreement of Southwest, sold their ranch for $148,945.00 and Southwest applied all of the proceeds in satisfaction of the Fawls' personal loan. Southwest agreed with the Fawls to substitute a second mortgage on a duplex apartment building owned by the Fawls as collateral for the Schirow-Fawls loan.
At the time of the sale of the ranch, $31,700.00 was outstanding on the joint Fawls-Schirow loan. Southwest did not notify the Schirows of the sale of the ranch or the substitution in collateral. Shortly thereafter, C. H. Fawls died insolvent, and bankruptcy proceedings were initiated by Mrs. Fawl. The substituted collateral became worthless. Southwest then brought suit to foreclose upon the Schirows' property.
In defense of the foreclosure action, the Schirows claimed that Southwest had discharged them by releasing the Fawls' ranch as collateral without their permission, thereby impairing their right of recourse against the Fawls. The trial court's judgment in favor of the Schirows was predicated on the following findings:
6. . . . To the extent the plaintiff attempted to apply all the proceeds to the second loan which was the inferior and subordinate mortgage lien, the plaintiff misapplied the proceeds from the sale of the collateral.
7. The plaintiff then released the second mortgage and substituted other collateral which is of no value as collateral. This release of collateral is an impairment of collateral as to the first indebtedness.
Southwest maintains that the trial court erred in holding that the defense of impairment of collateral was available to the Schirows. It alleges the defense is available only to sureties and to accommodation parties.
Section 673.606(1), Florida Statutes (1975), provided as follows:
(1) The holder discharges any party to the instrument to the extent that without such party's consent the holder
(b) 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. (emphasis added)
The provision in question is identical to Section 3-606(1) of the Uniform Commercial Code. The official comment to that Code provision characterizes the defenses contained therein as "suretyship" defenses: "the suretyship defense stated has been generally recognized as available to endorsers or accommodation parties." (emphasis added)
There are apparently no Florida cases determining whether "any party," as used in Section 673.606, includes the co-maker of a note or is...
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