Union Nat. Bank in Minot v. Schimke

• Decision Date: 13 August 1973
• Docket Number: No. 8878,8878
• Citation: 210 N.W.2d 176
• Parties: UNION NATIONAL BANK IN MINOT, Plaintiff and Appellant, v. Fern SCHIMKE, Defendant and Appellee. Civil
• Court: North Dakota Supreme Court

Page 176

210 N.W.2d 176

UNION NATIONAL BANK IN MINOT, Plaintiff and Appellant, v. Fern SCHIMKE, Defendant and Appellee.

Civil No. 8878.

Supreme Court of North Dakota.

Aug. 13, 1973.

Syllabus by the Court

1. A guaranty contract signed by the guarantor without any previous request communicated to him by the guarantee, and in the absence of the guarantee, without any consideration moving between them, is in legal effect an offer or proposal on the part of the guarnator, needing an acceptance by the guarantee to complete the contract.

2. Mere forbearance or omission on the part of the guarantee to exercise his legal rights without any agreement to that effect is not a legally binding forbearance that may constitute consideration, because the guarantee may at any moment at his own pleasure proceed to assert his legal rights.

3. When a guaranty is entered into at the same time as the original obligation or at the same time as the acceptance of the original obligation by the guarantee and forms, with that obligation, a part of the consideration to the guarantee, no other consideration is necessary. In all other cases there must be a consideration distinct from that of the original obligation.

4. It is essential that the party invoking the doctrine of estoppel should have been misled by the acts or conduct of the party against whom the estoppel is claimed, that he changed his position in reliance thereon, and was justified in so doing, and that he was prejudiced thereby, or that a benefit resulted to the party against whom the estoppel is claimed.

5. For the reasons stated in the opinion, the guaranty in this case is not legally binding upon its signer and the judgment of the district court dismissing the complaint in this action is affirmed.

Palda, Anderson, Tossett, Palda, Thomas & Berning, Minot, for plaintiff and appellant.

Bosard, McCutcheon, Kerian, Schmidt & Holum, Minot, for defendant and appellee.

PAULSON, Judge.

Union National Bank in Minot (hereinafter Bank) is appealing a judgment of the District Court of Ward County that dismissed its action against Fern Schimke on a guaranty contract.

The pertinent facts are that Norbert Schimke, deceased husband of Fern Schimke, signed two promissory notes dated September 18, 1970, and March 10, 1971, in favor of the Bank. The complaint in the action prayed for judgment in the amount of $37,683.40, which was the amount due on the notes at the time of the preparation of the complaint.

On May 28, 1971, an officer of the Bank caused a guaranty contract to be prepared, and he gave this document to Norbert Schimke to be signed by his wife, Fern Schimke, and then to be returned to the Bank. This was done. The custom of the Schimkes was that Norbert Schimke handled business matters and Fern Schimke managed the household, so that when Norbert wanted Fern Schimke to sign any papers, she signed them without any discussion as to their identity, the provisions thereof, or their legal effect. Such was the case with the guaranty contract involved in this case.

No one associated with the Bank ever conversed with Fern Schimke about signing the guaranty contract or why the Bank desired a guaranty contract at all.

After Norbert Schimke's death on July 5, 1971, the Bank filed a creditor's claim against Norbert Schimke's estate. Such claim was not paid, as it appeared that the liabilities exceeded the assets in his estate.

The Bank brought action against Fern Schimke on the basis of the guaranty on July 28, 1972.

The district court found that the Bank had not paid Fern Schimke the one dollar consideration recited in the guarnaty contract and had not given or forborne anything of value as consideration for the execution of the guaranty contract. As a result the district court dismissed the Bank's action on the basis of lack of consideration.

The Bank alleges three specifications of error as grounds for its appeal:

1. That the trial court erred in dismissing the action on the basis of lack of consideration.

2. That the trial court erred in finding that the Bank did not change its position in reliance upon the guaranty.

3. That the trial court erred in not declaring Fern Schimke estopped from using the defense of lack of consideration.

The Bank also alleges that the evidence was insufficient to uphold the finding of the trial court that the Bank did not rely on the guaranty, because an officer of the Bank testified, which testimony was not refuted, that if Ferm Schimke had not signed the guaranty contract the credit of her husband, Norbert Schimke, would have been called and declared due and owing under an acceleration clause in the promissory notes.

The first two specifications of error, as well as the alleged evidentiary insufficiency will be treated together, in determining the issue of whether the Bank's claim was properly dismissed for lack of consideration.

In 38 Am.Jur.2d, Guaranty § 37, page 1035, we find the following language:

'A writing which purports to be a contract of guaranty, but which has been signed without any previous request on the part of the alleged obligee and not in the latter's presence, for no consideration except future advances to be made to a third person, is in legal effect a mere offer or proposal which, lacking acceptance, does not bind the writer as guarantor.'

That language is paraphrased from an opinion by the United States Supreme Court in Davis Sewing Machine Company v. Richards, 115 U.S. 524, 6 S.Ct. 173, 29 L.Ed. 480 (1885). In Richards, 115 U.S. at 527, 6 S.Ct. at 175, the United States Supreme Court summarized rules found in Davis v. Wells, 104 U.S. 159, 26 L.Ed. 686 (1881), when it said:

'But if the guaranty is signed by the guarantor without any previous request of the other party, and in his absence, for no consideration moving between them except future advances to be made to the principal debtor, the guaranty is in legal effect an offer or proposal on the part of the guarantor, needing an acceptance by the other party to complete the contract.'

The rule set out by the United States Supreme Court in the previously cited cases is also codified in North Dakota. Section 22--01--06, N.D.C.C., provides:

'A mere offer to guaranty is not binding until notice of its acceptance is communicated by the guarantee to the guarantor. An absolute guaranty is binding upon the guarantor without a notice of acceptance.'

This court has interpreted § 22--01--06, N.D.C.C., in accordance with the United States Supreme Court decision in Davis Sewing Machine Company v. Richards, Supra; Rogers Lumber Co. v. Clark, 52 N.D. 607, 204 N.W. 184 (1925); Standard Sewing Machine Co. v. Church, 11 N.D. 420, 92 N.W. 805 (1902).

Our decision in Church is applicable to the instant case. In Church, supra, 92 N.W. at 806, it was stated that the guaranty

". . . was obtained by the J. N. Edmunds (principal debtor) therein named from the sureties, and by him afterwards delivered to the plaintiff (guarantee); that neither the plaintiff nor any of its agents requested the defendants to sign the instrument, nor were they present when the same was signed and delivered to the said Edmunds; and neither of the sureties were present when it was delivered to the plaintiff; and that the sureties were never notified by the plaintiff of its acceptance and of the dependence of the plaintiff upon the undertaking."

The court held, in accordance with Davis Sewing Machine Company v. Richards, Supra, that no binding guaranty contract had been formed.

The facts in the case at bar are quite similar to those in Church. The Bank did not request Fern Schimke to sign the guaranty; no one from the Bank was present when the guaranty was signed; Fern Schimke was not present when the guaranty instrument was delivered to the Bank; the Bank never communicated an acceptance of the guaranty offer to Fern Schimke. The end result of this purported guaranty contract is that the alleged guarantor never met with the guarantee so that an agreement could be consummated. Therefore, only an unaccepted offer of guaranty was made and Fern Schimke is not bound thereby.

In Frishman v. Canadian Imperial Bank of Commerce, 132 U.S.App.D.C. 169, 407 F.2d 299 (1968), the Bank sued Frishman on a guaranty he had signed after a loan had been made by the Bank to the corporation of which he was a shareholder. Frishman defended the suit on the grounds that there had been no consideration given for his guaranty and he was thus not bound by it. There had been no negotiations between the Bank and Frishman and the bank had made no promise to forbear calling the loan in return for Frishman's guaranty. The Bank claimed its forbearance could be presumed as consideration due to its not calling the loan. The Court of Appeals did not agree with the bank when it said, in Frishman, supra, 407 F.2d at 301:

'It is said that forbearance can be presumed. But we think it cannot be presumed from mere failure...