Gersonde Equipment Co. v. Walters

Kavanagh, J.

On January 21, 1958, defendant George Walters purchased a motor truck from plaintiff Gersonde Equipment Company. Defendant executed and delivered to plaintiff a conditional sales note in the amount of $8,926. The terms of the note provided that title to the motor truck would remain in the seller until the purchaser performed a condition, namely, payment of the above sum in 24 monthly instalments of $371.95 each, with the first instalment due March 1, 1958. The note provided in the event of default as follows:

“I (Walters) further agree that if I make default in the payment of any one of said instalments, or in paying said taxes, or use said property for any illegal purpose, or if said property is levied upon, or if I attempt to sell or remove the same, or if at any time the payee shall deem itself insecure, then it may in either or any such event either (1) declare the entire sum remaining unpaid hereunder to be immediately due and payable, and elect to sue for the amount due, thereby vesting the absolute title to said property in me, or (2) take possession of said property wherever found and thereafter hold it absolutely free from all claims by me, and retain all payments made by me hereunder as and for reasonable rental for the use of said property, diminution in salable value thereof and liquidated damages.”

Defendant took possession of the motor truck on the date of sale.

Plaintiff discounted the note to the Benton Harbor State Bank. The indorsement to the bank was as follows:

“Pay to the order of Benton Harbor State Bank. For value received I hereby indorse the within note unconditionally and guarantee the payment of the same and of all instalments, renewals and extensions thereof and hereby assign and transfer to the owner or holder thereof all interest in the property thereon described.”

Subsequently defendant defaulted in his monthly payments. Under the terms of the indorsement plaintiff made 4 monthly payments to the bank on behalf of defendant. The 4 payments of $371.95 each totaled $1,487.80. Defendant reimbursed plaintiff to the extent of $615, leaving a balance of $872.80. On or about June 21, 1958, plaintiff, because of defendant’s continuing default in the monthly payments, repurchased the note from Benton Harbor State Bank. It then repossessed the motor truck on or about June 30,1958, and sold the truck at public sale, sustaining a loss.

Plaintiff filed a declaration in the circuit court for Berrien county containing 3 counts. The first and third counts have nothing to do with the appeal before this Court, and have been otherwise disposed of. Under count 2 of the declaration plaintiff seeks reimbursement for the balance of the 4 monthly payments which it made to the bank as indorser of the note on behalf of defendant. Defendant moved to dismiss count 2 of the declaration for the reason the defendant’s obligation to pay was, as a matter of law, canceled by the plaintiff’s repossession of the motor vehicle. The trial court granted the motion to dismiss and plaintiff appeals. It contends that where a conditional vendor negotiates a conditional sale note to a third party, becoming secondarily liable for the payments, and then makes payments on the note for the conditional vendee in default, the conditional vendor has a legal right to bring an action of assumpsit against the conditional vendee for reimbursement of the payments so made even after repossession of the subject matter of the conditional sale.

Plaintiff-appellant admits that by indorsing and guaranteeing payment of the note to the bank, it became secondarily liable on the note. Plaintiff also asserts the indorsement of the note to the bank, with the accompanying guarantee of payment, changed the legal relationship between the maker and the payee. It is plaintiff’s position that the indorser became a surety. One of the rights which a surety has against the principal is the right of reimbursement. Plaintiff, however, admits the instrument in question is a negotiable instrument. The payment of the monthly payments by plaintiff was the performance of the legal obligation created by it by indorsement to the bank. When it repurchased the note from the bank, it paid a lesser sum to the extent of the monthly payments which it had paid on behalf of defendant. Unquestionably plaintiff’s motive in making the monthly payments for defendant was to assist defendant so that he would keep the motor truck and complete payment of the note. To this extent it was beneficial to both plaintiff and defendant.

CL 1948, § 439.123 (Stat Ann 1959 Rev § 19.163), provides in part as follows:

“Where the instrument is paid by a party secondarily liable thereon it is not discharged; but the party so paying it is remitted to his former rights as regards all prior parties.”

The following similar statement, followed by numerous citations, is found in 11 ALR 449, 453:

“If the original creditor takes up the paper thus transferred, he is remitted to his original rights, and may bring his action upon the paper or upon the original consideration, at his election.”

This means plaintiff thereby terminated any rights it may have created by its agreement with the bank and is again in its original position as far as rights under the contract with the maker.

Plaintiff contends it has dual rights because of the different capacities in which it was connected with the note. It alleges that by electing to repossess the truck it exercised one of the remedies available to it as holder of the note according to the terms of the note. It argues the present suit was brought to enforce plaintiff’s other right, namely, its right of reimbursement which was acquired as a surety on the note. No such dual rights exist. One contract was entered into — a statutory retail instalment sale contract covering a motor vehicle,¹ a part of which was a provision how the payments were to be made. When the contract was entered into, the maker did so with an understanding that in the event he defaulted he could be sued for the unpaid balance or have the property repossessed in accordance with the terms of the contract. Plaintiff also entered into the contract with the same understanding. No authorization was given by the maker requesting the plaintiff to make the payments to the bank, and none can be implied. Plaintiff made them to protect itself. It is limited by its contract to the alternative remedies of suit for payment or repossession of the property.² It is likewise limited by statute, since the contract dicl not expressly provide for personal liability for any deficiency judgment after repossession.

If the payee were allowed to compel the maker to reimburse the payee for the defaulted payments, the breach which justified the taking of his property would be cured. This is the reason behind the alternate remedies. If the payee decides to sue for the payments, title passes to the purchaser and, having title and possession of the automobile, he is required to pay the sums owing under his contract. Plaintiff chose to repossess, and the trial court properly found that having made its election, plaintiff could not sue for the payments made to the bank.

An argument is made that plaintiff is a surety and that the law of suretyship, with its accompanying rules of reimbursement and restitution, should be applied to the instant case.

50 Am Jur, Suretyship, § 6, pp 906, 907, deals with suretyship as applicable to negotiable instruments, and reads in part as follows:

“The law of negotiable instruments, considered in a separate article, has been at least partially codified in the uniform negotiable instruments act, which is universally in force throughout the United States and is controlling in all matters comprehended by its terms. However, nowhere in the uniform negotiable instruments act is the term ‘surety’ mentioned. It is declared that the person ‘primarily’ liable on an instrument is the person who, by the terms of the instrument, is absolutely required to pay the same. All other parties are ‘secondarily’ liable. A surety is held to come squarely within the definition of a person whose liability is primary. This omission of the term ‘surety’ from the law has led to some conflict in the holdings of the courts in respect of its effect on the law of suretyship as applied to commercial paper. The majority of the courts hold that the uniform act supersedes the law as it stood prior thereto, and that the law of suretyship no longer applies to negotiable instruments.”

This statement is supported by numerous authorities from a number of States.

In 50 Am Jur, Suretyship, § 9, p 909, the rights and duties of an indorser and surety are distinguished as follows:

“The rights and duties of an indorser correspond in some respects to those of a surety. He has in some instances been referred to as a surety, and has been regarded as such where his indorsement was irregular or anomalous. He may, of course, by the terms of his contract expressly assume the liability of a surety. The contract of an indorser, however, differs in some important respects from that of a surety.

“As elsewhere stated, an indorser agrees to pay upon certain conditions. Unlike a surety, who is absolutely liable to pay if the principal does not, the indorser is only conditionally and secondarily liable, the extent of the conditional contract of indorsement being to pay on demand made on the maker, and notice of dishonor given to the indorser in case payment is not made by the maker. Hence, without due demand and notice at the maturity of a note, an indorser will be discharged, while a surety continues liable on his contract, although in some jurisdictions, by statute, notice to a surety The same as to an indorser’ is required. Also, in some cases it has been held that a surety may spur the creditor into activity by notice to pursue the principal debtor, on pain, for neglect, that the surety will be no longer bound; but an indorser cannot call on the holder of a protested note to sue the drawer, and if he refuses, thereby relieve himself, for if he wishes instant recourse to the principal, it is his duty to pay the note and sue for himself.”

The order of the trial court granting the motion to dismiss is affirmed. Defendant not having filed any appendix or brief, no costs are allowed in this Court.

Dethmers, C. J., and Carr, Kelly, Black, and Edwards, JJ., concurred with Kavanagh, J.

1 PA 1939, No 305, §1 (CL 1948, § 566.301 [Stat Ann 1959 Rev § 19.415(1)]), provides in part as follows:

“See. i. * * * (a) The term ‘retail instalment sale’ means and includes every retail contract to sell a motor vehicle and every retail sale of a motor vehicle to any person (1) in which the eash price of the motor vehicle may be paid in instalments over a period of time, and (2) in which the seller has taken or retained a security interest in the motor vehicle thereby contracted to be sold. * * *

“(g) The term ‘retail instalment contract’ means any written instrument which is executed in connection with any retail instalment sale and includes conditional sales eontraets, pureliase-money chattel mortgages and bailment leases retaining a security interest in the seller.”

2 PA 1939, No 305, § 8 (CL 1948, § 566.308 [Stat Ann 1959 Rev §19.415(8)]), provides as follows:

“See. 8. If the proceeds of the resale are not sufficient to defray the expenses thereof and also the expenses of retaking, keeping and storing the motor vehicle and the balance owing under the contract, after crediting the same with that portion of the finance charge above provided, the seller may recover the deficiency from ’ the buyer or from anyone who has succeeded to or assumed the liability of the buyer: Provided, That such instalment sale contract expressly provides for personal liability for such deficiency.” (Emphasis supplied.)