MILLER v WALTER

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No. 12702 I N T E SUPREME C U T O THE STATE O M N A A H OR F F OTN 1974 EVAN M. MILLER, P l a i n t i f f and A p p e l l a n t , F PETE W L E and BANK O COLUMBIA FALLS, ATR a banking c o r p o r a t i o n , Defendants and Rzspondents. Appeal from: D i s t r i c t Court of t h e Eleventh J u d i c i a l D i s t r i c t , Honorable Robert C . Sykes, Judge p r e s i d i n g . Counsel of Record: For A p p e l l a n t : G r a y b i l l , G r a y b i l l , Ostrem and Warner, Great F a l l s , Montana Leo G r a y b i l l , Jr. argued, Great F a l l s , Montana For Respondents: White, Vadala, S p r i n g e r and A s t l e , K a l i s p e l l , Montana David L. A s t l e argued, K a l i s p e l l , Montana P a t r i c k M. S p r i n g e r appeared, K a l i s p e l l , Montana Submitted: Decided : September 1 2 , 1974 WT 8 1 1974 Mr. J u s t i c e Wesley C a s t l e s d e l i v e r e d t h e O p i n i o n o f t h e C o u r t . T h i s i s a n a p p e a l from a judgment o f t h e d i s t r i c t c o u r t o f t h e e l e v e n t h j u d i c i a l d i s t r i c t , i n t h e County o f F l a t h e a d , r e n d e r e d f o r t h e d e f e n d a n t Bank o f Columbia F a l l s a s a g a i n s t t h e p l a i n t i f f Evan M. M i l l e r . A d e f a u l t judgment r e n d e r e d f o r p l a i n - t i f f , Evan M. M i l l e r , a g a i n s t t h e d e f e n d a n t , P e t e W a l t e r , h a s n o t been a p p e a l e d . I n J u l y 1 9 7 2 , A 1 S i h r e r owned a 1965 Mack l o g g i n g t r u c k which w a s mortgaged t o t h e d e f e n d a n t Bank o f Columbia F a l l s ( h e r e i n a f t e r r e f e r r e d t o a s t h e Bank) f o r t h e sum o f $5,000. 1 8 , 1972, S i h r e r s o l d t h e t r u c k t o d e f e n d a n t W a l t e r . On J u l y Also on J u l y 1 8 , 1972, W a l t e r g a v e a s e c u r i t y i n t e r e s t i n t h e t r u c k t o t h e Bank f o r a l o a n o f $6,000. $5,000 o f t h i s l o a n went d i r e c t l y t o pay o f f t h e Bank's loan t o S i h r e r . The o t h e r $1,000 was d e p o s i t e d i n t o W a l t e r ' s c h e c k i n g a c c o u n t w i t h t h e Bank. T h i s $1,000 a r o s e o u t o f t h e d i s c u s s i o n W a l t e r had w i t h t h e Bank t o t h e e f f e c t t h a t t h e t r u c k needed a new e n g i n e and was f o r t h a t p u r p o s e . On t h a t d a t e , t h e Bank w r o t e t h e f o l l o w i n g l e t t e r : " b a n k o f COLUMBIA FALLS "P. 0. BOX 280 / TELEPHONE (406) 892-3281 / COLUMBIA FALLS, MONTANA 59912 " O A D AUSTIN, Executive Vice President HWR "July 18, 1972 "Mr. Pete Wal t e r "Route 4 "Kal ispel 1 , Montana 59901 "Dear Pete: "This i s t o advise you t h a t the Bank of Columbia F a l l s has comnitted f o r a loan of $1,000 f o r t h e purchase of the Cummings engine t o be used a s a replacement engine i n your truck. I t i s understood t h a t t h i s will be put with t h e $1,000 t h a t you have coming from your accounts receivable f o r a t o t a l of $2,000 t o be used i n the purchase of this item. " I t i s our recommendation t h a t a portion of these funds be held back f o r a c e r t a i n number of days t o give yourself a chance t o i n s t a l l the motor f o r a t r i a l period. On t h i s basis, we a r e w i l l i n g t o guarantee these funds t o whomever you purchase t h i s engine from s u b j e c t t o t h e above c o n d i t i o n s . "Very t r u l y yours, " I s / Howard A u s t i n "Howard A u s t i n "Exec. V i c e P r e s i d e n t The d i s t r i c t c o u r t made t h e f o l l o w i n g c o n c l u s i o n of l a w : "5. That it was n o t t h e i n t e n t i o n of t h e d e f e n d a n t Bank of Columbia F a l l s t h a t e x h i b i t "A" be a l e t t e r of c r e d i t o r g u a r a n t e e b u t a means by which t h e p u r c h a s e of s a i d e n g i n e c o u l d be accomplished." Although W a l t e r had p r e v i o u s l y l o c a t e d a n e n g i n e i n M i l l e r ' s shop i n Havre, A u s t i n t e s t i f i e d t h a t he d i d n o t r e c a l l whether t h e r e had been any d i s c u s s i o n between h i m s e l f and W a l t e r a s t o a p a r t i c u l a r e n g i n e t o be purchased w i t h t h e l o a n . On J u l y 20, 1972, Walter went t o Havre and purchased t h e e n g i n e f o r $2,000 and a s t a r t e r f o r $100. M i l l e r t e s t i f i e d t h a t , on t h e s t r e n g t h of t h e l e t t e r , which he r e a d , he l e t W a l t e r t a k e t h e e n g i n e and t h e s t a r t e r , Walter p a y i n g o n l y $1,000 by h i s p e r s o n a l check a t that time. M i l l e r t e s t i f i e d t h a t h e would n o t have l e t Walter t a k e t h e e n g i n e and s t a r t e r w i t h o u t p a y i n g t h e f u l l p r i c e i f it had n o t been f o r t h e l e t t e r . M i l l e r then attached t h e letter t o t h e sales s l i p which h e r e t a i n e d . Walter l a t e r i n s t a l l e d t h e e n g i n e i n t h e t r u c k . On September 2 1 , 1972, s h o r t l y a f t e r i n s t a l l a t i o n , t h e Bank r e p o s s e s s e d t h e t r u c k f o r nonpayment by Walter o f h i s o b l i g a t i o n t o t h e Bank. Sometime p r i o r t o September 27, 1972, b u t a f t e r t h e Bank r e p o s s e s s e d t h e t r u c k , M i l l e r c o n t a c t e d Walter a b o u t payment of t h e b a l a n c e due on t h e e n g i n e and l e a r n e d of t h e B a n k ' s r e p o s s e s s i o n . t h e n c o n t a c t e d t h e Bank a b o u t t h e m a t t e r . Miller On December 2 9 , 1972, t h e Bank s o l d t h e t r u c k t o s a t i s f y i t s s e c u r i t y i n t e r e s t . M i l l e r brought t h i s a c t i o n i n t h e d i s t r i c t c o u r t t o recover damages f o r nonpayment of t h e $1,000 due on t h e e n g i n e and t h e $100 due on t h e s t a r t e r . A d e f a u l t judgment was e n t e r e d a g a i n s t W a l t e r f o r t h e sum of $1,100. Walter i s bankrupt. The c a s e was h e a r d by t h e c o u r t w i t h o u t a j u r y and judgment w a s r e n d e r e d f o r t h e Bank. M i l l e r f i l e d a motion t o amend judgment t o s u b s t i t u t e p l a i n t i f f ' s proposed f i n d i n g s of f a c t and c o n c l u s i o n s of l a w . The c o u r t by o r d e r d a t e d December 27, 1973, d e n i e d M i l l e r ' s motion. From t h e Judgment and o r d e r Miller a p p e a l s . The i s s u e s r a i s e d h e r e i n a r e a s f o l l o w s : 1. Whether t h e Bank's l e t t e r c o n s t i t u t e s a g u a r a n t y of t h e p u r c h a s e p r i c e of t h e e n g i n e purchased by Walter from M i l l e r . 2. I f t h e l e t t e r i s a g u a r a n t y , whether it i s b i n d i n g a g a i n s t t h e Bank i n l i g h t of t h e f a c t t h a t M i l l e r d i d n o t communicate n o t i c e o f a c c e p t a n c e of t h e a l l e g e d g u a r a n t y t o Bank. 3. Whether Bank i s r e s p o n s i b l e f o r payment of t h e pur- c h a s e p r i c e of t h e e n g i n e merely b e c a u s e i t h e l d a s e c u r i t y i n terest i n t h e truck. From a r e a d i n g of t h e l e t t e r t h a t i s t h e s u b j e c t of t h i s d i s p u t e and t h e f a c t s above enumerated, t h i s Court h o l d s a s a m a t t e r of law t h a t t h e l e t t e r i s a g u a r a n t y . 1947, d e f i n e s " g u a r a n t y " t o be S e c t i o n 30-101, R.C.M. " * * * a promise t o answer f o r t h e d e b t , d e f a u l t , o r m i s c a r r i a g e of a n o t h e r p e r s o n . " i f i c a l l y u s e s t h e word " g u a r a n t e e " . The Bank spec- I n addition, t h e last sentence of t h e l e t t e r i s r e n d e r e d a b s o l u t e l y m e a n i n g l e s s i f n o t c o n s t r u e d a s a c o l l a t e r a l promise t o a n o t h e r : The Bank had a l r e a d y s t a t e d i n t h e f i r s t p a r a g r a p h t h a t t h e y were committed t o t h e l o a n t o Walter. The promise was t o answer f o r t h e d e b t of " a n o t h e r " , W a l t e r , i n t h a t it was a g u a r a n t e e " t o whomever you p u r c h a s e t h i s e n g i n e from * * *." The Bank's c o n t e n t i o n t h a t t h e r e c o u l d be no g u a r a n t y bec a u s e t h e Bank d i d n o t i n t e n d t h e l e t t e r t o be a g u a r a n t y and t h u s t h e r e w a s no meeting of t h e minds i s w i t h o u t m e r i t . The mutual a s s e n t e s s e n t i a l t o t h e f o r m a t i o n of a c o n t r a c t , i n t h i s c a s e a c o n t r a c t of g u a r a n t y , must be g a t h e r e d from t h e outward o b j e c t i v e m a n i f e s t a t i o n s of t h e p a r t i e s and n o t by t h e s u b j e c t i v e u n d i s c l o s e d i n t e n t o f one of t h e p a r t i e s . Montana-Dakota Power Co. v. Johnson, 95 Mont. 1 6 , 2 2 , 23 P.2d 956. Farm Bureau Mutual I n s . Co. v . Smith, 259 F.Supp. (D. M o n t . ) , a f f l d 377 F.2d 918 ( 9 t h C i r . ) ; ~yoming 870, 873 W i l l i s t o n on C o n t r a c t s , Vol. 1, s e c t i o n 98 ( r e v . e d . 1936) p. 314. The Bank n e x t c o n t e n d s t h a t even though t h e l e t t e r i s a g u a r a n t y , n o t i c e of a c c e p t a n c e of t h e g u a r a n t y was n o t g i v e n t o t h e Bank a s r e q u i r e d by s e c t i o n 30-106, R.C.M. 1947. It reads: "A mere o f f e r t o g u a r a n t y i s n o t b i n d i n g u n t i l n o t i c e of i t s a c c e p t a n c e i s communicated by t h e guarantee t o t h e guarantor; but an absolute g u a r a n t y i s b i n d i n g upon t h e g u a r a n t o r w i t h o u t n o t i c e of a c c e p t a n c e . " Assuming f o r t h e p u r p o s e of t h i s argument t h a t t h e l e t t e r was n o t an a b s o l u t e g u a r a n t y b u t was m e r e l y a n o f f e r t o g u a r a n t y , we h o l d t h a t t h e n o t i c e of M i l l e r ' s a c c e p t a n c e was communicated t o t h e Bank a t t h e v e r y l a t e s t , s h o r t l y a f t e r t h e Bank's r e p o s s e s s i o n of t h e t r u c k and t h a t s u c h n o t i c e s a t i s f i e s t h e r e q u i r e m e n t s of t h e s t a t u t e . I n s u p p o r t of o u r h o l d i n g , w e c i t e from 1 Corbin on Cont r a c t s , S e c t i o n 68: "Any a t t e m p t t o r e v i e w and c r i t i c i z e t h e innumera b l e c a s e s i n t h e f i e l d of s u r e t y s h i p and g u a r a n t y must be l e f t t o monographic t r e a t i s e s on t h a t s p e c i a l t o p i c . The c o n f u s i o n and c o n f l i c t i n t h a t f i e l d seem t o be due i n l a r g e p a r t t o a s i m i l a r confusion i n t h e general d o c t r i n e s applicable t o a l l agreements. " I t i s beyond q u e s t i o n t h a t i n many t h o u s a n d s of c a s e s a n o f f e r t o become g u a r a n t o r f o r a n o t h e r h a s been made i n s u c h t e r m s a s t o i n d u c e t h e o f f e r e e t o advance money, goods, o r s e r v i c e s on c r e d i t w i t h o u t f i r s t s e n d i n g any n o t i c e of a c c e p t a n c e t o t h e o f f e r o r . L a t e r , when demand i s made f o r h i m t o pay t h e d e b t of a n o t h e r i n a c c o r d a n c e w i t h h i s promise, t h e g u a r a n t o r c o m p l a i n s o f t h i s l a c k of n o t i c e and a s s e r t s t h a t h i s o f f e r w a s n o t a c c e p t e d a s t h e law r e q u i r e s . "With r e s p e c t t o t h i s , t h e r e i s n o t h i n g p e c u l i a r t o t h e r e l a t i o n of s u r e t y s h i p t h a t r e q u i r e s t h e a p p l i c a t i o n of r u l e s d i f f e r e n t from t h o s e a p p l i c a b l e i n o t h e r c o n t r a c t s . One who o f f e r s t o be s u r e t y o r guarantor f o r another can p r e s c r i b e o r s u g g e s t t h e mode of a c c e p t a n c e , j u s t a s i n o t h e r c a s e s . H e c a n p r e s c r i b e t h e g i v i n g of n o t i c e , by m a i l o r o t h e r w i s e , i f he l i k e s . I n v e r y numerous c a s e s , however, he makes no such suggest i o n ; and i f t h e o f f e r e e a c t s a s r e q u e s t e d , t h e o f f e r s h o u l d be h e l d t o be a c c e p t e d . " I n a w e l l known c a s e [Bishop v . E a t o n , 1 6 1 Mass. 496, 37 N.E. 6651, Frank Eaton w r o t e from Nova S c o t i a t o Bishop i n I l l i n o i s : ' I f Harry n e e d s more money, l e t him have i t , o r a s s i s t him t o g e t i t , and I w i l l s e e t h a t i t i s p a i d . ' In reliance on t h i s and a t H a r r y ' s r e q u e s t , Bishop i n d o r s e d H a r r y ' s n o t e t o S t a r k . T h i s a c t i o n by Bishop w a s an o p e r a t i v e a c c e p t a n c e t h a t i n s t a n t l y bound Frank Eaton a s s u r e t y . A t e l e g r a p h i c r e v o c a t i o n would have been t o o l a t e , even though Bishop had n o t y e t w r i t t e n o r mailed any n o t i c e t o Frank t h a t he had complied w i t h t h e l a t t e r ' s r e q u e s t . A u n i l a t e r a l c o n t r a c t had been consummated by a n o f f e r e d promise r e q u e s t i n g a c t i o n , f o l l o w e d by t h e o f f e r e e ' s a c t i o n a s r e q u e s t e d . Frank E a t o n ' s l e g a l d u t y a s s u r e t y f o r Harry may, i n d e e d , be c o n d i t i o n a l on v a r i o u s e v e n t s , i n c l u d i n g a n o t i c e o r two, t o o c c u r s u b s e q u e n t l y ; b u t it i s n o t t h e o c c u r r e n c e of t h e s e e v e n t s t h a t c o n s t i t u t e s a c c e p t a n c e of t h e offer. "The f o r e g o i n g r e a s o n i n g h a s r e c e i v e d much j u d i c i a l a p p r o v a l ; and i t i s adopted by t h e American Law I n s t i t u t e . Many of t h e c a s e s t h a t s a y t h a t a n o t i c e of a c c e p t a n c e i s r e q u i r e d c o n f u s e n o t i c e a s t h e r e q u i r e d form of a c c e p t a n c e of a n o f f e r w i t h a l a t e r n o t i c e a s a condition precedent t o t h e s u r e t y ' s duty t o 'make payment o f t h e d e b t . "An o f f e r t o become s u r e t y f o r a n o t h e r may r e q u e s t some promise i n r e t u r n , e i t h e r by t h e c r e d i t o r o r by t h e p r i n c i p a l o b l i g o r . I f it d o e s t h i s , a n o t i c e t h a t t h e r e q u e s t e d promise i s g i v e n must be made i n o r d e r t o a c c e p t t h e o f f e r . Mere a c t i o n i n rel i a n c e on t h e s u r e t y ' s o f f e r would n o t be enough. * * *I' The R e s t a t e m e n t of S e c u r i t y , S 86, i n which t h e t e r m s " g u a r a n t o r " and " s u r e t y " are used synonymously, i s i n a c c o r d : "Where t h e s u r e t y o f f e r s t o g u a r a n t e e a n e x t e n s i o n of c r e d i t t o t h e p r i n c i p a l and t h e c r e d i t i s extended a s t h e s o l e c o n s i d e r a t i o n f o r t h e s u r e t y ' s promise, t h e c o n t r a c t i s c o m p l e t e upon t h e e x t e n s i o n of c r e d i t , b u t i f t h e s u r e t y d o e s n o t know of t h e e x t e n s i o n of c r e d i t and h a s no a d e q u a t e means of a s c e r t a i n i n g w i t h r e a s o n a b l e promptness and c e r t a i n t y t h a t t h e c r e d i t h a s been e x t e n d e d and t h e c r e d i t o r s h o u l d know t h i s , t h e c o n t r a c t of t h e s u r e t y i s discharged unless within a reasonable t i m e a f t e r t h e e x t e n s i o n of c r e d i t t h e c r e d i t o r exercises reasonable diligence t o n o t i f y the surety t h e r e o f . I' From t h e f o r e g o i n g a n a l y s i s , i t c a n be r e a d i l y s e e n t h a t s e c t i o n 30-106, R.C.M. 1947, i s i n a c c o r d . The s t a t u t e d o e s n o t r e q u i r e " a c c e p t a n c e " t o be communicated t o t h e g u a r a n t o r , b u t merely " n o t i c e of i t s a c c e p t a n c e " . Thus t h e c o n t r a c t of g u a r a n t y was c o m p l e t e when M i l l e r a c c e p t e d t h e o f f e r of g u a r a n t y by t h e a c t of s e l l i n g t h e e n g i n e and e x t e n d i n g c r e d i t t o W a l t e r . There- upon t h e r e a r o s e t h e s t a t u t o r y r e q u i r e m e n t o f n o t i c e o f a c c e p t a n c e as a c o n d i t i o n p r e c e d e n t t o t h e g u a r a n t o r ' s d u t y t o make payment. S e c t i o n 30-106, R.C.M. 1947, d o e s n o t , however, s p e c i f y w i t h i n what p e r i o d of t i m e n o t i c e of a c c e p t a n c e must be g i v e n by t h e guarantee t o t h e guarantor. I n t h e a b s e n c e of s u c h s p e c i f i - c a t i o n , t o q u o t e from t h e R e s t a t e m e n t : " * * * t h e c o n t r a c t of t h e s u r e t y i s discharged unless within a reasonable t i m e a f t e r t h e e x t e n s i o n of c r e d i t t h e c r e d i t o r e x e r c i s e s r e a s o n a b l e d i l i gence t o n o t i f y t h e s u r e t y t h e r e o f . " Walter on J u l y 20, 1972. tember 21, 1972. M i l l e r s o l d t h e engine t o The Bank r e p o s s e s s e d t h e t r u c k on Sep- M i l l e r c o n t a c t e d t h e Bank r e g a r d i n g t h e m a t t e r sometime between September 21 and September 27, 1972. d i d n o t s e l l t h e t r u c k u n t i l December 29, 1972. The Bank There i s no con- t e n t i o n whatsoever t h a t t h e Bank d i d n o t l e a r n of M i l l e r ' s accept a n c e o f t h e i r o f f e r of g u a r a n t y w i t h i n a r e a s o n a b l e t i m e a f t e r h i s acceptance. Especially i s t h i s s o i n a c a s e such a s t h i s where t h e g u a r a n t o r i s d e e p l y i n v o l v e d f i n a n c i a l l y i n t h e o b j e c t t o which t h e purchased i t e m i s t o be a t t a c h e d . There i s n o t , and i n d e e d t h e r e c a n n o t b e , any c o n t e n t i o n t h a t t h e Bank was i n any way i n j u r e d by M i l l e r ' s d e l a y i n g i v i n g n o t i c e of a c c e p t a n c e . On a l o a n o f $1,000 f o r t h e p u r c h a s e of t h e e n g i n e , t h e Bank g a i n e d t h e b e n e f i t of a $2,000 e n g i n e which it l a t e r r e a l i z e d when t h e t r u c k was r e p o s s e s s e d and s o l d by t h e Bank. Not o n l y was t h e r e no i n j u r y , t h e Bank r e a p e d a w i n d f a l l . The Bank n e x t c o n t e n d s t h a t i t o n l y g u a r a n t e e d $1,000 and t h a t i t s o b l i g a t i o n was f u l f i l l e d by t h e d e p o s i t o f $1,000 i n W a l t e r ' s checking account. A r e s o l u t i o n of t h i s i s s u e t u r n s o n t h e meaning of " t h o s e f u n d s " a s used i n t h e l e t t e r . Miller testified: "A. W e l l , I f i g u r e d it meant t h a t t h e y had g u a r a n t e e d t h e rest o f t h e p u r c h a s e p r i c e . " Although h e l a t e r hedged h i s a n s w e r , t o s u c h a p o i n t t h a t t h i s C o u r t i s u n a b l e t o t e l l what h e meant, M r . A u s t i n ' s f i r s t rea c t i o n t o t h e q u e s t i o n "What d o e s ' t h e s e f u n d s ' mean" was: "A. I t g o e s back t o t h e f u n d s I am t a l k i n g a b o u t i n t h e f i r s t p a r a g r a p h . These a r e t h e f u n d s t h a t we a r e t a l k i n g about i n the t o t a l picture." I t i s c l e a r t h a t t h e p h r a s e " t h e s e f u n d s " i s ambiguous a s t o w h e t h e r i t r e f e r s t o t h e $1,000 l o a n , t h e $1,000 a c c o u n t s r e c e i v a b l e o r t h e $2,000 " t o t a l p i c t u r e " . Any u n c e r t a i n t y i n a c o n t r a c t s h o u l d b e i n t e r p r e t e d most s t r o n g l y a g a i n s t t h e p a r t y who caused t h e u n c e r t a i n t y t o e x i s t . S e c t i o n 13-720, R.C.M. 1947. Thus, w e h o l d t h a t , by g u a r a n t e e i n g " t h e s e f u n d s " , t h e Bank g u a r a n t e e d t h e t o t a l sum of $2,000. This i n t e r p r e t a t i o n i s bolster- ed by t h e f a c t t h a t t h e Bank d i d n o t hand Walters a c a s h i e r ' s c h e c k o r i n a n y o t h e r way earmark t h e $1,000; b u t , r a t h e r , p l a c e d i t i n W a l t e r ' s checking account t o u s e a s he s a w f i t . From t h e v i e w w e t a k e of t h e f i r s t two i s s u e s r a i s e d , it becomes u n n e c e s s a r y t o d i s c u s s t h e t h i r d i s s u e r a i s e d . The judgment i s r e v e r s e d and remanded t o t h e d i s t r i c t c o u r t w i t h i n s t r u c t i o n s t o e n t e r judgment f o r p l a i n t i f f Evan M. M i l l e r a g a i n s t d e f e n d a n t Bank o f Columbia F a l l s i n t h e amount o f $1,000. The judgment i s r e v e r s e d . W e concur: Chief J u s t i c e J \ ........................ Justices

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