Kushnick v. Lake Drive Building & Loan Ass'n

Offutt, J., delivered the opinion of the Court. On May 29th, 192h, Morris J. Weinstein executed a mortgage for three thousand dollars covering certain property in Baltimore City to the Lake Drive Building and Loan Association. At the same time Charles Sahm, Robert L. Kushnick and Louis J. Myer joined in the mortgage for the “purpose of further guaranteeing the 'covenants and conditions” thereof, and they each signed and sealed it and acknowledged it to be “their act.” Being in default, proceedings were instituted to foreclose it in the Circuit Court of Baltimore City ou August 10th, 1926. In due course the property was sold for $1,555, the sale ratified, the ease referred to the auditor, and an audit returned and ratified showing a balance of $1,135.67 still due the mortgagee.

Thereupon the mortgagee moved for a decree in personam against the mortgagor and the guarantors', and Weinstein, Kushnick and Myers were each summoned to appear and answer the motion. Kushnick did appear and filed a “plea” to the motion on the ground thajt the court was without jurisdiction to entertain it as against him, and because the mortgagee had a full, adequate and complete remedy at law. Thereafter the court heard and overruled the “plea,” and entered a decree in personam against Weinstein, Kushnick, and Myers, for the unpaid ⁶⁴⁰ balance of the mortgage, $1,135.67. The appellant Kushnick then filed a petition praying that that decree be stricken out as against him, and that he be allowed to! answer the motion, but which failed to allege what if any defense he desired to assert.

That petition was also denied and from that order this appeal was taken. No appeal was taken from the order ratifying the auditor’s account, or from the decree in personam against Kushnick, so that the only question raised by the appeal is whether the chancellor erred in refusing to strike out that decree and allow the appellant to answer the motion upon which it was based. It is urged that the petition asking for the rescission of the decree and for permission to file an answer to the motion was nothing more than a request for a rehearing addressed to the sound discretion of the court, which, in the absence of' anything indicating an abuse of that discretion, would not be renewable by this Court. Millers Equity, secs. 286, 315.

But it is something more than that, and as the question involved in the original “plea” challenges the jurisdiction of the cofirt to pass the decree, we feel that it cannot be disposed of without consideration. The foreclosure proceedings were instituted under Balto. City Code, sec. 731A (Acts 1898, ch. 327), which provides that “if, upon a sale of the whole mortgaged property by virtue of a decree passed under an assent to the passing of a decree contained in the mortgage under the provisions of section 720 of this article, the net proceeds of sale, after the cost and expenses allowed by the court are satisfied, shall not suffice to pay the mortgage debt and accrued interest, as the same shall be found and determined by the judgment of the court upon the report of the auditor thereof, the court may, upon the motioh. of the plaintiff, the mortgagee or his legal or equitable assignee, after due notice, by summons or otherwise, as the court may direct, enter a decree in personam against the mortgagor or other party to the suit or pro'ceeding, who is liable for the payment thereof, for the amount of such deficiency, provided the mortgagee or his legal tir equit ⁶⁴¹ able assignee would be entitled to maintain an action at law upon the covenants contained in the mortgage for said residue of said mortgage debt, so remaining unpaid and unsatisfied by the proceeds of such sale or sales.” The contention of the appellant is that the section just quoted only permits a decree in personam against a party to the foreclosure proceeding against whom the mortgagee would have been able to “maintain an action at law” upon the covenants contained in the mortgage, and that since he only executed the mortgage as a guarantor, he could not be sued upon the covenants in the mortgage, but could only be sued on his contract of guaranty, which was collateral to the mortgage. That contention involves two questions, (1) whether, conceding that the contract of guaranty is collateral to- the mortgage, the statute applies to the guarantors, and (2) whether the contract of guaranty involved in this case is an original or a collateral undertaking.

Ordinarily the liability assumed by guarantors is secondary, and the contract of guaranty collateral to the contract guaranteed, and any action to enforce the guaranty would necessarily be on the contract of guaranty and not on the principal contract. 28 C. J. 1009. Judge Burke, for this Court, in Booth v. Irving Nat. Exch. Bank, 116 Md. 673 , said: “Whilst the undertaking of a guarantor technically differs from that of a surety (Kramph v. Hats, 52 Pa.

St. 525), still the contract of guaranty is the obligation of a surety. Davis v. Wells Fargo & Co., 104 U. S. 159 . Both are accessory contracts; that of a surety is in some sense conditional; that of a guarantor is strictly so. A guaranty is a secondary, whilst a surety is a primary obligation.” In 12 R. C. L. 1053, the same rule is expressed in this language: “Generally a guaranty relates to the payment of a sum of money or the collectibility thereof, though it may constitute an assurance of the genuineness of an obligation or the liability of the obligee.

Being a collateral engagement for the performance of the undertaking of another, it imports the ⁶⁴² existence of two different obligations, one being that of tbe principal debtor and tbe other that of the guarantor. If there is no obligation on the principal, there is none on the guarantor. But the debtor is not a party to the guaranty, and the guarantor is not a party to the principal obligation. The guaranty is a separate and independent contract, involving duties and imposing responsibilities very different from those created by the original contract to which it is collateral.

The fact that both contracts are written on the same paper or instrument does not affect their separate nature.” Professor Williston, in his work on Contracts, par. 1211, says that a “promise to pay if the principal debtor does not is the ordinary form of a guaranty.” And it is generally held that the principal and the guarantor cannot be joined in the same action. Graham v. Ringo, 67 Mo. 324 ; Gaff v. Sims, 45 Ind. 262 ; Tyler v. Tualatin Academy, 14 Ore. 485 ; 28 C. J. 1012; 12 R. C. L. 1094; and that in a suit to foreclose a mortgage a guarantor is not a proper party, although, “where the court has power to decree the payment of any deficiency there may be after the sale of the property, as well against a third person as against the mortgagor, then a mortgagee who has assigned his mortgage and guaranteed the payment of it, or any other person who has become a guarantor or surety of the debt, is a proper though not a necessary party to a suit to foreclose the mortgage.” Jones on Mortgages, par. 1432. The statute under consideration provides that, where the net proceeds of a mortgage foreclosure sale are insufficient to pay the mortgage debt and interest, the court may, after due notice, enter a decree in personam against the mortgagor “or other party to the suit or proceeding” for the deficit “provided the mortgagee * * * would be entitled to maintain an action at law upon the covenants contained in the mortgage for said residue of said mortgage debt so remaining unpaid and unsatisfied by the proceeds of such sale or sales.” That jurisdiction is wholly statutory, in derogation of common right, and the conditions precedent to its creation must be fully met. The question then is, What are those ⁶⁴³ conditions?

Assuming, as for the purpose of this statement we have, that the appellant’s contract is one of guaranty only, he could not have been sued on the covenants of the mortgage, because they were not his covenants, but he must have been sued on his contract of guaranty, for that was the only contract he made. Still dealing with that hypothesis, ho was secondarily and not primarily liable. But, conceding that, does the statute mean that jurisdiction to enter a decree in personam, against guarantors named in a mortgage only exists when the mortgagee can proceed at law against them on the covenants in the mortgage, or does it mean that it exists in cases where the mortgagee may sue only the party bound by the covenants contained