Walton v. Washington County Hospital Ass'n

Delaplaine, J., delivered the opinion of the Court. Charles D. Walton is appealing from a judgment for 15241.66, recovered by the Washington County Hospital Association upon a contract of guaranty. On October 13th, 1936, the hospital association, holder of a mortgage on properties of the Hagerstown Brewing Company and the Federal Milling Company in the ⁴⁴⁹ amount of S20,000, with interest from May 27th, 1934, agreed to release the property of the milling company from the lien of the mortgage in consideration of the agreement of the appellant and his brother, Stanley W. Walton, to be responsible for any loss up to $5000 that might be sustained under the mortgage. It was declared to be the intention of the parties that the mortgagee “shall look to the property” of the brewing company for the payment of the mortgage, and that the guarantors “shall be responsible up to $5000 for whatever part of said mortgage is not collected from the property.” The mortgagee agreed to give an extension on the payment of the principal for a period of three years, provided that the interest was paid when due and all other terms of the mortgage were complied with.

It was further agreed that, in the event of default, the holder of the mortgage would notify the guarantors of the intention to foreclose at least ten days prior to the institution of foreclosure proceedings, to give them an opportunity to take the mortgage by assignment. When the brewing company defaulted in the payment of interest and taxes, the mortgagee duly notified the grantors of its intention to foreclose; but, since the guarantors declined to take up the mortgage, the property was offered at public sale by Omer T. Kaylor, assignee, on May 3rd, 1938, and was sold to the mortgagee for $17,000. The appellant and his brother filed exceptions to the sale, but they later abandoned them, and the sale was thereupon ratified by the Circuit Court for Washington County. The auditor, after making allowances for taxes, insurance, commissions, counsel fee and costs, reported a balance of $14,103.37 accruing to the mortgagee.

Inasmuch as a deficiency, of $7709.97 remained on the mortgage debt, the mortgagee made demand upon the guarantors for the payment of $5000; and upon their failure to settle, the mortgagee entered suit against them. Stanley W. Walton was returned non est. The appellant filed a plea maintaining that the property had a market ⁴⁵⁰ value far in excess of the principal amount of the mortgage, and the mortgagee, having purchased it, had not sustained any loss. He argued that he could not be held liable under the guaranty until the mortgagee had resold the property in order to establish an actual loss.

The association demurred to the plea, and the demurrer was sustained by the court. A contract of guaranty is a form of commercial obligation, which should be construed in furtherance of its spirit, without strict technical nicety, to promote liberally the use and convenience of commercial intercourse. The words of a guaranty should receive a fair and reasonable interpretation to effectuate the intention of the parties, and the circumstances accompanying the transaction may be considered in seeking the intention of the parties. The court should give the instrument that construction which will best accord with the intention, as manifested by the language in the light of all the surrounding circumstances, without stretching the words beyond their import in favor of the creditor or restricting them in aid of the guarantor.

Hooper v. Hooper, 81 Md. 155, 169 , 31 A. 508 ; Saunders Co. v. Ducker, 116 Md. 474, 479 , 82 A. 154 ; Penrose v. Page, 145 Md. 14, 20 , 125 A. 553 ; 24 Am. Jur., Guaranty, sec. 56. In the present case the parties considered the eventuality of foreclosure; it is, therefore, logical to presume that they intended to allow the result of foreclosure to determine the amount of liability. Under the provisions of a Maryland statute, no title derived through foreclosure of mortgaged property, after confirmation of the salé by the court, shall be “questioned, impeached or defeated, either at law or in equity” on the ground that the property was bought in by the mortgagee, his assignee, or legal representatives, or for his benefit or account.

Code,art. 66, sec. 14. When mortgagees avail themselves of the privilege of being the purchasers of mortgaged property, they are required to act with strict impartiality at the sale, and there is greater reason for diligence to obtain the best price obtainable, while the court should ⁴⁵¹ exercise a greater degree of caution in passing upon the ratification of the sale. The measure of liability of a guarantor of a mortgage is established after the amount of the deficiency is determined by the foreclosure; and it has been held that although the mortgagee purchases the mortgaged property, the indemnity contemplated by the guarantor is