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United States v. Klebe Tool Die Co.

Supreme Court of Wisconsin
Nov 5, 1958
5 Wis. 2d 392 (Wis. 1958)


October 9, 1958 —

November 5, 1958.

APPEAL from an order of the county court of Walworth county: ROSCOE R. LUCE, Judge. Reversed.

For the appellant there was a brief and oral argument by Charles E. Lyon of Elkhorn.

For the respondents there was a brief by Morrissy, Morrissy, Zastrow Sweet of Elkhorn, and oral argument by Philip B. Morrissy.

Action by the plaintiff Reconstruction Finance Corporation (hereinafter referred to as the "R. F. C.") to foreclose a real-estate mortgage against the defendant-mortgagor, the Klebe Tool Die Company, Inc., and to enforce a guaranty of payment of the mortgage indebtedness for any deficiency which might result in the foreclosure proceedings against the defendant guarantors Carl Klebe and Elsie Klebe, his wife.

The Klebe Tool Die Company, Inc., applied to the R. F. C. for a $20,000 loan which granted the application. The loan was consummated on April 18, 1952. On that day the corporation executed its note to the R. F. C. for $20,000 payable in monthly instalments over a five-year period. Such note was secured by a real-estate mortgage covering the debtor corporation's real estate and a chattel mortgage mortgaging its tools, machinery, and stock in trade. As a condition of such loan the R. F. C. exacted a personal guaranty of payment from Mr. and Mrs. Klebe, the principal stockholders of the debtor corporation. Such guaranty was in writing and also bore date of April 18, 1952.

On May 18, 1954, the debtor corporation defaulted in making its monthly payment and paid nothing on the loan subsequent thereto. The R. F. C., on May 20, 1955, served notice upon the debtor corporation declaring the entire debt due because of such default. On June 2, 1955, the R. F. C. instituted the within action in the county court of Walworth county for foreclosure of the real-estate mortgage and for personal judgment against the Klebes upon their guaranty for any deficiency which might result in the foreclosure proceedings. The notice of lis pendens was duly filed in the office of the register of deeds of Walworth county on June 3, 1955.

On October 3, 1955, the debtor corporation, pursuant to ch. 128, Stats., made an assignment for benefit of creditors to one H. S. Garness, as assignee. This assignment proceeding was also under the jurisdiction of the same county court as the above-described action instituted by the R. F. C. The court on October 6, 1955, appointed Garness as the receiver of the debtor corporation in such ch. 128, Stats., proceeding. Such receiver was not made a party in the R. F. C. action and was served with no notice of the subsequent proceedings had therein.

Judgment was entered in the R. F. C. action on October 10, 1955, which provided for the foreclosure and sale of the mortgaged realty and for personal judgment against the Klebes for any deficiency that might result therein. The foreclosure sale was held on December 7, 1956, and the mortgaged realty sold for $16,000 to an outside corporation not a party to the action. Such sale was confirmed by order of the court entered December 26, 1956, and on the same day a separate judgment was entered in behalf of the R. F. C. against the Klebes in the amount of $3,860.50, being the amount of the deficiency resulting in the foreclosure proceedings. No deficiency judgment was then entered against the debtor corporation, but subsequently upon motion of the R. F. C. the judgment of December 7, 1956, was amended on February 25, 1957, so as to provide for a deficiency judgment against the debtor corporation as well as the Klebes individually.

A substitution of attorneys for the Klebes also was made effective by court order on February 25, 1957, and the following day the new counsel moved the court in behalf of the Klebes that the deficiency judgment of December 26, 1957, be vacated. In support of such motion an affidavit of the Klebes was served and filed stating various reasons why they believed such judgment should be set aside. Among such reasons were the following:

(1) The R. F. C. abandoned its chattel mortgage by failing to renew the original filing thereof, which filing expired May 18, 1955, and the receiver sold the mortgaged personalty in the ch. 128, Stats., proceeding for $12,000.

(2) In 1954, the R. F; C. released a 54-foot strip of the mortgaged realty from the lien of its real-estate mortgage without obtaining the written consent of the Klebes, thereby decreasing the value of the security.

(3) The R. F. C. had neglected to provide in the judgment of October 10, 1955, for obtaining a deficiency judgment against the debtor corporation.

The trial court then by order consolidated the ch. 128, Stats., proceedings with the within action in which the R. F. C. was plaintiff. The ch. 128 proceedings disclose that all that was realized by the R. F. C. therein to apply on its indebtedness due from the debtor corporation was $1,060.23. On the other hand, the United States government was paid out of the proceeds of the sale of the debtor corporation's personal property the sum of $9,968.08 to cover a tax lien which the trial court determined would have been junior to the lien of R. F. C. chattel mortgage, if the filing of such chattel mortgage had been properly renewed.

Under date of May 2, 1957, the trial court entered an order vacating the deficiency judgment against the Klebes of December 26, 1956. In the meantime, congress had liquidated the R. F. C. and the remaining assets were taken over by the Small Business Administration, which agency, unlike the R. F. C., does not exist as a separate entity apart from the United States government. The United States was by order of the trial court substituted as party plaintiff in place of the R. F. C. The administrator of the Small Business Administration, in the name of the United States, has appealed from the order of May 2, 1957.

The principal issue on this appeal is whether any lack of due diligence of the R. F. C. in proceeding against the principal debtor, or any waiver or release of collateral, had the effect of releasing the Klebes from the guaranty.

The key provisions in the guaranty executed by Mr. and Mrs. Klebe read as follows:

"The undersigned [Carl and Elsie Klebe] hereby grants to Reconstruction Finance Corporation full power, in its uncontrolled discretion . . . to deal in any manner with the liabilities and the collateral, including, but without limiting the generality of the foregoing, the following powers:

"(e) In the event of the nonpayment when due, . . . of any of the liabilities, . . . to realize on the collateral or any part thereof, as a whole or in such parcels or subdivided interests as Reconstruction Finance Corporation may elect, . . . or to forbear from realizing thereon, all as Reconstruction Finance Corporation in its uncontrolled discretion may deem proper, . . .

"The obligations of the undersigned hereunder shall not be released, discharged, or in any way affected, . . . by reason of any action the corporation may take or omit to take under the foregoing powers.

"In case the debtor shall fail to pay all or any part of the liabilities when due, whether by acceleration or otherwise according to the terms of said note, the undersigned, immediately upon the written demand of Reconstruction Finance Corporation, will pay to Reconstruction Finance Corporation the amount due and unpaid by the debtor as aforesaid, in like manner as if such amount constituted the direct and primary obligation of the undersigned. Reconstruction Finance Corporation shall not be required, prior to any such demand on, or payment by, the undersigned, to make any demand upon or pursue or exhaust any of its rights or remedies against the debtor or others with respect to the payment of any of the liabilities, or to pursue or exhaust any of its rights or remedies with respect to any part of the collateral. The undersigned shall have no right of subrogation whatsoever with respect to the liabilities or the collateral unless and until Reconstruction Finance Corporation shall have received full payment of all the liabilities." (Italics supplied.)

It is clear that the above-quoted provisions made the guaranty one of payment and not of collection. Schlesinger v. Schroeder (1933), 210 Wis. 403, 245 N.W. 666; Stearns, Law of Suretyship, Elder's revision (5th ed.), p. 65, sec. 4.5; 24 Am. Jur., Guaranty, p. 886, sec. 17; and 38 C.J.S., Guaranty, p. 1139 et seq., sec. 7. A guarantor of payment, as distinguished from a guarantor of collection, cannot avail himself of the defense that the creditor through negligence, or lack of due diligence, lost or dissipated the collateral furnished by the debtor. Joe Heaston Tractor Implement Co. v. Securities Acceptance Corp. (10th Cir. 1957), 243 F.2d 196; Schaffer v. Acklin (1928), 205 Iowa, 567, 218 N.W. 286; and Home Savings Bank v. Shallenberger (1914), 95 Neb. 593, 146 N.W. 993. We also consider that the holding by this court in Swift Co. v. Geraghty (1929), 199 Wis. 329, 226, N.W. 381, to be in point. In that case the guaranty was one of payment and the principal debtor died. The creditor failed to file any claim against the estate of the deceased debtor and commenced suit on the guaranty against the guarantors after the time for filing claims had expired. In an opinion by Mr. Chief Justice ROSENBERRY the court determined that the liability of the guarantors was not affected by the failure of the creditor to have filed a claim against the estate of the debtor.

Furthermore, by the afore-quoted express terms of the guaranty, the guarantors waived the alleged acts and omissions of the R. F. C. upon which they grounded their motion to have the deficiency judgment vacated. A guaranty containing the same identical wording was before the United States court of appeals in Duke v. Reconstruction Finance Corp. (4th Cir. 1954), 209 F.2d 204. In that case the guarantors also urged that they were discharged from the guaranty because the R. F. C. did not diligently enforce its rights against collateral security securing the principal debtor's indebtedness. The federal court made short shrift of such argument by stating ( 209 F.2d at p. 206):

"The argument of the guarantors is directly contrary to both the law of guaranty and the documents which control in this case."

The federal court then proceeded to quote the pertinent provisions of the guaranty hereinabove set forth. We consider that this federal case rules the instant appeal. Our holding in Schlesinger v. Schroeder, supra, is also in accord as are Barrett v. Shanks (1943), 382 Ill. 434, 47 N.E.2d 481; Merchants Nat. Bank v. Stone (1936), 296 Mass. 243, 5 N.E.2d 430; and Continental Oil Co. v. Horsey (1939), 175 Md. 609, 3 A.2d 476.

The respondents' brief makes reference to sec. 9, art. I, Const., which provides:

"Every person is entitled to a certain remedy in the laws for all injuries, or wrongs which he may receive in his person, property, or character; he ought to obtain justice freely, and without being obliged to purchase it, completely and without denial, promptly and without delay, conformably to the laws."

We fail to see how such constitutional provision can be invoked to relieve the guarantors from the specific terms of their contract of guaranty.

Two further issues are raised in respondents' brief: (1) That the original judgment of foreclosure is void because of the failure to serve any notice upon the receiver in the ch. 128, Stats., proceedings; and (2) that the appeal to this court is fatally defective for the reason that the record discloses no service of the notice of appeal upon the clerk of court.

There is no requirement in the law that any party who acquires an interest in the mortgagor's equity after the filing of a proper notice of lis pendens should be served with any notice of any step to be taken in the prior-instituted foreclosure action. This court held in Gaynor v. Blewett (1892), 82 Wis. 313, 315, 52 N.W. 313, that a purchaser or lessee of the mortgagor after the filing of the notice of lis pendens has constructive notice of a pending foreclosure action, and takes subject to whatever subsequent order or decree the court may lawfully make in the action. An assignee or receiver in a ch. 128, Stats., proceeding, who succeeds to the mortgagor's equity of redemption in the mortgaged premises subsequent to the filing of the notice of lis pendens, is likewise bound by the same constructive notice.

While the affidavit of service of the notice of appeal does not state that such notice was served upon the clerk of court, the notice of appeal bears the filing stamp of the clerk. This in itself constituted service upon the clerk. Zahorka v. Geith (1906), 129 Wis. 498, 109 N.W. 552. Furthermore, respondents' counsel by participating in the appeal and not moving to dismiss the appeal has waived any defective service of the notice of appeal. Sec. 269.51, Stats., and Maas v. W. R. Arthur Co. (1942), 239 Wis. 581, 2 N.W.2d 238.

The appellant's brief raises the additional issue that the trial court had lost jurisdiction to vacate the deficiency judgment when it entered its order of May 2, 1957, which so provided. The controlling statute is sec. 269.46(3) which provides: "All judgments and court orders may be reviewed by the court at any time within sixty days from service of notice of entry thereof, but not later than sixty days after the end of the term of entry thereof." Counsel for the respondents contend that, inasmuch as no notice of entry of the amended judgment for deficiency entered February 25, 1957, was served, the order of May 2, 1957, was timely entered. On the other hand, appellants contend that the original judgment entered in the foreclosure action of October 10, 1955, is res adjudicata on the issue of the Klebes' liability on the guaranty so that the trial court was without jurisdiction in May, 1957, to do anything which would nullify such 1955 judgment. Because of our disposition upon the merits of the issue of the Klebes' liability on the guaranty, we find it unnecessary to pass on these contentions.

By the Court. — The order appealed from is reversed.

MARTIN, C.J., and BROWN, J., took no part.

Summaries of

United States v. Klebe Tool Die Co.

Supreme Court of Wisconsin
Nov 5, 1958
5 Wis. 2d 392 (Wis. 1958)
Case details for

United States v. Klebe Tool Die Co.

Case Details

Full title:UNITED STATES, Appellant, v. KLEBE TOOL DIE COMPANY and others, Respondents

Court:Supreme Court of Wisconsin

Date published: Nov 5, 1958


5 Wis. 2d 392 (Wis. 1958)
92 N.W.2d 868

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