No. 86-484
IN THE SUPREME COURT OF THE STATE OF MONTANA
CITIZENS STATE BANK, a Montana
banking corporation,
Plaintiff,
-vs-
RICHARD C. BOSSARD, FLOYD BOSSARD,
JAMES T. MADDUX, ZANE K. SULLIVAN,
KENNETH A. HIGH,
Defendants,
and
ZANE K. SULLIVAN,
Third-Party
AMERICAN LAND TITLE CO. OF RAVALLI
COUNTY,
Third Party Defendant.
APP EAL FROM: District Court of the Fourth Judic'al District,
In and for the County of - & " a . L .
The Honorable James B. Wheelis, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Boone, Karlberg & L,illiam L.
Haddon; Crowley, Missoula,
Montana
For Respondent:
b7orden, Thane & Haines; Robert J. Phillips, Missoula,
Montana
Submitted on Brief: Jan. 8, 1987
Decided: March 10, 1987
1;111;? 19e7
Filed:
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
This is an appeal from a judgment of the District Court,
Fourth Judicial District, County of Ravalli, ordering
appellant to contribute his pro rata share as a guarantor on
a promissory note. We affirm.
Appellant Sullivan was a shareholder in the Title
Company, a Montana corporation in the business of issuing
title insurance on real estate. Sullivan and four other
shareholders, the respondents in this action, each held one
share of stock in the company. In January, 1979, the five
shareholders executed guaranties for promissory notes to
Citizens State Bank on behalf of the Title Company. The
continuing guaranties stated that the obligations incurred
were joint and several, and that the guarantors waived any
right to require the bank to exhaust any security before
proceeding against the borrowers.
Sullivan left the Title Company in December, 1979, at
which time he signed away his share of stock and resigned his
office as president and general counsel of the company.
In November, 1981, the Title Company was sold to a
California title company. Richard Bossard, one of the
respondents, negotiated the sale. None of the sale proceeds
were applied toward the Title Company's promissory notes to
Citizens State Bank. The proceeds went instead to pay debts
of the Title Company, including taxes, insurance, wages,
underwriting fees, supplies, equipment, miscellaneous
operational bills, and monies owed to Title Insurance of
Montana, a management company.
The Title Company was not a profitable venture. The
Company missed several payments on the notes, although
several payments had been personally funded by respondents.
In February, 1983, the bank accelerated the notes and
demanded immediate payment.
Initially, the bank sued all five guarantors on the
basis of their continuing guaranties, and respondents filed a
cross-claim against Sullivan for contribution as a
coguarantor. Subsequently, respondents agreed to pay off the
notes, and the agreed payment schedule has since been
completed. The bank was then dismissed from the action,
leaving the cross-claim for contribution against Sullivan and
Sullivan's third-party complaint against the Title Company
for reimbursement of any sums he would be required to pay.
In August, 1986, the District Court entered its judgment
ordering Sullivan to contribute his one-fifth share of the
monies owed the bank, and ordered the Title Company to
reimburse Sullivan for the sums he actually paid.
The issue raised by Sullivan on appeal is whether the
District Court erred in concluding as a matter of law in an
action for contribution between coguarantors, that Sullivan
could not raise the equitable defense concerning the security
for the underlying promissory notes. In particular, Sullivan
specifies as error the District Court's conclusion of law No.
5:
The continuing guaranties that were executed by the
parties created a joint and several obligation.
The said continuing guaranty also provides that the
guarantors waived any right to require the bank to
proceed against the principal obligor, American
Land Title of Ravalli County or to proceed or
exhaust any security held by borrowers. Thus, the
claimed defense by Sullivan that the bank failed to
execute against its security is insufficient as a
matter of law.
Sullivan contends this conclusion indicates the court did not
allow or consider his equitable defense, the defense being
that respondents personally profited from the sale of the
Title Company.
We find no merit in Sullivan's contention that the
District Court failed to consider his equitable defense.
Both parties filed briefs and supplemental briefs discussing
the equitable nature of contribution and the equitable
defense of unequal benefits. Sullivan argues that because
respondents sold the Title Company, he was stripped of
collateral which he had relied upon in giving his guaranty.
This argument was clearly before the District Court, who
rejected it.
The standard of review for a case in equity is that the
judgment of the trial court is presumed correct, and all
legitimate inferences will be drawn to support this
presumption. This Court's inquiry into the evidence is
limited to whether the findings of the trial court are
clearly erroneous. Rule 52, M.R.Civ.P. - In re Estate of
See
Rudd (1962), 140 Mont. 170, 175-176, 369 P.2d 526, 529.
As we have previously stated, contribution among
co-obligors is an equitable concept, and an obligor must be
permitted to raise and present any equitable defense.
Bossard v. Sullivan (Mont. 1983), 670 P.2d 1389, 1391, 40
St.Rep. 1733, 1735. The general rule of contribution is that
guarantors who pay more than their proportionate share of an
obligation are entitled to contribution from other guarantors
who are jointly and severally liable for the contribution.
Stieben v. Korby (Colo. Ct. App. 1975), 533 P.2d 530, 531.
"Contribution presumes the payment and extinguishment of the
debt by one cosecurity for the benefit of all [Citation
omitted]. The very foundation of the doctrine is that one
had paid more and another less than his share, and where such
is not the fact the right does not exist." Worthington v.
Keely (Co1.0. 1917), 170 P. 194, 197.
In this case all five coguarantors signed continuing
guaranties which allowed the bank to forego its security and
sue the coguarantors directly on the notes. This default
remedy is authorized by $ 30-9-501, MCA. The bank pursued
this option, and a settlement was reached whereby the
obligation to the bank was completely paid off by four of the
five guarantors. Under the general rule of contribution, the
four guarantors were thus entitled to seek contribution from
the fifth guarantor for his pro rata share of the obligation.
In Montana, where coguarantors do not receive equal
benefits from the guaranty, the liability for the obligation
is allocated according to the benefits received. Bossard v.
Sullivan, 670 P.2d at 1391, 40 St.Rep. at 1735. In other
words, guarantors in unequal positions should not be equally
liable for payment of a debt. - Sullivan, however, does
Id.
not appear to be asserting the equal benefits doctrine.
Instead, he makes the general equitable argument that
respondents have personally enriched themselves at the
expense of his security for the guarantied obligation.
We do not find this to be the case. The evidence in the
record clearly indicates Sullivan signed the continuing
guaranty knowing that the bank could sue him directly on the
notes, foregoing its security. This is in fact what the bank
did. Further, the debts paid off by the sale of the Title
Company (the company being the underlying security for the
notes) were debts of the corporation, not personal debts of
respondents. These debts included wages, withholding taxes
and industrial accident benefits which the corporation was
obligated by law to pay. We agree with the District Court
that the evidence supports a finding that all five
shareholders shared equal liability on the promissory notes,
and that Sullivan was required to contribute his one-fifth
pro rata share.
The judgment of the District Court is affirmed.
We Concur: -1