Federal Deposit Insurance Corporation, in Its Corporate Capacity, Plaintiff v. M.F. Crouch, Clifford E. Hemingway, and Mary Hemingway

RYAN, Circuit Judge.

This is an action on a promissory note. The maker and guarantors appeal the district court’s order granting summary judgment in favor of F.D.I.C. Appellants contend that North Carolina law, which governs this case, requires F.D.I.C. to foreclose upon the collateral securing the note before personal judgment may enter against them. The district court disagreed and held that even though foreclosure was pending in a separate jurisdiction, F.D.I.C. was entitled to judgment as a matter of law. We agree.

I

On July 19, 1978, appellant Crouch, as maker, executed a promissory note to the United American Bank of Knoxville in the amount of $340,000. The note is secured by a deed of trust on a leasehold estate located in North Carolina. On the same day, the Hemingways, as guarantors, also executed a guaranty agreement securing the note. The guaranty provides that North Carolina law governs the construction and interpretation of its terms.

F.D.I.C. was appointed receiver when the United American Bank collapsed in 1982. The bank’s assets, including the note and *1112guaranty involved in this case, were transferred to First Tennessee Bank. After default upon the note, First Tennessee Bank brought suit in state court against Crouch and the Hemingways. Subsequently, F.D. I.C. purchased the note from the bank, was substituted as plaintiff in this action, and removed the case to federal district court.

Thereafter, the Hemingways notified F.D.I.C. that, pursuant to N.C.Gen.Stat. § 26-7, F.D.I.C. would be required to attempt to satisfy its claim against Crouch and the deed of trust before proceeding against them. F.D.I.C. initiated foreclosure proceedings in North Carolina as required by the statute.

In the district court, F.D.I.C. obtained a partial summary judgment of liability against the appellants. The court rejected the appellants’ argument that N.C.Gen. Stat. § 26-7 and the pending foreclosure reduced F.D.I.C.’s claim to a mere contingency for such deficiency as may result. The court determined that a cause of action accrued against the maker and guarantors at the time of default on the promissory note. On August 27, 1985, the district court granted F.D.I.C.’s motion for summary judgment, holding the appellants jointly and severally liable on the note.

In this appeal, Crouch and the Hemingways contend that the district court erred in granting F.D.I.C.’s motion for summary judgment. They raise three assignments of error: (1) that N.C.Gen.Stat. § 26-7 precludes personal judgment prior to realizing upon the collateral securing the note; (2) that the maker’s right under N.C.Gen.Stat. § 45-21.36 to challenge the sufficiency of value received from the sale of collateral is impaired by the district court’s decision to allow F.D.I.C. to pursue personal judgment while simultaneously proceeding with foreclosure; and (3) that F.D.I.C. elected its remedy by initiating foreclosure on the deed of trust. Since there are no factual issues in dispute, our duty is to determine whether F.D.I.C. is entitled to judgment as a matter of law.

II

North Carolina courts adhere to the general principles which govern the relationship between makers and guarantors of a debt. In Gillespie v. DeWitt, 53 N.C.App. 252, 280 S.E.2d 736, review denied, 304 N.C. 390, 285 S.E.2d 832 (1981), the court stated:

“A guaranty of payment is an absolute promise by the guarantor to pay a debt at maturity if it is not paid by the principal debtor. This obligation is independent of the obligation of the principal debtor, ‘and the creditor’s cause of action against the guarantor ripens immediately upon the failure of the principal debtor to pay the debt at maturity.’ ”

Id. at 741 (quoting Properties v. Norburn, 281 N.C. 191, 188 S.E.2d 342, 345 (1972)). Thus, in Exxon Chemical Americas v. Kennedy, 59 N.C.App. 90, 295 S.E.2d 770 (1982), the court rejected the guarantor’s contention that when the debtor’s bankruptcy terminated the debtor’s obligation, the guarantor’s liability also terminated. The North Carolina court held that the guaranty created a primary obligation arising immediately upon default and independent of the principal debtor’s obligation. Accordingly, thé creditor was not required to exhaust his remedies against the principal before proceeding against the guarantor.

The Hemingways’ guaranty agreement provides, in pertinent part:

“The undersigned Guarantors hereby absolutely and unconditionally guarantee to United American Bank in Knoxville (the Bank) the due and punctual payment of the Promissory Note and any and all other indebtedness, obligations, and liabilities, primary or secondary of Borrower to Bank arising under the Promissory Note or the Deed of Trust of even date herewith from borrower to J. Donnell Lassiter and Glen B. Hardyman, Trustees for the Bank, together with interest as and when the same becomes due and payable whether by acceleration or otherwise____ In the event of the default of Borrower in the due and punctual payment of the indebtedness, Bank shall not be required to proceed first against Borrower or against any collateral se*1113curity before resorting to and proceeding against the Guarantors for payment.” [Emphasis added.]

It is beyond dispute that this agreement provides for the accrual of a cause of action against the guarantors upon the default of the maker. Indeed, the Hemingways expressly waived any right to require F.D.I.C. to proceed first against Crouch and the collateral. This guaranty, like that considered in Exxon Chemical, is a primary obligation.

However, N.C.Gen.Stat. § 26-7 provides: “(a) After any note, bill, bond or other obligation becomes due and payable, any surety, endorser, or guarantor thereof may give written notice to the holder or owner of the obligation requiring him to use all reasonable diligence to recover against the principal and to proceed to realize upon any securities which he holds for the obligation.”

The Hemingways asserted their rights under this statute by notifying F.D.I.C., in writing, to proceed first against Crouch and the deed of trust. The Hemingways contend that the statute requires F.D.I.C. to “realize upon any securities” prior to obtaining a personal judgment against the guarantors.

Although there are no North Carolina cases interpreting this statute, we must nevertheless decide this case in accord with North Carolina law. Therefore, “this Court is obligated to exercise its best judgment as to how the [North Carolina court] would rule if confronted with this issue.” Cathey v. Johns-Manville Sales Corp., 776 F.2d 1565, 1569 (6th Cir.1985). See also Andrew v. Bendix Corp., 452 F.2d 961 (6th Cir.1971), cert. denied, 406 U.S. 920, 92 S.Ct. 1773, 32 L.Ed.2d 119 (1972).

Chapter 26 of North Carolina General Statutes is entitled “Suretyship.” The general provisions of §§ 26-1 et seq. govern the relationship between guarantors and the principal obligor on a debt. Section 26-1 allows the guarantor to assert and prove his status. Section 26-2 requires the sheriff to levy first on the principal’s property to satisfy the judgment; and “for want of sufficient property,” only then to proceed against the guarantor for satisfaction.

These provisions contemplate that a creditor will proceed simultaneously against the maker and guarantor to establish liability. However, nothing prevents a creditor from proceeding against a guarantor alone. Sections 26-1 et seq. are unavailing to the guarantor who fails to establish his surety-ship. Therefore, nothing prevents the sheriff from selling the guarantor’s property to satisfy a resulting judgment. Indeed, § 26-3 provides a summary remedy in subrogation for the guarantor who pays the principal’s debt. Pebbles v. Gay, 115 N.C. 38, 20 S.E. 173, 175 (1894).

In this case, however, the creditor did not proceed against the Hemingways alone, as it might have done. Instead, suit was initially brought against both Crouch and the Hemingways. Only later, and at the Hemingways’ insistence, did F.D.I.C. initiate foreclosure proceedings on the deed of trust. Therefore, the crux of the Hemingway’s argument is that § 26-7 is more protective of their rights as guarantors than the more general provisions of §§ 26-1 et seq. We agree with this contention. Nevertheless, the Hemingways’ argument that § 26-7 envinces the North Carolina legislature’s intent to estop a creditor from proceeding against the guarantors before attempting to satisfy the debt against the maker is untenable. Section 26-7 is essentially an enforcement provision. Once the guarantor invokes this section, as the Hemingways have done in this case, the creditor’s delay in pursuing the principal will result in exoneration for the guarantors. First National Bank v. Homesley, 99 N.C. 531, 6 S.E. 797 (1888). Though not as extensive as the Hemingways contend, this is substantial protection for the guarantor who deems himself in danger of loss. See A Survey of Statutory Changes in North Carolina in 1951: Suretyship, 29 N.C.L.Rev. 351, 413 (1951).

Additionally, the plain language of § 26-7 belies the Hemingways’ contention. It requires only that the creditor “use all reasonable diligence to recover against the *1114principal.”1 F.D.I.C. began foreclosure proceedings on the deed of trust in a North Carolina state court. However, there is evidence in the record that the leasehold estate securing this note has been subleased. Under the terms of an unrecorded consent order, dated July 19,1978, F.D.I.C. cannot foreclose upon the leasehold interest without assuming Crouch’s liability. Furthermore, it appears that Crouch filed suit against the owner of the premises in January 1986, making the leasehold the subject of current litigation in North Carolina. As a practical matter, therefore, F.D.I.C. is precluded from realizing upon the collateral. We think F.D.I.C. has satisfied the plain requirements of § 26-7.

Moreover, it is unlikely that a North Carolina court would construe § 26-7 to allow a guarantor to circumvent the express provisions in a guaranty agreement. Amoco Oil v. Griffin, 78 N.C.App. 716, 338 S.E.2d 601, 602, review denied, 316 N.C. 374, 342 S.E.2d 889 (1986). The Hemingways expressly waived any right they may have had to require F.D.I.C. to proceed first against Crouch and the collateral. We conclude that the North Carolina legislature did not intend to depart from the general principles of suretyship recognized for many years in the courts of North Carolina. In light of the express terms in the guaranty, we find nothing to prevent F.D.I.C. from obtaining personal judgment against the Hemingways prior to realizing upon the collateral.

Ill

The appellants’ next assignment of error involves the maker’s rights under § 45-21.36 to challenge the sufficiency of value received for collateral securing a note. In First Citizens Bank & Trust Co. v. Martin, 44 N.C.App. 261, 261 S.E.2d 145 (1979), the court stated:

“We ... note that it has been the law of our State for many years that a creditor whose debt is secured by way of a mortgage or deed of trust has the choice of two actions: one in personam for his debt; and the other in rem to subject the mortgaged property to its repayment— and a resort to one such action is no waiver of the other."

Id. at 148. In addition, the creditor “may combine the two remedies in one civil action.” Underwood v. Otwell, 269 N.C. 571, 153 S.E.2d 40, 42 (1967). Therefore, N.C. Gen.Stat. § 45-21.36 applies only where the creditor has chosen to pursue the collateral instead of the debtor and is seeking a deficiency. Until these events trigger its operation, this statute is not applicable. See Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co., 210 N.C. 29, 185 S.E. 482, 484 (1936), aff'd, 300 U.S. 124, 57 S.Ct. 338, 81 L.Ed. 552 (1937). We agree with the district court that § 45-21.36 is not applicable in this case.

IV

Finally, appellants argue that the doctrine of election of remedies bars F.D.I. C.’s claim in this case. In Douglas v. Parks, 68 N.C.App. 496, 315 S.E.2d 84, 85 (1984) (citing Irvin v. Harris, 182 N.C. 647, 109 S.E. 867, 870 (1921), the court stated: “The doctrine of election applies only where two or more existing remedies are alternative and inconsistent.” Because First Citizens Bank & Trust clearly rejects the contention that the remedies in this case are inconsistent, appellants’ argument is without merit.

In conclusion, we find that the district court correctly granted summary judgment to F.D.I.C. North Carolina law does not preclude a creditor from pursuing personal judgment while simultaneously proceeding with foreclosure in a separate jurisdiction. F.D.I.C. was entitled to judgment as a matter of law.

The decision of the district court is affirmed.

. In this context, see Taylor v. Bridger, 185 N.C. 85, 116 S.E. 94 (1923), construing the predecessor to § 26-7 and finding the requirement of “reasonable diligence” satisfied by making the insolvent principal a party in the action. See also 38 Am.Jur.2d, Guaranty, § 108.