Russell v. Garrett , 204 Ala. 98 ( 1920 )

After judgment sustaining appellee's demurrer to appellant's complaint the latter suffered a nonsuit and by exception reserved the ruling for review in this court. Code, § 3017.

Subject to the rule that when the intent of the guarantor has been ascertained, or the terms of the guaranty are clearly defined, the liability of the guarantor is absolutely controlled by such intent, and is never to be further extended, the law of this jurisdiction is that, where the language of the contract in controversy is susceptible of two meanings, it should be taken most strongly against the guarantor and in favor of the party who has parted with his property upon the faith of the interpretation most favorable to his rights. Crawford v. Chattanooga Savings Bank, 201 Ala. 282, 78 So. 58. The parties are agreed, and there appears to be no occasion for doubt, that, upon the whole, the instrument set forth in the second count of the complaint evidences an intent on the part of appellee's testator, to whom we may refer as Garrett, to guarantee collection and not payment of the debt due from the Hayneville Montgomery Railroad Company — that it is a guaranty conditioned upon a failure to collect by due diligence. As affecting the question whether the instrument has any definite meaning in respect of other conditions of liability, the relations of the parties, as disclosed by the allegations of the count, are to be considered. The parties to the paper, appellant's intestate, to whom we may refer as Russell, and Garrett, were joint owners of a note of the Hayneville Montgomery Railroad Company which was secured by a pledge of $38,000 of the first mortgage bonds of their debtor. That note was past due at the date of the transaction evidenced by the paper. As shown by the last clause, it was understood and agreed that Garrett should have a right to say when the railroad company's note should be foreclosed. It does not appear that he has ever said that the note should be foreclosed. The plaintiff has stated his case, and recoveries are not favored until their right is made to appear by sufficient allegation. So then, if the guarantor reserved an absolute right at all times to say whether the note might be foreclosed, and has not said that it might, his promise, so long as unperformed, is a nude pact. 9 Cyc. 618.

In the brief for appellee it is insisted, in substance, that the language of the clause, the term "foreclose" in particular, is peculiarly apt to a description of the remedy afforded by the pledge of mortgage bonds, inapt to a proceeding to collect the note by other process, and therefore that the clause should be read as reserving only the right to control the foreclosure of the pledge, not the right to control resort to other means of collection, thus leaving the unqualified duty of due diligence to collect by other available means to rest upon appellant's intestate from the inception of the contract relation; but, while the term "foreclose" would have been aptly used to describe a proceeding against the pledge specifically, the guarantor in terms reserved the right to control the "foreclosure of the note." This paper writing was evidently drawn by a hand unskilled in the technical use of legal terms, and we think it may have occurred to such a one to designate any proceeding whatsoever to enforce collection of the note as a foreclosure. At any rate, it seems to us that to limit the meaning according to appellee's insistence would be to indulge an inference not warranted by the language used nor by the rule of construction to which we adverted in the beginning. The most natural meaning of the clause appears to be that the guarantor stipulated for the control of any process for the collection of the note, and that, while on its face the stipulation seems to be one for indulgence to the railroad company, the guarantor must be considered to have treated it as a matter of advantage to himself for which he contracted and is entitled to have.

In the first paragraph of the contract it appears that the guarantor, Garrett, agreed that he would reimburse Russell in case the latter should "at that time" fail to collect. The quoted phrase cannot refer to the previously stated date, for that was the date of the execution of the Hayneville Montgomery Railroad Company's note, nor to the date of the maturity of the note, for that too was then past; the date of the instrument in question being January 15, 1910. In the construction of contracts the law seeks to conserve rather than destroy. The parties evidently had in mind the time when the note might be foreclosed, and it must be that in the phrase "at that time" they referred to the time when the note would be foreclosed and to the eventuality that such foreclosure would fail to produce funds sufficient to pay the note.

Appellant insists that the instrument in question should be held to mean that the guarantor should have only a reasonable time during which to have control over the efforts of Russell to collect the debt due from the railroad company by coercive process. As we have heretofore pointed out, it would destroy the obligation of the paper to hold that the guarantor reserved an absolute right at all times to say whether the note might be foreclosed. Applying the rule of the courts, which conserves rather than destroys, and another, to wit, that if no time is fixed for performance the implication is of a reasonable time — a principle that is applied to a great variety of contracts (2 Page on Con. § 1154) — and bearing in mind that, in the absence of the stipulation shown by the last clause, it would have been the duty of Russell to proceed at once to the exercise of diligence for the collection of the note then past due, we hold that the parties intended that during a reasonable time after the making of the contract set forth in count 2 no coercive measures should be adopted by appellant, or his intestate, for the collection of the railroad company's note, that is, that the company should be indulged for a reasonable time. But upon this interpretation of the agreement without more, and with the limited information afforded by the complaint as to the relations of the parties concerned in the arrangement and the ends they sought to accomplish thereby, we could hardly say when such reasonable time would or did expire. Upon a full hearing of the evidence that would probably be a mixed question of law and fact proper to be submitted to the jury. Strawbridge v. Robinson, 5 Gilman (Ill.) 470, 50 Am. Dec. 420. It is alleged "that neither the said C. W. Garrett during his lifetime nor the defendant, as executrix under his last will and testament, ever notified the said W. P. Russell, deceased, or his personal representative, to foreclose or bring suit upon the said note described in said agreement," but further allegation is that appellant recovered judgment against the company August 2, 1916, and foreclosed the pledge February 26, 1917. These allegations disclose appellant's theory that, although, in general, diligence to collect from the principal debtor is a condition precedent to the guarantor's liability, still, since appellant's right to proceed against the railroad company was conditioned upon the will of the guarantor, and the guarantor needed no notice of the principal debtor's default — this last because the agreement was made with a view to a default then existing — that in view of these facts appellant and his intestate might, without being charged with lack of diligence, wait for notice from the guarantor to proceed to collect the debt from the railroad company by any and every available means; in other words, that, while the guarantor for a reasonable time might either order or prohibit coercive measures against the railroad company, after such time appellant was not bound to such measures until he got notice to proceed; and it would seem that such operation and effect should be assigned to the agreement. It is not perceived how otherwise the stipulations of the agreement may be made to consist with a workable guaranty of the debt due to appellant's intestate. That the guarantor may waive diligence on the part of the guarantee is to be inferred from the ruling in Phillips-Boyd Publishing Co. v. McKinnon, 197 Ala. 443,73 So. 43. However, while yet his remedies were available, it was necessary, as a condition of appellee's liability, that appellant should have resorted to them, for otherwise the guaranty, contrary to the intent of the parties, would become absolute rather than a guaranty of collection.

The bar of the statute of limitations must be specially pleaded in actions at law, and cannot be asserted by demurrer. Huss v. Railroad, 66 Ala. 473. But it is well enough, nevertheless, to say that appellant's action was not shown by the complaint to have been barred by the statute of limitations. The statute commences to run in favor of surety or guarantor from the time he is liable to suit; in this case from the time when appellant exhausted his remedies against the railroad company without securing full satisfaction of the claim guaranteed. 1 Brandt, Sur. Guar. § 161; Powell v. Jones, 72 Ala. 392.

The complaint discloses the fact that on August 2, 1916, the railroad company was indebted on account of the note to Russell and Garrett in the sum of $21,266, and that by the foreclosure of February 26, 1917, the sum of $10,000 was realized. Appellant proceeds upon the theory that appellee may be charged with the total balance of $10,783, due as of the date on which this suit was brought, to wit, January 27, 1919. This result would follow from appellant's contention that appellee's testator, by guaranteeing "the above-named loan," guaranteed the whole amount due upon the note. We cannot agree, nor on the other hand do we think that the entire sum should be credited to that part of the indebtedness guaranteed by Garrett. In our opinion, the agreement shows that appellee's testator guaranteed only the amount paid him by Russell, approximately one-half of the amount due upon the note at the date of the agreement. One-half (approximately) of the amount realized by the foreclosure should have been credited to the sum guaranteed by appellee's testator.

The allegation concerning the verification and filing of the claim against the estate represented by appellee was, as matter of pleading, sufficient. As to the filing, a similar question was raised and decided in Gillespie v. Campbell, 149 Ala. 193,43 So. 28. As to the verification, we think the allegation as to that will pass muster. "The word [to verify] * * * sometimes means to confirm or substantiate by oath and sometimes by argument. * * * When used in legal proceedings it is generally employed in the former sense." De Witt v. Hosmer, 3 How. Pr. (N.Y.) 284, quoted in 40 Cyc. 194, note.

The grounds of demurrer to the complaint are very numerous, but we have said enough to indicate our opinion as to all of them. It results from what we have said that the demurrer to the second count of the complaint should have been overruled.

Reversed and remanded.

ANDERSON, C. J., and GARDNER and BROWN, JJ., concur.