Quackenboss v. Harbaugh , 298 Mo. 240 ( 1923 )

Quackenboss is the administrator, c.t.a., of the estate of Andrew Doerr, and brought seven separate suits against Harbaugh, executor of the estate of Detlef Von der Lippe, to enforce contribution on payments made by his decedent on seven notes of the Joan D'Arc Mfg. Supply Co., on which the names of both Doerr and Von der Lippe appear as co-makers or as indorsers or in which Doerr was the payee and Von der Lippe's signature appears.

No. 22761 is based on a note of the Joan D'Arc Mfg. Supply Co., payable to the Ricker National Bank, dated January 27, 1913, for the sum of $2575.56, with six per cent interest. The names of Doerr and Von der Lippe and those of Crossmeyer, Bauer, Hadeski and Ashloff appear on this note, in blank, as indorsers. The note came due and was duly presented and protested. The evidence shows it was paid by Doerr, and no evidence to the contrary was offered. Judgment for $1493.67 was rendered against appellant.

No. 22762 is founded on a note (dated November 1, 1912) of the same amount, same payee and principal, and indorsed by the same persons and, also, by Joseph Kreis and George Melsheimer, and duly protested. Judgment was rendered on this note, which had been paid by Doerr, for $1545.21.

In No. 22763 the note was for $2500, was dated 10-31-1911, and was payable to Bauer. Demand, protest and notice of dishonor were waived. All the names except that of Ashloff which appear on the two notes already described, and, in addition, the names of Boehme and Seiter, appear on this note as indorsers in blank. This note was paid by Doerr. Judgment was rendered in this case for $1618.60.

In No. 22764 the note was signed by the same company, was payable to the order of Kadeski, and was for the sum of $5,000. On this note all the names which appear on the first two notes described above appear as indorsers in blank, and, also, the name of Johnson. After maturity payment was made by Doerr. Judgment went for $2882.43.

In No. 22765 three notes for $1,000 each and one for $1500 are sued on. In each of these Zeman is payee and, besides the company, all are signed by Doerr and Von der Lippe and all those (except Ashloff and Thompson) on notes above described. These all signed as co-makers. Doerr paid them all. Judgment went in this case for $2331.26.

In No. 22766 the note sued on is for $2525. It is signed by the Joan D'Arc Mfg. Supply Co., and the American Packless Valve Co., is payable to Doerr and indorsed by Van der Lippe and several of the others who indorsed previously mentioned notes. The evidence tends to show that this note was negotiated by Doerr for the accommodation makers and paid by him at maturity. Judgment went in this case for $2903.68.

In No. 22767 the note sued on is for $5,000, signed by the same companies as in No. 22766, payable to Doerr and indorsed by him and Von der Lippe and nine others of those whose names have appeared as indorsers or co-makers in the other case. The judgment in this case was for $2882.51.

In each of these cases there are allegations, appropriate to the particular case, to the effect, in substance, that the co-indorsers and co-makers, as the case may be, intended to be and were, as among themselves, bound as co-sureties. In each case it is alleged that the Joan D'Arc Company went into bankruptcy, and the note sued on was proved up in that proceeding and an allowance secured on which payment was received of about ten and one-half per cent. Credit is given in each case for this amount.

The insolvency of the two companies and the insolvency or non-residence of the indorsers and co-makers, except Doerr and Von der Lippe, is alleged, as to those involved, in each case.

The answer in each case admits defendant is the duly qualified and acting executor of the estate of Von der Lippe, and denies all other allegations. In addition "as an affirmative defense and by way of set-off and counterclaim," appellant pleads a contract of guaranty and a note and facts relevant thereto, and alleges the liability of Doerr to Von der Lippe thereon to the extent of $15,261.97, for which he asks judgment. This is set up in each of the seven cases. The specific allegations in this part of the pleading will be stated later, so far as is necessary. The reply is a general denial.

The evidence was taken as if but one case was on trial, and the record is the same in all. Some of the evidence applies to all the cases. Some of it applies to one or more, but not to all. The files of the probate court in the estates of Doerr, Von der Lippe and Melsheimer, and the files in the bankruptcy proceedings against the Joan D'Arc Mfg. Supply Company, and the several notes in suit, were put in evidence. Certain of the assignments of error pertain to all the cases, and others have to do with particular cases or groups of cases.

I. The answer and counterclaim were on file a year before the trial, and respondent did not file replies until that time. When the trial began and the petition and answer had been read, respondent's counsel stated that the reply was a general denial. Notice of this had been served on appellant's counsel theFiling previous day. He objected to the filing of the replies,Reply. and moved for judgment because of the delay in filing them. The motion was overruled, and this ruling is assigned for error in each case. This was a matter largely within the discretion of the trial court, and the record does not show an abuse of it. [Hale v. Skinner, 33 Mo. l.c. 453, 454; Blondeau v. Sheridan, 81 Mo. l.c. 550, 551.]

II. At the beginning of the trial appellant objected to the introduction of any evidence on the ground that the petitions failed to state a cause of action in that it was not alleged that "the contract of suretyship was in writing, and it does not appear on the face of the petition orUnwritten the notes that they are or were anything other than aContract. contract of indorsement." At the time counsel based his objection on the Statute of Frauds (Sec. 2169, R.S. 1919) and Section 849, Revised Statutes 1919. The objection is so framed as to concede, for its purpose at least, that the petitions did allege a contract of co-suretyship and seemed to proceed upon the theory that the fact that Von der Lippe's name appeared on certain of the notes as indorser or co-maker was conclusive upon the relationship of the parties in all respects, even as among themselves.

1. In so far as this objection is based upon the failure of the petitions expressly to allege that the contract of co-suretyship was in writing, it is answered by the rule that such a question cannot be raised by demurrer (Phillips v. Hardenburg,181 Mo. 463), and, for a stronger reason, cannot be raised by the less effective substitute therefor which appellantGeneral attempted to employ. The objection was not one toObjection. parol evidence of a denied contract required by the Statute of Frauds to be in writing. It was an objection to any and all evidence on the ground that the petition was insufficient in the respect mentioned. The trial court was right in overruling the objection.

2. Since the Statute of Frauds was later invoked as against parol evidence to prove the contract of co-suretyship, the question may be considered in this same connection.

The decedents, whose estates are represented in this case, and the others were stockholders in a corporation for which it was necessary to raise money. Its financial condition was not good. It is clear the plan was, in most instances, for the stockholders or, at least, a number of them, to sign the corporation's notes as co-makers or to place their names on the backContract of of the notes. This was done. AppellantCo-Suretyship. insists that any agreement among these signers or indorsers, even in advance of signing, that, without regard to the manner in which their names appeared on the notes, their relationship to each other should be that of co-sureties and their liabilitiesinter sese those fixed by that relation, is within the Statute of Frauds and must be proved by writing. The language of the section relied upon is: "No action shall be brought . . . to charge any person upon any special promise to answer for the debt, default or miscarriage of another person . . . unless the agreement upon which the action shall be brought, or some memorandum or note thereof, shall be in writing and signed," etc. The nature of the obligations of the indorsers and co-makers in question to the payee was not affected by the agreement except as the payee was a party to the contract of co-suretyship. Each was to be and was bound to him according to his contracts as expressed on the notes he signed. They were to become and became his debt, according to the notes, so far as the payee was concerned. The agreement made was that each would respond as a co-surety to the others and that each should be liable to the others according to the law of co-suretyship. Under neither relation would any of them pay if the principal discharged the debt. Under either relation they could become liable to the payee if the principal did not pay. Under the great weight of authority the agreement is not within the statute. In Weeks v. Parsons,176 Mass. 570, directors of a corporation had an understanding that they should indorse notes for the benefit of the corporation and that their relations as among themselves should be those of co-sureties. The court held (l.c. 576) that the Statute of Frauds did not apply "because the parol agreement related to the obligations of the indorsers inter sese, and not to a promise to pay the debt of another; also, so far as there was any promise it was one implied by law . . . from the mutual relation of the parties when it was established that they were co-sureties." A like agreement between two indorsers upon a note given to raise money for an adventure of their sons business was held "not a promise to answer for the debt, default or misdoing of another." [Faulkner v. Thomas, 48 W. Va. l.c. 153, 154.] In Sanders v. Gillespie, 59 N.Y. 250, a like principle was applied. Other decisions enforcing similar oral agreements between indorsers are: Sloan v. Gibbes, 56 S.C. l.c. 486; Alphin v. Lowman, 115 Va. l.c. 445, et seq.; Westfall v. Parsons, 16 Barb. 645. In Cortelyou v. Hoagland, 40 N.J. Eq. l.c. 2, eight directors of a corporation indorsed a note for its benefit under an oral agreement to protect each other from all loss except one-eighth agreed to be paid by each. It was held the agreement was not within the Statute of Frauds. The Supreme Court of Washington in Handsaker v. Pedersen, 71 Wn. l.c. 224, had occasion to apply the rule to an accommodation indorser who relied upon a parol agreement to establish a different relation with others on the note. It was held that the agreement was not within the statute. So far as co-makers are concerned the rule permitting their true relation as sureties to be shown by parol is too familiar a rule to require discussion, unless, as seems to be contended, a recent statute has affected it in some way.

In this State, in Garner v. Hudgins, 46 Mo. l.c. 401, it was held that a member of a firm who induced another to sign as surety a note given to raise money for the firm, and which was admitted to be the firm's debt, by promising to indemnify such surety against liability, was liable upon the agreement though it was not in writing. This involves a principle which, on one view, has application here. The court, through BLISS, J., said: "It has been sometimes held that a promise to indemnify did not come within the statute, but it seems to be now settled by the better authorities that where the promise is collateral merely, the promisor having no interest in the liability guaranteed against, and being under no obligations to pay it, it is not obligatory unless in writing. [Brown on Statute of Frauds, secs. 168, 171, and cases cited; now Sec. 161 et seq., 5th Ed.] But the promise to indemnify is only embraced by the statute when it is to pay the debt of another, and hence an indemnity against one's own obligation or liability does not come within it."

In Bissig v. Britton, 59 Mo. 204, Britton, who had already signed as surety a replevin bond for Wisner and others in an action about to be commenced, induced Bissig to sign the bond as surety by promising orally to hold him harmless and pay it if liability accrued on account of the suretyships. It turned out that Bissig was forced to pay and he sued Britton on the oral promise. This court applied the rule generally held applicable to such a contract of indemnity when made by a stranger to the debt and ignored the fact that Britton was also bound for the bond. It was held the agreement was within the statute. The court held that Thomas v. Cook, 8 Barn. C. 728, had been overruled by Green v. Cresswell, 10 Ad. El. 453, and found its decision on this, as the law of England, and certain decisions of the state courts. Green v. Cresswell has long ceased to be the law in so far as any application it could have to support the holding in Bissig v. Britton (Browne on Statute of Frauds (5 Ed.) sec. 161b; Stearns on Suretyship, secs. 32, 33), and the cases in this country in the main now deny its doctrine to that extent, as appears from the same texts. It is not necessary to go further in this case than to say that Bissig v. Britton ought not any longer be followed as authority for the proposition that one liable upon a note or contract may not orally bind himself to hold harmless another who becomes a surety in consideration of such an agreement. See cases cited: In 27 C.J. (Frauds, Statute of) sec. 40, p. 155 et seq.; in note to Posten v. Clem, 1 A.L.R. p. 383 et seq.; in 25 R.C.L. p. 529, sec. 115. A discussion of Bissig v. Britton is found in Reed on Statute of Frauds, in note to Section 144. The decision in Bissig v. Britton is founded largely upon Green v. Cresswell, in which the indemnitor was a stranger to the principal obligation. In the case before the court the contrary was true. No heed was paid to this distinction which is one taken in the cases and text-works. The court laid hold upon a valid principle and applied in to facts which were not within it. The case of Hurt v. Ford, 142 Mo. l.c. 301, adds nothing to Bissig v. Britton and involves facts which take it out of any part of the rule of that case which could apply here. There the promise to indemnify was made by the payee to indemnify Ford against liability as surety on the note which he signed as surety for Hightower. In Gansey v. Orr, 173 Mo. l.c. 546, the promise was one made to plaintiff to "indemnify her against the miscarriage of the business enterprise thereafter to be entered into by the William A. Orr Shoe Company." In that case the promise was to repay the price of stock if the corporation's venture failed. The decision in Bissig v. Britton, to the extent indicated, should be no longer followed. The true rule, so far as the instant case is concerned, is stated in Garner v. Hudgins, supra.

III. The position that Section 849, Revised Statutes 1919, excludes proof of the true relation among indorsers is not tenable. That section is: "A person placing his signature upon an instrument otherwise than as maker, drawer or acceptor is deemed to be an indorser, unless he clearly indicates byRecent appropriate words his intention to be bound in someStatute. other capacity." This section and the decisions cited (Overland Auto Co. v. Winters, 180 S.W. 561, 210 S.W. 1; Stephens v. Bowles, 206 S.W. 589) concern the relation of the indorser to the payee of the note. Section 854, Revised Statutes 1919, deals with the relations of indorsers inter sese. It provides: "As respects one another, indorsers are liable prima-facie in the order in which they indorse; but evidence is admissible to show that as between or among themselves they have agreed otherwise."

IV. There was sufficient evidence tending to prove the agreement among the indorsers that they would stand with respect to each other in theIn Order of relationship of co-sureties. Respondent quotes fromIndorsement. Trego v. Estate of Cunningham, 267 Ill. l.c. 377, 378, paragraphs pertinent to that question as follows:

"A claim much insisted upon in argument is based on Section 68 of the Negotiable Instruments Law (Laws 1907, p. 402), which provides that, as respects one another, indorsers are liable prima-facie in the order in which they indorsed, but evidence is admissible to show that as between or among themselves they have agreed otherwise. There was no regular order in which the indorsers signed the different notes, but in all of them Cunningham's name appeared below that of one of the beneficiaries. As applied to notes like those in question here, payable to the order of the maker, the law of this State was the same before the Negotiable Instruments Act was passed. Where a note was payable to the order of the maker and created no obligation until indorsed by him, the person writing his name on it in blank undertook the obligation of a second indorser. [Blatchford v. Milliken, 35 Ill. 434.] The rule was otherwise as to a note payable to another party, and the Negotiable Instruments Act extended the same rule to all notes in accordance with the prevailing doctrine. [3 R.C.L. sec. 348.] That act contemplates proof of an understanding between indorsers that their liability shall be joint, and not as implied from the order in which their names appear. Both by the terms of the act and the settled law the rule excluding parol evidence to vary a writing has no application. Where one not the payee placed his name on the back of a note parol evidence was always admissible to show what liability was in fact assumed. [Kingsland v. Koeppe,137 Ill. 344.] In case of an indorsement in blank the established rule has been that resort might be had to parol evidence and the circumstances of the case to prove the true relation. [Cook v. Brown, 62 Mich. 473.] Of course, it is not essential that a verbal agreement that the indorsers should be equally liable should be proved, but an inference of such an agreement may be otherwise established. The understanding of the parties in that regard may be proved like any other fact, by the circumstances surrounding them. In this case the indorsers constituted the entire body of stockholders of the corporation, of which they were also directors, and to keep the corporation running it was necessary for them to indorse notes. It would be quite unreasonable to say that there was any intention that their liability should be determined by the order in which they indorsed the notes or that they expected to sue each other in that order. The notes were made for their benefit equally, to raise money for the corporation, whose assets and properly belonged to them."

The same facts appear in this case and, further, there is testimony of conversations or declarations among the indorsers and in Von der Lippe's presence which have a tendency to support the inference of an agreement such as is alleged. The signatures appear in any and every order upon the notes. The method of signing was for the secretary or some official to present the note or notes to the several stockholders in the order in which he casually came in contact with them, and they signed or indorsed in the order thus accidentally determined. The order of signing or indorsing is not the same on any two of the notes. In Weeks v. Parsons, 176 Mass. l.c. 575, the court had before it a case similar in many of its facts. It was held: "The court found that there was an understanding between the directors that they should indorse the notes for the benefit of the corporation, and that it was intended and understood that the indorsements were to be joint and not several. There was evidence warranting this finding, and it follows from it that the indorsers were as between themselves co-sureties. It was not necessary that there should be a contract in so many words to sign as co-sureties. It was sufficient if it appeared, taking all the circumstances into account, that that was the nature of the liability which as between themselves the parties intended to assume and did assume."

V. In one case it is argued that the notes sued on are Illinois contracts and the judgment must be reversed because no law of Illinois was proved authorizing a recovery. Davis v. McColl, 166 S.W. 1113, is cited. That case refers to cases and acts of Congress which make it clear that the common law prevailed in Illinois prior to its admission to the Union, and holdsProof of that in such circumstances further proof of the law ofIllinois the State is unnecessary (unless it is desired toLaw. invoke some subsequent modification of that law). There is no reason for a further discusison of the phases of the case to which this objection applies since the common law relating thereto has already been considered.

VI. All notes, or claims arising out of their payment, save one, were presented against the bankrupt estate of Joan D'Arc Mfg. Supply Company, and the allowance made is credited. As to the excepted claim, it seems to be argued that theFailure to failure to present it in the bankruptcy case inPresent Claim some way defeats the action upon it. The right ofto Bankrupt Doerr against his co-sureties arose against themCourt. upon payment of the notes by him and is no more defeated by the Joan D'Arc Company's failure to pay through the bankruptcy court than it was by its first default.

VII. The renewal notes given to the holder did not discharge Von der Lippe's obligation as co-surety. If they are held to have paid the notes on which his name appeared, his obligation arose from that fact. If they did not pay the originalRenewal: notes, his obligation as co-surety continued, and hisDischarge. obligation to pay arose when the original notes were discharged. [Trego v. Estate of Cunningham,267 Ill. 368.]

VIII. It is argued that the petitions do not sufficiently allege an agreement constituting the parties co-sureties as among themselves. No demurerr was filed. The petitions set up the facts in detail and specifically allege that the partiesInsufficient signed as co-sureties and "agreed that they shouldPetition. become co-sureties on said note, as aforesaid." There is no question that the petitions are not vulnerable to the attack now made.

IX. It is contended that in three of the cases there was neither protest nor waiver of protest alleged or proved, and that these actions must fail for that reason. McDonald v. Luckenbach, 170 F. 434; Bennet v. Kistler, 163 N.Y.S. 555; Eaves v. Keeton, 196 Mo. App. 424; Overland Auto Co. v. Winters, 210 S.W. 1, are cited. These decisions have something to do withProtest. the right of a payee to enforce, without protest or waiver, payment against those whose names appear as indorsers but who are bound to each other, but not to the payee, as co-sureties. In the three instant cases in which the point is made respondent's decedent was a party to the contract of co-suretyship, and in two cases he was the payee in the notes, and in the other he had become the holder before maturity. In such circumstances, under the facts in all these cases (all in evidence in each case), the contract of co-suretyship rendered unnecessary protest or waiver in the three cases in question. Whether appellant's decedent could have enforced that agreement as against respondent's decedent in these three cases is another question. Here respondent's decedent is the payee or holder and sues on a contract to which all were parties and which made them co-sureties without regard to the formal relation they bore to the paper. Doerr's loss on these notes arose from the failure of the maker to pay him or his transferee. When his liability arose that of Von der Lippe to contribute arose under his co-surety agreement without regard to any question whether a payee or holder who was a stranger to the co-surety agreement could, in the circumstances, have held him without notice of protest or waiver.

X. It is contended the judgment in one case is excessive. This insistence is based upon files of the court ofExcessive bankruptcy which do not appear in the record.Judgment.

XI. There was substantial evidence tending to prove the several signatures. There was no error in permitting Kadeski and Ashloff to testify. While they were parties to the contract of co-suretyship, they were not admitted to testify in their own favor or in favor of any party to the actionWitness: Party claiming under them. Von der Lippe's obligationto Transaction. to Doerr was not dependent upon that of Kadeski or Ashloff or either of them. It rested upon his own promise. So viewed, the testimony is not subject to the objection made. If it be conceded that the promise to each party to the agreement is the joint promise of the others, then Kadeski and Ashloff, as joint promisors with Von der Lippe, are competent. [Vandergrif v. Swinney, 158 Mo. l.c. 532; Short v. Thomas, 178 Mo. App. l.c. 413, 414.]

XII. Appellant's first counterclaim is for payments by him upon a guaranty given to Old Colony Trust Savings Bank of Chicago to establish credit for the American Packless Valve Mfg. Co. This guaranty was signed by L.J. Kadeski, Thos. Conran, B.A. Leafgreen, Michael Girten, Andrew Doerr, Richard J. Coyne and Detlef Von der Lippe. Credit was extended for theCounterclaim. amount of $10,000, and the claims arising therefrom were proved against the estate of Von der Lippe in 1914, and the counterclaim was set up in the answer in 1916. The Von der Lippe estate has made no actual payment of it. The answer avers that Von der Lippe signed the guaranty upon an agreement by Doerr to protect him from all loss on account thereof, and the brief makes the single contention that judgment should have gone for appellant on this counterclaim on that theory. Four of the seven signers of the guaranty are not otherwise connected with the cases, so far as the evidence shows, and there is no evidence of their insolvency, and there is no contention that a recovery on the counterclaim can be had on the theory of co-suretyship, either by reason of the legal relationship of the signers of the guaranty, as such, or under any agreement among them that they would stand in such relation to each other. The single allegation and contention is that Doerr's estate is liable upon his contract to indemnify Von der Lippe against loss by reason of his signing the guaranty. The evidence tending to prove co-suretyship, outside the instrument, is not so strong as was the evidence on respondent's case, as appears from what has already been stated. Whether it would be sufficient is not a question now. Appellant does not contend for recovery on such a relation. There is no evidence at all in the case which tends to prove the making of a specific contract by Doerr to indemnify Von der Lippe. What evidence there is tends to prove, if anything, another relation not relied upon by appellant on his appeals. The finding for respondent on this counterclaim was right.

The second contention is founded on the allegation that Doerr induced Von der Lippe to borrow $4500 from a bank for the use of the two companies mentioned "for his accommodation and upon his assurance against loss," and that the note of the companies, indorsed by Doerr and others, was given to Von der Lippe and put up by him as collateral with the note first mentioned. After Von der Lippe's death his note was proved against his estate and collected, and the collateral note was proved against the estate of Doerr by agreement between the bank and appellant, but has not been paid. No further claim of Von der Lippe's estate had been made on this transaction against Doerr's estate. Appellant in his brief bases his claim for the allowance in these cases, of this second counterclaim, upon an express contract of Doerr to indemnify him against loss. For the same reasons given in connection with the first counterclaim this claim, also, must be denied.

The judgment is affirmed. All concur.