Union Bank v. . Coster's Executors , 3 N.Y. 203 ( 1850 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] Contracts of guaranty differ from other ordinary simple contracts only in the nature of the evidence required to establish their validity. The statute requires every special promise to answer for the debt, default or miscarriage of another, to be in writing subscribed by the party to be charged thereby, and expressing therein the consideration; and no parol evidence will be allowed as a substitute for these requirements of the statute. But in other respects the same rules of construction and evidence apply to contracts of this character which apply to other ordinary contracts. Hence the consideration which will support a contract of this character, as in other cases, may consist in some benefit to the promisor, or some other person at his request, or some trouble or detriment to the promisee. (20 Wend. 184, 201; Theobald on Pr. Surety, 3, 4; 2 H. Bl. 312.) Nor is any particular form of words necessary to be used for expressing the consideration; but it is enough if from the whole instrument the consideration expressly or by necessary inference appears; so that it be clear that such and no other was the consideration upon which the promise was made. (24 Wend. 35; 21 id. 628; 4Hill, 200; 8 Ad. El. 846; 5 Barn. Ad. 1109.) And the rule allowing two or more instruments given at the same time and relating to the same subject matter to be construed together as one instrument, applies also to this class of contracts; so that when a guaranty is given at the same time with the principal contract and forms a part of the entire transaction, if the consideration be stated in the principal contract, though none be stated in the guaranty, it will suffice. (8 John. 35; 9 Wend. 218; 18 id. 114.) So also as in other cases, parol evidence of the circumstances under which the contract was made may be given, to aid the court in giving a true construction to ambiguous terms therein, or to show that separate contracts relate to the same subject matter.

It should also be observed here, that our statute in terms only requires the contract to express therein what it had been well settled the statute of Elizabeth required it to contain, and the same rules of construction should therefore be applied in cases under both statutes. (24 Wend. 35.)

With these observations in relation to the law governing cases of this kind, we come to the consideration of the contract in question.

The letter of credit of Heckscher Coster is an original undertaking on the face of it to accept any drafts to be drawn upon them at sixty days by Kohn, Daron Co. to the extent of $25,000, and negotiated by the bank to whom it is addressed. The consideration of their undertaking appears very plainly from the instrument. It is an open proposition to the bank to which it is addressed, that if it will purchase the drafts drawn by Kohn, Daron Co. they will accept and pay the same. As soon therefore as the bank complied with the proposition the contract was closed, and the rights and liabilities of the parties became fixed. Upon this part of the contract there can be no question that a sufficient consideration appears upon the face of the contract to uphold it. But it requires no greater or different consideration to support a guaranty than to support an original promise. The only difference in the two cases consists in the former requiring the consideration to appear upon the contract itself, whereas the consideration to support the latter may be proved by parol. The question therefore in this case is whether the consideration of the undertaking of the defendants' testator appears upon the instrument itself, or rather whether the two instruments may be read together so that the same consideration shall support both.

The guaranty is without date and at the foot of the letter of credit. Independent of the parol testimony it should be deemed to have been made at the same time. It is addressed to the same person and relates to the same subject matter. It should therefore, within every rule of construction, be deemed part of the same transaction, and the two instruments should be read together as one contract. The two would read thus: "In consideration that you, the Union Bank of Louisiana, will purchase any draft or drafts to be issued by Kohn, Daron Co. upon Heckscher Coster, at sixty days, not exceeding $25,000, we the said Heckscher Coster will accept and pay the same; and I the said John G. Coster agree that Heckscher Coster shall accept and pay the same." Now it seems to me clear that such is the fair reading of the two contracts taken together; and although the contract of John G. Coster may be deemed collateral, yet had the two been drawn in the above form no question could have been raised upon the statute of frauds. But what may be fairly inferred from the terms of a contract should be considered, for the purpose of giving it effect, as contained in it; and this rule applies as well to collateral as to original undertakings. (5 Hill, 147.)

There is a wide difference between the guaranty of an existing debt and the guaranty of a debt to be contracted upon the credit of the guaranty. It is the difference between a past and future consideration. A past consideration, unless done at the request of the promisor, is not sufficient to support any promise. But a promise to do an act in consideration of some act to be done by the promisee implies a request, and a compliance on the part of the latter closes the contract and makes it binding. And although it may be necessary from the nature of the case to prove performance by parol, yet such evidence is no violation of the statute requiring the consideration to be in writing. The consideration of the promise is expressed, and the parol evidence is only used to show, not what the consideration is, but that the act which constitutes that consideration has been performed. Any other rule would require every person to whom a letter of credit is directed to accept the same in writing before the drawer would be bound. For instance, a letter drawn in the country and addressed to a merchant in the city, guaranteeing the responsibility of the person for whose benefit the same was drawn for a given bill of goods to be sold to him, would require a written acceptance by the city merchant before it would be binding upon the drawer. No such strict rule can be found supported by any adjudication. I am therefore satisfied that the consideration of the guaranty in the case at bar sufficiently appears in the contract, and that the same was valid and binding upon the defendants' testator. I have not been able to find a case in our own or the English courts which would conflict with the doctrine above advanced; but on the contrary, the books are full of cases similar in their circumstances to this case, where the guaranty has been sustained. (8 John. 35; 11 id. 221; 10Wend. 218; S.C. in error, 13 id. 114; 12 id. 218; 24id. 35; 4 Hill, 200; 4 Denio, 559; 1 Ad. E. 57; 5Bligh's N.R. 1; 7 Mees. Wels. 410; 9 East, 348; 1 Camp. 242; 3 Brod. Bing. 211; 4 C. P.N.P. 59; 8 Dowl. Ryl. 62.)

The next question raised in the case is as to notice of acceptance. We must hold the law to be settled in this state that where the guaranty is absolute no notice of acceptance is necessary. Judge Cowen, in Douglass v. Howland, (24 Wend. 35,) and Judge Bronson, in Smith v. Dann, (6 Hill, 543,) examined the cases at length upon this question, and they showed conclusively that by the common law no notice of the acceptance of any contract was necessary to make it binding, unless it be made a condition of the contract itself, and that contracts of guaranty do not differ in that respect from other contracts. In this case the only condition of Coster's undertaking was that the bank should purchase the drafts to be issued by Kohn, Daron Co., and upon complying with that condition the rights of the parties became fixed, and the contract binding. There is nothing in the contract from which we can infer that it was the intention of the parties that notice should be given in order to fix the guarantor. No more is required to make the guarantor liable than to make Heckscher Coster, and the only notice to them necessary was the presentment of the drafts for their acceptance within a reasonable time. (Allen v. Rightmere, 20John. 365; Clark v. Burdett, 2 Hall, 197; Cro. Jac. 287, 685; 2 Salk. 457; Vin. Ab. Notice, A 3; Com. Dig.Plead. C. 75; 2 Chitty, 403.)

As to notice of non-acceptance and non-payment of the bills by the drawees, that can only involve the subject of laches on the part of the holders of the drafts, and all the cases, both in England and in this country, concur in holding that this defense can only be set up to an action against the surety in cases where he has suffered damage thereby, and then only to the extent of such damage. (7 Peters, 117; 12 id. 497; 1 Mason, 323, 368; 1 Story, 22; 13 Conn. 28; 5 Man. Gran. 559; 13 Mees. Wels. 452; 3 Kent's Com. 122.) If, therefore, it were necessary in this case to give any notice, no evidence has been given showing that the defendants, or the guarantor, suffered any loss in consequence of the want of such notice.

The only remaining question, therefore, worthy of consideration in this case, arises out of the fact that another bank had previously purchased drafts drawn in pursuance of the letter of credit and guaranty. It is claimed that by such purchase the contract became a fixed and binding contract between such bank and the promisor, and thereby lost its negotiable character, and became located so that no other person or bank could purchase drafts upon the credit of it.

The guaranty, in this case, was manifestly intended to accompany the letter of credit, and is subject, in this respect, to the same construction. If, therefore, it was competent for Kohn, Daron Co. to draw several drafts not exceeding the limit in the bill of credit specified, and to negotiate them at different banks, and Heckscher Coster would be bound by their letter of credit to accept and pay them, the guarantor would also be liable to the same extent. As a general rule the surety is liable to the same extent as the principal, unless he expressly limits his liability. (Theobald on Prin. and Surety, 46.) It therefore only becomes necessary to examine the letter of credit, and ascertain whether it was intended to be limited to one particular bank, or is a general letter of credit to any and all persons who may advance money upon it. It is somewhat singular that we find so few adjudications in our courts upon a class of commercial instruments which enter so largely into the commerce and business of this country, and of the world.

In England it seems to be at this time questionable whether a party who advances money upon a general letter of credit can sustain an action upon it. (Russell et al. v. Wiggins, 2Story; 214; Bank of Ireland v. Archer, 2 Mees. Welsby, 383.) The reason assigned is that there is no privity of contract between them. It is there assumed that it is only a contract between the drawer of the letter and the person for whose benefit it is drawn. But in this country the contrary doctrine is well settled. Letters of credit are of two kinds, general and special. A special letter of credit is addressed to a particular individual by name, and is confined to him, and gives no other person a right to act upon it. A general letter, on the contrary, is addressed to any and every person, and therefore gives any person to whom it may be shown authority to advance upon its credit. A privity of contract springs up between him and the drawer of the letter, and it becomes in legal effect the same as if addressed to him by name. (Russell v. Wiggins, 2 Story'sRep. 214; 12 Mass. 154; 2 Metcalf, 381; 12 Wend. 393; 12Peters, 207; Burkhead v. Brown, 5 Hill, 641; Story onBills; See Beames' Lex. Mer. 444.)

But these general letters of credit may be subdivided into two kinds, those that contemplate a single transaction, and those that contemplate an open and continued credit, embracing several transactions. In the latter case they are not generally confined to transactions with a single individual, but if the nature of the business which the letter of credit was intended to facilitate, requires it, different individuals are authorized to make advances upon it, and it then becomes a several contract with each individual to the amount advanced by him. Thus a general letter of credit may be issued to a person to enable him to purchase goods in the city of New-York, for a country store. The very nature of the business requires him to deal with different individuals and houses in order to obtain the necessary assortment. It has never, as I am aware, been questioned that the guarantor might be bound to several persons who should furnish goods upon the credit of the letter.

So letters are issued by commission houses in the city, to enable persons to purchase produce in the western states. The money is obtained from the local banks in those states by drafts drawn upon those houses, and upon the faith of the letters of credit. It may often happen that a single bank can not furnish the requisite amount, or it may be necessary to use money in different and distant localities. I am not aware of any question ever having been raised as to the authority of different banks to act upon the same letter of credit. It is absolutely necessary that such should be the effect of them in order to facilitate the commerce of the country, and to carry out the object of the parties in issuing the letters of credit. (Burkhead v. Brown, 5 Hill, 641; 2 Story's Rep. 214.)

The letter of credit in this case was evidently intended to be general; it did not contemplate a single transaction, or draft for the whole amount, but several drafts limited in the aggregate to twenty-five thousand dollars. Although the address "sir," and "your bank," is in the singular number, yet I think it was intended to be used in a distributive sense, and apply to any bank or banks who should purchase the drafts. I can see no object which the drawers should have for limiting the party for whose benefit the letter was issued to a single bank. It is said that it would enable them more readily to revoke the authority. But these letters are not issued without either undoubted confidence in the persons for whose benefit they are drawn, or upon ample security. The idea of giving notice of revocation to any party but that for whose benefit they are drawn, is never entertained by the guarantors in cases of general letters. When they wish to provide for any such contingency the letters are framed accordingly. Again, in this case the parties themselves have treated this letter as not limited to a single bank, for they accepted bills which had been discounted by the plaintiffs.

I am, therefore, satisfied that the plaintiffs were authorized to purchase bills upon the faith of the letter and accompanying guaranty, and that the previous purchase of bills by another bank is no defence.

Whether the letters had been revoked with the knowledge of the plaintiffs before the draft was discounted by them, was a question of fact for the jury. It would clearly constitute no defence unless the plaintiffs had notice of it. The judgment of the superior court must therefore be affirmed with costs.

Judgment affirmed.