Bank of Newbury v. Sinclair , 60 N.H. 100 ( 1880 )

The defendants contend that they are not liable on the contract of guaranty which they signed, because there has been no notice to them of an acceptance of the guaranty on the part of the bank, or of the amount of money advanced on the faith of it; and they argue that the guarantors have the right to know what the acceptor of the guaranty expects of them, in order that they may take security or indemnity from the party in whose favor they have assumed liability; that they are entitled to notice within a reasonable time; and that a reasonable time would be such time as would secure to them all means of protecting themselves. But at the date of their contract they assumed a liability which was to continue. This was a voluntary undertaking on their part, and the opportunity for indemnity was afforded at the time when they assumed their responsibility; and a failure to avail themselves of that opportunity was not attributable to any want of notice by the bank, but only to their own laches and their improvident confidence.

When notice of the acceptance of a guaranty is required, it is for the purpose of informing the guarantor that the person to whom his offer or proposal to guarantee is addressed intends to look to him ultimately for payment of the liability, and what the extent of that liability is. But this doctrine is inapplicable to cases where the agreement to accept is contemporaneous with the guaranty, or constitutes the consideration or basis of it. In such a case all the parts of the transaction are connected, and notice of acceptance is implied. Fell Guar. 319; 2 Pars. Con. 13; Sto. Prom. Notes (7th ed.), s. 460, note 2; Wildes v. Savage, 1 Sto. 22, Walker v. Forbes, 25 Ala. 139, 147; Jackson v. Yandes, 7 Blackf. 526; Maynard v. Morse, 36 Vt. 617; Howe v. Nickels, 22 Me. 175; Smith v. Dann, 6 Hill (N.Y.) 543; Bleeker v. Hyde, 3 McLean 279; New Haven Co. Bank v. Mitchell,15 Conn. 206; Douglass v. Howland, 24 Wend. 35; Union Bank v. Coster, 8 Comst. 212; Powers v. Bumcratz, 12 Ohio St. 273.

And it is equally clear, that in order to charge the defendants no demand of payment or notice of Sinclair's default was required. The contract and undertaking of the defendants was not merely a promise to pay an indefinite sum within an indefinite time, upon the default of the principal debtor. It was a joint and several absolute promise to guarantee the payment of a sum limited in amount, upon no other condition than that the debt, the payment of which was thus guaranteed, should be contracted before March 1, 1878. The insolvency of Sinclair before the expiration of that period could not affect the liability of the guarantors. That was a contingency which, in the exercise of reasonable prudence, they were bound to contemplate and provide for at the time of entering into their contract with the plaintiffs. The liability of the defendants attached unconditionally and became fixed as soon as the indebtedness of Sinclair subsequently occurred. No condition as regards presentment or notice is expressed or implied in the terms of the contract. It is an undertaking and promise to do a certain thing in a certain specific event. The event is a default in the payment of the principal party's debt on or before a certain date. When this event happened, the liability of the guarantors, by the terms of their guaranty, was complete.

"If presentment and notice or any other acts are necessary to establish a default on the part of the person whose contract is guaranteed, they are also necessary to establish the liability of the guarantor, because he is liable only upon the default of the former; for example, if the contract guaranteed is that of an indorser, or (as in Philips v. Astling, 2 Taunt. 206) that of a drawer of a bill, presentment to the acceptor or maker, and notice to the indorser or drawer, are necessary, because, without such presentment and notice, there would be no default on the part of the indorser or drawer, and therefore no liability on the part of the guarantor. But if no presentment or notice is necessary to establish a default on the part of the person whose contract is guaranteed, as in the case of the maker of a note [the case at bar] or the acceptor of a bill, none is necessary to establish the liability of the guarantor." Sto. Prom. Notes (7th ed.) 622-627, note 2; Leake Con. 338. "In some cases of contracts to do a certain thing in a certain specific event, the law implies a condition that notice shall be given of the happening of the event, and no liability arises under the contract until such notice is given. These are cases where the event upon which the party has promised to perform is within the peculiar knowledge of the other party, and the party that is to perform cannot make himself acquainted with it. But such a condition is not implied in cases where the event upon which the act to be done is the act or default of a third person, for the party who is to perform can make himself acquainted with the happening of the event." Therefore it is said, and has been repeatedly held in England and in America, that in the case of a guaranty there is no implied condition that notice shall be given of the default of the party whose contract is guaranteed. Vyse v. Wakefield, 6 Mee. . W. 442, 452; Dawson v. Wrench, 3 Exch. 359, 862; Makin v. Watkinson, L.R. 6 Ex. 25; Lent v. Padelford,10 Mass. 230; Vinal v. Richardson, 13 Allen 521, 532; Train v. Jones,11 Vt. 444; Peck v. Barney, 13 Vt. 98; Sylvester v. Downer,18 Vt. 35; Noyes v. Nichols, 28 Vt. 178; Montgomery v. Kellogg, 43 Miss. 486; Fell Guar. 818.

Independently of the particular terms of his contract, a guarantor has certain rights in his character of surety. These rights appertain to all sureties, whether they join in the same contract with the principal, or bind themselves by a collateral agreement. An example of one of the surety's rights is, that there shall be no dealing with the principal by which the surety's right of recourse to him shall be affected. But the surety has not the right to require the taking of any active steps against the principal, or notice to himself of the principal's default. The reason of this has been stated in these words: "The surety is a guarantor, and it is his business to see whether the principal pays, and not that of the creditor." Lord Eldon in Wright v. Simpson. 6 Ves., Jr., 714, 734; Bellows v. Lovell, 5 Pick. 307, 311; Hunt v. Bridgham, 2 Pick. 581. Thus it is said, in the note to Story on Promissory Notes, ante, "This seems, at least, as applicable to a person who enters into a contract of guaranty. So far as the question of presentment or notice is concerned, the person who undertakes to pay upon the default of another seems to be under as absolute an obligation to pay when the default occurs, as the person who enters into an original agreement to pay jointly with, and as surety for, another. The terms of a guaranty seem to impose on the guarantor the duty of seeing whether the principal pays: if the principal does not pay, and the guarantor sustains loss through ignorance of his default, the loss is owing to his own negligence, and it seems much more appropriate that it should be borne by him than by the person to whom he has agreed to be answerable upon the principal's default." Many English authorities are cited in support of this doctrine, which is certainly sustained by the following (among other) American cases: Gage v. Mechanics' Bank, 79 Ill. 62; Dickerson v. Derrickson, 39 Ill. 574; Gage v. Lewis, 68 Ill. 604, 618; Hammond v. Gilmore, 14 Conn. 479; Bushnell v. Church, 15 Conn. 406; Donley v. Camp, 22 Ala. 659; Townsend v. Cowles, 31 Ala. 428; Woolley v. Sergeant,8 N. J. L. 262; Noyes v. Nichols, 28 Vt. 159; Keith v. Dwinnell, 38 Vt. 286,293; Clay v. Edgerton, 19 Ohio St. 549; Watson v. Walker,23 N.H. 471; Waters v. Thanet, 2 A. E. (N.S.) 765, 770; Kautzman v. Weirick, 26 Ohio St. 330.

Earlier Massachusetts cases, which seem to hold the contrary doctrine, are disapproved in Vinal v. Richardson, 13 Allen 521, 533, in which it is said, "The circumstances show pretty conclusively that the defendant knew of the default of the principal debtor. If he did not know of it, it was from his own neglect to inform himself. He has not suffered from want of notice."

In this state the tendency of the cases is to establish the rule, that, where the guaranty is in the nature of an offer to be responsible for a contingent, future liability (e.g., a guaranty of payment for goods that may afterwards be sold), it is necessary to give reasonable notice of the extent to which it has been acted on; but that no notice is necessary in the case of an absolute guaranty of a specific engagement. Beebe v. Dudley,26 N.H. 249; March v. Putney, 56 N.H. 34.

In view of this vast preponderance of authority, we have no hesitation in holding that in all the apparent circumstances of the present case, no notice of the acceptance of the guaranty, nor of demand of payment, nor of default to pay on the part of the debtor, was required. Such we understand to be the law of Vermont, where this writing was executed, and where the contract was to be performed.

The admission of the evidence, in explanation or contradiction of the contract expressed in Cummings's receipt to Sinclair, was wrong. There being no ambiguity in the terms used, the interpretation of the contract is exclusively for the court, although the writing may be loosely called a receipt. See Goodwin v. Goodwin, ante, where this subject is more fully considered. See, also, Sowles v. Sowles, 11 Vt. 146; Winn v. Chamberlin,32 Vt. 318, 320.

By his writing of January 24, 1877, Cummings acknowledges the receipt of $12,250, which he agrees "to apply on his [Sinclair's] notes, and to pay my check of this date for $5,500." The meaning of this language would seem to be too plain to require or admit of explanation. There were no other notes of Sinclair's in the bank than the notes comprising the $12,000 loan and the Pierce and Quimby notes. Whatever other "paper checks" the bank may have held, representing Sinclair's overdrafts, the application is, by the terms of Cummings's receipt or contract, specific. It is not to be applied to Sinclair's notes and checks generally, but to "his notes," and to "my check of this date for $5,500." Expressio unius est exclusio alterius. The plaintiffs, therefore, had no right to apply the balance of $6,750 upon Sinclair's overdrawn account; but it must be applied pro rata to the extinguishment pro tanto of the guaranteed indebtedness of Sinclair. The guaranty includes all the indebtedness of Sinclair, not exceeding $12,000, on or before March 1, 1878. On that date, after the application of the $6,750 to the notes of Sinclair and of Pierce and Quimby, Sinclair being indebted to the bank on his overdrawn account more than $10,000, there was still a large indebtedness remaining, for $12,000 of which the defendants are jointly and severally liable in the action on the guaranty.

The claim of Quimby, that the money paid by Sinclair as usury to the bank should be credited to him cannot be sustained. The right to recover money paid for usury is personal to the party paying it. The right to sue for it does not pass to assignees in bankruptcy, and it cannot be recovered by creditors through the trustee process. Barker v. Esty, 19 Vt. 131; Churchill v. Cole, 32 Vt. 93; Austin v. Chittenden, 33 Vt. 553; Low v. Prichard, 36 Vt. 183; Wheatley v. Waldo, ib. 237. And the fact that usurious interest has been paid by the principal will not avail a surety as a defence pro tanto, in an action on the note against him alone. Ward v. Whitney, 32 Vt. 89; Davis v. Converse, 35 Vt. 503; Cady v. Goodnow, 49 Vt. 400; Lamoille Co. Bank v. Bingham,50 Vt. 105.

Sinclair having testified in substance that the Quimby note was to be held as collateral security for the Noyes acceptance, it was competent for the plaintiff to contradict him by showing that he had made statements and admissions contrary to his evidence upon the stand. Such was the effect of the testimony of Cummings.

When Quimby entrusted Sinclair with his note, he gave him an implied authority to deal with it as he pleased, — to make such contract with the bank concerning it as Sinclair might find to be for his advantage. It is not intimated that Quimby gave any directions that it should be used only as collateral security for the Noyes acceptance, or that he had any knowledge that it was intended to be so pledged, or that it was not discounted and its avails placed to the credit of Sinclair. But it is held, that where a surety confides to the principal the power of making a contract, he confides to him the power of furnishing evidence of the contract; and that if the contract be made by parol, subsequent declarations of the principal are admissible in evidence, though not conclusive. 1 Greenl. Evid., s. 187; Meade v. M'Dowell, 5 Binn. 195; Joslyn v. Smith, 13 Vt. 353; Wilson v. Green, 25 Vt. 450; Brown v. Welch, 38 Vt. 241.

Upon the same ground, and as a Part of the res gestae, the evidence of Leslie concerning the actual contract, as indicated by the books of the bank and the absence of a mark upon the note, such as designated notes held as collateral, was properly admitted.

It therefore follows, that after the application of the $6,750, as before indicated on Sinclair's $12,000 note, and on the Pierce and Quimby notes, the plaintiff will be entitled to judgment in all three of these actions.

Cases discharged.

STANLEY, BINGHAM, and CLARK, JJ., did not sit: the others concurred;