Guarantee Co. of North America v. Charles

The opinion in this case was filed on July 30, but held up on petition for rehearing and for case of Jones v. Bnoree Power Company until

The opinion of the Court was delivered by

Mr. Chiee Justice Gary.

The following statement appears in the record:

“This action was instituted in the Court of Common Pleas for Greenville county, on the 8th day of October, 1909. The plaintiff prays judgment for the sum of $424.40, with interest from December 2, 1908, that being the amount paid by the plaintiff to Southern Express Company, under a bond in which the plaintiff was surety, for the faithful performance of duty on the part of John H. Charles, Jr., a messenger employed by Southern Express Company. Before the said bond was executed, the plaintiff secured an obligation from John H. Charles, Sr., in the ■nature of a guaranty, dated May 22, 1906. The plaintiff brings this action against the defendant, John H. Charles, Sr., for the said sum, upon the obligation of said guaranty.

“The case was tried before Judge Ernest Gary, and a jury, at Greenville, November term, 1910. At the close of the testimony, the plaintiff’s attorneys made a motion, that the Court direct a verdict in its favor, for the full amount claimed, upon the ground that the receipt of the plaintiff, for the money paid by it to Southern Express Company, on account of the alleged defaults of the messenger, John H. Charles, Jr., was conclusive of the fact and amount of such defaults, and could not be impeached by the defendant, except for fraud; and that there was m> evidence of fraud. Whereupon the presiding Judge directed the jury to' find a verdict, in favor of the plaintiff, in the sum of $481.40, that being the amount claimed with interest; upon1 which verdict judgment has been duly entered, and from which the defendant appeals.”

A copy of the bond, which is set out in the complaint (omitting the formal parts thereof) is as follows:

“May 25, 1906.

“Know all men by these presents, That I, J. H. Charles, of Greenville, S. C., in consideration of the issue of a bond of guarantee, by the Guarantee Company of North America for Southern Express Company, on behalf of my son, John H. Charles, Jr., not yet of age, hereby agree that I will protect and immediately indemnify said Guarantee Company of North America, against any and all loss, damage or expense it may sustain or become liable for, in consequence of such bond or renewal or extension thereof, hereby admitting that the vouchers or other proper evidence, showing payment by the guarantee company of any such loss, damage or expense, shall.be conclusive evidence (except for fraud), against me and my estate, of the fact and amount of my liability hereunder, to said guarantee company. It being understood, that when the above named party reaches mature age, this obligation becomes cancelled.”

The defendant in his answer alleges, “that any payment made by the plaintiff to Southern Express Company, on account of any alleged loss, sustained by reason of the misconduct of the said John Henry Charles, Jr., has been paid without justification, without settlement with the said John ,*Henry Charles, Jr.,'voluntarily, when there was no defalcation or other wrongdoing, on the part of the said John Henry Charles, Jr., and in fraud of the defendant’s rights in the premises.

“That John Henry Charles, Jr., attained his majority on the 29th of November, 1908.”

The defendant appealed upon exceptions, which will be reported.

1 The question in the case is, whether there was error, on the part of his Honor, the presiding Judge, in ruling that the vouchers or other evidence, showing payment of loss by the plaintiff, alleged to have been sustained by the Southern Express Company, as the result of misconduct, on the part of John Henry Charles, Jr., was conclusive evidence (except for fraud) of the defendant’s liability under his said bond.

While the bond upon its face, merely purports to prescribe a rule of evidence, to be applied upon the trial of the case by the Court, nevertheless, it is, in effect, an agreement to submit to the plaintiff as arbitrator, all issues, (except fraud) that might arise between it and the defendant, leaving the Court powerless, to do- more than pass a formal order, confirming the award made by the plaintiff, as was done in this case, thus absolutely depriving the defendant of his right to be heard, upon the merits of the case.

There are two reasons why the direction of the verdict was erroneous.

In the first place, the terms of the bond showed an attempt to oust the Court of its jurisdiction, to try any fact upon which the plaintiff’s cause of action depended, — fraud in this case being a defense.

In the case of Percival v. Herbemont, 1 McM. 59, the syllabus, which correctly states the question decided, is as follows: “The plaintiff and defendant entered into a special written agreement, to submit the matters in dispute between them, to counsel; but no particular counsel was named, or time when the matter was to- be submitted — defendant agreeing to pay, according to the instructions of the- counsel; and in default of -their getting a decision, then the plaintiff was to file a bill in the court of equity, and the decree of that Court, was to- be conformed to, by the defendant. This was held to be an agreement to- arbitrate.

“An agreement to arbitrate, or a bond to submit to arbitration, may be the subject o-f a suit, when the damages stipulated, or the penalty, will authorize a recovery; but such an agreement or bond, would not deprive either party of his .remedy in the Courts, or oust them of their jurisdiction, in regard to1 the matter in dispute.” This case is cited with approval, in Smith v. Thomson, 1 Strob. 344.

This is in accord with the general doctrine, which is thus stated in 2 Encyc. of Law 571: “Where the parties to a contract, enter into an absolute agreement, or covenant, that in case a dispute should arise under such contract, all matters in difference between them relating thereto, shall be submitted to' arbitration, is void on grounds of public policy, because, to give effect to it, would be to oust the Courts of their jurisdiction.” This question has undergone judicial investigation in Jones v. Enoree Water Co., infra 263.

In the second place, it would be against public policy, if the action of the plaintiff was not to be tested, by the rules of common sense’ and reason. The principle is thus stated in Thompson v. Security Co., 63 S. C. 291, 41 S. E. 464:

“When the object of a contract is to gratify taste, serve personal convenience, or satisfy individual preference, the benefit which the promiser derives therefrom, is of a personal nature, and his pleasure, which he has in view in entering into the contract, consists in its performance to his satisfaction; The personal character of such a contract is an element entering into it, of which the promiser is bound to take notice. If the promisee was not allowed to be the sole arbiter, of the due performance of the agreement in such cases, he might be compelled to accept what, in his estimation, was of no value or benefit to himself, and which would have deterred him from entering into the contract. In other cases the reasonableness of the promisee’s action, in determining the question, is the element entering into the contract, and a disregard of this element, is in the nature of a fraud on the rights of the promiser. It is bad faith and unfair dealing for a person to act unreasonably, in an ordinary business transaction, when there is nothing in the contract of a personal nature. The action of the insurance company in the case under consideration', was not dependent upon taste or upon any fact of a personal nature, but solely upon the existence of a fact, in an ordinary business transaction, and it would be bad faith, for it to refuse to be governed by reason and common sense, in determining the existence of such fact.”

There are special reasons, why these principles are applicable to the case under consideration. Not only was the amount, but the fact whether anything was due by the defendant, was to be determined by an interested party, and there was no provision in the contract, that the defendant should have the right to be heard.

It is the judgment of this Court, that the judgment of the Circuit Court be reversed, and the case remanded for a new trial.

Messes. Justices Watts and Fraser did not hear this case.