Fink v. Farmers' Bank

35 A. 636, 178 Pa. 154, 1896 Pa. LEXIS 1146

• Court: Supreme Court of Pennsylvania
• Decided: October 5, 1896
• Docket: Appeal, No. 14
• Status: Published

Opinion

Opinion by

Mr. Justice Mitchell,

The plaintiff by his bill seeks to rescind a contract and repossess the evidence of his liability. It is admitted that there was no accident, and no concealment, imposition or other element of fraud. But the learned master found there was such a mistake by the plaintiff as to his liability on the bond as to bring bis case within that class of mixed mistake of law and fact against the consequence of which courts of equity sometimes relieve. After a very clear and able review of the decisions in England and some other states, the learned master says frankly that he “feels some embarrassment in applying this doctrine to the case in hand in view of some of the decided cases in this state,” but nevertheless concludes that he may do so. The Pennsylvania cases have not yet followed the refinements by which the ancient rule that ignorance of the law excuses no man has been restricted if not frittered away by eases of mutual mistake of legal rights where it was possible to restore both parties to statu quo. If that cannot be^ully done, equity will not assist one party to unload the burdens on the other. An illustration may be drawn from the present case. If the bank had first come to the opinion now advanced by the complainant, that not being liable on the bond he could not be held on the notes, and had at -once passed the notes away for value and .then filed this bill to rescind, the case would have met a summary dismissal for inability to restore the status quo. It is said that complainant tenders a return of the bond, but this would not restore the parties to their former situation, as in the meantime, in reliance on the yalidity of these notes, some of the defendants have- incurred personal liabilities in aid of the bank. The evidence on this point was excluded for irrelevancy by the master, but this was error, and we are entitled to take plainant to show that the status could be restored. and equity has so far contented itself with relief in the averment as true in view of the burden of ’ proof on com-

It is not necessary to follow the master in his detailed examination of our cases on mistake of law, as the court below was of opinion that that question did not arise and rested the decision exclusively on two grounds,- first that the bond was not continuing, and there was no liability upon it, and secondly, that there was no other consideration for the notes.

First, as to the bond. The condition is that whereas F. C. Fink has been appointed cashier, etc., if he shall well, truly and faithfully perform all the duties, etc. “ so long as he shall continue in that capacity ” then the obligation tobe void, etc. The master learnedly and ably traced the rule as to the liability of sureties on official bonds from its origin in Lord Arlington v. Merricke, 2 Saunders, 411, and other cases, in which the term of office was recited in the bond itself, down through its gradual enlargement until it has come in some states to a strong and almost conclusive presumption, which is most fully stated by Poland, C. J., in Treasurer of Vt. v. Mann, 34 Vt. 371, as follows : “ It seems now to be perfectly settled by authority in reference to bonds or obligations given to secure the performance of official duties, that where the appointment is for a limited period, which is recited in the condition, or where it is not recited in the condition, but is fixed and determined by law, the obligation only extends for the period named in the condition or the term fixed by law, and will not extend to cover any extension of the time by a future appointment or subsequent election, although the language of the condition as to time be general and unlimited. The presumption in such cases is held to be that the language is used in reference to the existing office or appointment which the principal holds, and that the sureties do not intend to bind themselves for any indefinite and unlimited extent of time, depending upon the contingency of future elections.”

It is conceded that this rule, even thus carefully stated, has never been expressly adopted in any Pennsylvania case. As a surety’s contract is usually for the benefit of others rather than directly for his own, it has always been held that he is entitled to have the conditions of his liability strictly fulfilled before it is enforced, and in the liberal application of this principle cases are probably not few in which courts have carried adherence to the letter in favor of sureties beyond any substantial equity. An illustration will be found in Shackamaxon Bank v. Yard, 143 Pa. 129, which will be referred to further on, and there is an instructive passage worth quoting, in the argument for appellant in that case, by one of the most learned lawyers that ever adorned the bar of tins court, the late Richard C. McMurtrie, “ there is no distinction between a surety and a principal so far as the construction or meaning or effect of a document is concerned. There is a broad distinction between the liability of the principal and of the surety. But not under the written contract. That may be varied by the principal but it is not the contract that is varied; it is another contract that arises by implication which varies the liability. Naturally the plea of non in Mec foedera veni is never used by tbe principal, because he is sued not on the express contract but on that growing out of his conduct. I think it is sometimes overlooked that the apparent strain not to hold a surety is nothing but a strict exaction of the very contract, and this only because there is no other ground of liability.”

The contract of suretyship though only enforced according to its strict terms is nevertheless nothing more than a contract. No particular form of words is necessary to be observed, and in construing it there is no reason why courts should not be governed by the rule applicable to all other contracts that the actual intention of the parties must prevail. As to official bonds the presumption that they apply only to the existing term of the officer may be admitted, but the presumption is very far from conclusive, and if it is clear that the parties meant to create a continuing liability, the bond must be held to have done so. This was very explicitly and forcibly laid down as the rule in the well considered and leading case of Shackamaxon Bank v. Yard, 143 Pa. 129. The condition of the bond was for the faithful performance of the duties of cashier “ during the time of his employment by the said bank, whether under Ms present election or under any subsequent election to the said position.” The cashier held over, but without re-election, and the default occurred after the expiration of his first term. The court below, adhering to the strict letter of the bond, held the surety discharged by the absence of a formal re-election, but this court reversed the judgment, and put the decision explicitly on the intention of the parties. “ The purpose,” said our brother Williams, “ to make the bond impose a continuing liability and relieve against the necessity for annual renewals was a lawful one, and the words employed for that purpose are apt and sufficient.”

If the present case was of first impression we should have no hesitation in holding that the bond was continuing. The complainant himself in paragraph 3 of his amended bill, so states the belief and intention of the parties at the time of execution. How far deference to a line of cases in wMch the language was similar, but in none of them identical, might lead to a different conclusion, it is not now necessary to decide, as we are of opirnon that there was ample other consideration for the notes.

Secondly, as to consideration. Whatever the extent of the liability on the bond might finally have been determined to be if the contest had been fought out on it, there can be no question that it was an obligation to which complainant was a party, on which he could have been sued, and upon which the result of suit would have been open to doubt. Its surrender therefore was the settlement of a claim made on it, not then disputed, and not now open to dispute on the ground that it could not have been successfully maintained. The sufficiency of the consideration for a compromise is not to be determined by the soundness of the original claim of either party. The very object of compromise is to avoid the risk or trouble of that question. The settlement in the present case had all the substantial elements of a compromise with only the unusual but immaterial feature that the claim was made and received not in a hostile but in an amicable spirit. The bank claimed 120,000 in cash on a bond on which it had an immediate right of suit; the complainant first promised Mr. Bergner part cash and the rest in notes, and at the meeting with the directors offered part in Allegheny Valley Railroad bonds and the rest in notes; the bank refused to take the railroad bonds, but after some negotiation agreed to accept four notes payable at various dates up to January, 1894, the effect of which would be to postpone the bank’s present right of suit until the maturity of the notes respectively ; the notes were made and delivered by complainant and in return for them, as he says himself, he received back his bond. In the entire absence of fraud, accident or mistake of any of the facts, there is no equity on which a court ought to disturb such a settlement. The cases on this* subject have been diligently collected and very clearly arranged in the excellent argument of the counsel for appellant, but it is sufficient here to refer generally to the American notes to Stapilton v. Stapilton, 2 Lead. Cases in Equity, 1703.

Other items of consideration were urged by appellant. 1. Agreement for forbearance, already discussed incidentally in the preceding paragraph. 2. That the notes were given and received as part payment of the brother’s debt, and were accordingly credited on his account in the bank’s books. The master finds this a voluntary act, there being no evidence of any express agreement that it should be done, but we cannot doubt that it was a clearly implied part of the arrangement, and would have been so held if the bank had at once sued F. C. Fink for his whole debt. 3.. That in reliance on this settlement there was a change in the position of the parties, so as to make a restoration of the status quo impossible. This also has been incidentally discussed already. 4. The credit to the bank, and the permission from the superintendent of banking to continue business. On this I will merely cite Sickles v. Herold, per Pryor, J., 15 Misc. Rep. N. Y. 583, affirmed in general term, 15 Misc. Rep. 116, and affirmed with modification on minor point, 149 N. Y. 332.

All or any of these matters would afford sufficient consideration for the notes, but it is not necessary to discuss them further.

Decree reversed and bill dismissed with costs.