M. Noyes & Co. v. Nichols

28 Vt. 159

• Court: Supreme Court of Vermont
• Decided: December 15, 1855
• Status: Published

Opinion

The opinion of the court was delivered by

Bennett, J.

This is an action of assumpsit, founded upon two written guaranties, one bearing date the 16th of May, 1851, and the other the 17th day of June, 1852, copies of which are annexed' to the report of the referee, and may be referred to. It is found that the guaranties were duly executed, and delivered to, and accepted by the plaintiff's, and that the defendant had due notice of such acceptance ; that the contracts between the plaintiffs and the principal, set forth in the report, were made in reliance upon the defendants guaranties, and the goods furnished upon the strength of them. We have no doubt of the admissibility of the facts detailed in the report of the referee, to which reference may be had, to prove a notice to the defendant of the acceptance of his first, guaranty by the plaintiffs, and of their furnishing goods to the principal upon the faith of such guaranty, by a sale-, and, not on commission. The cases of Oaks v. Weller, 16 Vt. 63, and of Lowry et al. v. Adams, 22 Vt. 160, abundantly show the admissibility of the facts reported by the referee, for the purposes for which they were offered, and would seem abundantly to, justify his inference from them.

In regard to the plaintiffs’ claim, under the first guaranty, the referee says that he is not able to find that the defendant ever saw the written contract of the 19th May, 1851, between the plaintiffs and the principal, but he does find that the defendant knew there was a contract between them, upon which the plaintiffs sold the principal goods, and the general character of their dealings under the contract, and the referee says, that though there was no personal and express notice, given by the plaintiffs to the defendant, of the amount furnished from time to time, yet he does find, from the relation of the parties, and the acquaintance which the defendant had with his brother’s business, as detailed in the report, that the defendant knew that the plaintiffs were furnishing the principal with goods, from time to time, and had a general knowledge of about the amount of goods furnished, though no definite knowledge of the precise amount of his bills, and no notice, at the end of the year, of the exact amount of his liability under the contract.

We will, in the first place, consider the original liability of the defendant, upon the facts proved, on the first guaranty. This letter of guaranty, addressed to the plaintiffs, says to them, “ if you will furnish T. W. E. Nichols with merchandise and tin ware, upon commission, or otherwise, I will be accountable to you for all his contracts or engagements, as you and he may agree, and in case he does not fulfill them as agreed, I will guarantee the payment thereof.” There can be no question but what this guaranty is prospective in its terms, and looks to a future operation of the principal with the plaintiffs, according to an agreement thereafter to be made between them, and by that agreement, made the 19th of May, 1851, the principal, among other things, agreed “ to purchase of the plaintiffs all the merchandise and tin ware which he should want for one year,” &c. It is a correct proposition, as laid down by the defendant’s counsel, that a surety is not to be held beyond the fair scope of his engagement, and that presents the question whether the dealings of the principal with the plaintiffs are within the first guaranty. The referee has found a sale of the goods, delivered to the principal by the plaintiffs, and not a delivery to sell on commission, and there can be no doubt that the executory contract between the plaintiffs and the principal of the 19 th May provided for a purchase, and it is only necessary then to inquire, whether the guaranty, or letter of credit from the defendant to the plaintiffs, authorized a sale of the goods upon the strength of it; and of this, we think, there can be no serious question.

The request to the plaintiffs is, to deliver, to the principal, merchandize and tin ware, upon commission or otherwise, accompanied with the promise of the guarantor to be accountable to the plaintiffs for all the contracts, or engagements of the principal, as the plaintiffs and he should agree. The construction of this letter of credit is too obvious, we think, to admit of debate, and we have no occasion to settle the rule of construction in relation to guaranties, which are ambiguous, that is, whether the construction shall be in favor of the guarantor, rather than the guarantee. Technical rules of construction are not to be resorted to where the meaning of the parties is plain and obvious.

No doubt there are cases which go the length of holding that a contract of guaranty is one strictissimi juris, and is to be construed in favor of the guarantor, and to this effect is Nicholson v. Paget, 1 C. & M. 48; and see also Mellville v. Hayden, 3 B. & A. 593.

But in the case of Mason v. Pritchard, 12 East 227, the com mon rule of construction of contracts, was applied to a guaranty, and the construction was against the guarantor, and in the late case of Mayer v. Isaac, 6 M. & W. 605, the case in the 12th of East was approved of. See also Hargrave v. Smee, 6 Bing. 244, and Drummond v. Prestman, 12 Wheat. 515. If it was important in this case, it might well be questioned whether, in this respect, there is any good ground for making contracts of guaranty an exception to the general rules in regard to construction. It is sufficient, for this case, to say that the letter of guaranty needs no extension by implication, in order to bring’the plaintiffs’.case, as found by the referee, within the plain and obvious scope of the defendant’s guaranty. That it gave a right or power to the plaintiffs to consign the goods to the principal, to sell on commission, or to make a right out sale of them to him, if the parties should so agree, is beyond a reasonable doubt.

It is said in argument, that if the contract of guaranty is held to be in -the alternative, and to give to the plaintiffs and the principal an option, either to deliver the goods, to sell on commission, ■ or upon a sale, then the plaintiffs must have given the defendant notice, in what manner that option had been exercised.

We have no occasion to examine the soundness of this position, or even question - it. The referee finds, and, as we think, upon competent testimony, not only notice to the defendant of the plaintiffs’ acceptance of this guaranty, and of their furnishing goods to the principal, relying upon it, but also,'that such goods were sold, and not furnished on commission.

The defendant would hardly claim, since the case of Oales v. Weller, in the 16 Vt., that such notice must come from the plaintiffs, necessarily.

We apprehend that the defendant had all the notice of the advancements made upon this guaranty, which the law can require. He knew the plaintiffs were furnishing goods to the principal from time to time, and had a general knowledge of about the amount of goods furnished. The object of the notice is to secure to the guarantor his rights, and means of protecting himself, and certainly, so far as the amount of his liability was concerned, if he knew about the amount, it was enough to put him on inquiry if he wished to know the precise amount, and it was all that was necessary for the security of the guarantor, and sufficient to enable him to act understandingly, as it respected his principal, either by recalling his letter of credit, or by requiring an indemnity from his principal, or by doing both, if judged advisable. In the case of Douglas et al. v. Reynolds et al., 7 Peters 126, it was held, that under a continuing guaranty, the law did not require notice of successive advancements under it, from time to time, as made, and that it was enough if the guarantor had notice of their amount when the business was closed.

It is claimed in argument that, as the case does not show a demand of payment of the principal, and notice of non-payment to the defendant, in a reasonable time, the defendant is discharged from his guaranty. But we think this is not a case requiring, in this respect, any such action from the • plaintiffs. The surety assumed to be accountable for all the contracts or engagements of the principal, as he and the plaintiffs might agree, and guaranteed the payment thereof, in case he did not fulfill them as agreed.

This is a direct and an absolute undertaking for the act of another. The addition of the words, “ in case he does not fulfill them,” does not alter the nature of the undertaking, or impose any duties on the plaintiffs, which would not exist without them. In Smith v. Ide, 3 Vt. 290, the words of the guaranty were, “Mr. Gilman says he has bought a pair of horses of you for $260, in sixty days. I will warrant him to pay according to his agreement.” No demand upon the principal for payment, or notice of his default to the surety was held necessary to charge him. The same was held in Train & Co. v. Jones, 11 Vt. 444.

In that case the principal wished to purchase a quantity of hides, and the language of the guarrantor was, “ I will stand responsible for the fulfilment of any contract the principal, or his agent shall make.” In Peck v. Barney, 13 Vt. 93, the language was, “ if said claims are not paid or secured by the jmncipal, within six months from the date, I do agree to secure or pay the same.”

In that case the court say that, “ a person who stipulates for a thing to be done by himself or another, is bound to see it done, and that notice was necessary only of that which the plaintiff was to do.” See also Sylvester v. Downer, 18 Vt. 35. Under the guaranty now before us, no act was required on the part of the plaintiffs towards getting their pay from the principal. They were only bound to receive it when offered to them. See Williams v. Granger, 4 Day 444. Lent v. Padelford, 10 Mass. 230. Breed v. Hilhouse, 7 Conn. 523. Douglas v. Howland, 24 Wend. 35. Under the decisions in this state, we think it is well settled that, in a case like the present, no demand of the principal was necessary to give a right of action against the principal, or the surety, and, of course, no notice of his default need be given to the surety; and such, we think, was the common law. It is a common principle that, if an act. is to be done by a third person, who is known, no notice neéd be given. See Somersall v. Barnaby, Cro. Jac. 267.

We, then, have no hesitation in holding, that the defendant would have been liable upon his first guaranty had not the principal’s indebtedness for goods delivered under that guaranty been cancelled by his credits.

We will now examine the plaintiffs’ case, under their seepn^ guaranty.

It cannot be questioned that the defendant’s waiver of acceptance of this guaranty, and of the proceedings of the plaintiffs under it, are binding upon him; Bickford v. Gibbs, 8 Cushing 154. It is found that the goods delivered to the principal, under the contract of the 18th of June, were delivered upon the faith of the second guaranty, but is claimed that the terms of that contract do not bring the plaintiffs’ case within the fair scope of that guaranty. If such is the fact, most certainly the defendant cannot be charged upon it. But we cannot so view it. The guaranty, after reciting that the principal was desirous of obtaining, from time to time, goods upon a credit, binds the guarantor to a fulfilment of the principal’s agreements with the plaintiffs, according to his contract. The contract between the plaintiffs and the principal, created a conditional sale of the goods delivered under it, and the provision in it, that the property of the goods should remain in the plaintiffs, until paid for, rendered it none the less a sale on credit. ' Though it was the object of the guaranty to enable the principal to obtain goods upon credit, yet the particular conditions and terms of the credit are purposely left with the principal to arrange with the plaintiffs. The guaranty is absolute in its terms, and as broad as it well can be, binding the defendant to a performance of the principal’s contract, as thereafter to be made. We cannot see why the contract of the 18th of June is not within the fair scope of the second guaranty.

The principal might well agree that the title of the goods should remain in the plaintiffs till their price was paid, and the provision in the contract securing to the principal the right, at his election, of returning the goods which should remain unsold at the end of the year, at a given discount, or to turn in barter pay, are provisions for the benefit of the principal, and increase his facilities for cancelling his debt, and thereby exonerate the surety. Of this the surety cannot complain. The principal’s contract contains an express agreement to purchase the goods, and, upon a conditional sale, the relation of debtor and creditor is at once created between the vendor and vendee, and it is as much a purchase upon credit, as if the sale had been absolute in its terms.

We apprehend'that the defendant cannot complain of that provision, in the contract of the 18th of June, which provides that payments shall be made for goods delivered, under the first contract, before any application shall be made on that one. The. defendant stood liable, on his first guaranty, for the goods delivered on that contract, and the payment enured to his benefit equally as if applied on the last contract. The defendant had no equitable lien upon the goods, which could give him a right to have application first made on the last contract, and it cannot be maintained, upon the facts in this case, that the provision was in fraud of the surety whether communicated to him or not. The case of Pidcock et al. v. Bishop, 10 Com. Law 197, is widely different from the present case. In that case the pig iron was sold to the principal debtor by the plaintiffs, at its market value, under a secret agreement that he should pay, in addition to that, 10s per ton, to one of the plaintiffs, upon an old debt which he owed him individually, and this, it is true, was held to be a fraud upon the defendant, who had guaranteed to the plaintiffs the payment of £200 value, to be delivered to the principal in Lightmoore pig iron. This, it was said, was a diversion of a portion of the fundb of the vendee from being applied to discharge the debt, which he was about to contract with the plaintiffs, and render the vendee less able to pay for the iron supplied to him, and that the surety had ft right to expect that the funds- arising out of the iron sold would be applied towards discharging the debt, which he had become collaterally responsible for; and that the surety had a right to have been informed of all those facts, which were likely to affect the degree of his responsibility. In the case now at bar, there was no diversion of the funds to the injury of the surety, and the application is such as the law would have made, in the absence of any express agreement to the contrary.

Although the contract of the 18th of June provides that the respective bills of goods, purchased by the principal, shall be payable from time to time, as promptly as payments can be made, yet this provision is to be taken in connection with the one which provides for the payment of the old debt first; and the contract is so to be construed, that all its parts may stand, which is not difficult, the last provision simply qualifying the former.

It has been remarked already, that this guaranty is absolute, binding the surety to the fulfilment of the principal’s contracts with the plaintiffs, unconditionally, and in general terms. In such a case, no demand of payment of the principal, and notice of his default to the surety can be. necessary to charge him. By the effect of the waiver, no notice of the acceptance of the guaranty, or of the advances under it, was necessary.

The amount of the plaintiffs’ advancements, under the guaranty, is a necessary part of, and is involved in them action under it. But, as matter of fact, it is found that the defendant had a general knowledge of about the extent of the advancements. He, however, by the waiver, was clearly to see to this, at his peril.

The fact that the goods purchased were commingled by the principal with others, (the plaintiffs knowing that such was his intention,) had no effect to injure the surety, and could not be in fraud of his rights. It did not lessen the principal’s means to extinguish this debt, and the surety had no specific lien on the goods advanced under his guaranty, and, much less, that they should not be commingled with other goods.

It is claimed that it was the duty of the plaintiffs to have informed the defendant of that provision in the contract which gave the principal the right, at the end of the year, at his election, to'return such goods as remained unsold, at a given rate of discount, and that because it does not appear that this was done, the surety, it is said, is discharged. But this is a provision over which neither the surety or the plaintiffs had any control, and could not compel the principal to elect to return the goods, and neither the plaintiffs or the surety had any legal or equitable right to look to a return of the goods unsold, under this provision of the contract as a special means of discharging the principal’s liability, and we cannot conceive that an omission to make this provision in the contract known to the surety, operated as a fraud upon him. Besides, the surety might have well resorted to the principal, for whom he had undertaken, to learn the particulars of his contract, if he desired it.

The provision in the contract, that the goods bargained and sold should remain the property of the plaintiffs till paid for, in no way increased the risk of the surety, but gave the plaintiffs a further security; and an exercise of this right, by retaking the goods, if it existed under the whole contract taken together, would be beneficial to the surety. No doubt the contract, so long as the goods remained in the possession of the principal, under it, clothed him with a power of sale. It can hardly be claimed that the surety could c'ompel the plaintiffs to retake the goods. The most, as it seems to me, that they could claim, would be to be subrogated to this right in the place of the plaintiffs, upon his payment of the debts, and whether that right would exist, it is not necessary to inquire.

The attachment and the sale of the goods by the plaintiffs, is not what the surety can complain of. Though, under this guaranty, the plaintiffs were not bound to take active means to collect the debt of the principal, yet they had a right to do it, if done in good faith to the surety, and the referee finds that, under the circumstances of the case, the sale was reasonable and beneficial to all the parties. The plaintiffs were not to be compelled, by the surety, to sell the goods at public auction, against the agreement of the principal.

The $600 note was properly disallowed. It was a note of the principal, payable on demand, and was received as collateral security, under an express agreement that it was not to be credited to the principal till it was paid, and it is found nothing had been paid upon it. We think the surety, has no more ground to claim an allowance of this note than the principal, or that-he is released by the transaction. The note, being on demand, was no extension of time to the principal, by implication, and the plaintiffs were, at any time, at liberty to commence suit against the principal, the same as if the note had never been given.

Whether the surety would, upon the payment of the debt, be entitled in equity to the benefit of the note and the mortgage, given to the plaintiffs, is another question.

Though no precise time is fixed by the contract, for the payment of the balance of the principal’s account, yet we think he was bound to pay it, at least, within a reasonable time after the close of the business, at the end of the year; and this suit was not commenced until long after the expiration of such reasonable time.

The purchase in of the outstanding mortgage which the principal had previously given on the premises, which he subsequently mortgaged directly to the plaintiffs to secure the $600 nQte, cap have no effect. Although the plaintiffs had obtained an assignment of it to Vilas, and obtained a foreclosure in his name, yet nothing had been paid upon it, and the equity of redemption had not then run, and upon these facts, it is clear that the surety was not entitled to any allowance. The value of the equity of redemption, under the first mortgage, was some $200 ; and this, in effect, passed to the plaintiffs as a security for the $600 note.

If, in the end, the title became vested in Vilas, under his decree, in trust for the benefit of the plaintiffs, it is not necessary to decide whether in equity he should hold the premises, for the benefit of the surety, so far as their excess above the amount of the first mortgage is concerned. It is clear that, at the time of the reference, no claim could exist, in law or equity, in behalf of the principal or surety, why the plaintiffs should he charged with the value of the equity of redemption acquired under their mortgage. The referee negates all fraud in the plaintiffs, or a design in them to i-mpa.iT the rights of the surety, and I am not aware of any general rule in equity, any more than at law, which compels a creditor to exhaust his remedy against his principal before he can go against the surety, unless the contract of suretyship shall require it.

Judgment of the county court is reversed, and judgment on the report for the plaintiffs for their damages and costs.