Schoonover v. Osborne Bros.

79 N.W. 263, 108 Iowa 453

• Court: Supreme Court of Iowa
• Decided: May 18, 1899
• Status: Published

Opinion

Deemer, J.-

1 — Prior to June 28, 1894, Shaw & Schoon-over was a co-partnership consisting of W. T. Shaw and plaintiff, doing a banking business in the city of Anamosa, Iowa. On that da.y the firm was dissolved, and plaintiff purchased, and became the sole owner of, the assets of the firm. Osborne Bros, is also a co-partnership, engaged in the livery business, and in the buying and selling of stock. Its members were William M. and Lewis D. Osborne. This co-partnership had been doing business with the firm of Shaw & Schoonover for many years prior to its dissolution, and continued to do business with plaintiff thereafter, and until the commencement of this suit. The note on which the action in part is based is for ten thousand dollars, and was executed by Osborne Bros, and David Osborne, the other defendant, on the first day of January, 1891. The account which is the other part of plaintiff’s cans© of action is for money advanced Osborne Bros, by Shaw & Schoonover, and by Schoonover individually, covering a period of years from August 5, 1882, down to August 5, 1896, and the balance claimed to be due is seventeen thousand two hundred and six dollars and thirty-one cents. Plaintiff seeks to charge defendant David Osborne with the payment of this account by reason of the following instrument of guaranty: “Anamosa, Iowa, May 25th, 1894. I hereby agree to be security to Shaw & Schoonover for whatever sum of money they have, or may hereafter', let my sons, Osborne Brothers, have to use in their business. David Osborne.” The account covers interest items amounting to nearly eleven thousand dollars, which it is claimed were charged from time to time on daily balances, with the knowledge and consent of Osborne Bros. These charges were made at the rate of ten per cent, until the legal rate by contract was changed to eight and after that at eight per cent. There never was any written agreement by Osborne Bros, to pay any rate per cent, as interest. The account that Shaw & Schoonover had with Osborne Bros, was never closed, but was continued after plaintiff succeeded to the interests of his firm just as it had been prior to that date. Osborne Bros, were charged with checks drawn on the bank, and with interest, and credited with the deposits, just as if there had been no change in the membership of the banking firm. After Schoonover succeeded to the business of that firm, Osborne Bros, deposited more than twenty thousand dollars, which was credited to their account. At the time of the dissolution of the firm they were indebted to it in the sum of sixteen thousand five hundred and eighty-five dollars and eighty-five cents, as shown by the books of the bank. Defendant David Osborne asked instructions to the effect that, if the jury found his mental condition was such át the time he signed the note and guaranty that he did not know what he was doing, their verdict should be for'him. He further requested the court to charge that he was not liable on the guaranty for money advanced by plaintiff, and that, .if Osborne Bros, made payments on their account after the dissolution of the firm of Shaw & Schoonover which equaled or exceeded the amount due that firm at the time of its dissolution their verdict should be for him, in so far as the account was concerned. Some other instructions were asked, which it is not necessary to refer to at length. The court refused these instructions, and charged the jury that plaintiff was entitled to rely on the letter of guaranty, and that David Osborne was responsible to him for the amount of his account against Osborne Bros. ■

2 - As there was no evidence of David Osborne’s mental incapacity, the court was right in not submitting that question to the jury. The other propositions are of more difficulty; and the first is, is defendant David Osborne liable to plaintiff on a guaranty made to Shaw & Schoonover? Announcement of a few elementary principles of law will help to solve this question: A contract of guaranty or suretyship is said to be strictissimi juris, and one in which the guarantor has the right to prescribe the exact terms upon which he will enter into the obligation, and to insist on his discharge if those terms are not observed. It is not a question whether he is harmed by a deviation to which he has not assented. He may plant himself on the technical obligation: “This is mot my contract. ‘Non Jiaec- in foedera, verd.’ ” Barns v. Barrow, 61 N. Y. 39; Kingsbury v. Westfall, 61 N. Y. 356; Fellows v. Prentiss, 3 Denio, 512; Allison v. Rutledge, 5 Yer. 193 ; Bussier v. Chew, 5 Phila. 70; Penoyer v. Watson, 16 Johns. 100. “A rule never to be lost sight of in determining the liability of a surety or a guarantor is that he is a favorite of the law, and has a right to stand on the strict terms of his obligation, when such terms are ascertained. This is a rule universally recognized by the courts, and is applicable to every variety of circumstances.” 1 Brandt Suretyship (2d ed.), 134, 135; People v. Chalmers, 60 N. Y. 154; State v. Churchill, 48 Ark. 426 (3 S. W. Rep. 352, 880). Again it has been said: “A surety or a guarantor usually derives no benefit from his contract. Ilis object generally is to befriend the principal. * * * The guarantor is liable only because he has agreed to become SO'. He is bound by his agreement, and nothing else. * * It has been repeatedly decided that he is under no moral obligations to pay the debt of his principal. Being then bound by his agreement alone, and deriving no benefit from the transaction, it is eminently just and proper that he should be a favorite of the law, and have a light to stand on the strict terms of his obligation. To charge him beyond its terms, or to permit it to be altered without his consent would be, not to enforce the contract made by him, but to make another for him.” In applying these rules courts have usually held that a guaranty addressed to a particular person can only be acted upon and enforced by that party. See Taylor v. Wetmore, 10 Ohio, 490; Bank v. Liefendorf, 90 Ill. 396; Crane Co. v. Specht, 39 Neb. 123 (57 N. W. Rep. 1015); Penoyer v. Watson, 16 Johns. 100. Thus, in Smith v. Montgomery, 3 Tex. 199, the defendant wrote and forwarded a letter of credit, as follows: “Col. Smith & Pilgrim' — Gentlemen: Mr. A. W. Tennard wishes to get some dry goods on time. If you will furn’sh, I will see you paid, as far as the amount of $3,000, and much oblige, yours, with respect, James S. Montgomery.” This was addressed on the back to Smith alone. Smith and Pilgrim had been partners in business, but 'a short time before had dissolved partnership. The letter, on the back, being addressed to Smith alone, it was delivered to him, and he supplied the goods to Tennard, who failed to make payment; and suit was brought to recovei from Montgomery, as guarantor. The court, in deciding the case, says: “Hpon consideration, we must look to the address on the face of the letter, and not to the direction on the back of it, to ascertain the party to whom its application and promise were intended by tbe writer to have been made; that, bearing upon its face a direction and address full and complete and free from ambiguity, we must take that as tbe certain criterion to determine its application, without regard to tbe discrepancy in tbe superscription. If tbe letter did not bear upon its face tbe proper address, resort might be bad to tbe superscription, or perhaps to other extrinsic evidence, if necessary, to determine its direction and application. Bell v. Bruen, 1 How. 169. But when tbe contract, on its face, is complete and perfect, and certain to every intent, as well in respect to tbe parties as to tbe subject-matter, we do not think it admissible to resort to anything extrinsic to control tbe express terms and clear import of tbe face of tbe instrument. * * * It is a well-settled rule, applicable to this class of cases, that the liability of a guarantor or surety cannot, by implication or otherwise, be extended beyond tbe terms of bis actual engagement. It does not matter that a proposed alteration would even be for his benefit, for be has a right to stand upon tbe very terms of his agreement. Tbe case must be brought strictly within tbe terms of tbe guaranty, when reasonably interpreted, or tbe guarantor will not be liable.” To tbe same effect, Barns v. Borrow, 61 N. Y. 39. We are aware that some courts have held that, when a guaranty is made to a bouse as a bouse, tbe circumstance of taking in a new partner makes no difference as to tbe extent of tbe engagement. See Pease v. Hirst, 10 Barn. & C. 122; Greer v. Bush, 57 Miss. 575 ; Barclay v. Lucas, 1 Term R. 291, note. But in all of these cases there was something on tbe face of tbe instrument which indicated that the guarantor intended to be bound to tbe bouse or concern, no matter what its membership. Thus, in tbe first case, the note guarantied was made payable to the firm or order. In tbe last, tbe conduct of one Jones in a shop or counting house was guarantied.

Tbe true rule, we think, is that announced by Chief Justice Marshall in tbe case of Grant v. Naylor, 4 Cranch, .224. Tbe facts were as follows: A letter of credit was .addressed to Joba and Joseph Naylor. Tbe goods were .-furnished by John and Jeremiah Naylor. The letter was •designed for John and Jeremiah Naylor, and action was brought by them thereon. Chief Justice Marshall, in deciding the case, says: “That the letter was really designed for •John and Jeremiah Naylor cannot be doubted; but the principles which require that the promise to pay the debt of ¡another shall be in writing, and which will not permit a written contract to be explained by parol testimony, originate in ,a general and a wise policy, which this court cannot relax so far as to except from its operation cases within the principle. Already have so many cases been taken out of the statute of frauds which seem to be within its letter that it may be well doubted whether the exceptions do not let in many of the mis-chiefs against which the rule was intended to guard. * * * On examining the cases which have ieen cited at the bar, it does not appear to the court that they authorized the explanation of the contract which is attempted in this ■case. This is not a case of ambiguity. It is not an ambiguity -patent, for the face of the letter can excite no doubt. It is not .¡a latent ambiguity, for there are not two firms of the name of .John & Joseph Naylor & Co., to either of which this letter might have been delivered. * * * In such a case the letter itself is not a written contract between Daniel Grant, the writer, and John and Jeremiah Naylor, the persons to whom it was delivered. ■ To admit parol proof to make such .-a contract is going further than courts have ever gone, where the writing is itself a contract, not evidence of a contract, and where no pre-existing obligation bound the party to enter into -it.” 4 Oranch, 224. See, also, as sustaining these conclusions, Devaynes v. Noble, 3 Eng. Ruling Cas. 336; Pemberton v. Oakes, 4 Russ. 154; Bill v. Barker, 16 Gray, 62; Barnett v. Smith, 17 Ill. 565. In Hunt v. Gray, 76 Iowa, 268, we announced the same rule, as follows: “Where there is no ambiguity in the writing, there can be no resort to parol evi- deuce to ascertain tbe meaning of tbe parties, or. tbe sense-in wbicb tbe words of tbe agreement were intended, bnt they must be construed according to tbe context and usage of the-language.” Aside from tbis there is no claim in tbe petition that tbe guaranty was to any other person or persons than*, those to whom it was addressed, Shaw & Schoonover, and they alone could rely upon it; and, as tbe guarantor did not undertake to become responsible for any money Schoon-over should- let bis sons have for use in their business, be-should not be charged therewith.

3 Appellee contends, however, that a contract of guaranty,, under our Code, is assignable, and that Schoonover, as-assignee, may recover thereon. Let it be conceded that such a contract is assignable, — as we have no doubt it is,— yet' it does not follow that a mere offer of guaranty is assignable before it is acted upon. In other 'words, we have no doubt that the obligation of the guarantor to the firm of Shaw & Schoon-over for the balance due them from Osborne. Bros, at the time they dissolved was assignable, and that Schoonover became the owner thereof, and had the right to enforce the same. This is what is held in Bank v. Carpenter, 41 Iowa, 518. But that is quite a different proposition from the claim that Schoonover could act on David Osborne’s guaranty after the dissolution of the firm of Shaw & Schoon-over. In one case there is a completed contract, which is assignable. In the other there is a mere offer of guaranty to a particular firm, whfch is inoperative until acted upon by that firm. And this offer cannot be assigned, for the reason that the guarantor has the right to select his own creditor. If he does not have that right, then there is no difference between a general guaranty and one addressesd to particular persons. That there is a difference, all the authorities are agreed, and in principle there must be; for it cannot be that one may make another his debtor without his consent and against his protest.

4 As tbe guaranty did not bind the maker for advance' ments made by plaintiff to the principal debtor, the next question is, can plaintiff recover for the balance due from Osborne Bros, to Shaw & Schoonover at the time of the dissolution of the last-named firm ? That he may do so is certain, unless this balance has been paid. As we have seen the account was continued as if there had been no change in the firm. By carrying this balance into the general account, plaintiff made it a part of his general running account. On this account he made credits exceeding two hundred thousand dollars after the dissolution of the firm. How should these credits be applied ? The general rule is that they should be applied to the payment of debit items in the order of their dates. Pidcock v. Voorhies, 84 Iowa, 710; Bank v Hollinsworlh, 78 Iowa, 575, and authorities cited. Is that rule applicable to the facts in this case ? Had the account been broken at the time the firm of Shaw & Schoonover dissolved, had it not been continued by Schoonover as an open, continuous account, or had Schoonover done anything to indicate that he did not intend the general rule as to application of payments to apply, there would be much force- in appellee’s position, and the authorities cited by his counsel would apply. See Porter v. Railroad Co., 99 Iowa, 351. But, as we understand it, the account was not even balanced at that time. If it was, it was simply to indicate the value of the assets of the firm; and Schoonover thereafter treated that balance, or the amount then due, as a part of one continuous, open account against Osborne Bros. Indeed, he sues on a continuous account commencing in August, 1882, and continuing without interruption down to August 5, 1896. He no doubt thought that he could rely on the guaranty in suit, and never for a moment looked upon the account as other than a continuous, open, and running one. Hnder such a state of facts, it is clear that the credits made from time to time on that account should be applied to the extinguishment of the oldest items thereof; and, as these credits are very largely in excess of the amount owing by Osborne Bros, to Shaw & Schoonover, that account is fully settled and paid, and there can be no recovery from David Osborne on account of his guaranty. See, as sustaining these conclusions, Hersey v. Bennett, 28 Minn. 86 (9 N. W. Rep. 590) ; Devaynes v. Noble, 1 Meriv. 572; Crompton v. Pratt, 105 Mass. 255. What is known as the “Clayton Case” (Devaynes v. Noble, supra) is exactly in point, as also is Pemberton v. Oakes, 4 Russ. 154. Morgan v. Tarbell, 28 Vt. 498, is another ease much like the one at bar, and it is there held that payments should be applied to the satisfaction of the old balance. The court erred in not instructing as requested, and in charging the jury that plaintiff might rely on the written guaranty.

Defendants filed a motion to release and discharge the attached property because no notice of the attachment was ever served on them. The property attached consisted of certain personal property belonging to Osborne Bros, and L. D. Osborne, and certain real estate and personal property belonging to David Osborne. It affirmatively appears that no notice in writing was served upon William M. or L. D. Osborne. A copy of the inventory and appraisement was delivered to L. D. Osborne, but this is in no sense a notice, and does not meet the requirements of the statute. But as defendants Osborne Bros, and L. D. Osborne filed counterclaims based upon the wrongful levy of the attachment; and as the sheriff in fact took manual possession of the property, and continued to hold it down to the time of trial, neither party should be heard to say that there was no valid levy. Plaintiff surely cannot deny it, and as defendants have elected to counterclaim for their damages, they should not be permitted to say, after they have suffered defeat upon that issue, that there was in fact no levy. Hamilton v. Hartinger, 96 Iowa, 7. Had defendants stood upon their motion to discharge, and not pleaded a counterclaim for damages, they would undoubtedly be entitled to a release and return of the property. Bank v. Kellog, 81 Iowa, 124, is not in point. Tbe attempted levy in tbat case was on real estate; and plaintiff, by objecting to defendants’ evidence to sustain bis counterclaim, evidently withdrew all claim to tbe property under tbe invalid attacbment. There is this additional fact with reference to tbe levy upon David Osborne’s property: Tbe return shows tbat no notice was given him, but it also, recites tbat David Osborne was not found within tbe county. It further appears that tbe writ was levied upon bis property on August 6, 1896, and tbat notice of tbe levy on real estate was served upon him on tbe 10th day of August, 1896. Tbe levy, therefore, was sufficient, both on tbe real and personal property of David Osborne, and tbe motion to discharge was properly overruled. Bank v. Converse, 101 Iowa, 307.

6 II. Appellee has filed a motion to dismiss tbe apneal because appellant David Osborne has satisfied and performed tbe judgment. Tbe facts with reference to this contention are tbat defendant David Osborne, after sale of bis real estate on execution upon tbe judgment rendered in this case, sold bis equity of redemption to W. T. Shaw, who in turn conveyed to Ella Osborne, one of defendant’s daughters, who made redemption from tbe execution sale. Tbe conveyance was really from David Osborne to bis daughter, and the deed was made to Shaw to secure him for money advanced. After tbe redemption was completed, Shaw conveyed to Ella Osborne, and she made a mortgage bach to Shaw to secure him for tbe amount advanced. David Osborne has not in fact paid tbe judgment, or any part thereof, nor has be in any manner recognized its validity. Tbe motion to dismiss tbe appeal is therefore overruled. As sustaining our conclusions on this proposition, see Tiffany v. Tiffany, 84 Iowa, 122; Grim v. Semple, 39 Iowa, 570.

7 III. But one question remains, and tbat is, what is tbe amount of interest to which plaintiff is entitled on bis account against Osborne Bros. ? The court instructed that if they found plaintiff bad furnished Osborne Bros, from time to time a full statement of the account, and that they retained possession thereof without objection, then such statements amounted to a settlement, and were binding on them and their surety, David Osborne; and that plaintiff was entitled to recover the amount advanced by him to Osborne Bros., and used by them in their business, not exceeding the amount claimed in the petition. The account, as we have seen, embraced large amounts charged, as interest on daily balances. The evidence tended to show that these damages were entered on the pass book or bank book delivered to Osborne Bros., and that they made no objection thereto. Plaintiff virtually conceded that, but for the fact that Osborne Bros, had notice and knowledge of these charges, he could not recover interest. Do these facts change” the rule ? We think they do. As the jury may have found that defendants Osborne Bros, received their pass book, and knew of the charges for interest therein made, and made no objection thereto, the balance shown was in the nature of an account stated, and the interest charges can no more be impeached than if they had been paid, and action brought to recover them. Allen v. Nettles' Adm’r, 39 La. 780 (2 South. Rep. 602) ; Knickerbocker v. Gould, 115 N. Y. App. 533 (22 N. E. Rep. 573) ; Isett v. Ogilvie, 9 Iowa, 313. Osborne Bros, do not plead usury. They simply say that no interest can be charged. Under this state of the record, the instructions asked by defendants relating to the subject of interest were properly refused. The judgment as to Osborne Bros., William M. Osborne, and Lewis D. Osborne is AKeiemed; and, for the error pointed out, the judgment as to David Osborne IS REVERSED.