Welsh v. Ebersole

75 Va. 651

Opinion

Staples, J.

The only question arising upon this record is, whether the circuit court properly sustained the demurrer to the second and third counts of the plaintiff’s declaration. Before considering this question, it will conduce to a clear comprehension of the case to state substantially the material averments contained in these counts. The second count alleges that 1ST. W. Solenberger was indebted to the plaintiff in the sum of $1,900, part of the purchase money for a tract of land; that Solenberger preferred to give personal security for the payment of the debt rather than a lien on the land, and offered the defendant Ebersole as guarantor, and thereupon the defendant, in consideration of the premises and of the fact that the plaintiff would not reserve such lien, guaranteed the payment of said debt, which guaranty is evidenced by the writing obligatory of Solenberger payable to the defendant and en dorsed by tbe defendant to tbe plaintiff by writing his name in blank on tbe back of tbe bond.

Tbe count further avers tbat tbe plaintiff obtained a judgment on tbe bond against Solenberger, sued out execution thereon wbicb was unavailing, and tbat no part of tbe debt has been paid, of all wbicb tbe defendant bad notice.

There are other matters set forth in tbe count, but these are sufficient for all of tbe purposes of this case.

Tbe third count does not vary very materially from tbe second, and need not therefore be further noticed. There is nothing in tbe record to indicate tbe grounds upon wbicb tbe circuit court proceeded in declaring these counts insufficient. Tbe counsel on neither side have favored us with an argument, oral or written. All tbat we have is a brief petition for tbe appeal, in wbicb it is suggested tbe question is, whether it is an incontrovertible conclusion of law, whatever may have been tbe facts, tbat when tbe defendant placed bis name on tbe back of tbe bond it could only be as assignor. It is probable, therefore, tbat tbe circuit court was of opinion tbat tbe defendant must be treated as assignor of tbe bond and not as guarantor, and tbat parol proof could not be received to show a contract different from tbat implied from tbe alleged assignment to tbe plaintiff.

In tbe first place, it is important to inquire into tbe rights and obligations resulting from a guaranty and an assignment. A guaranty is not an absolute undertaking as in case of suretyship, but a conditional one to answer for tbe debt, default or miscarriage of another. Tbe guaranty of payment of a bond or note is an undertaking, on tbe part of tbe guarantor, tbat be will pay tbe debt if tbe principal does not. According to some authorities tbe gurantor contracts to pay if by tbe exercise of due diligence tbe debt cannot be made out of tbe principal. In every case we must look to the terms of the guaranty and the circumstances under which it was made to ascertain the character and extent of the undertaking. Arents v. Com. 18 Gratt. 769.

A guaranty may embrace alike negotiable instruments and common law obligations for the payment of money.

On the other hand, assignments relate only to nonnegotiable securities. The assignor in effect agrees that the assignee shall recover the full amount of the bond from-the debtor, and if, after the exercise of due diligence, he is unable to do so, he, the assignor, will make good the amount received by him upon the assignment. Peay v. Morrison, Ex’or, 10 Gratt. 155. The assignee’s right of recourse upon the assignor rests upon the ground that there was a valuable consideration for the assignment. In all cases, however, the actual consideration may be shown, and this constitutes the measure of recovery by the assignee against the assignor, whereas in a case of guaranty the guarantor is liable, whether he has or has not received any consideration. A loss sustained by the other party at the instance or with the consent, express or implied, of the guarantor, is sufficient. Chitty on Contracts, 493.

The effect of endorsing the payee’s name upon a negotiable security is perfectly understood in the commercial .world. '

It is in the nature of a warranty that the maker will pay the note upon presentation at maturity, and if not so paid, he, the endorser, will, upon due and reasonable notice of the dishonor of the note, pay the same to the holder. The term “endorse,” therefore, when applied to bills of exchange and other negotiable instruments, imports a transfer of the legal title. But with respect to bonds and other securities not negotiable, the equitable title passes by assignment only. And this court in Bank of Marietta v. Pindall, 2 Ran. 475, said, as to these common law obligations, endorsement is not equivalent to assignment. As to these assignments meaning more than endorsement: it means endorsement by one party with intent to assign and an acceptance of that assignment by the other party. That case, however, and the case of Freeman’s Bank v. Ruckman, 16 Gratt. 126, seem to establish fully the doctrine that endorsement of the obligee’s name upon the bond accompanying the transfer may be declared on as a common law assignment, and that an averment that the instrument was endorsed and delivered is in effect an averment that it was assigned. Both of these cases were, however, decided upon a demurrer to the declaration. They do not establish that such an endorsement may not be treated as a guaranty if such was the agreement of the parties. In 2 Rob. Practice, 290, 291, the opinion is rather insinuated than expressed, that the implied contract resulting from an assignment or «endorsement of a common law obligation cannot be changed by parol evidence into a contract of guaranty. I have not been able to find any decision in this State directly upon this point unless the case of Hopkins Brother & Co. v. Richardson, 9 Gratt. 485, to be hereafter noticed, be so considered. In other States it would seem that parol evidence is received' to show the true nature of the contract resulting from the endorsement. In some of them the endorsement in the absence of proof is treated as a guaranty, in others as imposing the obligation of a surety for the debt. 2 Rob. Prac. 290; 2 Parsons on Bills and Notes, 119; Seymour v. Van Slyke, 8 Wend. 403, 421; Josselyn v. Ames, 3 Mass. 274; Gist v. Draltely, 2 Gill. 340; Baylies on Sureties and Guarantees, 28. I. do not deem it necessary to express an opinion as to the soundness of the view suggested in Rob. Practice. “What is there said by the author was with reference to antecedent obligations evidencing a debt due by the obligor to the obligee and transferred by the latter to a third person with the accompanying endorsement. That is not this case. The bond executed by Solenberger to Ebersole, the defendant, was not at any time a subsisting obligation between them—it was not so designed; Solenberger was not indebted to tbe defendant to tbe amount of a dollar, nor was there a transfer by tbe defendant to tbe plaintiff. Assuming as we must upon a demurrer, tbe truth of every material averment of tbe declaration, tbe arrangement was that tbe defendant should guarantee tbe payment of tbe debt Solenberger owed tbe plaintiff; and in order to give effect to that arrangement it was agreed that Solenberger should execute bis bond payable to tbe defendant and tbe defendant should endorse bis name tberon in blank as guarantor of tbe debt.

What is there in this transaction which precludes tbe plaintiff from proving it by parol testimony and recovering upon it when so proved ? If this were a suit upon tbe bond by tbe defendant against Solenberger, tbe latter, I take it, might show that it was never delivered to tbe defendant as a deed of the obligor. This is, however, not a suit upon tbe bond, but for a cause of action collateral to tbe bond. If tbe obligee of a valid instrument who endorsed it in blank is conclusively presumed to be an assignor, no such presumption can attach to one who was never tbe bolder of tbe instrument, to whom it was never delivered as a valid obligation and whose only connection with it was to endorse bis name upon it. Nothing is perhaps better settled than that a person who is not tbe payee of a note, but endorses bis name thereon in blank, may be treated by tbe payee as guarantor, promisor or endorser, according to tbe agreement which may be made out by parol proof of tbe facts and circumstances which took place at tbe time of tbe transaction. Story on Promissory Notes, Lee, 479; Watson v. Hurt, 6 Gratt. 633; Orrick v. Colston, 7 Gratt. 189.

Reference has already been made to tbe case of Hopkins, Brother & Co. v. Richardson, 9 Gratt. 485. It is very remarkable that neither in tbe report of tbe case nor in tbe opinion of Judge Lee is it stated whether Richardson, who assigned the bond, was or was not the obligee. He is throughout spoken of as holder and assignor. If Richardson was in fact the obligee, the decision is a complete and conclusive authority in this case. And even if he was not such obligee, I think the reasoning of Judge Lee has a very strong bearing upon the question here. In the course of his reasoning .he uses the following language: The distinction between the endorsement of negotiable instruments and common law obligations and other instruments not negotiable, are well established by the authorities. But it certainly cannot be maintained that if the holder of the bond endorse it in blank with intent to assign it, and the assignee succeeds in getting credit on the faith thereof, and the obligee prove insolvent, the assignor will not be liable to the party making the advance because he may have received no value for his assignmeut from his immediate assignee. In such a case the assignor may be regarded as authorizing his assignee to take up the money or goods on the faith of the bond and of his assignment, and to write over his name an assignment for value received, or as authorizing a guaranty of the payment of the bond, to be written over his name conforming to the true intent and purpose with which it was endorsed on the bond. He then proceeds to say that if such a promise be regarded as an undertaking to answer for the debt of another, and therefore within the statute of frauds,, the endorsement of the name of the assignor in blank for the purpose indicated, and which gave authority to write a guaranty, in conformity to the intention with which the endorsement was made, and of which parol testimony is clearly admissible, is a full compliance with the requisitions of the statute on the subject. After referring to various cases, he further declares, “the result of the various authorities would seem to be in relation to a blank endorsement of an instrument not negotiable, that where it is not part of the original transaction, but subsequently made, then in the absence of controlling proof it is deemed a mere guaranty, and the endorser treated only as guarantor. The true intention of the parties is, however, always the subject of elucidation by proof which may be by parol, and the interpretation to be placed upon the endorsement will be always just such as will carry that intention into effect.” It is but just to say, that in this last quoted remark Judge Lee was, perhaps, referring to the irregular endorsement of an instrument not negotiable by some person other than the payee.

It does not matter, for so soon as it is shown that the bond executed by Solenberger was never an effectual instrument in the hands of Ebersole, and was not transferred to the plaintiff by him, it is clear that the latter cannot be treated as assignor; and I take it to be clear in any action against him by the plaintiff he might show the real facts of the transaction, and thus avoid any liability based upon an alleged assignment. It was, however, manifestly intended that the defendant should be liable in some form, and, as was said by Judge Lee, the interpretation to be placed upon the endorsement will be always such as will carry that intention into effect.

In the case of negotiable securities, the endorsement is not a mere transfer, but a new contract embodying all the terms of the instrument, and derives its efficacy from the instrument itself. The legal import of the contract being clear and definite, parol testimony is held tp be inadmissible to give a different effect to the endorsement from what the law implies. In the case of a non-negotiable security, however, the endorsement does not pass the legal title. It has no direct legal import. It may mean an assignment where there is a subsisting obligation, or, as in the present case, a guaranty or some other form of undertaking to be established by the evidence. I think, there foie, it was competent for the plaintiff to declare upon* the endorsement as a guaranty, if such was the understanding.

And it was competent for him before, or at the trial, to write ont such guaranty above the signature of the defendant, in conformity with the contract of the parties.

For these reasons, I think the circuit court erred in sustaining the demurrer to the second and third counts. For that error the judgment must be reversed and the cause remanded, with liberty to the defendant to plead to the action.

Christian, Anderson, and Bures, J’s, concurred in the opinion of Staples, J.

Judgment reversed.