Case ID: utah_41/html/0436-01.html
Source: Caselaw Access Project
Author: {"author": "STRAUP, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

LESTER PIANO COMPANY v. ROMNEY.
    No. 2375.
    Decided August 7, 1912.
    Rehearing denied August 27, 1912
    (126 Pac. 325).
    1. Guaranty — Acceptance—Necessity. Where a guaranty is executed and delivered at the request of the guarantee, notice of acceptance of the guaranty hy the guarantee is not essential; but where a guaranty is executed by the guarantor without any prior request, and for no consideration moving between the guarantor and the guarantee, except future advances to be made to the principal debtor, notice of acceptance is necessary. (Page 443.)
    2. Guaranty — Acceptance—Necessity. A seller to a corporation on credit demanded a guarantor, who wrote to the seller a letter reciting that he could guarantee any amount of credit that might be extended to the corporation. The seller rejected the letter, and so notified the corporation, and requested the guarantor to execute a proposed guaranty, which was not done. Held, that notice of acceptance by the seller of the guaranty originaliy executed was essential to make the guaranty binding, (Page 444.)
    3. Guaranty — Acceptance—Necessity. A guaranty of the payment of goods which may be purchased by the principal, which recites that the guarantor can guarantee any amount of credit that may be extended, is a continuing guaranty to pay an indefinite future amount arising out of future credits, and notice of acceptance is essential to bind the guarantor. (Page 445.)
    4. Guaranty — Acceptance—Necessity. Where the parties understood that the liability of a guarantor in a continuing guaranty would be increased and diminished from time to time, and the guaranty was uncertain as to when it would cease to be binding on the guarantor, notice to the guarantor by the guarantee within a reasonable time after the closing of the transactions of the amount of the liability of the guarantor must be given to bind him. (Page 446.)
    
      5. Guaranty — Release of Guarantor — Acts Constituting. A guarantor of the payment of debts incurred by a corporation in the purchase of goods on credit is not liable for debts incurred by the corporation, after an amendment of its articles of incorporation and a change in the corporate name, for goods purchased by the corporation in its new name, in the absence of evidence that the two corporations were one and the same, or that both were composed of the same persons, managed by the same officers, engaged in the same business; or that there was no change in the composition or operation of the corporation, or that the one succeeded to the property rights and privilege of the other. (Page 446.)
    6. Guaranty — Liability of Guarantor — Construction of Contract of Guaranty. A guarantor deriving no benefit from the transaction is held.only to the Strict terms of his guaranty. (Page 446.)
    Appeal from District Court, Third District; Hon. Geo. G. Armstrong, Judge.
    Action by Lester PÜano Company against George Romney.
    Judgment for defendant. Plaintiff appeals.
    ApEIRMED.
    
      Gollins & Palmer for appellant.
    
      Stewart, Bowman & Moms for respondent.
    RESPONDENT'S POINTS.
    A guaranty is a contract, which, after the intention of the parties has been ascertained, must be construed strictly in favor of the guarantor. (Daly v. Old, 35 Utah, 74, 99 Pac. 460; Groolcs v. Propp, 66 N. Y. Sapp. 753; Acme Mfg. Go. v. Peed, 197 Pia. 359.) And the language should not be strained beyond its natural meaning to enlarge the liability of the guarantor. (Schwartz v. Hyman, .107 N. Y. 562.)
    It is contrary to all reason and law to say that Mr. Daynes could bind Mr. Romney on Mr. Daynes’ personal promise to appellant that he would secure a guaranty from Mr. Romney when Mr. Romney knew nothing of it and when his letter was not intended by him to and did not in fact constitute a guaranty. And it would make no difference that the appellant relied upon this letter as a guaranty if it was not such in fact. (Oroolcs v. Propp, 66 N. T. Supp. 753 ; Miami County National Bank v. Goldberg, 113 N. W. [Wis.] 391; 11 Brandt on Suretyship and Guaranty, paragraph 205.)
    Before a guaranty can become binding upon the guarantor there must be a meeting of the minds of the contracting parties. It is elementary that there can be no valid contract of guaranty without the mutual assent of the parties. (Douglas v. Reynolds, 7 Peters [IT. S.] 113; Wells v. Davis, 104 IJ. S. 159; Smith v. Bowman, 32 Utah, 38; Davis Sewing Machine Co. v. Richards, 115 U. Si 524.) The guarantee must accept the guaranty before it can become binding upon the guarantor. (Douglas v. Reynolds, 7 Peters [U. S.], 113 ; DeCremer v. Anderson, 113 Mich. 578; Acme Manufacturing Co. v. Reed, 197 Pa. 359; Detroit Free Press v. Pat-tengill, 155 Mich. 272; Davis Sewing Machine Co. v. Richards, 115 U. S. 524; Cremer v. Higginson, 1 Mason 340; Miami County National Bank v. Goldberg, 113 N. W. [Wis.] 391; Graft v. Isham, 18 Conn. 28; Ulster .County •Saving Inst. v. Young, 161 N. T. 23, 55 N. E. 483.)
    To bind a guarantor the future advances must not be upon the promise of the principal debtor to secure a guaranty, but upon the guaranty itself, after it has been delivered and accepted. (Douglas v. Reynolds, 7 Peters, 113; McNaughton v. Conklings, 9 Wis. 289, 296.)
    If respondent’s letter be a guaranty, it is not an absolute or unconditional guaranty. (Davis Sewing Machine Co. v. ■ Richards, 115 U. S. 524; Nading v. McGregor, 121 Ind. 465.)
    In the case of a continuing guaranty where future advances or future extensions of credit are guaranteed, the guarantee must give the guarantor reasonable notice of default of the principal debtor in order to hold the guarantor. Otherwise the guarantor is discharged. (Douglass v. Rey
      
      nolds, 7 Peters, 113, 125; Davis v. Mills, 55 Iowa, 543; Singer v. Liitler, 56 Iowa, 601; Nading v. McGregor, 121 Ind. 465; Graft v. Isham, 13 Conn. 28.)
    Tbis court held in Smith v. Bowman, 32 Utah, 38, that “it is well to bear in mind that sureties are favorites of the law, and that their liability is not to be extended by implication beyond the terms of their contracts. They are bound by their agreement and nothing else; and they have a right to stand upon the strict terms of their obligations.”
    This same doctrine of strictissimi juris is approved by this court in Daly v. Old, in 35 TJtah, 74, 99 Pac. 460, in the construction of contracts of guaranty and has received universal approval by the courts of this country. . (20 Cyc., pp1. 1425-6; 20 Cyc., note 63, p. 1426; Hurlburt v. Kephart, 115 Pac. [Colo.] 521; Croóles v. Propp, 66 N. T. Supp. 753; Ulster Gounty Savings Inst. v. Young, 161 N. Y. 23; Lamm v. Golcord, 98 Pac. [Oída.] 355; Grane v. Specht, 39 Nebr. 123; Grant v. Naylor, 4 Cranch [TJ. S.] 224; Gremer v. Higginsm, 1 Mason, 340.)
   STRAUP, J.

The plaintiff, a Pennsylvania corporation, seeks to recover from the defendant on an alleged guaranty for future obligations of the Daynes & Romney Piano Company, a Utah corporation, at Salt Lake City. The case was tried to the court on an agreed statement of -facts. The defendant had judgment, from which the plaintiff appeals.

Its contention is that on the agreed facts it, and not the defendant, was entitled to j’udgment. The substance of the agreed statement is:

In March, 1904, the defendant was a stockholder and an officer of the Daynes & Romney Piano Company, which had been doing business with the plaintiff in purchasing pianos from it. At thait time Pressey, a representative and an officer of the plaintiff, and under instructions from it, informed D'aynes, the manager of Daynes & Romney Piano Company, that the plaintiff would require security for the payment of future goods sold on “terms of one-quarter each, four, eight, twelve, and sixteen months’ 'time after delivery,” and that on receipt of bills of goods Daynes & Romney Piano Company would be required to execute promissory notes for tbe amount thereof, payable in four, eight, twelve, and sixteen months. Daynes stated1 to Pressey that he would obtain from 'the defendant “a letter addressed to” the plaintiff. That conversation occurred in Salt Lake City. Later, and on March 31st, the plaintiff wrote Daynes & Romney Piano Company: “When our Mr. Pressey was in Salt Lake on the 19th inst. and received your esteemed order for-pianos, he mentioned we were to receive from you a guaranty of Mr. George Romney (the defendant). We trust the matter has not been lost sight of, and would be pleased to have you give same your kindly consideration.” On April 5th Daynes, as the manager of Daynes & Romney Piano Company, wrote: “Yes, we did promise Mr. Pressey that we would send you a letter from our Mr. George Romney; but we have not been able to locate him since that time. As soon as we run across him, we will have him write you. We notice that you are billing the goods to us on twelve, when it should be sixteen, months under the new arrangement.” Plaintiff, on April .9th, wrote: “We hope you will be able to send letter from Mr. Romney soon. Send the settlements in accordance with the new terms arranged through Mr. Pressey.” On April 15, 1904, Daynes. prepared and1 caused the defendant to sign a letter addressed to the plaintiff at Philadelphia. It is dated April 15, 1904, at Salt Lake City, and reads: “Our Mr. Daynes states that, in order to secure additional time on the goods that we purchase from you, your Mr. Pressey asked him to have me write you a line guaranteeing our good faith. I have no doubt but what all the obligations that are entered into by our house will be met promptly, and for this reason I can guarantee any amount of credit that you might extend to our firm. We will try and do a good business with your piano, for we believe it to be a good seller. We have already taken quite a liking to it and undoubtedly we will put the Lester piano on a level here that it has not heretofore stood on. I sincerely thank you for what eourte-síes you have extended to our young firm, 'and I hope that our business relations will always be very pleasant. Tours truly, George Romney.” The letter was sent to the plaintiff by Daynes, as manager of D'aynes & Romney Piano Company. It is this letter upon which the alleged guaranty is founded. The plaintiff acknowledged receipt of the letter to Daynes & Romney Piano Company. It also write the defendant: “We have your esteemed favor of the 15th, and write to thank you very much indeed for the kindly good will expressed1 therein. We assure you it is very much appreciated. We are also1 glad to learn that the Lester piano pleases you so well, and are confident, Mr. Romney, if you will give the instrument a chance with the rest of your trade, it will make its own way and prove a winner and a money maker. The pianos on the order recently given to our Mr. Pressey are being shipped right straight along according to instructions. Thanking you for your esteemed patronage, and trusting this is but the beginning of a pleasant, long-continued and mutually profitable business connection, we beg to remain,” etc.

It will be observed that the plaintiff in this, as in the letter to Daynes & Romney Piano' Company, while thanking the defendant for the “esteemed1 patronage” and “for the kindly good will expressed” by him, yet remained silent as to that portion of the defendant’s letter relating to the alleged guaranty. This seems to have been intentional, for on May 4th Pressey, on behalf of the plaintiff, wrote Daynes & Romney Piano' Company, expressing plaintiff’s dissatis,-faction with that portion of the defendant’s letter, and the thought that the defendant by the language employed1 — “I can guarantee” — had merely expressed1 his ability to become guarantor, but in effect had not guaranteed anything, and had made no direct promise to do so. Thereupon Pressey inclosed a draft of a guaranty prepared by himself, and requested it to be presented to' and signed1 by the defendant and returned as and for the guaranty, instead of the defendant’s letter. The proposed draft was not presented to the defendant; the manager of Daynes & Romney Piano Company writing plaintiff that “we dlon’t like to bother Mr. Romney about this matter, but we assure you that the letter as it stands protects you entirely, and we ask that you let it remain as it is.” No further communication about the matter was had. Under the new arrangement — extending credit for sixteen months — the plaintiff sold and delivered goods on time to D'aynes & Romney Piano Company, before the defendant’s letter as well as thereafter. All the goods sold to it, and all the notes given in payment thereof, both before and after the giving of the defendant’s letter, were fully paid.

In February, 1905, the defendant sold to Daynes all his stock and interest in Daynes & Romney Piano Company and resigned! as an officer thereof. Pressey, the representative and an officer of the plaintiff, was so notified by Daynes. In January, 1906, Daynes & Romney Piano Company amended its articles of incorporation and changed its name to Davnes-Romney-Music Company. The new company continued to do business with the plaintiff, and purchased goods of it, as had theretofore D’aynes & Romney Piano Company. The goods, the value of which it is sought to recover in this action, were furnished and sold, not to D'aynes & Romney P'iamo Company, but to Daynes-Romney Music Company, between October, 1906, and November, 1901, and for which Daynes-Riomney Music Company had given its several promissory notes, nineteen in number, amounting in the aggregate to $3899, due on different dates between February and December, 1908. Daynes-Romney Music Company, unable to meet the notes at maturity, requested ian extension of time, which request the plaintiff refused, and asked Daynes-Romney Music Company to obtain the defendant’s indorsement on the notes. Thi3 Daynes-Romney Music Company declined to do, stating: “As you have been already informed, he (Romney) severed his connection with our firm several years ago and has nothing whatever to do with it.” Further correspondence between the plaintiff and Daynes-Romney Music Company with respect to a settlement and! payment of the account was had; but no correspondence or communication was had with the defendant, nor was notice given him of goods, or the amount thereof, sold to either company, nor of any default or failure to pay for them, nor of the state of the account between the plaintiff and either company, nor was any demand or claim made on the defendant until the commencement of this action in April, 1911, and after the bankruptcy of Daynes-Romney Music Company.

Upon these facts the court stated conclusions of law:

“1. That the defendant’s letter, upon which this action is based, does not constitute a guaranty.

“2. That said letter, sued upon as a guaranty by the plaintiff, was never accepted by the plaintiff, nor- relied upon by said plaintiff.

“3. That no reasonable notice was given the defendant by the plaintiff of the amount of credit extended, nor of the default of the principal debtor to pay its indebtedness when due.

“4. That the indebtedness represented by the notes sued on herein was not incurred by the Daynes & Romney Piano Company, the company referred to in defendant’s letter, but by the Daynes-Romney Music Company.”

These conclusions are assailed. It is not necessary to determine whether all of them are justified, for under the facts we are of the opinion that (1) a notice of acceptance’ by the plaintiff of the guaranty was essential to a completed contract, and (2) that the goods, the value of which it is sought to recover from the defendant on the alleged guaranty, were not sold to the company whose obligations the defendant had proposed to gniarantee..

There is much confusion in the cases as to what constitutes an absolute or conditional guaranty, and as to whether notice of acceptance by the guarantee to the guarantor is an essential 'to show mutual assent, and to constitute a completed contract. Appellant urges that, on authority of Mott Iron Works v. Clark, 87 S. C. 199, 69 S. E. 227, Davis v. Wells, 104 U. S. 159, 26 L. Ed. 686, Davis Sewing Machine Co. v. Richards, 115 U. S. 524, 6 Sup. Ct. 173, 29 L. Ed. 480, 20 Cyc. 1409, notes 16 L. R. A. (N. S) 367, and 15 Ann. Cas. 1164, notice of acceptance was not here essential to a completed contract. These authorities are to the effect that a guaranty executed and delivered at the request of the party guaranteed is to be deemed the answer of the guarantor to a proposal made to him, and there is thus constituted the mutual assent necessary to the consummation of a contract of absolute guaranty, and1 in such case notice of acceptance by the guarantee is not essential. But where a guaranty signed by the guarantor without any previous request of the other ■party, and in his 'absence, for no consideration moving Between them, except future advances to be made to the principal debtor, is, in legal effect, a mere offer or overture of guaranty, and hence, to constitute mutual assent and a completed contract, notice of 'acceptance of the guaranty by the guarantee is necessary. Mr. Justice Gray, in the case of Davis Sewing Machine Co. v. Richards, 115 U. S. 524, 26 L. Ed. 686, puts the proposition thus:

“A contract of guaranty, like every other contract, can only be made by the mutual assent of the parties. If the guaranty is signed by the guarantor at the request of the other party, or if the latter’s agreement to accept is contemporaneous with the guaranty, or if the receipt from him óf a valuable consideration, however small, is acknowledged in the guaranty, the mutual assent is proved, and the delivery of the guaranty to him or for his use completes the contract. But if the guaranty is signed by the guarantor without any previous request of the other party, and in his absence, for no consideration moving between them, except future advances to be made to the principal debtor, the guaranty is in legal effect an offer or proposal on the part of the guarantor, needing an acceptance by the other party to complete the contract.”

Generally speaking, so far as ascertaining tbe mutual assent of tbe parties, and determining whether there was or was not a completed contract, we think the rule as announced is correctly stated. So let it be assumed that the defendant’s letter to the plaintiff was an answer and in response to the plaintiff’s request for a guaranty, which, when it was received by the plaintiff, had it been accepted and acted on by it, would have constituted a completed contract without notice of acceptance by the plaintiff. But in this instance the plaintiff in fact, when the letter was received by it, did not accept it, bnt in effect rejected it, and so notified tbe principal debtor, and requested the defendant to sign and deliver a guaranty as proposed and drafted by the plaintiff, instead of the defendant’s letter. Hence the prior request of the plaintiff, and the defendant’s letter in answer thereto, did not constitute that mutual assent necessary to the consummation of a contract; for, up to this point, the minds of the contracting parties had not met as to the terms of the guaranty. The plaintiff requested a guaranty. The defendant in response thereto proposed one; but the plaintiff declined to accept it, and proposed another. Under such circumstances it cannot well be said that the receipt of the defendant’s letter by the plaintiff constituted a consummatior of a contract. The plaintiff’s proposed guaranty wás not given. If, therefore, it desired to change its mind, and to accept the guaranty theretofore proposed by the defendant, and rejected by it, notice to that effect was essential. Without it there was no mutual assent, and hence no contract.

Furthermore, the proposed guaranty by the defendant was not to pay an existing or future debt or obligation of a definite character, or of a known or specified amount, or one where the guarantor knew precisely what he guaranteed, or the extent of his responsibility. It was a continuing guaranty to pay an unknown, indefinite, and unspecified future amount or debt, upon the default or miscarriage of another, arising out of future advances and credits to be given such other; and because of the peculiar nature of the proposed guaranty, notice of acceptance was essential, in. order that the defendant might know the 'amount of his liability and be given an opportunity to take indemnity from the principal debtor, or of otherwise securing himself against loss, if he so desired. Under such circumstances, proof of acceptance by the guarantee and notice thereof to the guarantor was an essential to the inception and character of the contract, and hence good faith and the nature of the negotiation required the party accepting and acting on such a guaranty to notify the other party. (De Cremer v. Ander son, 113 Mich. 578, 71 N. W. 1090; Detroit F. Press v. Pattengill, 155 Mich. 272, 118. N. W. 927; Acme Mfg. Co. v. Reed, 197 Pa. 359, 47 Atl. 205, 80 Am. St. Rep. 832; Craft v. Isham, 13 Conn. 28.)

Again, under a continuing guaranty, as tbis, where tbe parties must bave understood tbe liability thereunder would be increased and1 diminished from time to' time, and tbe guaranty, uncertain as to when it would cease to be binding upon tbe guarantor, good faith and! tbe nature of tbe negotiation required notice to tbe guarantor, within a reasonable time after tbe transaction closed', of tbe amount of hÍ3 liability and of what was done. (Davis Sewing Mach. Co. v. Mills, 55 Iowa, 543, 8 N. W. 356; Singer Mfg. Co. v. Littler, 56 Iowa, 601, 9 N. W. 905; Craft v. Isham, supra; Nading v. McGregor, 121 Ind. 465, 23 N. E. 283, 6 L. R. A. 686.)

Lastly, tbe defendant’s proposed guaranty was a collateral undertaking for tbe payment of tbe debt or obligation of Daynes & Romney Piano Company, a corporation. All tbe goods sold to that corporation were paid for. Nearly two years after tbe defendant’s alleged guaranty, Daynes & Romney Piano Company amended its articles and changed tbe name of tbe corporation to Daynes-Romney Music Company. Tbe goods, tbe value of which it is sought to recover under tbe guaranty, were sold to Daynes-Romney Music Company, not to Daynes & Romney Piano Company. It is held in Crane v. Specht, 39 Neb. 123, 57 N. W. 1015, 42 Am. St. Rep. 562, that, under such circumstances, there is no liability under tbe guaranty; tbe court applying tbe same rule as to tbe discharge of a guarantor by tbe change in tbe name of a partnership. (Notes, 15 Ann. Oas. 1020.) Tbis, on the well-established doctrine that ®: guarantor, like a surety, deriving no benefit from the transaction, is regarded a favorite of tbe law, and is held only to- tbe strict terms of bis obligation. At tbe time tbe goods were sold, there was no Daynes & Romney Piano Company. It either ceased to exist or bad become Daynes-Romney Music Company.

“Tie name is an indispensable part of the constitution of every corporation, the knot of its combination, as it has been called, without which it cannot perform its corporate functions.”

1 Cook on Corporations (6 Ed.), sec. 15.

In tbe iabsence of evidence, it will not be presumed' tbat Daynes & Romney Piano Company and Daynes-Romney Music Company were one and tbe same company, or composed of tbe same persons, managed by tbe same officers, and engaged1 in thé same business. Tbe plaintiff bere was tbe actor. It alleged, and it was found, tbat Daynes & Romney Piano Cbmpany amended its articles and changed its name to Daynes-Romney Music Company. Rut no averments are made, and no facts found, tbat tbe two companies were one and tbe same company, or tbat botb were composed of tbe same persons, managed by tbe same officers, engaged in tbe same business, or tbat there was no change in tbe composition or operation of tbe company, or that tbe one succeeded to tbe property rights, franchises, and privileges, of tbe other. Without some such allegations and proof, tbe identity of tbe two companies cannot be presumed, and, until tbat is shown, proof tbat goods were sold to tbe Daynes-Romney Music Company and that it defaulted does not show a liability under tbe guaranty given to answer for tbe default of Daynes & Romney Piano Company.

Eor these reasons, we think tbe judgment of tbe court below was right, and it therefore is affirmed, with costs.

ERICK, C. J., and McCARTT, J., concur.