Case ID: ohio_2/html/0402-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court :", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Daniel Greene v. J. Dodge and Eli Coggswell.
    Declaration upon an indorsement of a promissory note, guarantying payment by the maker of the note, must aver the consideration upon which such, indorsement is made.
    The guarantors of payment of a promissory note can not be charged unless payment be demanded of the maker when due, and notice of non-payment be given to the guarantors.
    This case was adjourned for decision here, by the Supreme Court of Washington county, and was heard and decided upon an agreed state of facts.
    Sidney Dodge was indebted to the plaintiff upon his own private account, for which he gave to the plaintiff a note, payable at a day future. Upon this note the defendants indorsed their names in blank. This indorsement was made without any consideration from the indorsers to the payee; and at a subsequent period the following was written over it: “We, the undersigned, bind ourselves as security for Sidney Dodge, for the payment of the within note, according to the tenor and effect thereof, to Daniel Greene, the obligee in said note.” The plaintiff had prosecuted a suit against Sidney Dodge to judgment and execution, who had no property from which the judgment could be satisfied.
    *The declaration was special upon the guaranty, charging that it was made for value received, but setting out no other consideration; and it alleged a breach in the non-payment of the note, but without averring any demand upon the payers upon the day the note fell due, or notice of non-payment to the indorsers.
    Several points were made and argued by counsel, but as the court decided the cause upon two only of those points, it is deemed unnecessary to notice the others, in reporting the case.
    Arius Nte, for defendant:
    The plaintiff is not entitled to judgment: 1. Because the declaration states no consideration for the promise of the defendants; 2. That it contains no poper averments of a demand upon Sidney Dodge, and notice to the defendants of non-payment by him; or of execuse for the omisssion of such demand and notice. These -objections apply equally to both counts.
    1. “ Every part of the entire considersation for any promise contained in the agreement, must be stated in the declaration.” 1 Selw. N. P. 90; Clark v. Gray, 6 East, 519.
    “ The statute of frauds has made no alteration in the common law requisites, by superadding a further constituent of the validity of a promise under certain circumstances; and as appears from a multitude of authorities, those collateral promises were nuda pacta, before the statute, unless they were supported by a consideration, which consideration, it was also necessary to set forth in the pleadings.” Rob. 208, and see Id. 204; Forth v. Stanton, 1 Saund. 210, and note 2; Barber v. Fox, 2 Saund, 136. The note to Forth v. Stanton is very explicit to this point. It is there said, “ so with respect to promises to answer for the debt, etc., of another, or collateral promises as they are generally called, there must be a sufficient consideration, such as forbearance, etc., alleged in the declaration, otherwise they also are not binding, though reduced into writing; as where A. has sold and delivered goods toB. and C. afterward promises A in writing to pay for them, this promise is a mere nudum, pactum, and void. 1 Saund. 211, a.
    *It is not necessary, in a declaration upon a collateral promise, to show that the promise was in writing; but it is necessary to set forth therein a sufficient consideration for the promise; without which the declaration is unquestionably bad.
    The counts in this case state notes made by Sidney Dodge, whereby he (in the singular) promised to pay the plaintiff (without negotiable words), certain sums, for value received; and that the defendants indorsed their names upon the back of the notes as •securities for the payment by Sidney Dodge, as is the necessary inference; not stating that the defendants made their note, or notes, or that they promised to pay to the plaintiff the debt of said Sidney, in consideration of any benefit received from the plaintiff by them; or granted to him at their request; or the forbearance, or release, of any right by him at their request.
    
    Here no consideration for the undertaking of the defendants, as stated, is expressed or implied, vide Robertson, 117, quoted above. The defendants are not stated to be, directly, parties to the notes. The words “for value received,” in the promise of Sidney Dodge, purport, prima facie, a consideration already executed and passed to Mm; but the indorsement, as stated, is no acknowledgment of value received by the defendants: indeed, it directly excludes that inference. By these words, in a bill, it has been said (Grant ». Dancesta, 3 M. & S. 351) : “ That the drawer informs the draweetliat he draws on him in favor of the payee because he has received-value of such payee:” Debt would not lie on the undertaking of the defendants here stated, it being a collateral engagement fof the debt of another; Chitty on Bills, 545, ed. 1821; 2 Ld. Raym. 1040; Holsden v. Horridge, 2 Saund. 62, 65, there cited; though it would lie on the note against the maker, S. Dodge. That would be evidence against him on the money counts, in an action by the payee, the plaintiff here; but would it be so on the like counts-against them ? It is believed not. Why ? Because they do not undertake originally, and directly, as does the maker, but collaterally; they do not acknowledge the receipt of value ; the duty is not theirs. What consideration, then, is hero shown for their promise ? The promise ^raises no consideration ; and that B. owes a debt to A. is no consideration for the promise of 0. to pay it. Such a promise, though in writing, it need hardly be repeated is void. Be it asked, “ may not an action bo sustained on a collateral undertaking, though debt or an indebitatus can not ? It. may; but, it is especially to be noted, that it is only by force of one or the other of two circumstances : The undertaking must, in form and effect, come within the exception recognized by the law merchant purporting thereby a consideration ; or, as subject to the general law respecting parol agreements, a consideration for, and as a necessary part of the collateral agreement, must be distinctly and' specifically shown. This distinction has, it is respectfully submitted, been already established. Neither of these circumstances appears here. The clear result, therefore, seems to be, that the counts in-this declaration are substantially defective, in that they state no-consideration for the alleged promise of the defendants. It only remains, here, to observe that a remark of Judge Kent, in Leonard V. Yredenburgh, upon the consideration to the principal debtor, was upon the motion for a new trial, and distinctively applied by him to the facts as offered in evidence.
    2. That which it is necessary distinctly to prove, in the first instance, to sustain the action, must be specially averred. The-plaintiff’s declaration is also defective in the absence of the proper averments, that payment of the notes was demanded of the-maker when they became due, and notice of non-payment given, in proper time, to the defendant. Nor are there any averments of facts which might excuse the omission. The undertaking of the-■defendants, if their act be such, was, as has been shown, collateral; if effective, in law, it could only be treated as a guaranty. As such, they should have had notice of non-payment, on demand, by Sidney Dodge. The plaintiff has treated the promises as conditional; he has only alleged the liability of the defendants as accruing by a means of judgment and execution against the maker, 'Sidney Dodge, and their promise thereupon. The reasons which require notice to the indorser of a note, of a demand upon and the non-payment, by the maker, apply to a guarantor. He *should, by seasonable notice, be put in a condition to secure his indemnity, from the party primarily liable; and though, •the same strictness is not applied, the difference, were the defendants otherwise liable, is not necessary to be distinguished here. As to the necessity of the averments of demand, etc., see Chitty on Bills, 264, 544, 633; Nicholson v. Gouthit, 2 H. Black. 609; Philips v. Astling, 2 Taunt. 206; 3 Wheat. 154, note.
    In conclusion, it may be added that plaintiff, having treated the undertaking of the defendants as conditional and contingent, ■depending on the failure of Sidney Dodge to pay, he has not by •the manner in which he has declared, shown a liability of the defendants ; for though he alleges, that, by means of the judgment ■and certain executions, the defendants (long after the notes became due) became liable to pay, “according to the tenor and effect of the said note,” and that they promised to pay accordingly; yet it is nowhere averred that Sidney Dodge did not pay, or had not paid, the money mentioned in the note; and it is not averred that they became liable upon the indorsement as stated. If they did not become liable at once (and the plaintiff has not supposed •that they did), by indorsing their names as stated, they could ■only become so by the happening of some contingency, as the nonpayment by Sidney Dodge, when the notes became due; that nonpayment, then, independent of the objection for want of notice, should have been directly averred; and not by an inconclusive inference. As to these parties the judgment is not conclusive of that •fact. That did not make them liable if they were not liable before; and the averment of their liability is not a logical conclusion ■from the facts stated as its consummation. And though it be held that it is not necessary, in a declaration upon a note, to aver a ■liability as accruing upon the making of the note, and by force of the statute, and stating a promise to pay, in consideration of that liability (which is the more logical mode), yet the other mode of declaring simply upon the express promise, can only be applied to a promise which is original and direct. The liability accruing upon a conditional or contingent undertaking must be correctly stated, according to the inceptive engagement and the legal effect *upon the happening of that contingency, which, in law, fixes the liability of the party — making that certain which was before contingent; and the promise which is implied thereupon, as the legal consequence, must bo expressed in accordance with the occasion and the fact of the liability thus stated. The counts of the declaration in this case, are, therefore, it is conceived, uncertain, inconclusive, and insufficient; so that, were the facts stated, in them found to be true, they would not establish any liability in. law, on which judgment could properly be rendered for the plaintiff against the present defendants.
    Mr. Goddard submitted an argument on the same side — substantially maintaining the same points, upon the same authorities- and arguments.
    Mayberry and Ewing, for plaintiff:
    1. The undertaking written above the signature of the defendants, by the holder, being in accordance with the authority givem him by such blank signatures, has relation to the time of the signature itself, and is the same in its legal effect, as if it had been-written by the defendants, at the time of writing their names, before the delivery of the instrument.
    If, then, it should be conceded, that in order to take a collateral' undertaking out of the statute of frauds, it is necessary to express-by the note, in writing, not only the promise itself, but also the consideration of such promise, as in the ease of Wain v. Warlters, 5 E. 10. Yet this case does not come.within the operation of that rule. For, here, the guarantee is a part of the original instrument; it was made with the note, and received with it, and the- “ value received ” in the body of the note, applies equally to, and forms part of the defendant’s undertaking.
    It is precisely, in legal effect, as if the defendants had signed their names on the face of the instrument, below that of the maker, and added, “as security.” Their contract would not, in that caser be a nude pact. It is clearly supported by the consideration of the* note, although it might not be so if after the delivery of the note, such contract *of securityship were entered into. In Leonard v. Vandeburgh, 8 Johns. 40, Chief Justice Kent says: “ To say that the promise is void, for want of disclosing a consideration, is assuming what the plaintiff offered to show ought not to be assumed, for there was no distinct consideration passing between the plaintiff and defendant. Johnson’s note given for value received, and of course importing a consideration on its face, was all the consideration required to be shown. The paper disclosed that the defendant guaranteed the debt of Johnson, and if it was all one transaction, the value received was evidence of a consideration, embracing both promises. The writing imported, upon the face of it, one original and entire transaction; for a guarantee of a contract, implies, ex. vi. termini, that it was a concurrent act, and part of the original agreement.” “ The defendant guaranteed payment of the value received." The case of Hunt, administrator, etc. v. Adams, 5 Mass. 358, is exactly in point. Joseph Chaplin gave his note to Isaac Burnet for one thousand five hundred dollars, on which note the defendant wrote the following guarantee: “I acknowledge myself holden as security for the payment of the demand of the above note. Witness my hand: Barnabas Adams.” The question agitated was, whether there could be a recovery on the paper itself, without further evidence. Chief Justice Parsons, in delivering the opinion of 'the court, says : The defendant is an original party to the contract, as well as Chaplin. The contract, in its legal construction, is a promise, as well by the defendant as by Chaplin, for value received, to pay one thousand five hundred dollars to plaintiff’s intestate. In the case of Adams v. Bean, 12 Mass. 139, which was an assumpsit on a guarantee, written on the back of a lease, that the lessors would perform, Chief Justice Parker, after denying the law of the ease of Wain v. Warlters, adds (supposing it to be law) : “ We think a written agreement, on the back of a lease, that the parties to it should perform their undertaking, sufficiently expresses the consideration; for it may, and ought to be presumed, that the lease would not have been obtained without such guarantee; and the permitting to occupy, in consideration of the promise in writing, of another to pay the rent is, we *think, sufficient to raise a consideration of the promise.” In the case at bar, we conceive that the evidence of a consideration, apparent on the note, is not at all lessened by thez matter admitted by the agreed case. The note, it is true, was given for a pre-existing debt; but that debt was merged iu the note, or at least the right of action suspended, until the credit therein given was expired. It was a new contract which abrogated or modified the pre-existing rights of the parties.
    It is unnecessary to inquire into the soundness of the doctrine laid down in the case of Wain v. Warlters, as it has no application in the present case. That case, however, is overruled in Hunt, administrator, v. Adams, 5 Mass. 558, and Adams v. Bean, 12 Mass. 139, and doubted in Leonard v. Yandeburgh, 8 Johns. 40. It is directly opposed to the principle decided in Egerton v. Mathews, 6 East. 307, and is denied to be law in Minot, ex parte, 14 Ves. 189, and much doubted in Gordon, ex parte, 15 Ves. 286.
    2. It remains to be inquired whether a demand and notice were, in this case, necessary to charge the guarantor on his contract of security. We contend that it was not; for the note in question, not being indorsed by the payor, has never assumed the character of a commercial instrument, and tne law merchant, as to demand and notice, does not apply to R. The doctrine as to what shall be necessary to charge the collateral guarantor of a commercial instrument, is unsettled, and there is some appearance of discrepancy in the cases on that subjeet. It is holdon in Philips v. Astling, 2 Taunt. 206, that a person who has guaranteed the payment of a bill of exchange, though no party to the bill, is exonerated by the neglect of the holder to make presentment, and give due notice of the dishonor of such bill. In Worthington v. Furbor, 8 East. 242, the plaintiff had bound himself as security for the payment of a bill of exchange, by the defendant, who was the acceptor. Before the maturity of the bill the defendant became bankrupt, and his property delivered over to commissioners. The plaintiff paid the bill, and brought his action for money paid, as on a debt accruing after the act of bankruptcy. Furbor resisted the payment of the bill, on the ground that, %s no demand had been made by the holder, the guarantor was not liable, and had paid the money, in his own wrong, and it was material to the defendant to stand as debtor upon the bill (which must have been proved under the commission), rather than the guarantor, who charged him as for a subsequent debt. Per Lord Ellenborough: “ The same strictness of proof is not necessary to charge the guarantors, as would have been necessary to support an action on the bill itself, when, by the law merchant, a demand and refusal by the acceptors, must have been proved, in order to charge any other party on the bill; and this, notwithstanding the insolvency of the acceptors. But this is not necessary to charge guarantors who insure, as it were, the solvency of their principals, and, therefore, if the latter become bankrupt and notoriously insolvent, it is the same as if they were dead, and it is nugatory to go through the ceremony of making a demand upon them.” And in the case of Swingard v. Bowers, 5 M. & S. 62, it was holden that a defendant, who guaranteed the payment of a bill of exchange by the acceptor, was not entitled to notice of the dishonor of the bill, he being no party thereto.
    Now the doctrine to be elicited from all these cases, appears to us to be this: That the guarantor of a mercantile instrument is bound by his guarantee, unless the laches of the holder release some one of the parties to such instrument, for whom the guarantor was bound. The laches of the holder, releasing such party to the instrument, would release the guarantor; otherwise it might happen that the security, having paid the debt of his principal, could not have his recourse over against such principal, who had •never been rendered liable. For it will be observed, in the case of Philips v. Arthing, that the case did not turn on the want of notice to the guarantor. He was discharged by the want of demand on the acceptor, which discharged the drawer and indorsers. And though the case of Worington v. Furbor might rest on its special circumstances, yet the reasoning of the chief justice fully supports the position for which we contend. And the case of Swingard v. Bowers is in point. But no reason can be given why demand and notice should be required to securities on a promissory note, *not made negotiable, any more than to securities on a bond or single bill. The instrument has no mercantile character; no principle of the law merchant applies to it. To charge the maker, nothing is necessary but nonpayment. The holder is bound to do no act. Every act in discharge is to be done by the maker. He must seek the holder if he would make the payment, and the holder is not bound to call on him to demand it. But here are securities, guarantors, for what do they bind themselves? That the principal will perform what the note binds him to do, or in his default, they will perform it for him. His liability -depends on no contingency — theirs on but one, his failure to per•form; and when he fails, the right of action accrues against them. They are fixed in law, by the happening of the contingency, which they had engaged should not happen. This doctrine is supported by the case of Hunt v. Adams, 3 Mass. 358, and the case of White v. Howland, 9 Mass. 315-16, in which last case this point was-expressly settled. Chief Justice Parsons on the bench.
   By the Court :

The authorities and arguments relied upon by the defendants counsel, appear to us conclusive that the declaration ought to aver some legal and valid consideration, for the promise upon which it is sought to charge the defendants. The mere fact of writing their-names upon the note would not subject the defendants. To charge them, it must have been done upon some description of contract with the plaintiff, by which the defendants might gain or the plaintiff might be prejudiced. And that contract, whatever it was, ought to be substantially set out in the declaration. This is not done», and, for that reason, the plaintiff can not recover.

The guaranty of the defendants, as written out, amounts to this, that the guarantors will pay, if the promissor does not. But this is, in its very nature, conditional. There is no pretense, in any of the authorities, that the holder of the paper upon which the guaranty is written, is bound to do nothing. The plaintiff’s counsel do» not proceed upon that ground. If he is bound to do something, what is it? To *sue and obtain judgment, it is asserted, is enough. But we do not think so. To demand payment, and notify the guarantor that it is not made, and that, consequently, he is holden, is the diligence which we think ought to be used. Such demand, with a certain knowledge that notice of failure will be-given to the guarantor, is calculated to have more effect in stimulating to an effort to make payment, than the prospect of a suit and judgment and execution at a future day. It enables the guarantor-to look more effectually to his security, and is, therefore, safest for all concerned. As this demand and notice is neither averred in the declaration nor admitted as a fact in the case, we consider it. also a decisive ground against the plaintiff’s recovery. Judgment, must be for the defendants. 
      
      NoTE by the Editor. — The following principles will be found in Ohio Reports touching the rights and liabilities of those whose names do not appear in the body of notes or other contracts, and who have become connected therewith by indorsement or otherwise; who are, in the decisions, usually called “ strangers: ”
      1. Where a “stranger” affixes his name in blank to a note, etc., at the time of its execution, he will be held to be an original maker, ix. 139; xi. 102; xii. 158; xiii. 228; xvii. 36; xviii. 336; but the “stranger” is usually entitled to-the privileges of a surety, ix. 141; xvi. 1.
      2. The same rule applies to a “ stranger” signing after the note¡ etc., is delivered, if it was the “intention” that he should beso held, xiii. 228 ; xvii. 36; and this “intention” may be proved by parol, ix. 139; xiii. 228.
      3. These rules apply to “notes, bonds, and other written instruments,”' “whether negotiable or not,” xii. 228. But see xi. 102, and cases cited.
      4. “ I guarantee the fulfillment of the within contract,” written on a note, by a “stranger,” and signed at the time of its execution, binds him as a joint maker, and not as a guarantor, xviii. 336, and cases cited; from which it would seem that the limitations and restrictions indicated by the language of the indorsement, will not control the legal effect of the engagement, as it would be inferred they would do, from the language of the court in ix. 141; xii. 168. See also Judge Hitchcock’s dissenting opinion, and cases cited, xviii. 339.
      5. A mere indorsement by a “ stranger,” will, prima facie, be construed to have been made after the delivery of the note, etc., ard to be a guaranty, xii. 158; xiii. 228; xvi. 1; xvii. 36; xviii. 339; but his true character maybe shown by parol, ib.
      6. A guarantor,is entitled to demand on principal and notice of non-payment, see the case to which this note is appended; also, vi. 497; xi. 102; 1 .Swan, 280, note “a.” and cases cited, or an excuse of demand and notice. See cases cited in same note.
      7. The engagement of a “ stranger,” when it is collateral, must be supported by a consideration other than that which moved between the original parties, xvii. 128, and most of the above cases; but the considei'ation need not be in ■writing, ib.