Case Name: David Forest v. William Stewart
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1863-12
Citations: 14 Ohio St. 246
Docket Number: 
Parties: David Forest v. William Stewart.
Judges: Peck, C.J., and Brinkerhoee, Ranney and Wilder, JJ.,. concurred.
Reporter: Ohio State Reports, New Service
Volume: 14
Pages: 246–251

Head Matter:
David Forest v. William Stewart.
1. Where the payee of a negotiable promissory note transfers the same, befor®. maturity, by indorsement, with a special guaranty of its collectibility by due process of law, a failure to demand payment of the makers at maturity, and to give notice of non-payment, will not discharge the guarantor from-liability. He is not entitled to notice, until the default occurs upon which his liability depends, unless the terms of the guaranty provide otherwise*.
2. The assignee of the note, under such guaranty is bound, ordinarily, only to employ the usual process of law in endeavoring to enforce the collection j and is not chargable with negligence for failing to sue out an attachment, unless it appear that he knew, or in the use of proper diligence’ could have ascertained, such facts as would authorize extraordinary process*.
Error to tbe district court of Meigs county.
The original action was brought in the court of common' pleas of Meigs county, by defendant in error, to recover from the plaintiff in error the' amount due upon a certain promissory note, executed by Murdock & Nye, April 1, 1858, and payable to plaintiff in error, or order, on or before the first of November, 1858, and which had been, before maturity, indorsed and delivered by him to the defendant in error, together with other notes, in payment for lands purchased of defendant in error; the indorsement and delivery having been made under the following contract of guarantee:
“ This agreement, made, concluded. and fully agreed upon,, the 28th day of August, 1858, between David Forest and Wm. Stewart, witnesseth: The said Forest has this day bought a farm of William Stewart, and pays him in notes to the afizount of seventeen hundred and two dollars and eighty-three cents. Now, the said Forest agrees to indorse and become responsible for the above notes, provided that the said Stewart use all diligence in collecting them of the parties who gave the notes; and in case that any or all of said notes can not be collected by due process of law, of the parties who gave them, then said Forest agrees to pay the amount of said notes to said Stewart.
David Forest.”
The plaintiff below, in his petition, averred that he had used all diligence in trying to collect the amount due upon said note from the makers, by due process of law; that he had obtained judgment against them for the amount of the note, at the first term of the court of common pleas of said county, after the note matured; and caused execution to issue thereon, which was returned by the proper oflScer, “no property found whereon to levy;” that said note could not be collected off Murdock & Nye; that they are insolvent, and have no property real or personal subject to execution, or from which the sum due upon the note, or any part thereof, could be collected; of all which the defendant below had due and legal notice, and refused, on demand, to pay the amount of the note to the plaintiff below, according to the terms of his said contract of guaranty.
The amended answer of the defendant below, admitted the indorsement and delivery of the note, and the accompanying guaranty; but averred, in substance, that the plaintiff had failed to use due diligence in collecting the note, in the following particulars: That at the time said note became due, Murdock & Nye were engaged in business, buying and flouring wheat, and selling flour; and so continued, and were possessed of a large-amount of ’partnership and individual property, until the 2d day of December, 1858, when they made an assignment of all their partnership property, for the benefit of their creditors; and that plaintiff might have secured the amount of the note from this partnership and individual property. That Murdock & Nye; after said note became due, and before their assignment, converted a large part of their property into money, for the purpose of placing it beyond the reach of their creditors; and that Nye was suffered to leave the state, carrying with him a large amount of money, received from such fraudulent sales. That the plaintiff made no effort to collect the note from Murdock & Nye, and did not demand payment of them, nor give notice of non-payment to defendant, till after their assignment, and till their property had been placed beyond the reach of their creditors; whereby defendant lost the opportunity of collecting or securing payment of the note from the makers.
To this answer the plaintiff below demurred, on the ground that the facts stated therein, did not constitute a defense to the action.
This demurrer was sustained by the court, and the defend* ant failing to answer further, the plaintiff had judgment — ■ which the district court subsequently affirmed, upon error; and this judgment of affirmance is now sought to be reversed.
J. Bradbery, for plaintiff in error.
Martin Hays, for defendant in error.

Opinion:
Scott, J.
The assignment of errors, in this case, presents two questions: first, whether the facts stated in the petition of the plaintiff below, are sufficient to constitute a cause of action; and second, whether the facts stated in the answer, constitute a defense to the action.
It is claimed that the petition is insufficient, because it does not aver a demand of payment from the makers at the maturity of the note, and notice of non-payment to the guarantor. Was such demand and notice necessary to a right of action, under the guaranty on which suit was brought ? This question involves an inquiry into the character of the guaranty, and the obligations which it imposed upon the parties respectively.
The contract of guaranty in this case, consists in its phraseology of two clauses, but both, as we understand them, of similar import. The language is: " The said Forest agrees to indorse and become responsible for the above notes, provided that the said Stewart uses all diligence in collecting them of the parties who gave the notes; and, in case that any or all of said notes can not be collected, by due process of law, of the parties who gave them, then the said Forest agrees to pay the amount of said notes to said Stewart."
The second clause or member of this contract, may be regarded as a re-statement, in express terms, of what would be the legal effect of the language used in the first member — and was, doubtless, intended to define with precision and explicitness, what was meant by Forest's becoming responsible for the notes; and the character and extent of the diligence to be used by Stewart; and tbe substance of the whole is a guaranty, by Forest of the collectibility of the indorsed notes, by due process of law, to be employed, with all proper diligence, by Stewart, the indorsee, against the makers.
The law merchant which defines the terms of the implied contract created by the indorsement and delivery of commercial paper, and the consequent rights and obligations of the parties thereto, can have little or no application to the case of a special assignment and guaranty, in which the terms of the contract are fully expressed. Wolf v. Brown, 5 Ohio St. Rep. 804.
The contract of guaranty, in this case, does not stipulate, in its terms, for any notice whatever ; and the right.to a full recovery of damages, for the breach of its condition, must be perfect without any notice, other than such as the law requires as a duty, arising from the character and nature of the guaranty. Where the contingency upon which the liability of the guarantor is dependent, is the result of the action of the guarantee, or depends upon his option, or where, from the nature of the ease, the default must come peculiarly within his knowledge, the law imposes upon him the duty of giving reasonable notice of such default to the guarantor; and the want of such notice will discharge the guarantor, to the extent of the loss arising from such want of notice. Bashford v. Shaw, 4 Ohio St. Rep. 263, and authorities there cited.
But this requirement of notice, applies only to the default upon which the liability of the guarantor depends. If the payment of a note at maturity, be guaranteed, the guarantor is entitled to notice of non-payment within a reasonable time after default of non-payment; but if as in this case, the guaranty is one of collectibility by due process of law, no notice is required until the proper efforts for collection have been unsuccessfully carried to final process.
Here, the guarantor was not responsible for default of prompt payment by the makers of the note, but had required the guarantee to use the process of law for its collection; and had guaranteed the successful result of such process.
For what purpose, then, should demand of payment have been made of tbe makers; and notice of non-payment have' been given to the guarantor? He was tbe payee of tbe note, and there were no prior indorsers whose liabilities could be affected by tbe want of notice. No demand was necessary to perfect a right of action against tbe makers; for they were legally bound to pay without. Such action would not put tbe guarantor in default, for such wa.s not tbe condition of bis guaranty. Nor was it called for in order to enable him to take active measures for collecting tbe note; for this duty be had expressly devolved upon the guarantee. And, we think it clear, that a demand of payment was not necessary, as a part of tbe diligence required, by tbe terms of tbe guaranty, to be used in tbe collection of tbe note; as those terms show that the diligence required was a prompt resort to coercive measures, by " due process of law."
We conclude, therefore, that tbe plaintiff's cause of action was perfect without demand, and notice of non-payment; and that bis petition is, of course, good, without an averment of either.
It only remains to inquire whether tbe demurrer to tbe answer was properly sustained?
It is not denied in tbe answer, that tbe plaintiff below used tbe ordinary process of law, by proceeding against tbe makers of tbe. note, with so much diligence as to obtain judgment against them in tbe proper court, at its first term, after default made in payment; and it not only admits, but distinctly avers, that they were then wholly insolvent, and bad placed all their property beyond tbe reach of their creditors; but it is, nevertheless, alleged that tbe plaintiff did not use due diligence in bis efforts to collect, and this allegation is based on tbe fact, that Murdock & Nye were not prevented, by attachment or otherwise, from placing their property beyond tbe reach of their creditors. Conceding that tbe plaintiff below was bound to use all the diligence of a vigilant creditor, ip securing and collecting tbe debt guaranteed, yet a failure to resort to tbe extraordinary process of attachment, or other remedies ancillary to ordinary process, would not constitute negligence, unless the facts necessary to authorize tbe use of such remedies, were known, or by tbe exercise of proper diligence would bavabecome known, to tbe creditors, in time to render them available. Tbe answer charges no sucb knowledge, or means of knowledge; and is, therefore, fatally defective in respect totbe charge of negligence.
Judgment of district court affirmed.
Peck, C.J., and Brinkerhoee, Ranney and Wilder, JJ.,. concurred.