Case Name: The Cambria Iron Company v. Keynes et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1897-06-08
Citations: 56 Ohio St. 501
Docket Number: 
Parties: The Cambria Iron Company v. Keynes et al.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 56
Pages: 501–515

Head Matter:
The Cambria Iron Company v. Keynes et al.
Contractor guaranty — Construed by circumstances at time of contract — Sale of goods tinder guaranty — Extension of time to purchaser — Does not affect guaranty, when.
1. In construing a contract of guaranty, the object should be to ascertain the intention of the parties; and as in construing all contracts, the words employed by the parties should be construed in the light afforded by the circumstances surrounding them at the time it was made.
2. Where the financial condition of a corporation for profit located in this-state requires its credit to be strengthened, and for this purpose all or part of its directors execute, in this state, a guaranty in the following items :
“Logan, Ohio, Sept 21, 1891.
We the undersigned directors of the Motherwell Iron & Steel Company of Logan, Ohio, do hereby guarantee the ultimate payment of all material purchased of the Cambria Iron Company of Johnstown, Pa., for the use of said Company during the season of 1891 and 1892.
R. W. Keynes, I. N. Collins, B. R. Higgins,
S. H. Bright, D. M. Motherwell, L. A. Culver,
M. D. Moore.”
And authorize such guaranty to be forwarded to a manufacturing concern in Pennsylvaina to be used by the latter as a basis for extending credit to the former company, such instrument should be construed to authorize the giving of a reasonable period of credit to the purchasing company, although such reasonable period should be for a longer time than had been customary in the previous course of its business.
3. A sale of goods, made to the principal under such guaranty, upon four months’ time, with a privilege to the purchaser of sixty days’ additional time by paying six per cent, interest, and taking-therefor a negotiable promissory note running for six months, is not giving an unreasonable term of credit to the principal, although the prior dealings of the parties had been upon four months’ credit.
(Decided June 8, 1897.)
Error to the Circuit Court of Hocking county.
The plaintiff in error sought by this action to recover on a guaranty executed by the defendant in error, and certain other directors of the Motherwell Iron & Steel Company, hy which such directors guaranteed the “ultimate payment,” by the Motherwell Iron & Steel Co., of all material purchased by it of the plaintiff in error during the season of 1891 and 1892.
The parties having waived a jury, the cause was tried before the judge who sat in the court of common pleas; judgment was there rendered in favor of the defendants, which was affirmed by the circuit court. Whereupon the plaintiff in error instituted proceedings in this court to reverse both judgments.
The facts necessary to the decision of the case will be stated in the opinion of the court.
Weldy ds Buerhaus and J. S. Friesner, for plaintiff in error.
It is a well settled rule of law, that where the surety or guarantor is fully indemnified by property placed in his hands or anyother kind of indemnity, such surety or guarantor is not discharged by an extension afterwards granted to the principal. Brandt on suretyship and guaranty, section 302, page 409 ; Klienhoss v. Generous, 25 Ohio St., 867.
The facts in the ease at bar on this question are almost identical with the facts in the case of Wise v. Miller, 45 Ohio St., 388; and the case of the National Exchange Bank v. Gay, 57 Conn., 224.
So where a party guaranteed the payment of a bill already bought for which the principal had given his note, and guaranteed the payment of such other bills as the principal might buy, and the principal bought other bills and gave his note for them it was held, that the giving of such notes was not payment by the principal which would discharge the guarantor. Brandton Suretyship and Guaranty. First Edition 430. Benjamin v. Hillard, 64 U. S. S. .C., 149; Bobbins el al. v. Robinson et al., 176 Pa. St., 341; Chittenden v. Dawson, 6 Hill, 543;Bushv. Critehfield, 5 Ohio, 109; Weitrnan v. Bumcrantz, 12 Ohio St., 273.
The general rule in construing a guaranty is, that the words of the guaranty are to be taken as strongly against the guarantor as the' sense will demand. Drummond v. Prestman. 12 Wheaton, 515.
The contract of guaranty although that of a surety is to be construed as a mercantile instrument in furtherance of a spirit of liberality to promote the use and convenience of commercial intercourse. Davis v. Wells Fargo dh Co., 104 U. S. S. C., 159; leuisville Mfg. Co. v. Welch, 10 How., 462.
In the ease of Mauran v. Bullus, 16 Peters, 528, the court held, that generally all instruments of suretyship are construed strictly as a mere matter of legal right, the rule is otherwise where they are founded on a valuable consideration. In the case at bar there was a valuable consideration moving to the defendants from the plaintiff in error, for the reason before stated, the defendants were beneficiaries and therefore they did not stand in the position of sureties merely. Bushnell v. Church 15 Conn., 406; Brandt on S. & G.', section 165 and 166; First Ed. Forest v. Steioard, 14 Ohio St., 246; Stone v. Rockefellar, 29 Ohio St., 625.
The usages of the trade in a particular business can not govern or contravene the expressed stipulation of a contract, but where in a mercantile contract there is no expressed stipulation, and a controversy arises between the parties in reference to such contract, there, the contract will be con strued with reference to the usages and customs of such trade. 41 Iowa, 479; 6 Hill, 443.
We are not unmindful 'of the old aphorism that “sureties are favorites of the law.”
We deny this maxim,, no class of litigants are favorites of the law where the law is properly administered. And there is no reason why a surety should be a special favorite.
In order to release a surety there must be another contract substituted for the original, such an alteration in a point so material as in effect to make a new contract without the consent of the surety.
8. H. Bright and L. D. Tickers, for defendants in error.
Brief of 8. II. Bright
This was an authorized change in the terms of the contract as to place of payment, and the change was material. Sturges v. Williams, 9 Ohio St., 443; Randolph on Commercial Paper, sections 1755, 1759; Ide v. Churchill,■ 14 Ohio St., 383-, Brandt on G. & S., sections 397, 378, 381, 388. As to the place of payment see Randolph on Commercial Paper, sections 33 and 81.
In Pennsylvania, the taking of anote operates as payment. 7 American State Reports, page 373, note.
Guarantors are released by extensions of time and changes of contract the same as sureties. Brandt on Guaranty and Suretyship, sections 343 ; Rutherford v. Blackman, 40 Ohio St., 604.
The. following authorities show the application of the doctrine of release of guarantors by exten sion of time, or change of contract. Brandt on Guaranty and Suretyship, sections 123,354,363, and 364; Wood v. JVewkirh, 15 Ohio St., 295; Fawcett v. Freshwater, 31 Ohio St., 15, and 637 Ohio Digest, volume 3, 251; Me Comb v. Kitredge, 14 Ohio St., 348 ; General Digest, volume 5, page 1019, sections 41; 17 Ohio St., 118; Reed Serving Machine Co. v. Oberreich, 38 Wisconsin, 325; Appelton et. al. v. Parker et al., 15 Gray, 173 ; Ravin v. Smith, 6 Hill.
But the plaintiff undertakes to escape thegiving of one note for a whole month’s shipments by claim-that they were authorized so to do by the custom of trade.
If it intended to claim so material a thing as a modification of the contract by usage, surely we were entitled to be advised of it by porper averment. Pulían v. Cochran, 10 Rec., 184; 6 B., 390.
The evidence if admitted does not establish a custom. The custom must be shown to be “notorious, uniform, reasonable and acquiesced in by the public.” Steamboat Albatross v. Wayne, 16 Ohio, 513. ■
Custom can not change the legal effect of the contract. Rodgers v. Woodruff 23 Ohio St., 632; Brandt on G. and S., section 345. Greenleaf on Evidence, volume 2, section 251.
It will also be observed that the alleged indemnity does come from the principal debtor, the Motherwell Co. This fact takes the case out of the rule. Leggetts. McClelland, 39 Ohio St., 624; Osborn v. Noble, 46 Miss., 449; Machlin v. North Bank of Kentucky, 314.
We now come to the question as to how this guar anty is affected, if at all, by the fact that the de fendants were stockholders in the Motherwell Iron and Steel Company. It can under the facts of the case make no difference at all. We insist that the corporation is in law one person, and the stockholder another.
It is the general understanding of the business world that, a stockholder who becomes surety on the obligation of the corporation has all the rights and remedies, and is entitled to all the protection of any other ■ surety. Street v. Oldtown Bank, 67 Md., 421; Brown on Statute of Frauds, section 64; Hansen v. Donkersby, 37 Mich., 184.
It has frequently been held that the promise of a stockholder to pay the debt of a corporation must be in writing under the Statute of Frauds: Brandt on Suretyship and Guaranty, section 68, citing Mass, and Md. cases. Home National Bank of Ghioago v. Waterman's Estate, volume 29, North Eastern Reporter, page 503. General Digest, volume 6, page 499, paragraphs 376 and 377, citing Rudd v. Robinson, 126 New York, 113; Pearsall v. Western Union Tel. Go., 124 N. Y., 256.
But it will not do to say that the word “ultimate” authorizes any deviation from the contract as made by the parties. The natural import of the word “ultimate” as used in the case at bar, is: the guarantors will pay if the Motherwell Co. does not; or they will pay after the resources of the Motherwell Co. are all exhausted. Randolph on Commercial Paper, section 850.
Brief of L. D. Vickers.
The rule of law is, that upon the question of extension of time, sureties and guarantors both come under the same rule, and whatever will release a surety, will release a guarantor. James v. Turner, 6 Law Bull., 231; Rutherford v. Brackman, 40Ohio St., 624.
As to what js sufficient to release a surety or guarantor. See 6 Law Bull., 231, 10- Ree., 31. Fawcett v. Freshwater, 31 Ohio St., 637; Farmers <& Traders Bank v. Lucas, 26 Ohio St., 385; Slagle v. Pow, 41 Ohio St., 603; Card v. Neff, 39 Ohio St., 607; Osborn v. Low, 40 Ohio St., 347; 2 Parsons on Contracts, 17 and notes; Leeds v. Dunn, 10 NY., 469; Brandt on Suretyship, section 297.
The grantors have the legal right to a strict construction of their contract in their favor, and if it is departed from in any respect, it is sufficient for them to say it is not my contract. Barnes v. Barrow, 61 N. Y., 39; Grant v. Smith, 46 N. Y., 93; Birdsally. Seacock, 32 Ohio St., 177; Brandt on Suretyship 97; 39 Ohio St., 324 ; 40 Ohio St., 47.
The rule in favor of guarantors is so strictly construed in their favor, that no change can be made from the terms implied by the contract; and it makes no difference what the change is if it is material; the time cannot be shortened any- more than it can be extended.

Opinion:
Bradbury, J.
The plaintiff in error filed in the court of common pleas, a petition in the following words and figures:
Court of common pleas, Hocking county-, Ohio.
The Gambia Iron Company, plaintiff v. Robert W. Keynes, I. N. Collins, L. A. Culver, S. H. Bright, B. R. Higgins, D. M. Motherwell and M. D. Moore, defendants.
Petition. Civil action.
Plaintiff is a corporation duly incorporated under the law's of the state of Pennsylvania, and located at Johnstown, in said state.
On the 21st day of September, 1891, in consideration the plaintiff would furnish The Motherwell Iron & Steel Company of Logan, Ohio, which is a corporation duly organized under the laws of the state of Ohio, with certain material then used by said Motherwell Iron & Steel Company for manufacturing purposes, consisting of iron, steel and other merchandise, an itemized account of which material so furnished the said company is hereto attached (marked "Exhibit A,") and made a part of this petition, the defendants guaranteed to plaintiff to be ultimately responsible for the payment of all material purchased by the said Mother-well Iron & Steel Company fo'" its use, from plaintiff during the season of 1891 and 1892.
The plaintiff in consequence of said guarantee, a copy of which is hereto attached (marked "Exhibit B, ") and made a part of this petition, sold and furnished the said Motherwell Iron & Steel Company material as aforesaid to the amount of 83,937.86. The said sum was due and payable in installments as follows:
July 24, 1892, $1,405.98. .
August 22, 1892, $781.07.
September 19, 1892, $1,295.36.
October 12, 1892, $209.51.
August 3, 1892, $245.94.
The time of payment given the said Motherwell Iron & Steel Company by plaintiff, has elapsed, yet the said Motherwell Iron & Steel Company has not paid the same nor any part thereof, and plaintiff requested payment thereof from said defendants and each of them, but no part thereof has been paid.
As evidence of the aforesaid indebtedness, the said Motherwell-Iron and Steel Company executed and delivered to plaintiff its four certain promissory notes for the respective sums and dates as follows:
January 21, 1892, $1,405.98, due six months after date.
February 19, 1892, $781.07, due six months after date.
March 16, 1892, $1,295.36, due six months after date.
April 9, 1892, $209.51, due six months after date.
And the sum of $245.94, not evidenced by note, due and payable August 3, 1892.
Which said notes the plaintiff now brings into court and surrenders up the same.
The plaintiff avers and charg'es the fact to be that the said Motherwell Iron & Steel Company is wholly and totally insolvent; that all its personal and real property has been levied upon by the sheriff of this county by virtue of execution placed in his hands for more than the value of the real estate and personal property levied upon, and the same is beyond the reach of plaintiff for the purpose of subjecting- the same to the payment of the aforesaid indebtedness. The. said Motherwell Iron & Steel Company has been declared by due process of law, under the statute in suela case as made and provided, to be insolvent, and a receiver has been appointed for all its property and rights of action and is now in possession of the same.
Wherefore plaintiff asks judgment against the said defendants for said sum of $3,937.86, with interest on $1,405.98, from the 24th day of July, 1892; interest on $781.07 from August 2d, 1892; interest on $1,295.36 from September 19th, 1892; interest on $209.51 from October 12th, 1892, and interest on on $245.94 from the 31st day of August, 1892.
The guaranty upon which the action was founded is as follows:
"Logan, Ohio, September 21, 1891.
"We the undersigned directors of the Motherwell Iron & Steel Company of Logan, Ohio, do hereby guarantee the ultimate payment of all material purchased of the Cambria Iron Company of Johns-town, Pa., for the use of said company during the season of 1891 and 1892. Robt. W. Keynes, I N. Collins, L. A. Culver, S. H. Bright, B. R. Higgins, D. M. Motherwell, M. D. Moore."
To the petition a number of defenses were interposed by the guarantors, only two of which we care to notice: The third and the fifth.
The third defense sets forth: That at the time the guaranty was executed as well as before and since that time, the usual credit given by the plaintiffs on such goods as they sold the Mother-well Iron & Steel Company was four months, and that the guarantors believed and had a right to believe that the goods to be sold during the period covered by the guaranty would be sold upon those terms of credit; but that after the guaranty was executed, the plaintiff in error and the Motherwell Iron & Steel Company entered into a contract, the effect of which was to extend the credit on purchases covered by the guaranty to six months, and that the negotiable promissory notes of the Motherwell Iron & Steel Co., on six months, time were taken for the several purchases as set out in the petition, which extension of time was given without the knowledge or consent of the guarantors.
The fifth defense sets forth that at the time they executed the guaranty the grantors were not advised of ' the intention of the Motherwell Iron & Steel Company to contract for an extension of the time of payment for the goods to be brought under the guaranty beyond the customary period of four months.
The plaintiff by its reply took issue upon these averments of the answer.
A jury was waived and the cause submitted to the court upon the evidence. The court found that the Motherwell Iron & Steel Company gave and the plaintiff in error accepted the several notes set forth in the petition and answers, and that such action constituted an extension of time which released the guarantors as to all sums the times for the payment of which had thus been extended.
We do not doubt the soundness of the rule that discharges a guarantor from liability whenever the terms of a contract he has guaranteed have been materially altered. That the guarantor 'Or surety may stand upon the very terms of his undertaking, is a doctrine sustained by the unbroken current of authority. Boalt v. Broten, 13 Ohio St., 364; Patterson v. McNeeley, 16 Ohio St., 348; Thompson v. Massie, 41 Ohio St., 307; Bank v. Lane, 8 Ohio St., 405; Hall v. Williamson, 9 Ohio St., 17; Bank of Steubenville v. Carroll's Admrs, 5 Ohio, 207; The State v. Crooks & Shaw, 7 Ohio, 573; State v. Medary, 17 Ohio, 554; McGovney v. State, 20 Ohio, 93; Smith v. Huesman et al., 30 Ohio St., 662; Palmer v. Yarrington, 1 Ohio St., 253; Stone v. Rockefeller, 29 Ohio St., 625; Morgan v. Boyer, 39 Ohio St., 324. The citations of eases bearing on this' proposition could be indefinitely extended. The established doctrine of this state at least, if not in substantially all the states, is, that a change of the time for .the performance of a contract is a material alteration of its terms. King v. Newman et al., 54 Ohio St., 273; 2 Am. & En. Ency. of Law, 236-240, 2nd Ed.
The question here, however, is not whether an extension of the time of payment would discharge the guarantors, but whether in this instance the time was extended beyond the terms of the contract of guaranty.
If in the light afforded by the circumstances that surrounded the parties when this contract of guaranty was executed and the custom of this particular trade, known to the parties, a guaranty couched in the words that the parties here employed, should be construed to mean that credit for goods sold upon its faith should not be extended beyond four months from the sale of each respective bill, then, as longer credit was given, it would follow that no recovery can be had upon the guaranty. We think the court was right in holding that by taking the promissory notes set out in the petition, the plaintiff in error extended to the Mother-well Iron & Steel Company a period greater than four months for the payment of the several bills of goods embraced within the notes. The contract of sale itself gave to the purchaser the privilege of sixty additional days, by paying six per cent, interest, and the notes being entitled to three days of grace, the giving and accepting of them, extended the time of payment that much longer.
This brings us to the real question in the case:
The construction that, in this respect should be given to the guaranty itself.
Doubtless the usual and customary terms of credit for such goods as were sold by plaintiff in error on the faith of the contract of guaranty, was four months. Did this custom attach to and become a part of the guaranty, so that, by giving longer credit, the guarantors were discharged?
In construing a contract of guaranty, the object should be the same as in construing any other contract; that is, to ascertain the intention of the parties to the instrument, when that intention is ascertained the guarantors are bound by it. While a guarantor may stand upon the strict letter of his contract, his rights extend no further. To ascertain whether an asserted obligation falls within a contract of guaranty, resort should be had to the situation in which the parties stood and the words they have employed.
The circumstances satisfactorily establish that the plaintiff in error, supposed the guaranty covered sales of goods although credit was given for a longer period than four months. Did the words employed by the guarantors, their relation to the parties, and the surrounding circumstances justify this interpretation of the instrument? We think they did.
The guaranty was in the following terms:
"Logan, O., September 21, 1891.
"We, the undersigned directors of the Mother-well Iron & Steel Company of Logan, Ohio, do hereby guarantee the ultimate payment of all material purchased of the Cambria Iron Company of Johnstown, Pa., for the use of said company during the season of 1891 and 1892. R. W. Keynes, I. N. Collins, B. R. Higgins, S. H. Bright, D. M. Motherwell, L. A. Culver, M. D. Moore."
More comprehensive lauguage could not have been easily found, "ultimate" means "at last," "finally" or "at the end." The contract bound the guarantors for the ultimate (final) payment for all material purchased within the specified period. .The persons who empk^ed this language were not disinterested parties acting from a spirit of mere accommodation, like the bondsmen of public officers, or one who guarantees the contract of a neighbor. They were, or declared themselves to be, directors of the concern for which they became guarantors. They were not only pecuniarily interested in the successful operation of its business, but were charged with the general superintendence of its affairs. To give it power to buy, was to promote prospective personal gain to themselves. This guaranty was executed by the parties at home, in Logan, Hocking county, on September 21st, 1891, and on October 27th, following, forwarded to the plaintiff in error at Johnstown, Pennsylvania, accompanied by the followng letter:
The Motherwell Iron & Steel Co.,
Logan, O., Oct. 27, 1891.
Cambria Iron Co., Johnstown, Pa.:
Gentlemen: Enclosed find the guarantee of our directors to be attached to our contract for material for the coming season.
Yours truly,
Motherwell Iron & Steel Co.,
M. D. Moore, Gen. Mgr.
For the purpose of strengthing the credit of a concern under their general control, and in which they were pecuniarily interested they entrusted this instrument to a manager, selected by themselves, to be forwarded to the plaintiff in error, knowing it would become the basis upon which the latter would extend credit to their own concern.
Under the circumstances, we think the guarantors should be held to have intended to authorize any reasonable extension of credit upon purchases secured upon the faith of this guaranty. And the contract entered into by the terms of which the sales were made at four months' time, with a privilege to the purchaser of sixty days additional time upon payment of six per cent, interest, and the taking of notes at six months as this was done by plaintiff in error was not an unreasonable extension of credit.
Upon the pleading and undisputed facts, the court of common pleas should have Tendered a judgment in favor of the plaintiff in error for the unpaid balance on the purchases made under the guaranty.
Judgment accordingly.