Court Opinion

ID: 6238147
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:37:36.169549+00
Date Added: 2024-06-11T08:57:46.802842
License: Public Domain

• Mr. Justice Green
delivered the opinion of the court, October 5th, 1885.
It may be conceded that in all cases of absolute guaranty accepted when given, whether for the extension of a present indebtedness or the creation of a new one, notice of acceptance is not necessary to fix the liability of the guarantor. But such concession does not reach the radical difficulty of this case. It is not possible to regard the contract of the defendant as an absolute engagement. It is true that the words of the promise are absolute and positive, thus, “We whose names are hereunto attached do severally promise and agree.....that we will severally.....guarantee and by this instrument do guarantee the payment ” etc., etc. But the subject of the promise is something which is to occur in the future, and the basis of the promise is a contingency. The promise itself is an undertaking guaranteeing the payment by William M. Lloyd of his creditors at the times and in the manner mentioned in a certain written proposed extension of the debts. The proposed extension however is to be *285” accepted by the said creditors.” The contract recites that “ Whereas the separate creditors of William M. Lloyd . . . . have been invited by him to consider a proposition for an extension of the time of payment of their respective claims, now in consideration of the acceptance of the said proposed extension by the said creditor; and as an inducement to the creditors to accept the same, we whose names are hereunto attached do severally promise and agree,” etc. It is too plain for argument that the fundamental condition of this obligation is that the creditors shall accept the proposed extension. Such acceptance is expressly declared to be the consideration of the promise.
The paper is in no manner a contract to pay any who do accept, which would be completed, as to any one creditor, by his own acceptance, but it is a contract to pay upon the acceptance of the extension by “ the creditors,” which means practically all the creditors. We do not decide that it means absolutely every one of the creditors, because the case does not turn upon that question, and it is not necessarity before us. But it certainly does mean that there shall be an acceptance by the creditors, the great body of them at least, and such acceptance must necessarily take place in the future. There was a vast number of them, some 1200 in .all, and they were widely scattered in different parts of the country. Only a portion of them was present when the proposition and the contract of guaranty were exhibited, and it must therefore be held that the parties contracted, and understood it at the time that they were contracting, with reference to an uncertain event which must necessarily occur in the future. In such circumstances it is but reasonable to hold that the guarantors did not intend dr agree to become liable except in the event stipulated for, to wit, the acceptance by W. M. Lloyd’s creditors of a proposed extension of the time for piling his debts. Of course such a-liability could never become absolute until the acceptance was completed, and the guarantors could never know whether they were liable until they had knowledge of the fact upon which their liability depended. To the completion of a liability in the mere legal sense, in such circumstances, notice to the guarantors is simply indispensable. It is said in many of the cases that they are entitled to notice in order that they may know the character and extent of their liability, so that they may protect themselves from loss, or have the opportunity of doing so. But here there is the added and more essential element necessary, to wit, that notice of the subsequent acceptance must be given in order that a legal liability may exist at all. The subsequent acceptance is not the act of the guarantors but of the creditors, who are strang*286ers to the guarantors and independent of them, and may or may not act in the matter of acceptance. Hence the guarantors can not know whether or not they have «acted, and to what extent, and in what manner, until they have received information to that effect. Upon every principle therefore applicable to such a case, they were entitled to notice of acceptance before any liability arose.
If we turn to the authorities we find they are more than sufficient to sustain these views. In Patterson v. Reed, 7 W. & S., 144, the alleged guarantor told the creditor that he had better take the debtor’s note at four months, and that if he would he, Patterson, would guarantee that it should be paid at that time. To this the creditor replied, “Upon your guaranty I will take it at four m»nths ; do you send Abraham (the debtor) up to Mount Joy this evening.” This was" done, the notes were given and accepted the next morning, payable at four months. Afterwards they were not paid at maturity, and suit was brought against the guarantor. The court below held that although no notice was given by the creditor to the guarantor, of the acceptance of the guaranty, such notice might be inferred from the testimony. But this court reversed the court below for its ruling on this subject, holding that Patterson was entitled to notice that .the notes had been taken upon the faith of his guaranty. Kennedy, J., said in reply to the argument that there were facts enough to justify an inference of notice, “mere conjecture will not suffice in such case where it is the duty of the party to give such notice, and of course to prove it when he afterwards attempts to make the guarantor liable. That such notice ought to have been given in order to make Patterson liable on the guaranty which it is alleged he made, is too well settled to admit of the least doubt. It was necessary that he should have had notice in order that he might provide for the payment of the notes at maturity, and, if he had to do so, that .lie might in the meantime procure an indemnity from Hatfield, if possible, for doing so.” It will be seen that although there was but a single act to be done, to wit, the taking of the note from Hatfield, and it actually was done the next day, and the promise of the guarantor was absolute that he would guarantee payment if the note, was taken, yet he was entitled to notice and without it was not liable. At the time this case was decided our Statute of Frauds was not enacted, and. the case did not turn at all upon the fact that the guaranty was verbal and not in writing.
In Emerson v. Graff, 5 Cas., 358, the terms of the defendant’s liability were a present, and in form, positive engagement to pay, thus, “ I do agree provided John Graff sees fit to take twenty shares of additional stock to his present subscrip*287tion to pay any loss lie may sustain ” &e. Graff did take the stock and did sustain the loss and the court below held the contract absolute without notice of acceptance. But this court reversed the judgment, saying, “ The relation of these parties is to be ascertained from the writing given in evidence as the ground of the action. That, we are satisfied, is a mere offer or proposal, and not by itself a contract. The plaintiff below therefore Could not rdy on it as a contract without showing that defendant was duly notified or informed of his acceptance of it.”
In Kay v. Allen, 9 Barr, 320, the action was brought upon the following letter: “ I would recommend Mr. P. M. Martin, and would go security for him to any reasonable amount; so you can fill his orders, and feel yourself as secure as when I was doing business with you.” Orders for goods by Martin were filled by the plaintiff to whom the letter was addressed, and the goods not being paid for, an action vtas brought on the guaranty. We held that the defendant was not liable because no notice of acceptance was given to the.guarantor. Bell, J., said: “ There is no principle of the law of contracts more firmly settled than that a guarantor of future credit or advancing is entitled to notice from the party giving the credit, of his acceptance of the guaranty, unless, indeed, the agreement to accept be contemporaneous with it ... . and even this is rather an instance of simultaneous proffer and notice of acceptance, than an exception to the rule. Without srich notice there is no contract, for a party giving a letter of guaranty has a right to know whether the person to whom it is addressed means to hold him ultimately responsible, inasmuch as his own caution and vigilance may, in a great measure, be regulated by his knowledge of the fact.” It was argued that the precedent request of the creditor for the guaranty was equivalent to notice of acceptance, but we said: “Indeed it is difficult to imagine how precedent request alone can supply the place of subsequent notice, since after request made and proffer of guaranty, the merchant may refuse the credit or advance craved, and without notice the surety can not know whether he has or not.”
In the case of Adams v. Jones, 12 Pet., 213, Story, J., said, stating the question to be, “ Whether upon a letter of guarantee addressed to a particular person or to persons generally, for a future credit to be given to the party in whose favor the guarantee is drawn, notice is necessary to be given to the guarantor, that the person giving the credit has accepted or acted upon the guarantee and given the credit on the faith of it. We are all of opinion that it is necessary, and that this is not now an open question in this court after the decisions *288which have been made in Russell v. Clark, 7 Cranch, 69,’ and other cases. “It is in itself a reasonable rule, enabling the guarantor to know the nature and extent of his liability, to exercise due vigilance in guarding himself against losses which might otherwise be unknown to him, and to avail himself of the appropriate means in law and equity to compel the other parties to discharge him from future responsibility.”
In Mussey v. Rayner, 22 Pick., 223, the rule as to guaranties for future liability is thus stated on p. 228: “ The general rule of law on this subject seems now to be well settled, requiring that, in cases of a written guaranty for a debt yet to be created and uncertain in its amount, the guarantor should have notice, in a reasonable time, that the guaranty is-accepted and that credit has been given upon the faith of it.” This was said of and the doctrine applied to an admittedly .continuing guaranty which was intended to cover many transactions.
• In a somewhat similar case, Clark v. Remington, 11 Metc., 361, the same doctrine, was applied to the last transactions in a case of continuing guaranty, where notice of acceptance of the guaranty had been given but no notice of the final transactions of credit under the guaranty had been given to the guarantor within a reasonable time, in consequence of which the guarantor was released. Wilde, J.,said: “It is admitted that the defendant had notice of the acceptance of the guaranty at the time he signed it, but he denies that he had any notice of the advances made thereon until long after the last advance was made and after Dillcr’s insolvency...... The law on this point is correctly laid down in the case of Cremer v. Higginson, 1 Mason, 340. That was a suit on a guaranty, and Story, J., said: '‘It was the duty of the plaintiff, within a reasonable time after the advances were actually made, to give notice thereof to the defendants, and that reliance was placed upon their guaranty to insure the repayment; and if notice was not given in a reasonable time, nor until after a material change in the circumstances of the debtors, such laches of the plaintiffs was a complete discharge of the defendants from their -guaranty.’ The same doctrine is laid down in Douglass v. Reynolds, 7 Pet., 126. It was held in that case, that although on a continuing guaranty, where a series of transactions was contemplated, no notice was necessary to be given to the guarantor of each successive transaction, yet when all the transactions were closed, notice of the amount for which the guarantors were-held responsible should, within a reasonable time after, be communicated to them.” The same ruling was made in Allen v. Pike, 3 Cush., 238, in which the language of the guaranty was absolute and in terms of present obligation, thus: *289“ I hereby malee myself responsible for whatever amount Mr. Samuel M. Dockain, of Portsmouth, N. H., may become indebted to either of you. I have fixed no limits to the amount, as he'has assured me that he shall be cautious of getting ranch in debt, and this is satisfactory to me.” Notwithstanding the positive and Unqualified terms of this obligation, it was held the guarantor was released from all liability under it because he was not notified of its acceptance and of the amount of credit given under it within a reasonable time after. The court stated it 4> as a settled rule of law that in cases of written guaranty for a debt yet to bo created and uncertain in its amount the guarantor should have notice in a reasonable time that the guaranty is accepted and that credit has been given upon the faith of it.”
In the case of Douglass v. Reynolds, supra, the court said: “ A party giving a letter of guaranty has a right to know whether it is accepted and whether the person to whom it is addressed means to give credit on the footing of it or not. It may be most material not only as to his responsibility but as to future rights and proceedings. It may regulate in a great measure his course of conduct and his exercise of vigilance in regard to the party in whose service it is given. Especially is it important in the case of a continuing guarantee since it w¿iy guide his judgment in suspending it.”
The foregoing cases have been selected out of a great number because of the closer analogy tbey bear to tlie case at bar in the circumstances of the obligations they interpret and the reasons and principles announced in their determination. They are all instances of guaranties depending upon future events and in some, several transactions instead of one only, are within the possibilities of the contracts. In all of them the doctrine is enforced that where the event is future and depends upon the will of the guarantee, he must give notice of acceptance to the guarantor before the latter becomes subject to any liability. And it is further ruled that where there are, or may be, several transactions to transpire before the complete exercise of all the rights of the guarantee under the contract is accomplished, he must, in a reasonable time, after the hist is finished, give notice to the guarantor not only of his acceptance of the guaranty but also of the extent to which be has given credit under it in order that the guarantor may know the character and extent of his liability. Failing in this the guarantor is released from all liability.
Applying these principles to this case it will be seen in what an eminent degree they are important and controlling in its determination. The guarantors were undertaking to become responsible for the debts of another person upon condition that *290the creditors Would agree to a certain proposed extension through a period of four years in the time of payment of the debts in question. The debts were of enormous amount in the aggregate, and the creditors were upwards of twelve hundred in number. The great object to be accomplished was the extension of the time of payment. It must necessarily be supposed that the accomplishment of this result was the chief inducement to the guarantors to enter into their contract. Without it their engagement would be futile, as the debtor would be at any moment subject to suit, judgment and execution, at the instance of an)’- non-assenting creditor. In consequence of the great number of creditors, much time must elapse before it could be known whether they all or nearly all assented. If they did not assent there was to be no contract of guaranty. Whether they did or would assent would only be known after all had acted or had the opportunity to act. Of the fact of assent or dissent the guarantors were not only entitled to have knowledge, they absolutely must have it in order to know whether they were subject to any liability at all under their proposed contract. If less than the whole assented it -would be for the guarantors to say whether they would nevertheless be liable. If a considerable number dissented there would of course be no liability. In short the whole fact of the contract depended upon what was to be done in the future, and upon the guarantors’ knowledge of what had been done. It is scarcely possible to conceive of a case in which the subsequent notice of acceptance could be more essential than in this. In fact these proposed guarantors were entitled to two notices, one of the agreement by the creditors to the terms of extension, and the other to the acceptance of themselves as guarantors. They never had either. The whole of the creditors never did assent to the extension. In less than two years from the date of the proposed contract of guaranty, some of the creditors brought suits against Lloyd and were about to obtain judgments, when a voluntary assignment was made by Lloyd for the benefit of creditors; and in November, 1875, just about two years after the date of the paper in question, a petition in involuntary bankruptcy was presented against him, signed by a number of his creditors, including some of the present plaintiffs. It may be that Lloyd supposed a sufficient number had signed the extension agreement to justify him in resuming business, as it seems he did resume and continue for some fifteen or sixteen months. But we can not see how that fact can affect the question of the liability of the guarantors. The terms upon which they proposed to contract were never performed. Instead of an extension of four years no extension was ever agreed to by all the creditors, and the temporary postpone*291ment of suits which resulted was far less than two years. But however these facts may be, and independently of them, the proposed guarantors were never notified either of the assent of the creditors to the extension agreement, or of the acceptance of the contract of guaranty, and hence they were subject to no liability as guarantors. The argument from inconvenience in giving so large a number of notices as would be necessary to comply with the law can not suffice to defeat the operation of the rule. It could have been avoided by a provision in the contract dispensing with notice, or declaring that the fact of resumption, or some other fact, should be regarded as notice, but nothing of that kind was done and of course the law must prevail in this case as in others. Nor can we regard this defend ant’s knowledge of particular facts which would or might be consistent with the fact of acceptance as equivalent to the notice which the law requires as a prerequisite to liability. It is the actual fact of notice which the law demands, and that fact never transpired in this case. For the reasons stated we are of opinion that the learned court below was right in directing judgment to be entered for the defendant, and this conclusion renders unnecessary an examination of the several assignments of error.
Judgment affirmed.