Court Opinion

ID: 8813369
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:10:13.339749+00
Date Added: 2024-06-11T17:04:22.573620
License: Public Domain

SANBORN, Circuit Judge
(after stating the facts as above). [1] The first reason why counsel for the defendants argue that the judgment below should be reversed is that the court below failed to find that the transaction of February 1, 1915, described in its findings was not, as to the defendants, a payment and discharge of the bonds by R. C. Kittel or R. C. Kittel & Co. Their contention is that either R. C. Kittel or R. C. Kittel'& Co. by this transaction paid or Bought the bonds on which as collateral they borrowed $10,000 of the bank; that, as R. C. Kittel was the coguarantor with the defendants of the obligation of the bonds, neither he nor R. C. Kittel & Co. could maintain any action on the guaranty against the defendants, and as the bank *635derived all its rights from either Kittel or Kittel & Co., it cannot do so. If R. C. Kittel, or R. C. Kittel & Co., had paid the bonds, and the bonds had been surrendered to one of them, it may be conceded that their remedy against the defendants would have been an action for contribution, that they could not have maintained this action on the guaranty, and that, if the bank had derived its right exclusively from them under such circumstances, it would have been in a like situation.
But the court below has found in its second conclusion of law that the bonds were not paid or canceled by the transaction in which they were transferred to the bank for the $10,000 which the bank paid to Peabody-Houghteling & Co. Repeated readings of the findings of fact and of the evidence relative to the transaction have left no doubt of the correctness of this conclusion. They have convinced that the intention of the parties to it, and the legal effect of it, was to preserve intact the obligation of all the guarantors to pay the bonds, as well as that of the mortgagor, and to transfer them to and vest them in the bank. The facts that R. C. Kittel drew his draft for $10,000 on R. C. Kittel & Co., payable to the bank, and delivered it to the latter, and that the bank drew and delivered its cashier’s check to the order of R. C. Kittel for $10,000, which he immediately indorsed and delivered to Peabody-Houghteling & Co., have been thoughtfully considered.
But the findings and the evidence alike persuade that these acts were the mere means of accomplishing that transfer intact of the obligations of the guarantors and the Trading Company from Peabody-Houghtel-ing & Co. to the bank, which all the parties, before these drafts were drawn or delivered, had agreed to, and which, when they drew and de - livered the draft and check, they intended to make.' It is the province and duty of the court to look through the mere machinery used by parties to effect their intention, and, if that intention was innocent, if its fulfillment is lawful and. just, while the failure to fulfill it will result in injustice or unintended loss to some of the parties, to effectuate their intention by its judgment, if there is no insuperable legal obstacle to the accomplishment of that result. No such obstacle is found here. There was no error in the conclusion of the court that the bonds were not paid by the transaction of February 1, 1915. Ketchum v. Duncan, 96 U. S. 659, 24 L. Ed. 868; Hirsch v. People’s Bank of Plaquemine (La.) 240 Fed. 661, 153 C. C. A. 459.
Counsel assert, however, that, if the bonds were not paid, yet the guarantors were discharged from liability because R. C. Kittel became a holder of the bonds and the guaranty. They quote section 7004 of the Compiled Raws of North Dakota of 1913, which is section 119 of the Uniform Negotiable Instruments Law, which reads:
“A negotiable instrument is discharged * * * (5) when the principal debtor becomes the holder oí the instrument at or after maturity in his own right”'
—-and they argue that R. C. Kittel was the principal debtor in the guaranty, that by the transaction of February 1, 1915, he became the holder in his. own right of the bonds and the guaranty, and by reason of that fact the defendants, who were coguarantors, were discharged. *636But in reality R. C. Kittel never became the holder of the bonds nor of the guaranty. Peabody-Houghteling & Co. held them until it delivered them to the bank, and they never came into the actual possession or passed through the hands of R. C. Kittel. This was in accordance with the intention of the parties to keep the obligations of the Trading Company and of the guarantors alive, and to transfer them intact to the bank. Their acts were appropriate and effectual to accomplish this purpose. The right which R. C. Kittel or R. C. Kittel & Co. had to the bonds and the guaranty before the transaction was to receive the bonds and the guaranty upon the payment by them' of $10,000 to the holder thereof and on no other terms. Peabody-Hough-teling ■& Co. was the holder thereof.
At the same time that Kittel delivered his draft ón R. C. Kittel & Co. to the bank, and the bank delivered its cashier’s check indorsed by Kittel to Peabody-Houghteling & Co., that company delivered the bonds and the guaranty directly to the bank. The result was that the right of Peabody-Houghteling & Co. to the enforcement of the obligation of the bonds and of the guaranty vested in the bank at the instant of their delivery to it, subject only to the right of Kittel or Kittel & ' Co. to them on condition that they paid the $10,000 on account of them. Neither Kittel nor Kittel & Co. ever became the holder or holders of them in his or their own right, or in any right, because neither ever paid the $10,000, the payment of which was tire indispensable condition of the right of either Kittel or Kittel & Co: to become the owner or owners, or holder or holders, of either the bonds or the guaranty. There was therefore no error in the conclusion of the court that the defendants were not' released from their guaranty, either by a payment or by a purchase of the .bonds or the guaranty by R, C. Kittel or R. C. Kittel & Co.
[2] Defendants claim that they were released by the fact that at the time of the transfer of the bonds to the bank they were by an agreement of the par-ties to the transaction of February 1, 1915, subordinated as to the security of the mortgaged lands to all the other bonds and coupons secured by the trust deed without their knowledge or consent. The evidence satisfies that the subordination was made without the knowledge of the defendants. The court below held, notwithstanding, that they had previously consented and agreed thereto by the provisions of their guaranty and of the bonds and trust deeds securing them.
By the guaranty on each of the bonds the defendants “unconditionally” guaranteed to the holder thereof its payment, expressly accepted all the provisions of the bond and of the trust deed, authorized the holder of the bond, without notice to either of them, to grant an extension or extensions of time of payment thereof, agreed that no dealing by such holder with the Trading Company, except by way of cash payment, should release them, and that in case of nonpayment of principal or interest when due suit might be brought by the holder of' the bond against either of them, with or without the joinder of the Trading Company, at the option of the holder. The ninth article of the trust deed provides that, in the event that the time of payment of *637principal or interest of any bond or bonds shall be extended by an agreement between the maker and the legal holder, the lien and security of the trust deed should as to such bond or bonds “be postponed and subordinated and made subject to its lien and security in favor of all the other bonds outstanding and unpaid, and the interest thereon.” Thus it appears by these provisions of the guaranty and the trust deed that these defendants expressly agreed that they should not be released from the obligation of their guaranty by any extension of time of payment agreed upon by the Trading Company and the holder of the bonds, although that extension would subordinate the bonds as to the mortgaged security to the other bonds secured thereby, nor by any dealing by the holder with the Trading Company, except by way of cash payment, and that they unconditionally guaranteed the payment of the bonds.
The rule that a contract of guaranty should be strictly construed, and that it should not be extended by interpretation beyond its express terms, is invoked, and the defendants insist that the transaction by which these bonds were subordinated was not an extension of time of payment agreed upon by the Trading Company and the holder of the bonds, and was not a dealing by the holder of the bonds with the Trading Company, and that therefore this subordination falls under the general rule that a material modification of the contract guaranteed without the knowledge or consent of the guarantors releases them. But R. C. Kittel was the vice president and the active executive officer of the Trading Company. These bonds fell due on February 1, 1915— tire day of the transaction. As such officer of the Trading Company, he must have been anxious to avoid a suit which might follow a default, unless the bonds were in the hands of a friend of the company. It was to the interest of that company that they should be placed in such hands. Peabody-Houghteling & Co. made it a condition of the transfer that these bonds should be subordinated. The vice president and the active' executive of the Trading Company was present and participated in the entire transaction, and knew, as did his company, that this subordination was a condition of the trade, and that it was made. While the name of the corporation was not used in the writings which effected this result, there can be little doubt that it was for the benefit of the corporation, in its interest, and pursuant to the exertions of its active officer that the transaction was had. The court below was of the opinion that, in view of the unconditional guaranty and the express provisions thereof that no agreed extension or dealing between the holder and the Trading Company, except by way of cash payment, should release the guarantors, they must be held to have excluded themselves from a release on account of this subordination of the bonds, and this court is not persuaded that there was any error in that conclusion.
Finally, it is suggested that the court erred in refusing to receive evidence that when the guaranty was made R. C. Kittel agreed with the defendants that he would pay the bonds and keep the holder of them harmless on account of their guaranty. There was, however, no evidence, and there was no offer to prove, that the bank had any notice *638of this agreement when it paid the $10,000 for the bonds and they were delivered to it to secure the payment of Kittel's draft. The evidence offered was therefore immaterial, and rightly rejected. The bank was a bona fide purchaser of the bonds for value, before their maturity, without notice of any defense of the guarantors, and the judgment in its favor must be affirmed.
It is so ordered.