Court Opinion

ID: 3240040
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:13:38.521512+00
Date Added: 2024-06-11T12:43:38.876259
License: Public Domain

W. P. Russell and C. W. Garrett, both since deceased, were the joint payees in a note made by the Hayneville  Montgomery Railroad *Page 99 
Company on February 4, 1909, payable on or before January 1, 1910, for $12,635. This note was secured by 38 bonds of the railway company, and these bonds were secured by a firstmortgage on the railway company's property.
On January 15, 1910 — 15 days after the maturity of the note to Russell and Garrett — Garrett, for a consideration representing his one-half of the face of the note, assigned or transferred to Russell his half interest in the debt, executing to Russell the writing set out in count 2 and reproduced in the foregoing opinion of Justice Miller. In legal contemplation this obligation was a contract of indemnity, not a contract ofguaranty, as was held, erroneously in my opinion, on the former appeal, reported in 204 Ala. 98, 85 So. 420; 14 Rawle C. L. p. 43; 22 Cyc. p. 79. There is an important distinction between anindemnity and a guaranty. An indemnity is an original contract, while a guaranty is a collateral undertaking. 14 Rawle C. L. p. 44; Anderson v. Spence, 72 Ind. 315, 37 Am. Rep. 162, 167. The importance of this distinction is illustrated in the contest under review. Justice Miller's opinion ante accepts the definition on former appeal of the contract's nature; hence the writer dissents from that feature of the present opinion.
The essence and plainly intended effect of the indemnitor's (Garrett's) contractual obligation being to assure the indemnitee (Russell) against loss, a condition precedent to the creation of a cause of action resulting from this contract of indemnity was that the indemnitee should have suffered loss in a definite amount, not exceeding $6,902.94. Under this contract, the ascertainment of that loss — its measure not exceeding the amount stated — was the failure to collect the railway's debt after due, legal diligence and seasonable recourse, in good faith, to every element of security for the payment of the note. In order to construct a sufficient count either on this contractual promise of the indemnitor or for breach of the contract, the indemnitee's obligation was to aver performance, in good faith, of every duty essential, as stated, to the creation of the condition precedent to the existence of a cause of action in favor of the indemnitee under this contract. Count 2 was not framed on the correct theory of the nature of the contract to which the indemnitee's (plaintiff's) right is referable; and the count would be defective when assailed by aptly grounded demurrer.
The provision in the writing set out in count 2, reserving in the indemnitor the right "to say when" the "note" should be "foreclosed," was a limitation or restriction in favor of the indemnitor that expired after a reasonable time from the date of the contract, as was well decided in the opinion on former appeal; such reasonable period having expired by the time the indemnitee began his effort to collect the note. The indicated provision did not qualify (otherwise than through the reservation of the stated limitation or restriction that expired after a reasonable time) the indemnitee's duty to employ due diligence to collect the note and to enforce, in good faith, every element of the security given for its payment. According to the writer's view, the consideration of the sufficiency of certain special pleas (for instance, plea 17), on demurrer, is embarrassed by the fact that the contract in question was erroneously treated on former appeal as a contract of guaranty, rather than as a contract of indemnity
against loss. A result of the erroneous treatment of the contract as one of guaranty was to place the burden of averment upon the defendant, indemnitor, to impeach the action of the indemnitee wherefrom under this contract the loss of the indemnitee should be ascertained and indemnitor's liability established. Notwithstanding the embarrassment consequent upon the misapprehension of the nature of this contract, effecting improperly to transpose the indicated burden of allegation from the plaintiff to the defendant, plea 17 asserted a bar to plaintff's right to recover, for that it set up the indemnitee's failure to discharge his stated duty in the premises wherefrom the extent of the indemnity against the loss was ascertainable under the indemnitor's contract, in this, that indemnitor did not discharge his legal duty to avail of the security afforded by the first mortgage by which the 38 bonds of the railway company were secured. The indemnitee appears to have foreclosed the collateral afforded by the bonds by their sale under the statutes governing the subjection ofpledges. Doubtless this foreclosure of the pledge through the sale of the bonds was a full observance of the contract between the railway company and its creditor, and operated, as between those parties, to invest the purchasing creditor (Russell) with the title to the bonds and the mortgage as an incident to the bonded debt thereby secured. But, as Justice Miller well observes, this action is not between those parties. It is between an indemnitee and an indemnitor, the latter's liability being limited, affirmatively restricted, to a loss suffered after due diligence to collect the debt, with seasonable recourse to all elements of the debt's security.
Assuming the entire validity and efficacy of the sale of the pledge to pass title to the bonds, as between the debtor andthe foreclosing creditor, this indemnitee's obligation to the indemnitor was not discharged by a sale of the pledge, the bonds to which the mortgage was an incident, If choice this indemnitee had between sale of the pledge and subsequent foreclosure of the mortgage, good faith required that the indemnitee exercise it to the avoidance of a loss in the premises, unless some fact or circumstance, not now indicated, forbade his foreclosure *Page 100 
of the mortgage. Indeed, if the indemnitee became the purchaser at the foreclosure of the pledge afforded by the bonds (secured by the mortgage), and thereby became possessed of the title to the mortgage, he could not, in good faith, assert a loss as ascertained by the sale price of the pledge only. To affirm otherwise would sanction an only partial discharge of the obligation the indemnitee owed the indemnitor in the premises. And if, after the purchase of the pledge, the indemnitee foreclosed the mortgage for a sum sufficient to equal the amount the indemnitor agreed to assure, the indemnitee sustained no loss within the contemplation of the contract ofindemnity. This conclusion is not predicated of fraud on the part of the indemnitee, but upon the failure of the indemnitee to pursue in the premises the course he had obligated himself primarily to pursue, to ascertain the loss against which the indemnitor assured.
In the present posture of the case, I concur in the reversal of the judgment for the erroneous overruling of the demurrers to special pleas 20-24, inclusive — this on the grounds stated in the opinion of Justice Miller.