Court Opinion

ID: 7184165
Source: CourtListenerOpinion
Date Created: 2022-07-24 16:50:56.287262+00
Date Added: 2024-06-11T16:16:01.047636
License: Public Domain

The judgment of the Court was pronounced by
Ogden J.
The defendants are sued by the Bank, as the securities of P. Marcháis, on certain notes executed by Marcháis and the defendants, jointly and severally, payable to the order of the plaintiffs, the consideration of which notes was the price of a banking house and lot with a large amount of bonds, bills and notes, the assets of the Branch Bank at Thibodeaux, sold by the Bank to Marcháis. The answer of the defendants contains a charge of fraud on the part of the Bank in the concealment of material facts from the defendants, which, if known to them at the time of their signing the notes, would have prevented their incurring the responsibility for which they are now sought to be made liable. That charge, however, is entirely unsupported by any evidence in the record, and no attempt has been made to sustain it in the argument of the defendants’ counsel before the Court. The principal ground of defence which has been relied on, is that the obligation contracted by the defendants as sureties of Marcháis, was entered into through error both on the part of the defendants and of the Bank, in whose favor it was contracted. The material facts which seem to be undisputed and to haveformed the basis of the argument on both sides are these: Prosper Mwchais, the principal in the *373notes, was the cashier of the Branch of the Union Bank at Thibodaux. Previous to the 23d of November, 1849, he had become a defaulter, having embezzled a large amount of assets belonging to the Bank. In order to prevent the discovery of his acts, which were unknown to the Bank, who reposed an unlimited degree of confidence in him, he proposed to them by a letter dated the 23d of November, 1849, to purchase the Banking house and all the assets of the Branch at Thibodeaux, and to give his notes at one, two, three, and four years, endorsed by five good names of planters in the parishes of Lafourche and Terrebonne, and the defendants, in this suit, are named as the endorsers he proposes to give. On the 1st of February, 1850, the Bank adopted a resolution accepting in substance the proposition of Marehais — the resolution contains the following clause : “ This sale is made on the following terms and conditions, viz : “ For the real estate said Marehais is to give four notes drawn by him as principal, and J. A. Seuddy, J. G. Beatty, L. Bush, H. M. Thibodeaux and L. Barras, as securities in solido, for $1,500 each, and payable respectively on the’first of March, 1851, 1852, 1853 and 1854, with four per cent, per annum from the 1st of March, 1850, until their maturity, and seven per cent, per annum from maturity until paid. 2. For the notes, bonds &c. said Marehais to give four notes drawn as aforesaid of $16,000, each payable in the Union Bank of Louisiana, in New Orleans, respectively on the 1st of March, 1851, 1852, 1853 and 1854, with interest as aforesaid, and the balance of the amount over and above $64,000, to be paid by said Marehais in cash on the 1st March, 1850. On the 16th February, Mr. Frey, the cashier of the mother Bank at New Orleans, enclosed a copy of these resolutions to Mr. Marehais, and in his letter requests an exact statement to be sent to him of the bonds and notes remaining unpaid on the 1st inst. in order that he might prepare everything necessary. In this letter Mr. Frey, remarks that he finds the form of the notes in order, but suggests some slight change. On the 7th of March, 1850 the Banking house and lot, by a separate notarial act, was transferred to Marehais, and on the 11th of March, 1850, the President and Cashier at New Orleans, executed a transfer to him of the assets; and the notes of Marehais with the defendants as securities, were received in payment, in accordance with the agreement and understanding between Marehais and .the Bank, as- evidenced by the written proposal of the one and acceptance of the other through the resolution of the Board of Directors. A detailed statement is made in the Act of sale of the assets, amounting in the aggregate to $83,783 13, from which is deducted in gross $3,754 49, stated as an allowance for estimated losses, leaving a balance of $80,028 64, of which $16,025 64 was acknowledged to have been paid in cash, and for the balance of $64,000, four notes were given as above stated. Of the bonds, bills and notes enumerated and described in the act of sale, Marehais had, previous to the negotiations with the Bank, embezzled a large portion, and a large amount of the notes were not the property of the Bank, and not in their possession at the time of the sale. Marehais afterwards absconded, and it was not known until then that he had committed the acts of embezzlement which it is evident the foregoing negotiation and sale consequent thereon, were designed by him to conceal until he could either retrieve his fortunes or make arrangements to leave the country.
Under this state of facts the question is presented whether the defendants can be made liable to the Bank, either in whole or in part. As the Bank *374had sustained the loss of their assets by the embezzlement of their Cashier, previous to the contract being entered into between them and ■Marcháis, it would seem to be very evident that if the securities are held liable, it will not be for an obligation arising out of the contract of sale between Marcháis and the Bank, but for a loss sustained by the Bank previous to the contract being made, and unknown at the time either to the Bank or the sureties — and if, in point of fact, in the understanding of both the Bank and the defendants, the defendants only intended, when they signed the notes, to become securities for Marcháis for his faithful performance of an obligation arising out of the particular contract of sale, it would be clearly inequitable to extend the obligation of the sureties beyond that contract, and to render them liable for a loss previously sustained by the Bank and for which the defendants had never bound themselves as sureties. Pothier, in his treatise on obligations, vol. 1st p. 237, lays down this principle, “ Quelque étendu et general que soit le cautionnement, il ne s’étend qu’aux obligations qui naissont du eontratméme pour lequel la caution s’est obligee, et nonpasácelles qui naitraient d’une cause etrangére.” It is therefore, undoubtedly, a principle of law as well as of equity, that the contract of suretyship cannot be extended to any obligation that does not spring from the contract itself. The Art. 3008 of the Oivil Code, declares that suretyship is to be restrained within the limits intended by the contract. The defence set up embraces other points, but the case turns on the question whether the defendants as sureties of Ma/rchais, can avail themselves of the plea of error and want of consideration. That the Bank believed they were selling to Marcháis bills and notes then belonging to them, and that the defendants became the sureties of Marcháis on the notes given for the price under the belief that Marcháis was then acquiring from the Bank a title to valuable assets, and that both the Bank and the defendants were in error, is a matter about which there can be no doubt. It is equally certain that if the transaction is to he regarded in the light of a contract between the sureties and the Bank, as well as between Marcháis and the Bank, the error must be considered as existing on a point which ivas a principal cause for making the contract and which, according to Article 1817 of the Oivil Code, would have the effect of invalidating it. It was, probably, in that view of what may be considered the question on which the case entirely depends, that the counsel for the plaintiffs by a very able argument have endeavored to establish that there was no pri-vity of contract whatever, between the defendants as sureties, and the-Bank. It' is argued by them that the law supposes the contract of mandate to intervene between the debtor and the surety, and that consequently the suretyship must be considered as having been contracted at the instance of the debtor to which the creditor is not supposed to be privy. These principles and the authorities relied on to support them, cannot reasonably have a greater extent than this, — that no such privity will be presumed to exist, when, from the nature and form of the contract it is not necessarily implied: but does it follow that the surety has not the right of proving that such privity did exist ? We think it does not follow, although suretyship may be regarded as an unilateral contract, like all other contracts it may be avoided for error where it is established that there was a direct privity between the creditor and the surety. It is contended that in this case there was no such privity, because the defendants never sought and never had any communication with , the Bank, but entrusted the negotiations and execution of the entire transaction to their princi*375pal. The resolution of the Board of Directors in which the defendants were specially named as the sureties they were willing to receive, preceded the execution of the notes; the inference is irresistible that these resolutions were previously' communicated to the defendants. After that, it appears to us, if Marcháis had offered these notes executed in exact conformity with the resolutions of the Bank, for any different purpose, than the one thus contemplated by the parties; the Bank would have had no right to receive them, and yet if in reality there was no privity between the Bank and the defendants in the transaction, they would have had a perfect right to' receive them from Marcháis for any purpose whatever and even to make good his deficit to the Bank, if it had been discovered before the transaction was closed. It would have been a fraud on the part of the Bank if they had, under the circumstances, received the notes of Marcháis, with the defendants as sureties, knowing at the time the objects of the sale, for the price of which the notes were given, were not in existence, and to render the sureties liable when the Bank did not know that which they ought to have known, and when that did not in reality exist, the existence of which by the very act of sale itself they warranted, cannot be sustained on principles of either law or equity. There was no sale because an object as well as a price is essential to the contract of sale — there was, therefore, no obligation to which the accessory obligation could attach. Ponsot Traité du Cautionnement, p. 44, says, “ 11 pout arriver quo la nullité qui frappe le contrat principal le frappe de telle sorte, qu’il soit impuissant á produire aucune obligation diroctement ni indirectement, et alors il n’y aura point de cautionnement possible, puisqu’on ne trouve point d’obligation prineipale qui puisse lui servir de base.” The contract of sale in this case was affected by a radical and absolute nullity, and produced no obligation whatever — and this defence of the sureties is independent of the ground of error as to the motives which determined their wills in entering into the contract of suretyship. The plea of error relates to the obligation of the sureties as between the Bank and the defendants, and distinct from the obligation of the principals. The same author just referred to at p. 865, recognizes the obligation of the principals and the sureties as distinct, ho says, “par sa nature, lo cautionnement est essentiel-lement un contrat accessoire, et toutefois, nous l’avons .vu s’il ne peut exister sans un contrat principal auquel il se rattache, il n’en estpasmoins distinct de ce contrat., soit par sa forme, soit par sa cause, il n’en a pasmoinsses conditions propres d’existence.” There is no sound reason why all the essential conditions to the validity of the contract as between the sureties and the creditors should not be required to give it legal force and effect, which are required as between the debtor and the creditor. We think it is sufficiently established by the nature o'f the contract itself, and by the previous negotiations that there was a direct privity of contract between the Bank and the sureties of Marcháis. Erom the nature of the contract which was a transfer of debts, rights and claims due to the Bank, a warranty existed in favor of the sureties as well as of their principal that such debts and rights existed. This, of itself, necessarily established a privity between the Bank and the defendants.
The defendants arc, therefore, entitled to avail themselves of the plea of error, unless they are debarred from making this defence on the ground as is contended that no defence can be set up by the sureties, which the principal is estopped from making. Marcháis would be estopped from pleading eri or or want of consideration by reason of his previous acts of fraud and embezzlement.
*376It is undoubtedly true that the securities could not set up this defence, if it was based alone upon the fraud which their principal practiced upon them, hut it is based also upon error of facts, and that error was a common error both to the Bank and themselves, and induced by the acts of the bank, as well as of Marcháis. There was in reality no sale when the Bank and the defendants both believed there had been one, and consequently there never existed an obligation onthepartof the sureties as regards the price of the assets erroneously supposed to have bren sold. The cases of Villeré v. Armstrong, 4 M., p. 21, and Mayor et al. v. Blache et al., 6 L. R., 510, relied on by plaintiff’s counsel, are not analogous in principle, and the decisions in these cases do not conflict with the right claimed by the defendants in this case to set up the plea of error. In Vil-leré v. Armstrong the securities of the Sheriff on his bond for the collection of taxes set up the plea that the Sheriff had not paid the taxes he had collected the preceding year, and ought not to have been permitted to renew his bond, and it was held properly that such an objection could not be received from the Sheriff himself, and that the sureties could have no defence to the validity of the contract which the Sheriff had not. It could not have been the intention of the court to do more than bring that particular case within the. general rule applicable to the case of a valid subsisting Contract. It cannot be considered as authority for saying that where there is a privity of contract between the creditor and the surety, and it is shown both parties acted in error, the plea would not be a good one. The decision in the other case, of the Mayor el al. v. Blache etal., referred to, does not appear to involve the question which arises in the case at bar. The securities in that case, who wore sued as endorsers of C. L. Blache, the Treasurer of the city, were also securities on his official bond, and the court say “if the original bond was valid, we are of opinion that the plea of error cannot be sustained in relation to the note sued on.” It is to be inferred from the argument of counsel, and the expressions contained in the opinion delivered by the court, that if there had been error affecting the substance of the contract, the sureties would have been relieved. As it does not appear that the securities on the notes in this case were also the official securities of Marcháis, the principle does not apply, and in neither of those cases, nor in any case to which we have been referred, has it been decided that the sureties may not avail themselves of a defence which is founded in the nullity of the contract as between themselves and the creditor, from whatever cause it arises. The law and the equity which ought to govern this case we consider' to be in perfect harmony, and that the defendants are entitled to be relieved from their obligations as sureties in the contract of sale.
We do not consider the parties as disputing their liability on the notes for the banking house.
It is therefore ordered, adjudged and decreed that the judgment of the court below be affirmed, with costs.
Slidell, C. J.,
separate opinion. The defendants are not concluded by the mere form of the instruments by which they have become securities. The notes still remaining in the hands of the payees, the consideration upon which they were given, and the circumstances under which the defendants were induced to enter into them, are legitimate subjects of investigation in the present action.
Although there is no direct evidence that the resolution of the Bank and the purpose of the notes was communicated by any one to the sureties, yet from all the circumstances proved we are all fully convinced, and therefore assume that *377the four notes were signed by the defendants with the understanding and intention on their part that they should be used by Marcháis with the Bank to buy the assets, and that the Bank in receiving the signatures of the sureties considered them at the time as given by the suret'es in pursuance of such intention and understanding.
The transaction then stands on the same footing as though the sale by the Bank, and the promise by Marcháis, and.the defendants as his sureties, to pay the price, wore embodied in one instrument.
In this view of the contract., which is the only true and practical light in which it can be considered, we are to say whether t.io Bank can hold the sureties on their collateral undertaking to fulfil the promise of Marcháis in case of his default.
It is true that Marcháis could not successfully resist an action on these notes. Ho would not be permitted to allege his own turpitude. The principal obligations is binding on him, because his fraud estops him from disputing it; but if there be an invalidity in the collateral obligation, which is a distinct contract su-pcradded to the principal obligation, the sureties may be discharged.
This invalidity we find in.the error of the sureties in entering into the collateral promise. They believed they were becoming the sureties of Marcháis in a contract of sale. The supposed nature of the transaction materially concerned their ultimate responsibility and risk. Acting with the usual foresight of men in the ordinary course of business, they might well suppose that the assets sold would afford a fund which would enable their principal to defray, or at least materially aid him in defraying, the debt for which they were making themselves collaterally responsible. As a contract of sale it would also involve, as a legal incident, the vendor’s privilege on the property sold, to which privilege,in ease of payment by them, they would be legally subrogated. Under such circumstances they might well ho willing to assist Marcháis in effecting the purchase by adding their guaranty, while, on the other hand, without such features in the contract to lessen their probable risk, they might have refused to peril their fortunes. But in supposing the existence of these material circumstances and qualities of the contract, upon which belief we are compelled by the evidence (o believe their consent was predicated, they were in error, and at (he same time the Bank, which knew the defendants wore binding themselves upon that belief, was also in error. The consent, then, of the sureties was given in error, and received in error. The. sureties having thus consented in error, have in legal contemplation never consented to pay these notes. What alone they consented to pay was the price of-what the bank represented as a sale to Marcháis, and what the sureties believed, to be a sale to him, which sale was no,t in fact, made, because the tlúng prófes-, scdly sold did not exist,
I therefore concur with my brethren in U\,e opinion that the j idgment should! be affirmed.