Court Opinion

ID: 3505762
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:15:59.148953+00
Date Added: 2024-06-11T14:16:49.039877
License: Public Domain

No one questions the right of the bank to hold or to proceed with enforcement of the collateral here involved. Nor is there any doubt that to the extent the collateral may fall short of making good the loan the Bowmans must make good. The sole question for decision is whether the court below was right in holding that as between plaintiffs and the Bowmans the collateral should first be used before calling upon them for contribution. To obtain a clear view of the situation the facts should be more thoroughly stated than they have been in the opinion.
When Jenkins had the chance of procuring the exclusive agency for the sale of the Manganese stock he at once sought to raise the requisite funds with which to purchase the 5,000 shares which he had to acquire before getting this exclusive agency. In seeking this accommodation he on many occasions conferred with the Bowmans for the purpose of getting the required aid. They as conservative business men realized the speculative qualities of the Manganese stock and promptly informed Jenkins that they would not enter into any deal unless he put up collateral for the $25,000 required to make that purchase. These negotiations extended over a period of more than two weeks. Jenkins informed them that he had some *Page 553 
Peavey company common stock. The Bowmans refused his first offer of 200 of these shares, they insisting upon 500. But they finally got together upon the proposition that 300 shares were to be put up by him as collateral in addition to the Manganese stock. The Bowmans learned that these shares did not belong to Jenkins so they insisted that he procure the requisite authority to pledge the shares, hence exhibit 5, quoted in the opinion, was procured by Jenkins from the plaintiffs. This instrument was addressed to the Bowmans, and by the terms of that exhibit Jenkins was authorized to put the same up "as collateral security for any loan or loans required by him [Jenkins] whether made by either of you directly or with yourassistance by others." (Italics mine.) After this instrument had been procured it was delivered to the Bowmans, whereupon they and Jenkins entered into the contract referred to as exhibit S. Under the terms thereof the Bowmans promised and agreed "to arrange for such loan [$25,000] to be made either by endorsement of the notes given therefor or in such other manner as they shall desire." They also agreed thereby that the aforesaid sum should "be immediately loaned to" Jenkins and required that (paragraph five of agreement) the 300 shares of Peavey stock were to be at once deposited with the bank as security for the loan so to be made. In conformity with this arrangement the Bowmans endorsed the note which, with the collateral going with it, was taken to the bank and there delivered, the loan duly negotiated, and Jenkins credited with the amount thereof. Mr. Stirling, for the Bowmans, accompanied Jenkins to the bank and saw to it that the note and collateral were turned over to the bank in accordance with the agreement. Thereby they completed their bargain. The testimony is clear that they would under no circumstances have entered into this deal unless this collateral was procured and pledged as security for the loan. That was a condition precedent to their endorsement of the note, a very material part of the consideration entering into the transaction. While the bargain so made may seem harsh, there can be no doubt that these men had a perfect right to insist upon such security as they deemed adequate to protect themselves against loss. Fraud and deceit being entirely *Page 554 
absent, no legal reason, so it seems to me, exists for denying them the protection they bargained for and obtained. All concerned in the transaction hoped and expected that the Manganese stock would prove profitable. If the 5,000 shares had been sold at the stipulated price there would indeed have been large profits for the parties directly concerned. The stock turned out, as many such speculative stocks do, a poor gamble. It is obvious from the record before us that resort must be had to the collateral, and perhaps also to the Bowmans as accommodation endorsers.
But it is not fair to claim that the Bowmans took no chances. Before they consented to the acceptance of only 300 shares of the Peavey stock they made inquiry in respect of its market value. The information gained was that while there was no ready market for such stock it should be reasonably worth at least $100 per share. Naturally they concluded that the 300 shares would afford them reasonably adequate protection. But if that stock had dwindled in value by as much as 50 per cent they stood to lose a very considerable sum of money. These men being experienced in business of this nature knew and appreciated the dangers incident to this form of security. The stock market crash of 1929 was undoubtedly fresh in their minds. We should not, if legally possible to avoid it, place anything in their way to defeat what they and Jenkins sought to accomplish. Of course the Bowmans had no recourse against plaintiffs, as the limit of their liability was the pledged stock. The Bowmans' liability was absolute to the full extent that the collateral failed to meet the loan.
From the record it seems very clear to me that the Bowmans agreed to lend their credit in the making of this loan, provided Jenkins furnished the collateral required by them. They had nothing to do with the procurement thereof. That was up to him to furnish. Clearly, then, Jenkins was not their agent in the procurement of exhibit 5. As between them and Jenkins, there can be no doubt in point of fact respecting the arrangement made.
The law sustains such transaction. It is a matter of common knowledge that a surety oftentimes demands indemnity before assuming his suretyship. That is done almost invariably by surety *Page 555 
companies underwriting obligations of that nature. So we find in 50 C. J. p. 284, [§ 471] (3):
"A surety may, at the time of entering into the relation, stipulate for security or indemnity for his exclusive benefit, and in the absence of imposition or fraud, or a showing that the security or indemnity was intended for the benefit of all, the cosureties have no right to participate in the security or indemnity thus obtained, except to the extent of the surplus remaining after the exoneration of the surety obtaining it."
This statement is fully supported by the cases cited in the notes.
Respecting pledges and the forms and requisities of such contracts, see 49 C. J. p. 904, [§ 24] F, where this rule is stated:
"In order to constitute a pledge of personal property there must be a contract whereby the property is to be held as security. It is not essential that the contract shall be expressed in any formal manner; and generally it need not be in writing, but may be oral; and, where it appears that the minds of the parties have met, it may be implied from the facts and circumstances of the particular case."
The cases cited in the notes pertaining to the quoted language sustain the text.
It is idle for plaintiffs to assert that they are uncompensated sureties. They are not. True, the consideration did not run to them directly, but it did run to and for the benefit of the son and grandson, Donald A. Stewart. They were interested in his future career. Jenkins and Donald were the ones that brought about plaintiffs' participation in the transaction. To the Bowmans the plaintiffs were total strangers. They never met or knew anything of each other until the time the case was tried.
As I view the facts in this case there is not the slightest doubt that the arrangement found by the trial court in fact existed. We are only concerned here in respect of whether the evidence reasonably sustains the trial court in that regard. A careful examination of the record leads me to the conclusion that no other finding could be made. *Page 556 
The result here obtained is that this court is making a contract for the parties that was not contemplated and certainly not made by anyone connected therewith. I am opposed to judge-made contracts; therefore I dissent.
DEVANEY, CHIEF JUSTICE, and LORING, JUSTICE, took no part in the consideration or decision of this case.