Court Opinion

ID: 3838742
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:07:45.156693+00
Date Added: 2024-06-11T14:14:18.942033
License: Public Domain

I agree with the conclusion expressed by the majority that the defendants' liability upon the instrument which they signed was a conditional one. But that, in my opinion, does not of itself settle the issue of whether the demurrer was properly sustained to the complaint. We must go a step further and inquire whether the condition was precedent or subsequent. The majority states that "if the bank, through its earnings or by reason of a legally authorized reduction in capital" had met the plaintiff's demands, the defendants' liability upon the instrument under review would have been terminated. Those were the conditions to the defendants' liability. If the conditions were precedent, the complaint should have averred that the earnings did not make up the deficiency and that the capital was not reduced (Phillips, Code Pleading, § 329), although the averments could have been of a very general character (§ 1-805, Oregon Code 1930). But if the conditions were conditions subsequent, it was unnecessary to mention them in the complaint: Phillips, Code Pleading, § 348; Pomeroy's Code Remedies (5th Ed.) § 471, p. 779; 49 C.J., Pleading, § 157, p. 146; and 21 R.C.L., Pleading, § 27, p. 462. From Clark on Code Pleading, § 45, p. 192, the following is taken:
"In any event, the courts strive to construe conditions as subsequent, where possible, since in such case *Page 427 
nonperformance is considered matter of defense to be raised by the defendant."
Williston on Contracts, § 66A, states:
"A condition precedent in a contract is the typical kind. It must be performed or happen before liability arises on the promise which the condition qualifies."
In § 667 the same authority states:
"The term condition subsequent in contracts as used in contrast to condition precedent must mean subsequent to liability, — that is, a condition which divests a liability on a contract after it has once accrued."
The following is taken from Little Nestucca Toll-Road Companyv. Tillamook County, 31 Or. 1 (48 P. 465, 65 Am. St. Rep. 802):
"The rule is general that the plaintiff is under no legal obligation to the adverse party to advise him of the defense he should interpose, and under this rule the complaint in code pleading ought not to anticipate or negative a possible defense (Boone on Code Pleading, § 11; Bliss on Code Pleading, § 200; 4 Ency. Pl.  Prac., 614), and a condition which qualifies or defeats the plaintiff's suit, being a condition subsequent, may be safely ignored by him in the pleading."
In other words, a condition subsequent is some contemplated event which the parties anticipated might occur and the occurrence of which they stipulated should terminate the liability upon the instrument which they were executing. The document itself, however, creates an immediate liability and the liability continues unless the event happens. Its occurrence terminates the liability. The statute of limitations is a good example. In the following much-quoted language the supreme court of Minnesota has given us a favorite test for determining whether the condition is precedent or subsequent:
"Where the obligation of a party to a contract is to pay only upon the happening of a contingency, e. *Page 428 
g. the return of an instrument duly recorded, such contingency is in the nature of a condition precedent, and its occurrence must be alleged in the complaint. * * * But, if payment is not to be made if a contingency happens during its continuance, e.g. if the party is enjoined from using the article which is the subject-matter of the contract, he is not to pay the purchase price until the injunction is dissolved, the contingency is in the nature of a condition subsequent, and it is not necessary to allege in the complaint the non-happening or noncontinuance of the contingency." Root v. Childs, 68 Minn. 142 (70 N.W. 1087).
In the present instance, the assets of the bank had become depleted. It could no longer operate lawfully. The defendants were its stockholders. For the purpose of enabling the bank to continue to accept deposits, and for the further purpose of avoiding the assessment which the plaintiff could have imposed upon them through exercise of the power conferred upon him by § 22-1802, Oregon Code 1930, the defendants signed the document which we are now construing. If the majority has properly construed it, and if it created no immediate liability because the defendants' promises were subject to conditions precedent, then the purpose of the parties was defeated. In that event, their conduct in continuing to operate the bank was unlawful.
Obviously, the parties intended to create an immediate liability in favor of the bank. The bank's needs for supplemented assets were immediate and only paper which would fill the gap would suffice. Obviously, the defendants intended that the document which they signed should be a valuable asset of the bank, and that the banking superintendent should assign to it a sufficient value to make up the shortage. To use the defendants' own language, they signed the paper to protect "the bank and its depositors in the amount above *Page 429 
specified". Again quoting from the instrument: "We expressly agree in signing this instrument that this instrument shall be construed to be and is an absolute guarantee." Apparently, the defendants were unable to put into the bank's vaults the needed amount of money and gave the bank this instrument as a substitute for money. If the above does not represent their purposes, the bank's assets were still depleted after they signed the paper, and it could not lawfully accept deposits. We are required to presume that the parties acted honestly and that they intended to pursue a lawful course.
A conclusion is warranted that the document created an immediate liability in favor of the bank which could be terminated only by payment, or by the occurrence of the events previously mentioned. The conditions, therefore, were subsequent. In other words, the liability of the defendants was not dependent upon whether the earnings of the bank wiped out its deficits, nor upon whether the bank reduced its capital, thus removing the deficit, but the occurrence of either of these two events would terminate defendants' liability upon the document. Thus, those conditions, if they occurred, were defenses, not conditions precedent to liability. The defendants must know better than anyone else whether those conditions have occurred; hence, it is proper to require them to allege and prove those contingencies if they occurred. The demurrer should have been overruled.
Having construed the instrument in the above manner, it necessarily follows that plaintiff's act in taking possession of the bank did not terminate the defendants' liability which arose the moment they signed the paper. Only the specified conditions could *Page 430 
terminate it, apart from payment. Had the plaintiff exercised the rights conferred upon him by § 22-1802, Oregon Code 1930, followed by a stock assessment, liability to pay the assessment would not have been terminated by a closing of the bank. As already stated, the paper was signed to avoid the assessment. An assessment to restore impaired capital is independent of and additional to enforcement of statutory double liability of stockholders: Delano v. Butler, 118 U.S. 634 (30 L. Ed. 260,7 S. Ct. 39); and Duke v. Force, 120 Wash. 599 (208 P. 67, 23 A.L.R. 1354).
I know of no reason why the defendants should be more favored by the execution of the document than they would have been had they paid in cash the assessment. The majority states that the parties contracted upon an "implied condition that the bank would continue to operate". Conditions that render the contract illegal and launch the parties upon an unlawful course of action are never implied by the courts, and, as shown in a preceding paragraph, such a condition would have rendered the bank's conduct in accepting deposits unlawful.
Let us remember that defendants' promise was made in behalf of the depositors. The latter were not present when the instrument was signed. The language of the instrument was chosen by the defendants. All doubts should be resolved against them and in favor of the persons for whose protection the document was signed. Had the assessment been levied, but remained unpaid when the bank closed, the defendants would not have been permitted to resort to the defense they now interpose. Their condition should not be deemed improved by having postponed the evil day through execution of the paper.
I dissent. *Page 431