Cowan v. Roberts, 134 N.C. 415 (1904)

March 22, 1904 · Supreme Court of North Carolina
134 N.C. 415


(Filed March 22, 1904).


In this case the guaranty is an unconditioned promise to answer lor the default of the principal.

2. GUARANTY — Notice.

Where a guaranty is unconditional, no notice of acceptance on the part of the guarantee is required.

3. GUARANTY — Consideration.

A promise by a guarantee to deliver goods to the principal is a sufficient consideration to support the contract of guaranty.

4. GUARANTY — Fraud.

' Where a principal agrees to secure a second guarantor before delivering the contract of guaranty, without the knowledge of the guarantee, and delivers the contract without securing the same, the guarantor is bound by the contract.

MONTGOMERY, J., dissenting in part.

AotioN by Cowan, McClung and Company against W. 5. Roberts, heard by Judge W. A. Hohe and a jury, at May, Term, 1903, of the Superior Court of Buncokbe County.

This action was brought to recover the sum of two thousand dollars alleged to be due by the defendant on a guaranty. The firm of Roberts Brothers, on April 9, 1899, was indebted to the plaintiffs, who were merchants, in the sum of $1,742.60 for goods theretofore sold and delivered and were desirous of making further purchases, but the plaintiffs refused to sell any other goods to them unless they would secure by a guaranty their then existing indebtedness and any other amount that might become due for future sales. Roberts Brothers then requested the defendant to *416give tbe required guaranty for them so that' they could purchase more goods. The defendant complied with this request by executing a paper-writing of which the following is a copy:

“Kitoxville, TeNN., April 8, 1899.

“I hereby guarantee to Cowan, McClung & Co. any debts which Roberts Brothers now owe, or may owe in the future, to the extent of two thousand dollars. This obligation to remain in full force until the debt now due OoAvan, Mc-Clung & Co. is fully discharged and this agreement annulled in writing.

“W. S. Roberts.”

The original paper is in the handwriting of one of the plaintiffs and was delivered to the plaintiffs by Roberts Brothers. On the faith of this guaranty, the plaintiffs afterwards sold and delivered to Roberts Brothers several bills of goods amounting in all to $475.45, which amount they failed to pay at maturity; whereupon, the plaintiffs notified the defendant of their default and when, after demand, he refused to pay the amount specified in the guaranty they brought this action in September, 1899. The firm of Roberts Brothers became insolvent, and in August, 1899, were adjudicated bankrupts. No assets were left after alloting the exemptions and paying the costs and charges of administering their estate.

There was evidence tending to establish the foregoing facts, and also to show that one of the plaintiffs’ salesmen demanded of the defendant the payment of the amount of the guaranty, and the latter stated to him that he had seen the guaranty and wished to have it adjusted, and expressed surprise that he was “in for so much.” ITe also stated to the salesman that he had signed the guaranty with the understanding that the members of the firm of Roberts Brothers *417would have tbeir father, J. J. Roberts, sign, tbe same with him. Tbe defendant and J. J. Roberts agreed to give notes for tbe amount of tbe guaranty but, at tbe last moment, J. J. Roberts refused to sign tbem. It was also in evidence that on tbe day after tbe guaranty was signed, tbe defendant asked Roberts Brothers if J. J. Roberts bad signed, to which they answered that be bad not, as they bad concluded not to go to him, but to get Robinson & Baird to sign it, and tbe defendant then told tbem to write to tbe plaintiffs and have bis name taken off tbe paper. The defendant inquired every week if they bad received any answer from tbe plaintiffs, and not being able to get a satisfactory answer wrote himself to tbe plaintiffs on July I and requested tbem to erase bis name, as he would not endorse for them any longer because they bad deceived him. All the goods had then been sold. Tbe plaintiffs introduced in evidence tbe following letter from tbe defendant to tbem, dated July 24, 1899: “Please send me by return mail a copy of that paper with my name attached to it, sent by Roberts Brothers of this place; also amount purchased by tbem since tbe date of that paper, and oblige.” * * * And also a letter from tbem to tbe defendant dated July 8, 1899, in reply to bis letter of July 1, 1899, as follows: “Your favor of July J, 1899, is at band. Tbe credit extended to Roberts Brothers was based on your guaranty to tbe extent of two thousand dollars, and we cannot relinquish this guaranty of yours until tbe debt made under said guaranty is paid. They owe us at this time upwards of two thousand dollars, and we will thank you to see to it that our debt is paid, as we are very sorely pressed for money at this time.” Tbe defendant, who was introduced as a witness in bis- own behalf, testified that be signed tbe guaranty upon tbe condition that J. J. Roberts would sign it with him. He was told by Roberts Brothers that they needed tbe guaranty in order *418to get more goods to renew tbeir stock. He further stated that Roberts Brothers had told him that they had written to the plaintiffs to erase his name, but that he mistrusted them, and wrote himself after waiting three months.

At the close of the testimony the Court intimated that it would charge the jury to find the issue for the defendant, in deference to which intimation the plaintiffs, after excepting, submitted to a nonsuit and appealed.

Merrimon & Merrimon, for the plaintiff.

F. A. Sondley, for the defendant.

Walker, J.,

after stating the c&se. The defendant’s counsel in his able argument before us relied upon three grounds of defense: 1. That there was no evidence that the plaintiffs had accepted the guaranty and notified the defendant of their acceptance. 2. That there was no consideration to support the guaranty as to the debt already due by Roberts Brothers to the plaintiffs amounting to $1,-142.50. 3. That the guaranty was given upon a condition which was never performed, and that it is therefore void even in the hands of the plaintiffs.

A guaranty is a promise to answer for the payment of some debt, or the performance of some duty, in case of the failure of another person who is himself in the first instance liable, to such payment or performance. Carpenter v. Wall, 20 N. C., 144. There is a well-defined distinction between a guaranty of payment and a guaranty for the collection of a debt, the former being an absolute promise to pay the debt at maturity if not paid by the principal debtor, when the guarantee may bring an action at once against the guarantor, and the latter being a promise to pay the debt upon condition that the guarantee diligently prosecuted the principal debtor for the recovery of the debt without success. *419 Jones v. Ashford, 19 N. C., 112; Jenkins v. Wilkinson, 107 N. C., 707, 22 Am. St. Rep., 911. Tbe guaranty may also be absolute in form, or one which binds the guarantor to pay unconditionally, or, at all events, upon the default' of the principal, or it may be in the form merely of an offer to become bound upon the default of the principal. In the former case, that is, where there is an absolute guaranty or an unconditional promise to indemnify against loss by the principal’s default, no notice of acceptance by the guarantee is required, the liability of the guarantor being fixed and determined by the ordinary rules in the law of contracts. In the latter ease, when the transaction takes the form of an offer merely to become responsible for the principal, notice of acceptance of the offer is of course necessary in order to charge the party, who makes the offer, as guarantor, and this is so because the minds of the parties have not met, there is no aggregaiio mentium until the offer is accepted. There is a well-recognized distinction therefore between an offer or proposal to guarantee and a direct promise of guarantee. The former requires in some cases notice of acceptance, while the latter does not. When the offer to guarantee is absolute and contains in itself no intimation of a desire for, or expectation of, specific notice of acceptance, it may be supposed that the offerer has a reasonable knowledge that his guaranty will be accepted and acted upon, unless he is informed to the contrary. 2 Parsons Cont. (8 Ed.), ch. 2, sec. 4, and notes, where the subject is fully discussed. It is said that if the party distinctly and absolutely guarantees a certain line of credit, it presupposes some sort of a request for a guaranty, emanating from the guarantee, and for this reason no formal acceptance by the guarantee is necessary; but if it be only a proposition to guarantee the credits, and not a positive promise to guaranty them, the acceptance of the proposition must, in some *420way, and witbin a reasonable time, be communicated before the guarantor can be held liable on it. Tiedman on Com. Paper, sec. 420.

In our case, tbe guaranty is a direct and unconditional promise to answer for tbe default of tbe principal to tbe amount of $2,000. Tbe words of tbe contract are in pre-sentí, “I do hereby guaranty,” and superadded are the words, “This obligation to remain in full force.” * * * Language could not be stronger to express tbe intention to become liable at once without any expectation of notice that tbe plaintiffs will accept tbe guaranty. It was not an offer, nor did it imply an offer merely, but it was in itself a complete and binding promise to guaranty and needed only tbe sale of the goods by tbe plaintiffs to make it otherwise effectual. 1 Parsons, supra, pp. 466, 467.

We cannot distinguish this case from Straus v. Beardsley, 70 N. C., 59, where tbe Court says: “If tbe undertaking be to guaranty tbe contract which may be made, tbe obligation is not collateral and contingent, but absolute and unconditional, and no notice is necessary. * * * Tbe undertaking is to pay a certain sum, and by tbe terms of tbe condition it is discharged only when tbe goods have been delivered under its provisions, by actual payment of the purchase price. If tbe goods are delivered, tbe contract is to pay for them, and a compliance with this condition is tbe only means of discharging tbe obligation. It thus became tbe duty of tbe intestate and his associates to ascertain for themselves if tbe plaintiffs furnished tbe goods and that they were paid for, and no notice or demand was necessary to charge them with the debt.” See also Walker v. Brinkley, 131 N. C., 17.

In Williams v. Collins, 4 N. C., 382, this Court drew tbe distinction between a guaranty that a certain person will be able to comply with tbe proposed contract and one *421wherein the promise is that he shall comply. In the latter case, which is ours, the Court held that the guarantor “to all legal consequences, became pledged absolutely to the same extent as the principal debtor was bound, as soon as the guarantee parted with his property.” In Shewell v. Knox, 12 N. C., 404, all the Judges agreed that, if the guaranty is absolute and addressed to an individual, no notice of acceptance is necessary, and one of the Judges held that it was not even necessary when a letter of credit was given under the circumstances of that case. The general principle as to when notice of acceptance of an offer to contract becomes necessary is considered in the cases of Crook v. Cowan, 64 N. C., 743, and Ober v. Smith, 78 N. C., 313. The question as to notice of acceptance in cases of guaranty is very ably and exhaustively discussed, with a full review of the English and American authorities, in the case of Wilcox v. Draper, 12 Neb., 138, 41 Am. Rep., 763, and the 'conclusion is reached that when there is a direct promise of guaranty no notice of acceptance is required. Allen v. Peck, 3 Cush., at p. 242; Powers v. Bumcratz, 12 Ohio St., 273; Bank v. Coster, 3 N. Y., 212, 53 Am. Dec., 280; Bank v. Phelps, 86 N. Y., 484; 2 Addison Cont. (8 Ed.), p. 84 (star page 651). The case of Gregory v. Bullock, 120 N. C., 260, does not apply, as the Court held that there was no contract at all in that case, and what is said about the guaranty was with reference to the particular facts under consideration, from which it appeared that there was only “a proposal based upon an uncertain event.” The guaranty in this case as to both the past and future indebtedness is evidenced by one and the same instrument and is supported by one and the same consideration, and we do not therefore see why the law applicable to the one should not also determine the liability in the case of the other.

We are of the opinion that the testimony of the defendant *422as to bis interviews and communications with tbe principals, Roberts Brothers, and bis subsequent promise to pay for tbe goods after tbe guaranty bad been executed by bim, furnishes some evidence to show that be knew tbe guaranty bad been delivered to tbe plaintiffs and that they were acting upon it, or intended to do so.

There was a sufficient consideration to support tbe guaranty as to tbe debt already due. Tbe agreement as to tbe existing and tbe future indebtedness was indivisible, and was based upon one and tbe same consideration, which was that tbe plaintiffs should sell more goods to tbe principals to enable them to replenish their stock, which be did. It is not necessary that tbe consideration should be full or adequate, as in tbe case of bona fide purchasers for value. If there was any legal consideration, it is sufficient. Tbe promise of tbe guarantee to furnish tbe goods was such a consideration and supports tbe contract of guaranty. 1 Parsons, sufra, pp. 466, 461.

Tbe third ground of defense is not tenable. If tbe written guaranty was given to tbe principals upon condition that it should not be delivered to the plaintiffs until it was signed by J. J. Roberts and they delivered it in violation of tbe condition, and, thus, as is said in tbe case, practiced a fraud upon tbe defendant, tbe defendant is bound, as tbe plaintiffs did not participate in this alleged fraud, nor is it shown that they bad notice of it. Tbe liability of tbe defendant is founded upon tbe principle that where one of two persons must suffer loss by tbe misconduct or fraud of a third person, or by bis breach of confidence, as in our case, tbe loss should fall upon bim who first reposed tbe confidence or who, by bis negligence made it possible for tbe loss to occur, rather than on an innocent third person. Tbe liability of tbe defendant in this respect is fully established by tbe case of Vass v. Riddick, 89 N. C., 6. See *423also, Bank v. Hunt, 124 N. C., 171; State v. Lewis, 73 N. C., 141, 21 Am. Rep., 461.

Tbe plaintiffs agreed to sell tbe goods to tbe principals not npon tbe single consideration that tbe defendant would guaranty tbe payment of tbe price, but npon tbe further and additional consideration tbat be would guaranty also tbe payment of tbe existing indebtedness. Tie would not bave sold but for tbe last consideration, and therefore by reason of tbe guaranty be has been induced to change bis position, and should tbe guaranty, as to tbat indebtedness, be declared invalid, be will be prejudiced, as be no doubt would bave taken immediate steps to collect bis claim if tbe guaranty bad not been given. It will be impossible for him now to save himself for tbe reason tbat tbe principals bave become insolvent and bave been adjudged bankrupts. We bave said this much, though we do not concedo tbat, in order to charge tbe defendant on tbe guaranty, it is necessary to show a change in tbe guarantee’s position by which be may be prejudiced if tbe guaranty is held to be void.

We bave not commented upon tbe evidence in this case, from which it appears tbat tbe defendant knew, on tbe day after tbe guaranty was given, tbat it bad been sent to tbe plaintiffs and bad not been signed by J. J. Roberts, and knowing this fact, and “mistrusting” tbe principals, as be did, according to bis own testimony, be delayed for nearly three months to notify the plaintiffs of tbe alleged condition annexed to tbe guaranty, and in tbe meantime they bad sold tbe goods. 'When they refused to surrender their security, be finally agreed to pay tbe bill for tbe goods sold after tbe date of tbe guaranty. This was a clear case of negligence on bis part, and tbe consequences of this negligence must be visited npon him and must not be borne by tbe plaintiffs, who are innocent parties. As said in State v. Lewis, supra, *424the defendant acted upon the assurance that another would do an act which he knew might be defeated or prevented by-various accidents, and he must therefore take the risk of such assurance being fulfilled. He confided in the principals, Roberts Brothers, and the condition that J. J. Roberts should sign with him was communicated to them alone. He failed to use ordinary precaution either to protect himself or to protect the guarantee. If the defendant, in any phase of the testimony, can be regarded as an innocent person in this transaction, it yet remains as an inflexible rule of the law that where one of two innocent persons must suffer, he, who has enabled a third person to occasion the loss, must sustain it. This is said to be' a doctrine of general application, and is a most just and reasonable one. State v. Lewis, supra. To permit the defendant to avail himself of his defense to this action would also contravene that other just and inflexible maxim of the law that no man shall take any advantage of his own wrong.

No question arises in this case as to diligence on the part of the guarantee in collecting the debt from the principal, as this is a guaranty of payment and not for collection, and, besides, the burden of proof in this respect would be on the defendant. The case shows that notice of the default of the principal was given, and demand made upon the guarantor before the suit was commenced.

Our conclusion is that there was error in the intimation of opinion by the Court adverse to the plaintiffs, by which they were driven to a nonsuit. The judgment must therefore be set aside and a new trial awarded.

New Trial.


dissenting in part. Roberts Brothers of Buncombe Oounty, N. C., were in 1899 indebted to the plaintiffs of Knoxville, Tenn., in the sum of $1,742.62 for *425goods sold to them, and being nnable to make further purchases on credit without security, procured their uncle, the defendant, to sign and deliver a guaranty in the following-words: “Knoxville, Tenn., April 8, 1899. I hereby guarantee to Oowan, McGlung & Oo. any debts which Eoberts Brothers now owe or may owe in the future to the extent of two thousand dollars. This obligation to remain in full force until the debt now due Oowan, McOlung & Oo. is fully discharged and this agreement annulled in writing.” Afterwards the plaintiffs sold and delivered to Eoberts Brothers at different times, goods and wares to the value of $475.45.

This action was brought to recover the two thousand dollars, the amount named in the guaranty. No notice was given by the plaintiffs to the defendant of their acceptance of the guaranty.

The guaranty upon its face is divisible into two parts: one branch seems to be an obligation for the payment of a debt already existing and du,e by the principals to the guarantees, the plaintiffs, and the other branch is in the nature of a security for a debt to be contracted in the future by the principals with the plaintiffs. By the terms of the guaranty in respect to the debt already due, the obligation appears to be an absolute guaranty, and if there was a consideration to support it, the defendant is liable for its payment.

There was in fact such a consideration, for the plaintiffs, after the execution of the guaranty, sold and delivered to the principals goods and merchandise of the value of $475.45, and the defendant testified on the trial that the guaranty was made in order that the debt already due might be secured, and that further fresh purchases of goods might be added to the stock of the principals then on hand. It was not necessary that the defendant should have been *426benefited in order to raise a consideration for the guaranty on the part of the guarantor. Any advantage accruing to, or any consideration moving toward, the principals from the plaintiffs was sufficient in law to make the defendant liable on the first branch of his guaranty.

As to the second branch of the guaranty, that is, the guaranty of the amount of the debt to be contracted in the future by the principals, a notice of acceptance by the guarantees, the plaintiffs, was necessary. That branch of the guaranty was not absolute, and in Gregory v. Bullock, 120 N. C., 260, the Court said: “The answer is that the alleged guarantee gave no notice of his acceptance within a reasonable time.” In Adams v. Jones, 12 Peters, 213, Mr. Justice Story said: ‘Notice is necessary to be given the guarantor that the person giving credit has accepted or acted upon the guaranty, and given credit on the faith of it. This is no longer an open question in this Court.”

In the case of Clune v. Ford, 62 N. Y., 479, cited in the argument here, the guaranty was in these words: “Dear Sir: We hereby agree to guaranty the expenses of the members of the Gaelic'Athletic Association to the sum of $650 (six hundred and fifty dollars), or the amount due under that figure.” The guarantee was the proprietor of a hotel in New York City at which the members of the Association were boarding, and were in arrears for board for the sum of $475.' After the delivery of the guaranty they incurred the further expense of $175. The question- of notice of acceptance by the guarantee was not raised, the matter of consideration was the only point in the case, and the Court held that the incurring of the $175 expense for the board, after the guaranty was given, was a sufficient consideration for the amount due in the past. In the case of Paige v. Parker, 74 Mass., 211, cited on the argument here, the Court held that the guaranty was an absolute one, and *427therefore that notice was not necessary. The paper-writing in that case guaranteed the prompt payment at maturity of any amount that might be due by the principal for goods, wares and merchandise to be sold by the guarantee to the amount of $500. The Court in that case said that “however this may be, we are of opinion that the defendant in this case had notice that his guaranty was accepted. An absolute guaranty was writen by Blodgett & Co. in their store and for their benefit. The defendant signed it there and left it with them as a complete contract, and they retained it. This was an acceptance by them, for which he must be held to have notice.”

In the case before us, the plaintiffs contended that the guaranty was made at the request of the guarantee, and therefore that no notice of acceptance was necessary. But there was no evidence’ of that fact. The guaranty, it is true, was in the handwriting of the plaintiffs, but it was brought to the defendant by one of the firm of Eoberts Brothers, but he made no statement at the time or at any other time that the plaintiffs expected that the defendant singly and particularly would sign it. And besides, the defendant did not deliver it to the plaintiffs in person and leave it in their possession as a contract completed, as was the case in Paige v. Parker, supra. There was evidence offered on the trial going to show that the defendant executed the guaranty through a fraud practiced on him by one of the principals. But it was not shown that the plaintiffs had any notice of the fraud. Notwithstanding the fraud practiced on the defendant, he is liable on the first branch of the guaranty for the reason that the plaintiffs did not participate in the fraud or have knowledge of it. Bailes on Surety and Guarantor, p. 215.