Litchfield v. . Irvin

Earl, 0. The plaintiffs claim that the papers executed by them on the 23d of July, 1856, show that the bonds were not absolutely sold to the defendants, but that they were delivered to them as a security for the payment of the money at that time advanced by the defendants. To state their claim in another form, it is that the contract was an agreement to sell and to buy the bonds, if the railroads mentioned were completed and consolidated within one year; but if the roads were not completed and consolidated within one year, then the contract was to borrow and lend money at seven per cent interest—the bonds being held in pledge as security for the debt and to be returned to the borrower upon payment. There is nothing in the oral evidence to sustain this claim. On the contrary, the evidence tends to show that the defendant refused to make a loan upon the security of the bonds and that the parties understood the transaction to be an absolute sale and purchase of the bonds. ■ The receipted bill of sale is in the ordinary form, indicating an absolute sale of the bonds. To induce the defendants to make the purchase, the plaintiffs executed the guaranty, and as that and the bill of sale were executed at the same time, they must be both considered to arrive at the intention of the parties. ■ And yet the guaranty was -an independent collateral agreement as much as the guaranty of payment upon the back of a note. This guaranty was given for the benefit of the defendants, who believed that the completion and consolidation of the roads would add to the value of the bonds. It gave no new rights to the plaintiffs. They did not retain the option *58 to take back the bonds upon refunding the money paid to them with interest, during the year; the defendants could have sold the bonds and given an absolute title. In such event, however, they would have lost the benefit of the guaranty, as they could not have redelivered the bonds upon the payment of the money by the plaintiffs. After default, the defendants were not obliged to resort , to the guaranty. They had the option to keep the bonds or to tender them back to the plaintiffs and demand the money paid by them with interest. The plaintiffs could undoubtedly, after the default, put the defendants to their election, either to keep the bonds or take the money and deliver the bonds by tendering the money and demanding the bonds. These views of the original contract and transaction between the parties, I believe to be in entire harmony with the intention of the parties and to be sanctioned by authority. In Cornfield v. Wescott (5 Cowen, 270), there were articles for the sale of land, by which the vendee covenanted to pay and the vendor covenanted to convey on payment; and the vendee agreed that if he failed in his covenants the contract should be void. The vendee failed to pay and the action was brought by the vendor for the money. It was held that the action lay, the contract being void only at the election of the vendor. To the same effect are the cases of Moneius v. Sargent and Church v. Ayres, reported in a note to Cornfield v. Westcott. The counsel for the appellants, in the learned and exhaustive brief submitted on their behalf, cited various authorities to sustain their construction of the contract between the parties. (Thorton v. Ryan, 12 Wheaton, 184; Eno v. Woodward, 4 Conn., 249; Boynton v. Woodbury, 101 Mass., 346; Manvel v. Holdredge, 45 N. Y., 151.) But they are nearly all cases where, by the terms of the contract between the parties, the option was expressly given to one party or the other to declare void or rescind the contract. In Eno v. Woodward, A. agreed to sell to B. certain lands *59 and convey the same to him on a day named, and B. paid down the purchase-money. A. also agreed that, at the expiration of a year, if B. should desire it, he would pay hack the money with interest. The court held that this was, in effect, an alternative agreement, either to sell and purchase land or to borrow or lend money, as B. might elect at the end of the year. There A., as the plaintiffs here, had no option, but B., as the defendants here, had the option to retain the property conveyed or to turn the transaction substantially into a loan of money. In Boynton v. Woodbury, A. agreed, in writing, that whereas B. had bought of him twenty shares of stock for a certain sum, he, in consideration thereof, would purchase back said shares if B. so elected in one year from date, and upon the written request from B., and reassignment of said shares, and would pay B. therefor the said sum and interest. It was held that it was B.’s option whether to hold the shares as purchased or merely as collateral security for the loan of the sum paid by him. These authorities, instead of sustaining the theory of the plaintiffs, tend rather to sustain that of the defendants. Here the option was not, in terms, given to the defendants, but it was impliedly given. The contract, fairly construed, gives them the option to determine whether the transaction shall take the form of a loan of money, they holding the bonds simply as security, or whether it shall stand as an absolute sale of the bonds. It only remains, therefore, for us to examine whether the defendants, by anything which they did after the 23d of July, 1856, determined their option and became holders of the bonds merely as security for the money advanced by them. The railroads not having been completed and consolidated within the year, the conditions had happened which would enable the defendants, at their option, to enforce the plaintiffs’ guaranty. The railroad companies made default in the payment of the interest coupons due August 1st, 1857. The defendants then informed the plaintiffs that if they would take up the coupons, the person's for whom the bonds were pur *60 chased would not enforce the guaranty. Thereupon the plaintiffs paid the defendants for the coupons and took and held them against the companies. By this transaction the defendants did not exercise their election to become the creditors of the plaintiffs, simply holding the bonds as security. The plaintiffs took the coupons to prevent the defendants from, at once, exercising their election and enforcing the guaranty. The transaction will, at least, bear this construction, and it is as fully warranted by the circumstances as any other.. It should, therefore, at this- stage of the case, in support of the decision of the referee, be adopted. On the 26th of February, 1858, nothing had occurred to deprive the defendants of their right of election under their agreement with the plaintiffs. They then had the right to hold the bonds as ábsolute purchasers or to return them to the plaintiffs and enforce their guaranty. Therefore, when the railroad company, being unable to meet the interest then past due, proposed to the bondholders to compromise two years’ interest by accepting in lieu thereof stocks and bonds of the companies not then worth par, it was quite appropriate that the defendants should refuse to agree to the compromise without the consent of the plaintiffs. By thus surrendering the coupons for two years and taking stocks and bonds worth less than par, the loss by the transaction, if any, would have fallen upon them if they had not first procured from the plaintiffs their consent and the agreement of July 26, 1858, and as to such loss they could not have enforced the guaranty. The obvious intention of the parties was to preserve to the defendants their right to resort to the guaranty for their complete indemnity to the extent thereof in case they should at any time elect to do so. The only other circumstance which is claimed by the plaintiffs to have determined defendants’ ‘election is the letter written by them May 18,1861, in which they informed the plaintiffs that they were instructed to enforce the guaranty unless the plaintiffs would pay the past due coupons, with interest. They did not, however, proceed to enforce the guaranty. *61 Neither party acted upon the letter, and I am unable to see how anything contained in it can he construed into an election by defendants to hold the bonds as a mere security for a loan. It was, at most, a threat, which was not enforced. I therefore reach the conclusion that nothing appears which in any way impairs the right of the defendants to hold the bonds as purchasers, and the judgment must, therefore, be affirmed with costs. All concur. Judgment affirmed.