First National Bank v. Babcock

Belcher, C. This is an action upon a promissory note made by one Story, payable to the order of plaintiff ninety days after date, and containing the following — 101 — provision: “ Should suit be commenced, or an attorney employed to enforce the payment of this note, I agree to pay an additional sum of five per cent on principal and accrued interest as attorney’s fees in such suit.” The note was executed at the instance and request of the defendant to take up another note on which he was liable; and before its delivery he indorsed it by writing his name upon the back thereof, and then delivered it to the plaintiff. The complaint contains no averment that demand for the payment of the note was ever made on the maker, or that notice of its non-payment was given to the defendant before the action was commenced; and the answer denies that defendant, by his indorsement or otherwise, waived protest, or demand, or notice of non-payment, or that he guaranteed the payment of the note; and avers that notice of non-payment was never given him by the plaintiff, or any other person. After trial, the court found the facts, and, as conclusions of law, “ that by the writing of his name upon the back of said note and the delivery thereof to plaintiff, the defendant, Babcock, became and is a guarantor upon said note; that no demand or notice of protest was required to be given to said defendant; .... that defendant was not exonerated from the payment of said note as such guarantor by the mere delay on the part of plaintiff in bringing suit, or to prosecute Story”; and that plaintiff was entitled to recover from the defendant the amount due on the note, after deducting certain credits. Judgment was accordingly so entered, and from it the defendant has appealed on the judgment roll. The principal question in the case is, What liability did the defendant assume by writing his name on the back of the note? or in other words, Did he thereby become a maker, an indorser, or a guarantor of the note? It is contended for appellant that he was an indorser, and that demand and notice of non-payment were necessary to fix his liability. The authorities upon this subject in other states are irreconcilably conflicting, and — 102 — the question must be solved by reference to the decisions in this state and the provisions of the code. In Riggs v. Waldo, 2 Cal. 485, 56 Am. Dec. 356, Heydenfeldt, J., delivered the opinion of the court, and said: “ One who puts his name on the back of a promissory note out of the course of regular negotiability is not an indorser, according to strict commercial meaning. He is termed a guarantor, and this is so, whether his inscription is simply in blank or preceded by the words ‘ I guarantee/ etc.” He then went on to discuss the question; and concluded by saying that the undertaking of such a guarantor “ is attended with all the liability and all the rights of an indorser stricti juris.” In Pierce v. Kennedy, 5 Cal. 139, the note was indorsed by Ford, Lathrop & Co. out of the course of regular negotiability, and the same learned judge said:_ “ The defendants, Ford, Lathrop & Co., were guarantors upon the note which is the foundation of this action.” He then added that their liability, according to the decision in Riggs v. Waldo, 2 Cal. 485, 56 Am. Dec. 356, was strictly that of an indorser. In Brady v. Reynolds, 13 Cal. 32, the defendant and two othefc persons indorsed a promissory note before its delivery, to assist the maker in obtaining money upon it, and it was held that they were guarantors and jointly liable. The court, by Field J., said: “ Over their names a contract of guaranty could have been written in terms,” etc. It is then further said: “The decision of this court in Riggs v. Waldo, 2 Cal. 485, 56 Am. Dec. 356, only goes to the extent of holding that a notice of protest is as essential to charge a guarantor as an indorser. It does not change the-previous rule in relation to guarantors in any other respect. There are words, it is true, in the opinion which lead to the inference that the distinguished judge who delivered it considered the distinction between the undertaking of an indorser and that of a guarantor more nice and subtle than solid and just. In this we may differ from him, for we are disposed to-regard the undertaking of the two as materially differ — 103 — ent. The contract of both is conditional, but the conditions are unlike. The contract of indorsement is primarily that of transfer; the contract of guaranty is that of security. It is unnecessary, however, to question the language or reasoning of the opinion; the case only decides that notice of protest is equally necessary to fix the liability of g, guarantor as to fix that of an indorser.” In Ford v. Hendricks, 34 Cal. 673, the note in suit was made by Hendricks, and indorsed by one Reed before delivery, and the court, by Sanderson, J., said: “ As to the relation of Reed, — whether it be that of maker, indorser, or guarantor,—there is much conflict of authority; but, under the settled rule in this state, he must be regarded a guarantor.” In Crooks v. Tully, 50 Cal. 254, the note sued upon was indorsed by one Durkin after it became due to obtain further time for the maker to pay it; and the court, by Niles, J., said: “The contract of Durkin was that of a guarantor. It has been frequently so held by this court.” It clearly appears from these decisions that when one, before the enactment of the codes, wrote his name on the back of a promissory note for the purpose of giving it security, and not for the purpose of transfer, his undertaking was that of a guarantor, though he was entitled to the same notice of demand and non-payment as he would have been if an indorser. (See also Jones v. Goodwin, 39 Cal. 493; 2 Am. Rep. 473.) In this condition of the decisions the codes -were enacted, and we must look to them to see in what respects, if any, the rule above stated has been changed. The Civil Code contains the following provisions: — • “Sec. 2787. A guaranty is a promise to answer for the debt, default, or miscarriage of another person.” “Sec. 2807. A guarantor of payment or performance is liable to the guarantee immediately upon the default of the principal, and without demand or notice.” “ Sec. 2823. Mere delay on the part of a creditor to — 104 — proceed against the principal, or to enforce any other remedy, does not exonerate a guarantor.” “ Sec. 3108. One who writes his name upon a negotiable instrument otherwise than as a maker or acceptor, and delivers it with his name thereon to another person, is called an indorser, and his act is called indorsement.” “ Sec. 3117. One who indorses a negotiable instrument before it is delivered to the payee is liable to the payee thereon as an indorser.” It will be observed that the two sections last quoted relate only to negotiable instruments, and in accordance with the rule declared by them, the case of Fessenden v. Summers, 62 Cal. 484, was decided. They do not in any way affect this case, for the reason that the note here sued upon was not a negotiable instrument. (Adams v. Seaman, 82 Cal. 636.) This being so, the defendant must still be treated and held liable as a guarantor. The question then is, What is now the liability, in this state, of a guarantor? As we have seen, a guaranty is a promise to answer for the debt of another person, and it may be enforced, upon default of the principal, without any previous demand or notice. It is an absolute tindertaking to pay the whole debt if the principal does not, and no mere delay of the creditor to proceed against the principal, or to enforce any other remedy, can be availed of as a defense. And such a liability is assumed prima facie, when, as in this case, the guarantor writes his name on the back of a non-negotiable note to give it credit. Under the circumstances shown here, we think the findings were sufficient, and the court below rightly refused to allow any offset for damages alleged to have been sustained by defendant, because plaintiff, after demand that he should do so, neglected and refused to institute an action against the maker of the note, and thereby secure payment of a portion of the money due thereon. We advise that the judgment be affirmed. — 105 — Vanclief, C., and Foote, C., concurred. The Court. For the reasons given in the foregoing opinion, the judgment is affirmed.