Hendry v. Cartwright

OPINION OF THE COUKT. POPE, J. (after mailing the foregoing statement sf facts.) The ultimate question in this case is, Was the court below justified upon plaintiffs testimony in giving' a peremptory instruction for the defendant ? It is urged'by the defendant on the one hand that this action was right for the reason that the bond in question was deposited as an escrow with Webber conditioned upon his furnishing an indemnity bond and that his delivery to the clerk was in violation of the terms of what the defendant says was a special agency and was thus no delivery at all; that independent of this the instrument had at least four defects in form — lack of a seal, of acknowledgment and of justification and because not conditioned as required by the order of court — and that these were sufficient to put the plaintiff and the clerk upon inquiry as to any understanding, between Cartwright and Webber; that the instrument sued on was defective as a bond and could not be recovered on as such and that the facts' and pleadings did not justify recovery upon it as a common law obligation; and that irrespective of these there coiild be no recovery because the attempted deliyery by the ■clerk’s filing it in court was in distinct violation of law and void as a delivery. The plaintiff, takes issue upon these positions and urges that the case is controlled by the equitable principle that where one of 1v-y innocent persons must suffer by the acts of a third the loss should fall upon that one who placed it in the power of such third person to occasion the loss rather than upon the other. Disposing first of the facts we find it not entirely clear whether the condition that an indemnity bond should be furnished before the bond .was used was imposed by Cartwright at the time the bond was signed or when it was presented for acknowledgment a few hours later. In either event, however, it was imposed as a condition to the use of the bond by Webber before- the latter delivered it to the Clerk of the Court. -The case made, therefore, is that of a surety who defends against a bond upon the ground that his signing and handing it to the co-surety for delivery was upon the unfulfilled condition that it should not bo used until a satisfactory indemnity bond had been furnished him. We consider this question greatly illumined by two decisions of the Supreme Court of the United Statse, which, of course, are controlling authorities with this, court. In the first of these—Pawling v. United States, 4 Cranch 219—the opinion was written by Chief Justice Marshall. This was a case where Ballinger as collector of the revenue gave a bond with Pawling and four others as sureties. These latter defended upon the ground that although the delivery of. the bond to Ballinger was upon condition that it was not to he used until Simon Ingleman and William Patton named m the face of the bond, should execute it as co-sureties, the. bond'was delivered by Balling-er to Morrison, the government agent, without the joining of Ingleman and Patton. There was no proof of any actual notice of this condition communicated to the government or its agents. Upon this state of facts the court, held that the finding should be for tbe defendants. The other case is Dair v. United States, 1-6 Wall. 1. In that case the government brought suit on a distiller’s bond .executed by Jonathan Dair and William S antes as-principals and James Dair and AVilliam Davison as sureties., The sureties defended on the ground that they signed upon condition that it was not to be delivered to the plaintiff until executed also by one Joseph Cloud as co-surety, but that the principal obligor, Jonathan Dair, without securing Cloud as co-surety and without the consent of the sureties, delivered the bond to the United States. The bond when so delivered was in all respects regular upon its face and the plaintiff had no notice of the condition. Upon this state of facts the court held the government entitled upon principles of estoppel to a judgment in its favor. The court said: “The bond was in all respects regular, executed according to prescribed forms and accepted by the officer whose duty it Was to take it, as a completed contract. There was nothing op the face of the paper or in the transaction itself to put the officer on enquiry or to raise-even a suspicion in his mind that a condition was annexed to the delivery of the instrument. * * They did not inform the revenue officer of this condition and their omission to do so then estops them from setting it up now.” Distinguishing the Pawling case the court proceeds to say: “The case of Pawling et al. v. United States has been cited as an authority against the proposition taken in this case; but it is not so, because the additional securities to be procured in that case were named on the face of the bond -and this fact is stated in the plea. • If the name of Joseph Cloud appeared as a co-surety on the face of this bond the estoppel would not apply for the reason that the incompleteness of the instrument would have been brought to the notice of the agent of the government, who would have been put on enquiry to ascertain why Cloud did'not execute it and the pursuit of this inquiry would have disclosed to him the exact condition of things. In any case if the bond is so written that it appears that several were expected to sign- it, the obligee takes it with notice that the -obligors, who do sign it can set up in defense the want of execution by the others, if they agreed to become bound only on condition that the other co-sureties joined in the execution.” These two cases, the one holding that a bond which is so incomplete on its face as to suggest non-performance of soime condition imposed by a surety carries notice to the obligee and relieves the surety, the other holding that when such bond is complete and regular on its face and. the obligee has no actual notice of conditions imposed by the surety the latter is bound, constitute the sources from which spring two well defined currents of authority on the subject. These two lines of eases, dealing with variant facts and apparently divergent, are in fact thoroughly harmonious when the distinction between the two original cases is kept in mind. A few of the cases applying the principles of the Pawl-ing case are: Allen v. Morney, 65 Ind. 398; State v. Churchill, 48 Ark. 426; State v. Wallis, 57 Ark. 64; Cutler v. Roberts, 7 Neb. 4; Ney v. Orr, 2 Mont. 559; State Bank v. Evans, 3 Green N. J. L. 155. Among those illustrating the principle announced in the Dair Case are;. Butler v. United States, 21 Wall. 272; Joyce v. Auten, 179 U. S. 595; Carroll County v. Ruggles, 69 Iowa 273; State v. Pepper, 31 Ind. 77; King Co. v. Ferry, 5 Wash. 536; Deardorff v. Foresman, 24 Ind. 494; Nash v. Fugate, 24 Grat. 202; McFarlane v. Howell, 16 Tex. Civ. App. 246; Dun v. Garrett, 93 Tenn. 650; State v. Peck, 53 Me. 284. 1 In the first of these lines of cases it will be uniformly found that the surety was acquitted either because the obligee had actual notice of the restriction placed on liability or constructive notice by reason of some incompleteness in the bond. In the last the ever present controlling fact is that the obligee was without actual notice and the bond being complete and regular on its face,- he wás without constructive notice. It is true that there' is a third line of early eases, which holds that a condition imposed by a surety upon delivery makes the bond an escrow in the hands of the principal obligor or co-obligor and that although the bond be regular and complete on its face and the obligee be without notice of the condition the surety in case of delivery is relieved because of the secret restriction between the parties signators to the bond. Among the eases so holding are People v. Bostwick, 32 N. Y. 453, cited by appellee, and apparently Smith v. Kirkland, 81 Ala. 345. The utter repudiation of this remarkable doctrine, so fraught with invitation to perjnry and so destructive of the possibility of realizing upon bonds given for public and private security, is illustrated by the judicial comments on People v. Bostwick, the leading case of this line. Perhaps few authorities coming from so eminent a tribunal have met more general condemnation. Among the well considered cases which have commented upon it unfavorably are: Dunn v. Garrett, 93 Tenn. 650, supra; Deardorff v. Foresman, 24 Ind. 492, supra; State v. Pepper, 31 Ind. 77, supra; King Co. v. Ferry, 5 Wash. 536, 34 A. S. R. 880, 888; White v. Duggan, 140 Mass. 18 (opinion by Mr. Justice Holmes) and even courts of the same state which announced it shortly thereafter doubted and criticized it (Russell v. Freer, 56 N. Y. 71) and later in terms abandoning it for the more reasonable doctrine o£ the Dair case (Richardson v. Rogers, 50 How. Prac, 403, 407.) 2 Discarding therefore from consideration this third line of authority and confining the case to the first two, it is to be determined to which of these two the present case belongs. This is confessedly a case in which the obligee had no actual knowledge of the limitation imposed by the surety upon his liability. If he is to be relieved from liability therefor it must be upon constructive notice and whether there was this depends in turn upon whether the bond was complete and perfect on its face or whether it was so incomplete as to put the obligee on inquiry as to whether there was any condition imposed by one of the sureties. What will constitute upon the face of the bond such ground for inquiry and consequently such notice of all that inquiry would have ascertained has been the source of considerable discussion by the courts. . The greater number of decisions deal with eases where the bond contains the names of sureties other than those who have signed and in this class of cases, following the Pawl-ing ease supra,, it has been uniformly held that this feature of a bond is sufficient to put the obligee on notice that the surety may have signed on condition that all who are named with him in the bond should likewise sign, and that where the surety actually signed on that understanding, the condition as a fact and the notice of the condition as a matter of law both being present the surety is relieved. Sharp v. U. S., 4 Watts (Pa.) 21; Allen v. Morney, 65 Ind. 398, supra; State v. Peck, 53 Me. 284, 291; State v. Wallis, 57 Ark. 64, supra; Hessell v. Johnson, 63 Mich. 623; Bank v. Smith, 5 Ohio 222. A line of eases kindred to that last mentioned is found where the bond recites principal and sureties but the principal fails to sign. This upon the analogy of the Pawling case is held to carry notice to the obligee that signing by the principal may have been in contemplation of the sureties and thus to necessitate enquiry. Ney v. Orr, 2 Mont. 559; Gay v. Murphy, 134 Mo. 98 and cases cited. A third class of cases comprises those in which a material noticeable erasure is held to put the obligee on notice. Hagler v. State, 31 Neb. 144; State v. Churchill, 48 Ark. 426; King County v. Ferry, 5 Wash, 536; State v. McGonigle, 101 Mo. 353; Hessell v. Johnson, 63 Mich. 623, supra. A fourth illustration of this principle is found in eases where some provision of statute relating to sureties is ignored in the bond and this fact held to carry notice to the obligee of possible conditions and to put him on inquiry. An instance of this is found in Cutler v. Roberts, 7 Neb. 4, where the statute required two or more sureties and the bond as filed contained only, one and it was said by the court: “The law in such a ease enters into and forms a part of the contract and a surety may insist as a defense in an action on a bond signed by but one surety, that he is not liable thereon, the statute being notice to all parties concerned that two sureties were required unless the surety waived the condition prescribed by the statute.” Differing from each of the four just referred to, although similar to the last, is the basis upon which appellee contends that duty of inquiry was by the face of this bond put upon the clerk of court as the agent created by law to act for the plaintiff in receiving and approving the bond. It is pointed out that there was a rule of court in force at the time this bond was given as follows: “Whenever a judge or other officer approves the security to be given in any case, or reports upon its sufficiency, it shall be his duty to require personal securities to justify, or, if the security offered is by way of mortgage on real estate, to require proof of the value of such real estate; and all bonds, undertakings and other securities in writing shall be duly acknowledged in like manner as deeds of real estate, before the same shall be received or filed.” 3 It is further pointed out that this rule under the decisions of this court (Rogers v. Richards, 8 N. M. 665) and of the Supreme Court of the United States (Rio Grande Co. v. Gildersleeve, 174 U. S. 603) has the force of law. It is argued that since the fact that this bond as presented was without acknowledgment “in like manner as 'deeds of real estate”, as required by the rule, such omission was sufficient to put the clerk on enquiry as to why the bond was not acknowledged and indeed under •the absolute duty of declining it until acknowledged and that had he performed this duty and made this enquiry he would have ascertained that Cartwright’s suretyship was conditioned upon being furnished indemnity. The court below sustained this position both upon the final trial and in a carefully prepared opinion delivered in disposing of the demurrer to the answer, and upon a full consideration of the matter we are of opinion that that conclusion was correct. The rule referred to having all the force of law all parties concerned were presumed to know of its existence and to assume that it would be complied with. Cartwright, therefore, knew when he signed the bond that it could not legally be “received or filed” until he had acknowledged it. He knew that the bond must come back to him for acknowledgment before it could be legally used. He had the right to assume that the clerk would not violate the law, and secure in that assumption had the right to deliver the bond to Webber for the signature of other sureties, without being irrevocably committed thereby to its payment. He did not thereby bring himself within the doctrine that where one of two innocent parties must suffer by the act of the third, the sufferer must be he who puts it in the power of the third to do the wrong. The plaintiff was not an innocent party. The clerk was his agent provided by law for the receipt and approval of the bond. Allen v. Morney, 65 Ind. 398, 32 A. S. R. 73, 74; Sacramento Co. v. Rhodes, 31 Cal. 74; State v. McGonigle, 101 Mo. 353, 20 A. S. R. 609, 611. The act of the clerk was his act. When the bond was presented to the clerk, the latter knew that he had no right to receive or file it. When it was received and filed by him he knew that he was violating the law. It is a contradiction in terms to say that he is an innocent party and thus entitled to the protection of the law who violates the law in consummation of the transaction in which he seeks protection. Under the uncontradicted' facts in this case had the clerk simply complied with the law this bond would never have been filed and this suit would never have had existence. How then can it be said that the obligee is an innocent party within, the equitable doctrine above cited: To hold this would in our judgment be simply to permit one to profit by his own wrong. Nor did the act of Cartwright put it in the power of Webber to wrong the plaintiff within the equitable principles above mentioned. Webber was powerless to use this bond for any purpose without the consent of the clerk; that is, without the consent of the plaintiff, whose agent the clerk was. That consent could not legally be given and plaintiff and the clerk knew that fact. It can hardly be contended that Cartwright invested. Webber with the power to inflict a wrong upon plaintiff by handing him a paper which the law said he could not use without the consent of his supposed victim and which the law said he.could not use at all. We have not, in reaching this conclusion, overlooked the contention of appellant that the lack of an acknowledgment does not, unless so provided by the statute requiring it!, invalidate an instrument .and the further very earnest contention that an acknowledgment is for the benefit of the obligee, and may for that reason be waived by him and in this instance may have been waived in his behalf by the Clerk. 4 As to the first of these we agree with counsel that an acknowledgment as a rule is not essential to the validity of an-instrument and that a recovery may usually be had upon such even if unacknowledged. The present question,, however, is not as to the validity of the bond sued on but whether there was sufficient upon the face of it to provoke inquiry by the clerk, when presented to him, as to whether it was .signed upon condition. We hold that the lack of an acknowledgment when the law said there must-be one before filing was sufficient to provoke inquiry as to the reason for such omission. Nor is this a case where a requirement inay be dispensed with by a party as being created by law purely for his benefit. Taylor County v. King, 73 Ia. 157, relied upon by appellant was such a case. In that case, however, while the requirement was that the sureties should justify there was no prohibition upon receiving the bond because of absence of justification and it was held that such a requirement being one that might be waived, a lack of justification on the bond did not put the obligee on enquiry. Clearly,' however, the only person concerned with the sufficiency of a bon'd is the party in whose favor it is made. The surety presumably knows the condition of his personal finances and the fact that he does not malee affidavit to that condition concerns only his obligee. On the other-hand the requirement of acknowledgment is for the benefit of both parties. It is'no less to the advantage-of the alleged obligor that the use of his nalne upon instruments of importance shall be safeguarded by tíre requirement of an acknowledgment than for the benefit of the obligee that the proof of his instrument shall be rendered beyond question by that requirement. The Iowa case -would perhaps be in point were this case being decided upon the first provision of the rule above quoted which requires “the Clerk to-require personal securities to justify”, for as we have seen no, one but the obligee is concerned with the sufficiency of the security. But we are here dealing with the latter part of the rule which says that the bond must be acknowledged “in like manner as deeds to real estate” — a matter in which the party signing is likewise interested — and which in addition to what was present in the Iowa case further requires that this must be done “before the same shall be received or filed.” It should finally be recalled that this case is one dealing not with the principal obligor but with the surety, one of a class favored by law, whose liabilities are to be judged strictissimi juris. The undisputed evidence shows that Cartwright did not know that this bond had been used until years after its signing and as he had the right to rely upon its being brought back to him for his acknowledgment he was not called upon to enquire. On the other hand as Hen-dry’s mine was being worked on the strength of this bond he knew of its existence at once and was put on enquiry, by its lack of an acknowledgment, as to whether there were any conditions connected with it. He had the choice either of enquiring, learning the facts and exacting of the Lincoln, Lucky Company a new bond, or of taking his chances that the sureties signed unconditionally. He chose the latter with the result that in our judgment the fortunes of litigation are against him. The judgment is accordingly affirmed.