Ætna National Bank v. Hollister

Loomis, J. The complaint is founded upon a bond, dated July 11th, 1870, given by the defendant to indemnify the plaintiff bank against loss by reason of its dealings with the Connecticut Valley Railroad Company. The bond and condition are as follows : [They are set out in full, ante p. 189.] The finding would seem to establish the fact that at the commencement of this suit the Connecticut Valley Railroad Company owed the plaintiff bank 19,792.67, being the amount originally credited to the railroad company on ac* count of the accommodation notes of Clark and Arnold, which were discounted by the bank for the benefit of the railroad company and renewed from time to time but never paid. The question for review is whether the obligation of Hollister is broad enough in its terms and meaning to embrace such an indebtedness. The defendant claims that his liabil — 210 — ity is restricted to such drafts as were at the time when they were presented technical overdrafts. While the argument for such a construction, as given by the learned counsel, had much plausibility, yet we think a broader meaning may be fairly given to the language employed. The first recital in the condition of the bond mentions the fact that “ the railroad company were depositors of money in, and customers and dealers with the bank, and have made and are expected to make drafts and overdrafts on the bank from time to time.” Then follows the agreement of the obligors “ in consideration of the premises and such dealing,” first, that the railroad company would on demand “pay and make good any balance and interest due or to become due at any time ” (obviously by reason of such dealing) “ and in default, that the bondsmen will, upon demand, pay and satisfy the same and indemnify and save harmless said bank from and against all loss, cost and damage by reason of any such drafts, or overdrafts, and such indebtedness, Avithout any notice of any kind,” etc. Had it not been the intention to extend the scope of the bond beyond Avhat at the time would be technical overdrafts the general words “and such indebtedness” would not have been added. Had the parties contemplated a single transaction the strict construction claimed might apply, but they evidently had in Anew a long course of dealing and the ordinary and regular mode of business between a bank and a large and regular customer. It must have been contemplated that the railroad company would deposit, not only money but mercantile paper of all kinds, and obtain credit therefor before it could be known whether the amount represented by the paper would ever be paid to the bank. In expressly providing in the bond that “ no notice of any kind need be given or suit brought for the purpose of fixing the liability of the said obligors or of any of the parties to said hank,” the parties must have referred to commercial paper which the bank might hold, against which checks might — 211 — be drawn, and in relation to which notice or a previous suit might be a prerequisite to a recovery unless dispensed with. We cannot doubt that the parties contemplated that some of the credits to be given the railroad company by the bank for commercial paper might have to be charged back for nonpayment, and that drafts paid out of such credits might afterwards become overdrafts within the meaning of the bond. In such case the customer must be presumed to understand that credit is given him in advance upon the implied condition that the paper discounted will be paid and that in case of non-payment it may be charged back. Suppose a sight draft drawn by the railroad company on a third party payable to the order of the bank and credited to the railroad company in advance of acceptance and checked out by the latter. If subsequently the drafts should be dishonored, would it be any more just or reasonable to hold the bank to the original entries because it gave a fictitious credit, than it would if the deposit had been worthless bank bills and the credit had been given upon the supposition that the bills were good? If then we concede that by the terms of the bond the parties contemplated that the funds credited should all be appropriated and drawn out by means of the checks or drafts of the railroad company, and that the defendant’s liability should depend on there being an actual overdraft, we still insist that the question must be determined, not by the state of accounts at the time the check may have been presented and paid, but by the true balance upon a final revision of the accounts after eliminating all fictitious credits. But we are here confronted rvith an objection which, if sound, will prevent the application of the above principle to the case at bar. It is claimed that there was no liability at all on the part of the railroad company respecting these notes of Arnold and Clark except as indorser, which was a contingent and not an absolute liability. But it is found that these notes were merely accommodation notes obtained of the makers upon a special guaranty that they should not be required to pay them, and the money on them was asked for — 212 — in order to meet a pressing obligation of the railroad company, namely, to pay the coupons of their first mortgage bonds and to save the credit of the company. The transaction could not be regarded merely as a sale of the notes of Arnold and Clark to the bank, but it was to all intents and purposes a loan of money by the bank to the railroad company. City Bank's Appeal from Commissioners, 54 Conn., 269. But it is said that even if the debt in question was covered by the bond, the plaintiff bank by its conduct has released the defendant from liability. There is no doubt about the general doctrine invoked by the defendant, that diligence and the utmost good faith are required to be observed by a party claiming against a surety, unless it is otherwise provided. But in this case the court has in terms negatived the charge of laches in failing to collect the notes, unless it can be inferred from other facts found, and it cannot be so inferred, because the bond itself in express terms dispenses with all the ordinary prerequisites of diligence, notice, demand or previous suit which might otherwise be necessary in order to subject the surety; and the guaranty was made a continuing one until withdrawn or re* called by a written notice to the bank. There is no pretense that there was ever any such withdrawal or notice, nor did the defendant ever make any suggestion, request or inquiry concerning the matter, so far as the plaintiff is concerned. The conduct of the plaintiff bank, in paying, on the 28d of November, 1876, to the receiver of the insolvent railroad company the trifling balance then appearing to the credit of the company; the taking of a small real estate security from Arnold on the 19th day of March, 1877, when at the same time he had three or four thousand dollars worth of other real estate; the fruitless suit against Clark brought in May, 1877, and an unsuccessful suit against the Charter Oak Life Insurance Company in October, 1879; the taking of small sums from Walkley from time to time and applying them on the notes; and the delay in finally revising the account against the railroad company until April, 1883, and then for — 213 — the first time notifying the defendant Hollister of the purpose to hold him liable on the bond, are not easily to be explained, as no reasons are suggested upon the record. These things would seem to indicate great reluctance to proceed against the defendant, and might naturally be supposed to indicate a possible want of confidence in the claim against him; nevertheless, in view of the strong provisions of the bond; we do not think the above facts constitute a legal defense. It does not appear that the defendant was misled to his prejudice by anything done or omitted on the part of the plaintiff, and the necessary elements of an estoppel against the maintenance of the suit are wanting. But it is further claimed that if there was error in holding that the claim of the plaintiff was not covered by the provisions of the bond, there was another error in holding that the bond was the personal obligation of the defendant, instead of the bond of the railroad company, and that the meaning of the bond is of no consequence if the real party who gave it is not brought into court. But the decision upon the construction of the bond was against the plaintiff, who appealed to this court, while upon the question who gave the bond, the judgment was wholly against the defendant, who did not appeal. So that we are called upon to reverse an erroneous judgment not appealed from, that we may thereby save an erroneous judgment that was appealed from. It is quite unusual to apply the principle .under such circumstances ; still we do not mean to say that it cannot be done. But the error ought to be manifest as matter of law, and if there entered into the judgment any element of fact upon which it may have been based, it ought not to be and cannot be disturbed. In this case the parties, in effect, conceded that, upon the question whether the bond in suit was the bond of Hollister or that of the railroad company, there was an ambiguity on the face of the instrument sufficient to justify a resort to extrinsic evidence, and the court heard the parties in regard to it without the suggestion of any objection on the part of the defendant. Indeed, the second defense distinctly raised such an issue of fact, and pre — 214 — sumably tbe defendant assumed the burden of proof on that issue. The court distinctly found that issue for the plaintiff, and found certain special facts applicable, among -which were these:—“The draftsman of the bond added the words, ‘ Treasurer of the Connecticut Valley Railroad Company,’ to the name and residence of the defendant in the bond, as descriptive merely of the person who was to sign it. There was no evidence that the defendant had any power, by his signature as treasurer or otherwise, to bind the company by an instrument of this discription; and I find that he had no such power.” This we must regard as conclusive. The defendant however, even here, in effect asks us to reverse another ruling without bringing the question up by appeal. He says the judgment was a nullity because on its face it shows there was no evidence at all to base it upon. The finding is that there was no evidence that the defendant had any power to bind the company, and then the court adds, “ I find that he had no such power.” The two things are not necessarily inconsistent, but may well stand together, for there might have been no evidence to show affirmatively such power, while, on the other hand, there might have been much evidence to negative its existence. There was error in the judgment complained of and it is reversed. In this opinion the other judges concurred.