Gay v. Ward

Wheeler, George W., J. This case comes before us for our advice, on a reservation upon an agreed statement of facts, and with a stipulation, entered into by all the parties to the record, that all questions arising upon the pleadings or upon the agreed facts may be finally determined by this court. On January 8th, 1872, the stockholders of the Delaney and Munson Manufacturing Company, located at Farming-ton, Connecticut, executed and delivered to the National Exchange Bank of Hartford, a contract of continuing guaranty in the form of a bond, the terms of which appear at length in the opinion of this court in the case of National Exchange — 154 — Bank v. Cray, 57 Conn., 224, 231, brought against one of the guarantors upon the bond. This bond guaranteed to the bank “ the full, prompt and ultimate payment ” of all commercial paper which the bank may “ have discounted or may hereafter discount ... to an amount not to exceed $15,000 in all at any one time.” It provided that upon notice to the bank by one or all of the guarantors upon such instrument, such guarantor or guarantors should not be holden upon said bond for any liability created by such company subsequent to the giving of such notice. From the date of the bond to February 9th, 1888, the bank discounted commercial paper of said company, upon which date the company failed. On January 21st, 1889, the bank recovered judgment against the executors of Gay, one of the guarantors upon the bond, for the sum of over $11,000, which sum, together with the expenses of the suit, the executors paid. Subsequently Wadsworth, another guarantor upon the bond, voluntarily paid to the executors of Gay one half of said amounts. The present action is brought by the executors of Gay and of Wadsworth, against the administratrix of Augustus Ward, a guarantor upon the bond ; William Potts, administrator upon the estate of Samuel S. Cowles, a guarantor upon the bond; Horace Cowles, a son of said Samuel S. Cowles, and Mary C. Hardy, a purchaser from a distributee of the estate of Horace Cowles. Said Ward died April 6th, 1883; his estate was duly settled and distribution made December 8th, 1883. Said Samuel S. Cowles died in 1873 ; his estate was duly settled and distribution made June 7th, 1873, a part being distributed to his son, Horace Cowles, who died in 1876; his estate was duly settled and distribution made September 25th, 1876. A part of the estate inherited by Horace Cowles from his father, Samuel S. Cowles, was purchased by Mary C. Hardy from a distributee of the estate of Horace Cowles, and owned by her when she was made a party to this action. All of the discounts existing February 9th, 1888, which the estate of Gay and Wadsworth paid, were made by the — 155 — bank long subsequent to the death of Samuel S. Cowles, and none were renewals of discounts made in his lifetime. Five thousand dollars of said $11,000, were discounts made by the bank after having notice of Ward’s death, and $6,000 of said $11,000 were renewals of paper made after notice of Ward’s death, but of paper originally discounted prior to Ward’s death. The bank, Gay, and Wadsworth, had immediate notice of the death of said Samuel S. Cowles and of Ward. The said Manufacturing Company was solvent at the time of the death of said Samuel S. Cowles and of Ward. The stockholders of the Delaney and Munson Manufacturing Company, by pledging their individual credit to the National Exchange Bank, secured funds, through discounts made by the bank, with which to conduct its business. “ To avoid the inconvenience of indorsements by several individuals upon each of a large number of original notes and the renewals thereof, the obligors made one comprehensive continuing contract of indorsement in the form of a guaranty under their respective hands and seals.” Exchange National Bank v. Gray, supra. The bond constituted a contract of continuing guaranty upon the part of its obligors or guarantors, of payment of all paper discounted by the bank up to the limit of the amount named in the bond. No consideration passed at the execution of the bond. Each discount, when made upon the credit of the guaranty, constituted a consideration, separable and divisible. No obligation arose and no liability was created until a discount was made upon the credit of the guaranty. The bond was framed to meet the contingency of the long continuation of discounts by the bank, and the extension and renewal of discounts made upon the security of its guaranty. Upon the nature of this guaranty this court expressed itself, in the case we quoted from above, as follows: “ To guarantee ‘full and prompt’ payment would meet the case of a note, on usual bank time, actually to be paid in full at maturity. To guarantee, in addition to ‘ full and prompt ’ payment, the ‘ ultimate ’ payment, can have no other mean — 156 — ing than that the obligor should continue bound to the end of all substitutions, renewals and extensions.” The bank was under no compulsion to discount the company’s paper; it might, at its option, refuse to continue discounting it; when it made the discounts the guaranty of the bond attached. Each guarantor upon the bond might, upon notice in writing to the hank, terminate all liability thereafter arising under the bond. Unless the terms of the guaranty forbid, the law writes in the contract of continuing guaranty a like power to revoke the guaranty upon notice. Coulthart v. Clemenston, L. R. 5 Q. B. Div., 42; Jordan v. Dobbins, 122 Mass., 168 ; Agawam Bank v. Strever 18 N. Y., 502. The effect of the death of a guarantor upon a continuing guaranty has been determined differently in different jurisdictions. In Massachusetts death is held to work a revocation of the guaranty. The court in construing a continuing guaranty of the sale of goods, in the case of Jordan v. Dobbins, supra, said: “ Death terminates the power of the deceased to act, and revokes any authority or license he may have given, if it has not been executed or acted upon. His estate is held upon any contract upon which a liability exists at the time of his death, although it may depend upon future contingencies. But it is not held for a liability which is created after his death, by the exercise of a power or authority which he might at any time revoke.” See also, Hyland v. Habich, 150 Mass., 112. In England death does not work a revocation of the continuing guaranty. The case of Coulthart v. Clementson, supra, was an action brought by a bank upon a continuing guaranty against the executor of a deceased guarantor. The court said: “A guaranty like the present is not a mere mandate or authority revoked ipso facto by the death of the guarantor.” These two cases illustrate the two views held by courts of different jurisdictions. We prefer to adopt the latter view. To adopt the Massachusetts doctrine would impose upon the guarantee the burden of knowing at all times whether or not the guarantors are in life. There could be no safety in rely — 157 — ing upon the credit of the guarantor, unless at the moment of reliance the guarantee knew the guarantor to be in life. The practical difficulties in the way of a guaranty so construed, would prevent credit being given upon it and curtail a useful method of commercial business. Further, a guaranty of this nature is intended to continue until revoked by act of the parties or its equivalent. But when the guarantee has knowledge of the death of the guarantor, such knowledge works a revocation of the guaranty. The guarantee no longer relies upon the credit of the deceased guarantor. Each advance made by the guarantee constitutes a fresh consideration; and when made, an irrevocable promise or guaranty on the part of the living guarantors. Each advance thereafter made is upon the credit of the living, not of the dead guarantor. Were this not so —unless it be held that the representatives of the deceased may upon notice terminate the guaranty — the guaranty terminable at the option of the guarantor during life becomes, upon his death, never ending. The limitation which the law gives the living, is denied the dead. Estates must remain unsettled, devises of property be withheld so long as the guaranty may last, and the representatives of the deceased guarantor be powerless to save his estate from- a loss which neither he nor they authorized or received benefit for. Such a result justifies and impels a court in reading into the guaranty a limitation of termination of the guaranty, upon notice of the death of the guarantor, as well as upon notice from the living guarantor. Any notice of death which brings that fact within the knowledge of the guarantee, is a proper and sufficient notice. In the case of Coulthart v. Clementson, supra, the court said: “ It is now established by authority that such continuing guaranties can be withdrawn on notice during the lifetime of the guarantor, and a limitation to that effect must be read, so to speak, into the contract. But what is to happen on his death ? Is the guaranty irrevocable and to go on forever ? It would be absurd to refuse to read into the lines of the contract in order to protect the dead man’s — 158 — estate a limitation which is read into it to protect him while he is alive. . . . But if the executor has no option of the sort, then, in my opinion, the notice of the death of the testator and of the existence of a will is constructive notice of the determination as to future advances of the guarantee. The bank from that moment are aware that the person who could during his lifetime have discontinued the guaranty by notice cannot any longer be a giver of notices; that his estate has passed to others, who have trusts to fulfil, and it is easy for them to ascertain what those trusts are. If these trusts do not enable the executor to continue the guaranty then the bank has constructive notice that the guaranty is withdrawn.” Nat. Eagle Bank v. Hunt, Adm’r, 16 R. I., 148; Narriss v. Fawcett, L. R. 15 Eq. Cas., 311. The authorities uniformly hold, either that death, ipso facto, or notice of death, revokes a continuing guaranty. The fact that the instrument is under seal cannot change its nature or construction. Jordan v. Dobbins, 122 Mass., 168 ; Offord v. Davies, 12 C. B. N. S., 748. A similiar doctrine holds that notice of the dissolution of a copartnership revokes a continuing guaranty made by the copartnership. City Nat'l Bank of Poughkeepsie v. Phelps, 86 N. Y., 484. The application of these principles to the case in hand is this: All of the discounts, for which recovery was had against Gay’s estate and payment made by Gay’s executors and Wadsworth, were made after notice of the death of Samuel S. Cowles; his representatives are therefore freed from all liability for such discounts. Liability, if any, for discounts so made upon the credit of the guaranty, could only accrue against the estate of Samuel S. Cowles, and could in no view of the case be maintained against the estate of Horace Cowles, or Mary Hardy. Five thousand dollars of the said discounts were made after notice of the death of Augustus Ward; his representatives are therefore freed from all liability for such discounts. The remaining discounts, $6,000, were originally made before the death of Augustus Ward; his death, with notice, did not relieve his estate from liability for such discounts. For — 159 — all discounts made prior to his death, whether original discounts or renewals or extensions thereof, his estate is liable upon his death. The duty of the bank upon this bond, if it desired to hold the estate of Ward liable, was to enforce its claim upon the paper existent at Ward’s death, against his estate. Instead of this the bank renewed and extended its discounts, taking new paper for the old, without the knowledge or acquiescence of the representatives of Ward. Thereafter the bank must look to the remaining guarantors upon the bond; it waived its right to enforce pajmrentfrom the estate of Ward, when it accepted paper in renewal of the old. Each renewal of the old paper constituted payment of the old paper, so far as Ward’s estate was concerned. Each renewal so made had, for its security, the guaranty of the living guarantors upon the bond, who had not notified the bank of the termination of their liability upon the guaranty. The conclusion arrived at is just to the bank, for it can cease, upon notice of the death of a guarantor, to renew paper then discounted, and can enforce its payment against the estate of the deceased guarantor. It is just to the remaining guarantors who can, upon notice of the death of a guarantor, terminate their liability and, if compelled to pay that liability, by appropriate remedy compel the estate of the deceased guarantor to contribute his proportion to the liability incurred. For all liability arising before notice of the death of the guarantor, the remaining guarantors can provide by the terms of the guaranty. In the case at hand all the guarantors upon this bond had notice of the death of both Samuel S. Cowles and Augustus Ward, and made no attempt to terminate their liability upon the bond, and no effort to compel the estate of either to help meet the liability existing; but thereafter, without the knowledge, consent, or acquiescence of the representatives of Cowles or Ward, renewed the old paper through a long series of years, and increased their own liability by fresh discounts. A renewal, of paper made before the death of a guarantor, upon the credit of a bond guaranteeing payment of such paper, — 160 — made after notice of said death to the guarantee, terminates the liability of such guarantor after said notice. The precise question at issue was determined in accordance with the conclusions we reach, in the case of National Eagle Bank v. Hunt, 16 R. I., 148, 158. In its opinion the court said: “ The guaranties in the case at bar come within the second class above considered. They were, therefore, upon the authorities cited, terminated by the death of the guarantor and notice of it to the plaintiff, as to all subsequent transactions. As, however, the note described fn the declaration had been discounted, and the net proceeds had been paid to the maker prior to the death of the guarantor, the plaintiff would have been entitled to recover but for the fact, set up in the pleas, that after notice of the death of the guarantor it extended the time of payment for a further period by taking a new note from the principal debtor and receiving the interest thereon in advance, without the consent of the defendant, and without any reservation of his right assented to by the principal, to insist upon immediate payment by the principal, and, in default of such payment, to pay the debt himself, and proceed at once against the principal. That such action on the part of the plaintiff was sufficient to release the estate of the guarantor, and the defendant as his representative, from liability, is too well established to need the citation of authority.” The question whether a guaranty will be revoked by notice of death, when by the terms of the guaranty the guarantor could not in life have revoked the guaranty, is not before us, and we express no opinion upon this point. The claim that because the bond of guaranty in this ease bound the guarantors to the “ full, prompt and ultimate payment” of all paper discounted after the execution of such bond, therefore the guaranty covers discounts made before the death, and the renewals of such discounts made after the death of the guarantor, cannot be sustained. The guaranty here applies to paper discounted, and to the renewal or extension of such discounts, before the decease of a guarantor. Otherwise a continuing liability existed against the estate of — 161 — the deceased guarantor so long as the renewals were made. Such a result was not- intended by the parties to the bond. They did not intend to continue a liability after the deatli of a guarantor, for an indefinite period, which he and they could terminate at any time during his life. A contract of guaranty is to be construed so as to promote the use and convenience of commercial intercourse. Davis v. Wells, 104 U. S., 159, 169. And its language is not to be extended by any strained construction, for the purpose of enlarging the guarantor’s liability. Dali v. Rand, 8 Conn. 560, 573. But its construction is to be according to what is fairly to be presumed to have been the understanding of the parties, without any strict technical nicety. Lee v. Dick, 10 Pet. 482, 493; Evansville Nat'l Bank v. Kaufmann et al, 93 N. Y., 273, 281. These established rules of construction accord with the construction we give to the guaranty before us. We deem it unnecessary to discuss other questions argued before us, since the questions considered are decisive of the ease. We have not overlooked the fact that there has been a misjoinder of parties defendant. The estate of Horace Cowles and Mary Hardy were strangers to the guaranty. The representatives of Samuel S. Cowles are alone liable upon his obligations. There is, as well, a misjoinder of parties plaintiff. Mr. Wadsworth voluntarily paid one half of the amount recovered against the estate of Gay; he cannot now maintain with Gay’s representatives an action to compel payment to them, of the share of other guarantors paid by him for them. The Superior Court is advised to render judgment in favor of the defendants. In this opinion the other judges concurred.