Gate City National Bank v. Chick

JOHNSON, J. — This is an action to enforce a contract plaintiff alleges was made by defendants for its benefit. A trial of the issues raised by the pjead-ings resulted in a judgment for defendants and plaintiff appealed. The W. F. Lyons Ice & Power Comí pany, a corporation, was indebted to plaintiff, a bank doing business in Kansas City, in the sum of $9,000, and plaintiff held its negotiable promissory note for that. sum which was dated September 10, 19091, and was payable on demand. The note was signed by the Ice Company and by W. F. Lyons, who, so far as the face of the instrument disclosed, was a co-maker. The evidence of defendants shows that as between the Ice Company and Lyons the former was the — 346 — principal obligor and the latter a surety. The payment of the note was secured by bonds of the Ice Company of the par value of $12,500, which were the property of Lyons and were deposited by him with plaintiff as collateral to the note. Lyons was the president of the Ice Company, was a heavy stockholder and owned over one-third of its bonds. The capital stock of the corporation was $150,000', the bonded indebtedness $100,000, and the floating indebtedness, which included the note to plaintiff was heavy. The assets were large but at the time of the principal event in controversy were not sufficient to pay the debts of the concern and the stock had no intrinsic value. These facts were not known to defendants. The corporation was a going concern and was doing a large and apparently profitable business. Lyons was surety on other notes the company had given for borrowed money and had pledged all of the bonds he owned to secure such notes as well as to secure the payment of debts he owed individually. His pecuniary obligations consisted of debts of the company for which he had become liable in the manner stated and of his own personal liabilities. In February, 1910, while the affairs of the Ice Company and of Lyons were in the condition described, Lyons entered into a written contract with defendants Chick, Yanders'lice and Lynds by the terms of which he sold to them his holdings in the company and put them in charge of the assets and business of the corporation. "We do not find it necessary to set out that contract or to refer to any other portion than the paragraph relating to a part of- the consideration defendants agreed to give for the property and rights conveyed to them by Lyons. That paragraph provided that defendants “should in due time release W. F. Lyons from all of the obligations of W. F. Lyons Ice & Power Company scheduled in this paragraph on which he is indorser and should also event — 347 — ually pay, or cause to be paid, all of the present obligations of W. F. Lyons to which any of the bonds of the W. F. Lyons Ice & Power Company are collateral, according to the following schedule.” Then followed a list of such debts, including the note held by plaintiff. Part of the debts in the schedule were notes which Lyons had signed apparently as co-maker with the Ice Company for money borrowed by the company and the remainder were notes given by Lyons on his own account. Each note in the schedule was secured by bonds1 belonging to Lyons which were included in the property that was the subject of the sale. The note held by plaintiff was not paid and plaintiff foreclosed the lien on the bonds. The proceeds realized fell short of discharging the note in full and plaintiff recovered judgment against Lyons for the deficiency. That judgment remains unsatisfied and the object of this suit is to recover the amount of the deficiency from defendants on the theory that the paragraph of the contract we have quoted required defendants to pay the note and that plaintiff is entitled to have that contract enforced as one made by defendants for its benefit. In the judicial interpretation of written contracts the most important rule is that which requires the court to give effect to the mutual intention of the parties as expressed in the instrument. In ascertaining the true intention, the contract should be read in the light of the circumstances of the parties at the time of its execution. The court cannot give heed to prior or contemporaneous, oral agreements1 that tend to contradict or vary the terms of the written contract but evidence that merely tends to throw light upon and disclose the nature of the subject matter of the contract is admissible and important in instances where it serves to explain and give certainty to terms or words in the instrument which, if unexplained, would be ambiguous or uncertain. — 348 — The paragraph of the contract, on the correct interpretation of which depends the proper solution of this controversy j shows quite clearly that defendants were to assume obligations with respect to two classes of debts owed by Lyons for which he had pledged his bonds as security; the first class consisting of notes on which his liability was that of an indorser for the Ice Company, the principal obligor, and the second composed of obligations on which he was primarily liable. The contract does not show on its face to which class the note held by plaintiff belonged and we think the learned trial judge did not err in receiving evidence relating to the fact of whether the liability of Lyons on the note in question was that of an indorser of a note of the Ice Company or that of a principal obligor. Such evidence could not have the effect of contradicting or varying the- terms of the written contract, for they are silent on that subject, and we do not understand how the issue of the classification of the note could be solved intelligently without resort to extrinsic evidence. The position on the face of the note of the signature of Lyons indicated that he was a co-malrer with the Ice Company and, as such, was liable to the payee as a maker, but it was competent for defendants to adduce evidence to the effect that his relation to the Ice Company was not that of a co-maker but of a surety. There is a pronounced technical distinction between a surety and an indorser (Keys v. Keys, 217 Mo. 48) and if the parties to the contract intended that the term “indorser for the Ice Company” as used in describing the obligations assigned to the first class should be understood in its strict legal sense, proof that Lyons, in fact, signed the note as, surety would be insufficient, of itself, to place the note in that class. "We think the language of the contract, when analyzed in the light of the facts and circumstances disclosed in the evidence, clearly evince the intention — 349 — of giving the term the broader meaning of comprehending all obligations of suretyship for the Ice Company which Lyons had incurred and had secured with bonds owned by him. He had not become liable as a technical indorser on any of the notes mentioned in the schedule and to give the term in question the restricted meaning would wipe the first class out entirely and thus destroy the classification the contract clearly purports to establish and define. We hold that the term “indorser” was intended by the parties to be understood as the synonym of surety and that effect should be given such intention. The note held by plaintiff belonged to the first class and we pass to the question of the nature of the obligation the contract imposed on defendants with reference to debts belonging to that class. ■The language of the contract is that defendants “in due time should release Lyons from all obligations” of that class. Standing alone that term might be subject to the construction of counsel for plaintiff who.argue, in. substance, and cite authorities in support of the argument, that “to release” and “to pay” are legal synonyms and, therefore, that defendants bound themselves to pay the note. But here again the argument of plaintiff, if it received our sanction, would destroy the classification of debts which the parties were so careful to make. The obligation of defendants with respect to the debts in the second class was to pay such debts in a reasonable time while their duty towards those of the first class was to procure the release of Lyons from his liability to pay them. Such release might be obtained in other ways than by payment made by defendants. In this case defendants endeavored unsuccessfully to induce plaintiff to accept a renewal note signed only by the corporation and offered some additional collateral security. Had the offer been accepted certainly it would have amounted — 350 — to a full performance by defendants of tbeir agreement to procure Lyon’s release from tbe liability. Tbe only distinction tbe contract makes between tbe two classes is that we have noted and if tbe parties intended to bind defendants to pay all of the debts they would not have taken such pains to divide them into two classes. Giving effect to tbe manifest intention of tbe parties aa expressed in tbe contract, we say that tbe full extent of defendants’ undertaking with reference to debts in tbe first class was to obtain tbe dismissal of Lyons from bis liability to pay them, in any lawful manner available to defendants1. In this view of tbe contract we do not perceive any good ground for tbe contention that tbe contract was made for tbe benefit of plaintiff. Tbe rule is one of general acceptation that “an action lies on a promise made by tbe defendant upon a valid consideration to a third person, although tbe plaintiff was not privy to tbe consideration. Such promise is to be deemed made to tbe plaintiff if adopted by him, though be was not a party, nor cognizant of it when made.” [Porter v. Woods, 138 Mo. l. c. 554; Crone v. Stinde, 156 Mo. l. c. 266; Beattie v. Gerardi, 166 Mo. l. c. 153.] But tbe rule has well-defined limitations. “It is not every promise made by one to another, from tbe performance of which a benefit may ensue to a third, which gives a right of action to such third person, be being neither privy- to tbe contract nor to tbe consideration. Tbe contract must be made for bis benefit, as its object, and be must be tbe party in+ended to be benefited.” [Porter v. Woods, supra; Howsman v. Water Co., 119 Mo. 304; Markel v. Telegraph Co., 19 Mo. App. 80; Hill v. Railroad, 82 Mo. App. 188; State ex rel. v. Loomis, 88 Mo. App. 500; Scheele v. Lafayette Bank, 120 Mo. App. 611; Bank v. Commission Co., 139 Mo. App. 110.] — 351 — If the obligation of defendants as prescribed in the contract bad required them to pay the note held by plaintiff we would bold that the contract was made for the benefit of plaintiff “as its object” but the obligation to procure Lyon’s release from liability to plaintiff bad for its sole object and beneficiary Lyons and not plaintiff. The benefit that might accrue to plaintiff at most would have been but an indirect and incidental result of the performance of the main purpose of the agreement. “The rule is not so far extended as to give to a third person who is only indirectly and incidentally benefited by the contract a right to sue upon it.” [Porter v. Woods, supra.] Plaintiff has no cause of action against defendants founded on this contract and the action was properly determined in the circuit court. Accordingly the judgment is affirmed. All concur.