Holm v. Jamieson

Mr. Chief Justice Phillips delivered the opinion of the court: On May 16, 1893, at Chicago, Illinois, the Great Western Wire Works, by E. B. Filkins, treasurer, executed its note for §1500, due sixty days after date, payable to itself, with six per cent per annum interest after maturity, with power of confession of judgment, which note was endorsed, “Pay to the Central Trust and Savings Bank or order.—Great Western Wire Works, by E. B. Filkins.” This note came to the hands of John Holm, who brought suit on the guaranty endorsed thereon, which is as follows: “I hereby guarantee the prompt payment of the within note.—E. A. Filkins, Egbert Jamieson.” The declaration alleges that upon the consideration that the Central Trust and Savings Bank would discount the note if the defendants would guarantee the prompt payment thereof, the defendants, for the consideration aforesaid, did guarantee the payment of the same to the Central Trust and Savings Bank. That bank, relying upon the guaranty of the defendants, discounted the note for the maker. After the guaranty of the note by Filkin and Jamieson, and its endorsement to the Central Trust and Savings Bank, that bank made a second endorsement thereon, as follows: “Pay to John Holm or order.— Central Trust and Savings Bank, by W. A. Paulsen.” John Holm having brought suit on the guaranty endorsed on said note, against Egbert Jamieson, one of the guarantors, the latter appeared and filed a plea of general issue and a special plea, in which it was set forth that William Holland, Merchant & Co., (a corporation,) and other corporations and individuals, filed their bill of complaint against the Great Western Wire Works, Sadie H. Filkins, Edward A. Filkins, John Holm, Charles B. Morrow and Edward B. Filkins, in which it was averred that a note held by John Holm, and numerous other notes similarly executed, were fraudulent and void because of the fact that there was no authority in the treasurer to execute the same, and asking the cancellation of the judgment heretofore entered on said note of John Holm, and that said notes be declared fraudulent and void and be canceled and surrendered, and that judgment entered upon the said notes so executed be vacated and annulled. A decree was entered, on the hearing, in accordance with the prayer of the bill, and these facts by the special plea are averred. It is therein further averred that the contract of guaranty was written on paper on which said fraudulent and void promissory note was written, without any other or different consideration than the consideration for the said promissory note, which promissory note was declared to be fraudulent and void and decreed to be canceled, and the plea further averred that said decree was in full force. To this special plea a demurrer was interposed and a stipulation entered into by the parties to the declaration, by which it was agreed that the said special plea of Jamieson should be adopted as the plea of Filkins, and that the plaintiff will stand by his demurrer to his special plea, and if the demurrer is overruled the judgment to go for the defendants, and that the defendants agree to stand by their special plea, and if the demurrer thereto is sustained the judgment shall be entered for the plaintiff and the plea of general issue be withdrawn. The trial court sustained the demurrer to the special plea and entered judgment for the plaintiff, to which exception was taken, and on appeal to the Appellate Court for the First District that judgment was reversed and judgment entered in the Appellate Court for the defendants, from which this appeal is prosecuted. It is insisted, first, by the appellant, that the decree set up in the plea by which the note on which the guaranty was endorsed and which was the basis of this actipn was not res judicata as to the defendant Jamieson, who was not a party thereto, and that that decree would be no bar to the prosecution of the suit on the guaranty endorsed on the note. The contention of appellee is, that, as there is no -debt or obligation due and owing to the appellant from the maker of the note, there is nothing due and owing to the plaintiff from the guarantors of the note; that as the maker of the note has been released and discharged by reason of the decree, and the guarantors have been deprived of their right of action over or subrogation as against the maker, there can be no liability as against the guarantors. The note of the Great Western Wire Works having been executed by one without authority to execute such a note, as found in the decree set up iu the plea, by that decree the note was declared for that reason fraudulent and void. To the proceeding by which this decree was so entered the appellant, John Holm, was a party, but the appellee, Egbert Jamieson, was not made a party thereto. We do not deem it necessary to enter into an extended discussion of the question as to the effect of the decree on parties and privies, and as to its being of no effect in binding" persons who were not parties to the proceeding. The material question in this case to be determined is, what is the effect of the contract entered into by the defendants in guaranteeing payment of the note in the language they did, and how is that guaranty affected by a decree declaring the note itself on which the guaranty was written, and the payment of which was so guaranteed, void. The language used in this guaranty, “I hereby guarantee the prompt payment of the within note,” by its terms fixed the time at which the payment was to be made as of the date of the maturity of the note, and if the payment is not made by the maker within the time fixed in the note there is a breach of the guaranty, on which a liability exists, regardless of the fact that no steps have been taken against the principal. (Gridley v. Capen, 72 Ill. 11; Gage v. Mechanics' Nat. Bank, 79 id. 62.) A different rule exists when a defense is made to a note by reason of payment or a proper set-off. In such case a defense exists to the guarantor to the same extent as to the maker. A guarantor may make a contract which is collateral or one which is independent. This guaranty was an absolute undertaking that the maker would pay the note when due, and by the default of the principal án immediate liability existed. The undertaking" of the guarantor was an independent contract, not resting" on a necessity to exhaust a remedy against the maker, but by the terms used in the guaranty it was an undertaking to every subsequent holder that the instrument gmaranteed was perfectly valid. By a guaranty of this character the guarantor undertakes to every subsequent holder that the names of the maker and previous endorsers are really in the handwriting of those to whom they respectively purport to belong; and this is carried to the extent that where a promise has been written upon the note itself, a person guaranteeing the payment of that note is bound, even though the names of prior parties, or some one of them, were in fact forged. (Veazie v. Willis, 6 Gray, 90.) And it has been held that where a party to a certificate of deposit transferred it to another who had no connection with and was ignorant of the circumstances attending" its origin, with the guaranty of the payment thereof, the guarantor was liable for the amount of the certificate, although it was void for matter dehors its face; and the court said the guaranty was, in effect, the representation that the instrument or claim was perfectly valid, as well as a promise to pay it. Purdy v. Peters, 35 Barb. 239. Under the terms of this declaration the guaranty of the payment of the note by the signers to that guaranty was a condition precedent to its purchase by the Central Trust and Savings Bank, and it is further averred that its acceptance by that bank was because of its reliance on the guaranty. The contract thus made by the guarantors of the note was a promise as to its legality, and a liability which was not dependent on the prosecution of a suit against the maker of the note nor dependent on the validity or legality of the note. If the liability.of a guarantor of commercial paper were dependent on extraneous circumstances not appearing on or suggested by the face of the instrument, and such guaranty might be rendered invalid because of fraud, forgery or other circumstances that might be set up as between the maker and the acceptor of the paper, it would practically destroy the value of commercial paper and unsettle business transactions, to the great detriment of public interests. The guaranty is a contract by which the validity of the instrument' is represented, and is binding on the guarantor to the full effect of such representation. Such being the case, the fact that the Western Wire Works, whose name was appended to the note, was placed there by the treasurer without authority, thereby rendering its execution, as against the maker, invalid, did not change the liability of the guarantor on his contract, because its effect,—the effect of the contract of the guarantor,—was to represent the note as valid and binding. Such liability existing by reason of the guaranty was not defeated because of the want of authority of the maker of the note to sign the name of the corporation. The decree entered declaring the note fraudulent and void because of the want of authority in the treasurer to sign the name of the corporation thereto did not constitute a defense in favor of the guarantors, and the plea was bad. The demurrer was properly sustained by the trial court. It was error in the Appellate Court to reverse the same. The judgment of the Superior Court of Cook county is affirmed and that of the Appellate Court for the First District is reversed. Judgment reversed.