Kentucky Live Stock Breeders Ass'n v. Miller

Opinion of the court by JUDGE O’REAR Reversing. To induce the holding of the annual fair of the Kentucky Live Stock Breeders’ Association at or near the city of Owensboro for the year 1903, certain persons of that community gave to appellant association a writing obligating the subscribers to make up any loss that might be sustained by the association. The paper, omitting signatures, is as follows: “The Kentucky State Fair to be held by the Kentucky Live Stock Breeders’ Association during the week beginning September —, 1903. For the purpose of having the above described fair in or near the city of Owensboro, and of providing a fund- to cover possible loss in giving said fair, the undersigned hereby subscribe the sums set. opposite their names on condition that not less than-are subscribed. The loss, if any, to be. divided among the subscribers to the fund in proportion that each subscription bears to the total amount subscribed.” This suit was brought by the Kentucky Live Stock Breeders’ Association, and by the Citizens’ National Bank, which — 396 — bad advanced money to the association upon assignment to it of the obligation first quoted, and against all the subscribers save two or three, one of whom was alleged to be dead and the other two insolvent. The petition setting out the interest and benefit to the subscribers, defendants-, by the holding of the State fair at Owensboro, charged that it was located and held at that point on the faith of the paper-sued on, and that, as a result, the association had disbursed and expended in holding the fair the sum of $83,420.78, while its receipts had been but $21,594.49, leaving a deficit of $11,-,820.29. It was averred that some of the subscribers were corporations, and others trading firms, whose subscriptions were being denied or questioned because not within the scope of their charter privileges or partnership enterprises; that others were insolvent; that at least one was claiming that he had not in fact signed nor authorized the signing of the agreement. Plaintiffs asked a reference to the commissioner, and the adjustment of the several liabilities of the subscribers,- and for judgment against each in the pro rata sum so found against him. A demurrer was sustained to the petition as amended, and the action was dismissed by the court. In an opinion delivered by the- learned chancellor who sat in the case it is disclosed that the court construed the writing sued upon to be a contract of indemnity against loss, several in nature, upon which no cause of action could be based until! the obligee had actually sustained loss, and had paid it. The petition disclosing that some part of the loss claimed was represented by the debt it owed the bank for borrowed money, and other parts- by unpaid bills or accounts against the association, the trial court was of the opinion, and) so held, that there was in fact no loss, inasmuch as it had1 not been definitely ascertained and1 actually paid. It was also thought — 397 — by the trial court that a joint action in equity could not be maintained upon the obligation. A very able and interesting discussion has been indulged by' counsel concerning the nature of the obligation — whether it is a guaranty, a promise to pay, or an indemnity. It seems to be conceded that, if it be a guaranty or promise to pay in the first instance, it is not necessary to show that the obligee had actually paid the liabilities incurred. On the other hand, it may be assumed that upon a contract of indemnity against loss the liability of the indemnitor is not complete till the indemnitee has sustained the loss, which includes its payment. Without tracing the lines of distinction between the classes of obligation, we come at once to determine the' meaning of the words used by the parties to this agreement. The word “loss” is used twice in the paper. A fund is to be provided by the subscribers “to cover possible loss in giving said fair,” and “the loss, if any, to be divided among the subscribers to the fund in proportion that each subscription bears to the total amount subscribed.” It is the presence of this word “loss?’ that alone suggests the. idea of indemnity as determining the character of the paper. In seeking the meaning of the term, as intended by the parties, the etymology of the word will not be exclusively studied, but rather the situation and surroundings of the contracting persons. The obligors desired .the appellant association to hold the State fair at the city of, Owensboro in order to draw to that city the large1 and unusual crowds which it ivas believed the event would attract. These crowds were expected to expend considerable sums of money in the city, by which the merchants, street railway, transfer companies, and other business concerns anticipated unusual profits and increase of income and business. All of the subscribers are alleged to have belonged to these classes — merchants and trading partnerships and corporations, and trans — 398 — fer and street railway companies doing business in Owensboro, Ky. On the other hand, the breeders’ association evidently had misgiving's as to the probability of its receipts from holding the fair at that point paying its expenses. To the extent that they did fail, there would be a deficit. This deficit, in business parlance, represented “a loss.” To induce the breeders’ association to hold its fair at Owensboro, the subscribers agreed that they, to the extent of their subscriptions, would take the chance of there being a deficit of income over expenditures. So, they agreed “to provide a fund to cover possible loss;” that is, to cover the loss that might •occur. Their subscriptions were not alone to pay back to the association money it paid out in conducting the fair, over •'and above its income from the fair, but to provide a fund from which the “possible loss” was to be paid in the first instance, if need be. It was not contemplated by the parties that the breeders’ association should have to suffer judgments, and sequestration of its property, or1 liquidation of its affairs, destruction of its credit, annihilation of its corporate existence, or total bankruptcy as a condition precedent to the liability of the subscribers on the obligation sued on. Just the opposite must have been in mind as if the association should fail to make expenses by locating and holding its fair at Owensboro, it was intended that not it, but the subscribers, to the extent indicated, should carry all. the burden of the failure. The “fund” to be provided under the agreement was the aggregate of the subscriptions. It was not necessary, nor1 was it contemplated, that the subscriptions were to be paid in advance. On the contrary, the “loss”— that is, the deficit of receipts apportioned to cost of conducting the fair — was to be made up by pro rata assessments on the subscriptions. The expression, “the loss, if any, to be divided among the subscribers to the fund in proportion — 399 — that each subscription bears to the total amount subscribed,” means nothing else. There is a class of liabilities that do not entail loss unless and until they are paid. Contingent and inchoate liability for the debts or doings of another may be so classed. But where one in his own business had expended more than the business had produced, whether the expenditure represented capital invested, or borrowed means, or property and labor bought upon the credit of the concern, the deficit is in fact and in commercial understanding a loss. If appellant association had borrowed all the money it expended, it would be no more a loss than it is now. Or if it had been settled by an assessment upon its stockholders, it would be the same thing. The fact is, the very contingency contemplated by the parties as a “possible” result of the venture has occurred. It follows that the undertaking of the subscribers to bear the failure to the extent indicated has become absolute. The next question is, what is the extent of each subscriber’s liability ? The paper in terms limits it to a pro rata proportion of the total amount subscribed. No one guaranties the solvency of another, or that any other subscription-will be paid. The appellant association risked the solvency of each subscriber, and, where any are insolvent, the association will bear that loss. The question whether all- whose names appear on the paper as subscribers are in fact bound thereon is not yet fully presented.- Some who are apparently bound may be able to show that they were never bound, because, for example, they did not execute the paper. Others-may be held never to have been bound, because their undertaking was contrary to the purposes of their charter, as in cases of certain corporations, and the act would be, therefore, ultra vires. On what may, on the face, appear an ineffectual attempt to bind a trading partnership or corporation, may be — 400 — shown by acts of estoppel to be binding. The street railway corporation, for example, may not have had authority generally to become a party to a scheme to raise a fund to indemnify some other corporation against loss in the conduct of the latter’s business. Yet the street railway company could make a valid contract to increase its own business. If it induced the fair company to locate at a certain point where the railway company would get a monopoly, practically, of carrying to and from the fair grounds all. the visitors attending the fair, and it got all the benefits obtainable under its contract, there is ample authority and undoubted principle for holding it liable on its undertaking; for it is not every ultra vires undertaking that is unenforceable. So, where a trading partnership signed the paper, it may or may not be invalid. For, although beyond the original scope of the partnership enterprise, still, if both or all the partners agreed to it, and ratified it, and the association has been induced to act upon it, as between the copartners and the association it ought to be binding, whether or not as a partnership liability, as a personal one against the individual members. From what has been saidi, llie trial court can fix the liability or determine the nonliability of the putative subscribers. Those who never became- bound are not subscribers, and the pro rata liability of those who are bound will be measured without reference to those who escape because they were never bound. Under the Civil Code of Practice (section 26) persons severally liable upon the same contract may be included in the same action at the plaintiff's option. The nature of this case presents circumstances of great complication, and other difficulties in the way of adequate relief at law, sufficiently indicated by the facts above recited, that makes it more appropriate that it should be determined and — 401 — the relief apportioned and applied, by a. court of equity. Pomeroy’s Equity, secs. 1420, 1421; O’Connor v. Henderson Bridge Co., 95 Ky., 642, 16 R., 244, 27 S. W., 251. Judgment reversed, and cause remanded, with directions to overrule the demurrer to tlie petition as amended, and for further proceedings not inconsistent herewith.