Water Power Co. v. Brown

The opinion of the court was delivered by Brewer, J.: This is an action brought by two of four parties, liable upon negotiable paper against one of the others, in which the plaintiffs claim that they were simply sureties, and the defendant the principal debtor, and that they had been compelled to pay and take up the paper, and that they seek to recover from the principal debtor the amount which they had paid for its benefit. Verdict and judgment were in their favor, and defendant alleges error. The first question is, as to the sufficiency of the petition. It alleges the execution of the note by the various parties, that the defendant was in fact the principal debtor, and that the plaintiffs, though only sureties, were compelled to pay, and did pay and take up the note. The note, a copy of which is attached to the petition, reads as the joint promise of plaintiffs and C. C. Hutchinson & Co. to S. W. Campbell, cashier, and is indorsed, “Water Power company, by C. C. Hutchinson, president.” The petition further alleges, that thé note was thus prepared and signed by the three parties as apparently principals, and by the defendant as guarantor, for the reason that C. C. Hutchinson, the president, was not present when the same was given, and that he afterward signed the name of the company on the back of the paper, the same being simply a renewal of one before given by the company, with plaintiffs as sureties. We do not think this latter matter affects the sufficiency of the petition, or prevents inquiry into the true relations of the parties severally liable on the paper to each other. Whatever may be the rule as between them — 689 — and the holder, we understand that neither .the form of the paper, nor the time at which the several signatures were affixed, prevents parol evidence as to who between themselves is principal, and who simply surety, (Rose v. Madden, 1 Kas. 445.) The objection to the petition was properly overruled. In this connection we may remark, in reply to a criticism as to the scope of the inquiry permitted by the trial court, that where there have been several renewals of paper it is competent to go back to the original inception of the indebtedness and show who then was the beneficiary of the loan, and that changes in the form of the paper at these renewals do not prove any change in the relations inter .sese of the parties liable thereon. These changes, are subject to explanation, and are simply like other facts to be considered in determining who is in fact the principal debtor, and who simply sureties. And as to the general scope of the testimony in this case, we cannot say that it was beyond proper limits. Some particular matters we may notice hereafter. Defendant in its answer alleged that C. C. Hutchinson & Co. were the principal debtors, and that said Hutchinson & Co., to induce plaintiffs to sign as sureties, executed to them the following contract: “Hutchinson, Kansas, June 29, 1877. 8. W. Campbell, Cashier: This is to authorize you to hold in your possession the four thousand dollars of road bonds-belonging to us which you have; and in case we fail to pay the $3,000 note due you, then the said bonds are to be turned ■over to E. Wilcox and Brown & Bigger, of this place, to reimburse them in case they pay said note. If they do not pay said note, that the sáid bonds are to be returned to us. They however agree to renew with us the said note, so long as the bank shall be willing to do so. “C. C. Hutchinson & Co.” Plaintiffs, after paying the note, took the bonds, sold them, and applied the proceeds on their-claim. Defendant claims that this contract conclusively proves that C. C. Hutchinson & Co. were the principal debtors, and also that plaintiffs’ sole recourse in case they were compelled to — 690 — pay the note was on the bonds; that out of the bonds they were to reimburse themselves, and that therefore they were to look to them alone. It also contends that the court should have put this construction upon the contract as a matter of law, and not left it to the jury to determine its meaning. We cannot agree with counsel in these views. The contract does not say that the debt is the debt of Hutchinson & Co.; neither is there in its language anything inconsistent with the fact that the defendant was, as to all the parties to the paper, the principal debtor. There is nothing strange in one of several sureties being so much interested in the principal’s securing the loan as to offer his own property as collateral security to-the other sureties for the use of their credit, or to become himself an additional principal as to them. In this very case it appears that C. C. Hutchinson & Co. owned 497 out of a total of 500 shares in the capital stock of defendant. Such an interest in the defendant is ample reason for their personal promises to their co-sureties, and the pledge of their private property. Indeed, the line of demarkation between the real interests of defendant and C. C. Hutchinson & Co. is a little shadowybut whatever may be the reason therefor, a private arrangement between co-sureties for the distribution of liability inter sese, does not, unless expressly so stipulated, release the liability of the common principal to them all. Now this contract does not imply or suggest such a release. It would be hard to construe it as even making Hutchinson & Co. personally liable to plaintiffs in case of their payment of the note. It amounts to nothing more than a pledge of certain personal property belonging to Hutchinson & Co. Neither can we regard this contract as estopping plaintiffs from recourse upon the defendant, and for two reasons. It is no contract between plaintiffs and defendant, or to which the latter is a party, and does not purport any release of the latter. If it effects a release of anybody, it is of Hutchinson & Co., and from a liability which they may have assumed to plaintiffs to induce their signature. Again, we do not think the word “reimburse,” as used in this connection, has that — 691 — excluding sense which counsel would give to it. Among the definitions of the word given by Webster, are “to payback; to restore; to indemnify;” and the natural understanding of the expression would be, that to the extent of their value, the bonds were to indemnify plaintiffs against any payment which they might be compelled to make on the note. Suppose plaintiffs were compelled to pay but a-hundred dollars on the note, could it be contended that they were entitled-absolutely to the bonds, or that they had no interest in them because they had not paid the entire note? Such a contract must be construed in relation to the surrounding circumstances and the situation of the parties, and where words are used which may have two meanings, it is proper for the -court to submit as a question of fact to the jury to determine the meaning in which they were used by the parties. Under the circumstances of this case, we can see but one answer which the jury could fairly have returned, and that is the one they did. Counsel also complain that plaintiffs did not proceed to collect the bonds instead of selling them, and claim that negotiable paper, when put up as collateral, cannot be sold, but must be collected by the pledgee. But we think counsel overlook the distinction between bonds and other negotiable paper. Bonds have usually a long time to run, and -are bought and sold in the market like stocks. Mr. Edwards, in his work on Bailments, (2d ed., §222,) states the law thus: “Negotiable notes, bills of exchange, and-bonds issued by government or by private corporations, in a negotiable form, are usually pledged as collateral security, by a delivery of the instrument, so indorsed, where that is necessary, as to vest the title in the pledgee, and the circumstance that the title is in form transferred to the pledgee does not materially affect the contract of pledge. The pledgee takes the title in trust to sell the bonds, they being usually bought and sold like stocks, and to oolleot the negotiable notes or bills when they become due and apply the proceeds on the debt to secure which they were given.” It is very clear that stocks, when pledged as collateral, may — 692 — be sold — that being the only way to realize on them; and bonds are of so similar a character, that they are dealt with in the same manner when pledged as collateral. The plaintiffs therefore had a right to sell the bonds and apply the proceeds in satisfaction of the debt to secure which they were put up. It is objected, however, that they sold without giving notice. To this, two answers may be given. The defendant does not claim that the bonds belonged to or were pledged by it. If improperly sold, the owners can recover for any loss sustained thereby. Further, the court instructed the .jury, that if the bonds were not sold for their market value, they should give the defendant credit for that value. So that even if the bonds belonged to it, there is no room for complaint. We come now to that which is really the most serious question in the case, and that is the testimony admitted of declarations of the officers of the company made after the execution of the paper. These group themselves into three classes: first, statements of the president to one of the plaintiffs made after the maturity of the paper, and in requesting him to protect it; second, statements of the president and secretary to one who was an employe of the company and of Hutchinson & Co. as to the debts he should include in a list he was by them directed to prepare for use by them in an attempted sale of the property; third, statements made by W. E. Hutchinson while either secretary or president — and we are not certain which — in connection with efforts to work up a company to buy defendant’s property. As to the first, there can be no serious question. The statements were part of the res gestee; they were made by the president while negotiating concerning this paper. The fact that the conversation took place after the inception of the paper and while the parties were negotiating for a renewal or protection, makes it none the less a part of the res gestee. That paper was the subject of negotiation, and declarations concerning it during such negotiations were part of the res gestee. — 693 — With regard to the other two matters, these things should be noticed. They were not mere volunteer statements, made irrespective of any act and resting for their value simply on the fact of the declaration, but they accompanied certain acts which they qualified and explained. If, therefore, the acts themselves were competent testimony, the accompanying declarations also were. Now would not a list of the company’s debts made by the officers and managers be proper evidence that one included in such list was in fact a debt of the company? Again, both W. E. and C. C. Hutchinson were witnesses on the trial — the latter, it is true, testifying only by deposition, but the former was present on the witness stand. The attention of W. E. Hutchinson was called to the list and his declarations, and such explanations as he had to make were given. Now would not the reverse order of inquiry have been unquestionably proper, i. e., if he had on his direct examination testified that this was not the company’s debt, to have asked him if he had not used a list showing this to be one of the company’s debts, and so stated to parties to whom he had shown the list? This might have been simply imr peaching testimony, and given him an opportunity for denial or explanation. The opportunity he in fact had, and the explanation he desired to give, was given. Now even if the testimony was not strictly competent as direct and original evidence, was the order and manner of its admission such an error as compels a reversal? Again, when a party is not merely agent and officer, but substantially the owner and principal, and in fact the general manager, (as in this case C. C. H., the owner of 496 out of 500 shares,) courts may fairly open a wider door to the admission of the statéments of such party. Technically, he is not the party to the suit, the nominal defendant, but he is so nearly the real party in interest, that what he says comes almost up to an admission of the defendant. We would not ignore the distinction between corporation and stockholder, principal and agent, nor disregard the rule that the declara — 694 — tions of one, who is merely an agent, bind the principal only when made-pending the act in respect to which he is agent, or, as the phrase is, dum fervet opus; yet having regard to substance and real ownership, we are not prepared to hold that here there was such a disregard of the rule as compels us to reverse the judgment. (Durham v. C. C. & M. Co., 22 Kas. 232.) If an admission against interest is good against the party making it, an admission by the owner of 496 out. of 500 shares in a corporation binds nearly all the property interests represented by the corporation. Again, a corporation, like an individual, may ratify unauthorized acts of its agents. And how can such ratification be shown ? May it not be by evidence of the acts and statements of its directors, its managing officers, which imply and assert that the act is a company act, or adopted and recognized by it as such ? How can a corporation make a showing of its indebtedness except as such showing is made by its officers, and if the showing is made by them, is it not evidence against the corporation ? Here, a list of debts is prepared with the knowledge of a majority of the directors (for the two Hutchinsons made a majority), for the purpose of aiding in negotiating a sale and used in such negotiations. Would an entry ordered by.these two directors to be placed on the records of the corporation be stronger evidence than a list made under their direction and used by them ? We are aware that the suggestions we have made might not be appropriate in many cases, and where the relations of the parties, to the corporation were different from those of the Hutchinsons to the defendant, but in this case, taking all the circumstances together,'we cannot think the defendant suffered any substantial wrong by their admission. So far as the instructions are concerned, we think they fairly presented the law to the jury. We see none requiring special notice. We have examined this record with care, and. upon the whole case, we do not think any substantial error was committed to the prejudice of the plaintiff in error. The judgment will therefore be affirmed. All the Justices concurring.