Heyman v. Dooley

Robinson, J., delivered the opinion of the Court. This is an action upon the following contract of guaranty: “Baltimore, Md., July 29th, 1891. “We have this day sold to J. Heyman 500 cases No. 3 tomatoes — guarantee against swells and imperfec — 165 — tions — to be delivered on buyers’pavement in the month of Sept., 1891. Terms §150 cash, and— McAfee Bros. “We, the undersigned, hereby guarantee the fulfilment of the above contract.” “James Dooley, No. 846 Harford Avenue. K. Thalheimer, No. 1105 Broadway.” The original contract and the guaranty were written on the same paper, and were both delivered at the same time to the plaintiff, upon the faith of which he paid to McAfee Bros, the contract price for the tomatoes. McAfee Bros, failed however to deliver the tomatoes, and a few weeks after the time specified for the delivery of the same, they became insolvent, and made a general assignment of their property for the benefit of creditors. No notice of the default of McAfee Bros, was given by the plaintiff to the guarantors, and the main question is whether the failure to give such notice discharged the guaranty ? The amount involved is not large, but the question is one of considerable importance, affecting, as it does, the rights and liabilities of parties upon contracts of this kind, so often occurring in the ordinary transactions of life, and it is to be regretted that upon such a question there should be such a conflict of judicial opinion. This conflict has mainly arisen from a departure from the firmly settled rule of the common law in regard to contracts of guaranty, and the attempt to engraft upon such contracts, in a modified form it is true, the law of demand and notice by which the liability of an indorser of negotiable paper is governed. The liability of a guarantor, like that of an indorser, is contingent, it is true, upon the'default of the principal, but here the analogy ends. The liability of an indorser of a negotiable note does not become absolute unless there has been — 166 — a demand upon the maker, and due notice of non-payment by him has been given, not because the indorser has so stipulated in terms, hut it is a condition annexed to the contract by the commercial law. In the case of an absolute guaranty, however, there is no condition annexed to the contract itself, nor is any condition implied by law, requiring the guarantee to notify the guarantor of the default of the principal. On the contrary, his liability is governed by the same rules of law by which the ordinary liability of one who has broken his contract is determined. And this being so, if one guarantees in absolute terms the performance of a specific act or contract by another, his liability being commensurate with that of the principal, whatever proof is necessary to support an action against the principal will be sufficient in an action against the guarantor. And as demand upon the principal is not necessar}' to support an action against him for a breach of his contract, it is not necessary to allege or prove notice of demand upon and default of the principal to charge the guarantor. Having guaranteed absolutely and unconditionally that another shall perform a certain specified contract he must, at his peril, see that the contract is performed. The guarantee must know, it is true, of the default of the principal, and this default may be unknown to the guarantor. But it is not a fact which lies within the exclusive or peculiar knowledge of the guarantor. On the contrary, it is a fact in regard to which the guarantor had the easy and accessible means of information, either by inquiry of the guarantee, or of the principal himself. And having undertaken that the specific contract shall he performed, and the guarantee having accepted and acted upon the faith of the undertaking, it is the duty of the guarantor to see that the contract has been performed; and this being so, there is no obligation, legal or moral, on the part of the guarantee to inform the guarantor of a fact which — 167 — the latter having the means of knowledge was himself hound to know. And such was the well settled rule of the common law. As far back as Somersall vs. Barneby, Croke Jac., 287, where the promise was to save harmless the plaintiff from all debts and liabilities that he might incur at the request of the defendant’s son, notice was held to be unnecessary, because the defendant might have obtained the information from the son if he desired it. And in Brookbank vs. Taylor, Cro. Jac., 685, where the promise was to pay the rent of a farm, if the tenant did not pay it, notice of the default of the tenant was held to be unnecessary, and for the reason that the promisor was bound to ascertain whether the rent had been paid. And in 3 Comyn’s Dig., title Pleading, and 16 Viner’s Abr., Notice, and Hodsden vs. Harridge, 2 Wms. Saund., 62 note, and in fact in all the standard authorities, the rule is stated that if an act is to be done by a third person who is known, notice of his default is unnecessary. And such is the uniform current of English decisions. In the later case of Bradbury vs. Morgan, 1 Hurl. & C., 249, where it was alleged that the defendant’s testator, requested the plaintiff to give credit to a third person and promised to guarantee the running balance of his account, the declaration was held to be good, although it did not aver acceptance and notice to the guarantor. And in Vyse vs. Wakefield, 6 Mees. & Welsby, 452, the law as to notice is summed up by Lord Abinoer as follows:— “The rule to be collected from the cases seems to be this, that where a party stipulates to do a certain thing in a ■certain specified event, which may become known to him, or with which he can make himself acquainted, he is not entitled to any notice, unless he stipulates for it; but when it is to do a thing which lies within the peculiar knowledge of the opposite party, then notice ought to be given.” And Parke, B., added that “when a specific act is to be done by a third party named, no notice is ne — 168 — cessary. ” Now in this country it has been held by Courts of high authority, that where the guaranty is by letter for future advances or contingent sales, to bind the guarantor, notice must be given not only of the acceptance of the guaranty, but also of the demand upon and notice of non-payment by the principal debtor. In Douglass, et al. vs. Reynolds, et al., 7 Peters, 113, where the defendants agreed by letter to become responsible for acceptances or advances in money to be made to the debtor, not exceeding eight thousand dollars, the Supreme Court held that, to charge the guarantors, it was necessary to prove notice to them that the guaranty had been accepted; and further that demand had been made on the principal and notice of his default had been given within a reasonable time. Where a letter of credit is given, notice of its acceptance was necessary, for the reason, says Mr. Justice Story, “it may regulate in a great measure his course of conduct and his exercise of vigilance in regard to the party in whose favor it is given. And notice of demand upon and non-payment by the principal, was necessary, for the reason that the guarantors are not to be held to any length of indulgence of credit which the creditors may choose; but have a right to insist that the risk of their responsibility shall be fixed and terminated within a reasonable time after the debt has become due.” When the case came before the Court a second time, the rule as to notice of the default was modified, and the failure to give such notice was held to be a matter of defence, and that any loss or damage occasioned by the omission to give notice might be relied on as an entire or partial defence to the action. As thus modified, the rule has been followed in some States, while Courts in other States have rejected it as being unsupported on principle, and against the settled rule of the common law in regard to contracts of guaranty. But be this as it may, we are not dealing with a — 169 — contract of guaranty for future advances, and we have referred to Douglass vs. Reynolds, and the reasons upon which the case was decided, because it seems to be the foundation on which some Courts have extended the rule as to notice of the default of the principal, to every contract of guaranty however absolute and unqualified may he its terms. It would be a difficult, and in fact we may safely say an impossible, task to attempt to reconcile the principles by which these cases are supposed to he governed. And without considering them at length it is sufficient to say that the better doctrine, and that which seems to be the best sustained on reason and authority, seems to be that where one guarantees in absolute terms the payment of a specific debt, or the performance of a specific contract, the guarantor must at his peril see that the debt is paid or the contract is performed, and that there is no obligation upon the guarantee to give notice of the default of the principal. This unquestionably is the rule of the common law, and one adopted by the best considered cases in this country. Nowhere has this rule been more strictly adhered to than in this State. In Caton vs. Shaw and Tiffany, 2 H. & G., 14, where F. applied to S. and T. for a loan of five hundred dollars, which was refused without security, and the defendants afterwards wrote to S. and T., saying “Mr. F. tells me that he. is about to borrow of you five hundred dollars and wishes me to state I will become his eventual security for payment, this I am willing to do, 1 have found him punctual on similar occasions;” the Court held this an absolute guaranty; no notice of its acceptance was necessary. In no case has this Court ever held in an action upon an absolute guaranty, complete in its terms, that notice of the default of the principal was necessary to charge the guarantor. On the contrary in Hutton vs. Padgett, et al., 26 Md., 231; Mitchell vs. McCleary, 42 Md., 374, and Boyd and — 170 — Ricketts vs. Snyder, 49 Md., 344, the rule in Caton vs. Shaw and Tiffany has been recognized and approved. It is, it seems to us, a safe and sound rule, and one of easy and practical application. By it the rights and liabilities of the parties are determined by the terms of the contract itself, and not by conditions imported into it by construction of law involving questions whether notice of the default of the principal was given, and if so, whether it was given within a reasonable time, or whether the failure to give such notice occasioned any loss or damage to the guarantors, and, if so, the extent of such loss. It says to one who undertakes to guarantee in absolute terms the performance of a contract by another that he must at his peril see that the contract is performed, and if not performed by the principal, there is no obligation in the guarantee to give notice of such default unless the guaranty so stipulates. Now, in the case before us McAfee Bros, agreed to sell and deliver to the plaintiff a certain number of cases of tomatoes to be delivered within a certain specified time, and the defendants guaranteed the performance of this contract, and upon the faith of the guaranty, the plaintiff paid to McAfee Bros, the contract price of the tomatoes. It was the duty of the defendants themselves to see that the contract was performed, and if it was not performed by reason of the default of McAfee Bros., the defendants are liable for a breach of the guaranty. But then it is said there is no consideration to support the guaranty — that there is no consideration because the price to he paid for the tomatoes is not stated in the original contract. But the proof shows what was the contract price, and further that it was paid by the plaintiff to McAfee Bros. Now it can hardly be necessary to say that the agreement to sell and deliver the tomatoes within a specified — 171 — time, and the payment by the plaintiff of the contract price of the thing sold constitutes in law a consideration. (Decided 14th March, 1893.) And, if so, if the original contract was founded upon a good consideration, and at or before the guaranty was given, the plaintiff upon the faith of it, paid to McAfee Bros, the price agreed upon for the tomatoes, then the consideration of the original contract is a sufficient consideration to support the guaranty. Nabb vs. Koontz, 11 Md., 283. In all cases where the guaranty is for an indefinite sum of money, or for goods to he sold to the principal debtor, or the performance of a contract by another, parol evidence is necessary and admissible to prove the amount of the debt incurred, or the damage sustained. The. cases of Frank vs. Miller, 38 Md., 450, and Deutsch, et al. vs. Bond, 46 Md., 169, have no hearing whatever on this point. In the latter case the alleged guaranty was not attached to, or endorsed on, or otherwise hy direct reference on its face made part of the contract to which it was supposed to refer. This being so, and there being no considerations on the face of the guaranty, express or implied, parol evidence was inadmissible to prove the original contract. But such is not the case here. On the contrary, the guaranty is attached to the contract, and, as thus attached, it was delivered to the plaintiff, and upon the faith of it, he paid for the tomatoes. It follows, therefore, from what we have said, that tlie judgment must he reversed, and new trial awarded. Judgment reversed, and new trial awarded.