Greer v. Bush

Chalmers, J., delivered the opinion of the court. Talbot Hibbler, a merchant at West Point in this State, made arrangements to procure advances during the year, to the amount of three thousand dollars, from Bush, Yates & Co., a firm composed of A. H. Bush and others, cotton factors of Mobile, Alabama, the money advanced to be invested in cotton which was to be shipped for sale to the Mobile firm. The contract was evidenced by a written note for the amount specified, made by Hibbler, dated March 25, 1876, due Dec. 1 thereafter, payable to J. H. Greer or order, and by Greer indorsed to the order of Bush, Yates & Co. Greer was the uncle of Hibbler, and an accommodation indorser of the note. The note was further protected by a trust-deed executed by Hibbler on real and personal property. Hibbler is now a discharged bankrupt, and this suit is against Greer, the in-dorser, to recover an alleged balance of eight hundred and seventy-nine dollars, due on the note. It will be borne in mind that the note represented not any amount actually loaned upon it at the date of its execution, but sums to be thereafter advanced, and consequently no recovery can be had upon it except to the extent of such advances. One month after its execution, one of the members of the firm of Bush, Yates & Co. died, and a new firm was formed under the same name with a new member. All the assets of the old firm were transferred to, and all its liabilities assumed by, the new one. A few hundred dollars only had been advanced upon the note at the date of the change in the firm, but the full amount was subsequently [585] advanced; and it being admitted that the payments afterwards made by Hibbler were sufficient to extinguish the advances made by the old firm, but insufficient to liquidate those made by the new one, the first question presented by the record is whether Greer, the indorser, is liable for these latter advances, or whether his liability ceased with the dissolution of the old firm. The contract of a surety is always stricti juris, and where it takes the shape of a guaranty of future advances, the authorities are uniformly to the effect that, in the absence of something in the contract to indicate that it is assignable, the guarantor is not liable if the advances are made by any other than him with whom he entered into the contract. Hence it is held that where a bond of indemnity for the future conduct of another or a letter of credit for future advances has been given, any change in the firm to which it is given will vitiate the claim for subsequent misconduct or advances thereafter made. In such case, the guarantor may well say that he relied upon the outgoing partner for a supervisory control of the conduct indemnified or of the advances to be made, and that he trusted to the business skill of such outgoing partner in restraining, or to his friendship in reporting,.any conduct on the part of the principal that would endanger his interest as surety; and therefore, to all claims by the new firm that they are protected by his indemnity, he may successfully respond in hcea foedera non veni. Story Part. §§ 245, 246, et seq.; Collyer Part. 443, 444; Brandt on Suretyship & Guaranty, §§ 97-99; Parsons Part. 381, 332. Such is the law where there is nothing in the contract of indemnity to indicate that it is assignable; but, on the contrary, if the contract shows that it was intended to be made assignable, it will justify all to whom it may properly come in trusting to and relying upon it. In the present case, the guaranty took the shape of a promissory note, payable to order. Is this a sufficient indication that the guarantor (indorser) undertook to be responsible to any and all persons who might, upon the faith of that note when properly transferred to them, make to Hibbler the advances desired by him ? It was so ruled, and, we think, cor [586] rectly in the only case directly in point that we have been able to find. Pease v. Hirst, 10 B. & C. 122. It is obvious that, if the guarantor puts his obligation into the form of negotiable commercial paper absolute upon its face, he subjects himself to the hazard of its passing into the hands of innocent holders for value, who would have the right to hold him, not only upon a contract of indemnity for such sums as had in fact been advanced or might thereafter be advanced, but also for the absolute payment of the entire sum specified. It seems equally clear that, if under such circumstances the paper comes into the hands of a person who knew its true character, he may receive it with the same rights as the original holder. By giving it a negotiable character, the makers have, in effect, said that it may be assigned. But what is there to assign if no advances have been made or can thereafter be made upon it ? As we cannot assume that the parties intended a purposeless act, we must conclude that the object of putting the contract in such shape was to authorize its assignment with the same right in the assignee as belonged to the original holder; namely, that of thereafter advancing upon it up to the sum specified. We conclude, therefore, that the indorser, in this instance, was liable as well for the advances made by the new firm as for those made by the original one. It is objected that in point of fact he was made liable for dealings far in excess of the three thousand dollars specified in the note, the amount recovered being a balance due upon dealings aggregating more than twelve thousand dollars, many of the debits being upon transactions which took place after the maturity of the note, and after it had been protested for non-payment. The money received by Hibbler was advanced from time to time in such sums as demanded, and, as received, was invested in cotton, which wrhen bought was shipped to the Mobile firm. Cotton was frequently bought on margin, and the full amount of its value drawn for as shipped, credit being given by the factors for the amount which the cotton brought when resold in the Mobile market. That the aggregate sum of these dealings exceeded the amount stipulated in the note did not affect the liability to a recovery for the balance due at the maturity of the note, provided such balance did not ex587 eeed three thousand dollars. Such was the course of dealing anticipated between the parties, it being understood that a bale of cotton should be forwarded for every ten dollars advanced, or three hundred bales in the aggregate, the total value of which would, of course, amount to twelve or fifteen thousand dollars, and it was the balance which might be found due upon these transactions up to three thousand dollars that Greer was responsible for. The account, as sued upon, embraces dealings between Hibbler and the plaintiffs after the maturity of the note, and is, in that regard, erroneous. It was not competent for the factors to continue indefinitely their dealings with the principal and hold the guarantor liable for any and all advances which might be made at any time before the note would become barred by the Statute of Limitations. The contract, having taken the shape of the indorsement of a promissory note due at a certain date, must be held as limiting the liability of the indorser for all sums advanced up to that date or for the balance then due, and not as binding him to pay whatever might become due upon dealings indefinitely prolonged. A restatement of the account, however, upon this basis does not affect the result, the balance due at the maturity of the note being about the same as at the final close of the account. Part of the cotton shipped by Hibbler, was eleven bales raised upon his own plantation, the entire crop to be grown upon said plantation being embraced in the mortgage given to protect the note. This cotton was mingled with that which was bought on margins and was drawn against in excess of its value at the time of its shipment, so that practically the plaintiffs obtained no benefit from its reception, so far as a liquidation of the amount represented by the note was concerned. It is nevertheless insisted that the receipt of this cotton operated as a payment pro tanto upon the note, so far as Greer, the in-dorser, was concerned. We do not think so. It is true that the delivery of mortgaged property ordinarily operates eo in-stanti as a payment of the mortgage debt to the extent of its value; but in this instance the creditors, misled by the principal debtor, and ignorant that they were receiving mortgaged property, paid to him, at the time of its reception, [588] its full value in money. Certainly, then, Kibbler cannot claim that the delivery of the cotton operated as a payment on the note, and while his surety might do so, if there had been collusion or even knowledge upon the part of the creditors, he cannot in the absence of such showing. If he is damnified by the transaction, it is by the act of him for whose conduct he had bound himself. To permit him now to claim credit for property, thus unwittingly paid for by the creditors in consequence of the concealment or omission of his principal, would be to allow the perpetration of a fraud upon those who were in no respect in default. The right of Greer to claim the benefit of the security afforded by the mortgage given by his principal was a mere equity, and he cannot be allowed to assert it against the creditors under circumstances where their equity is as strong as his, and where to allow him to assert it operates a fraud upon them. The question of variance discussed by counsel cannot be noticed, because no objection was made before verdict. We do not consider the instruction asked by the defendant and refused, as sufficiently admonishing the court or the plaintiffs that the question of variance between the declaration and proof was intended to be raised. Such objections should be explicitly and distinctly made, in order that the court may determine whether it is a proper case for amendment. Judgment affirmed.