Bohn Manufacturing Co. v. Reif

Winslow, J. The plaintiff seasonably objected to the admission of any evidence under the answer for the reason that it states no defense, and the correctness of the ruling upon "that objection is the first question for consideration. The •answer is set forth at length in the statement of the case. It is sufficient here to say that it alleges, in effect, (1) that prior .to the giving of the note in suit the defendants, to the knowl — 479 — ■edge of plaintiff, bad agreed to form a corporation for manufacturing lumber, and that on tbe 20th of September, 1895, they purchased of the plaintiff a sawmill on behalf of the projected corporation, and gave the note in suit, with the understanding that they were signing a note for the corporation, and that plaintiff received it with that understanding; (2) that the corporation was formed shortly afterwards, and ■engaged in manufacturing lumber in the mill, and, before maturity of the note, offered to pay the note in lumber, but that plaintiff declined to receive such lumber; (3) that the note was always considered a liability of the corporation by both plaintiff and defendants, and that in February, 1897, plaintiff made a written agreement with said corporation to take sufficient lumber to pay the note, which lumber the corporation was ready and willing to deliver, but that plaintiff neglected to take such lumber, and that in April following the corporation made a voluntary assignment; (4) that the plaintiff filed a verified claim with the assignee for the amount due on the note, treating the corporation as the maker thereof, ■and received a payment thereon from the assignee. The question presented is whether these allegations state •any defense. The note in suit, the execution of which is admitted, is a simple promissory note, signed by individuals, in the usual form, except that it contains an option allowing payment to be made in lumber at going rates. It is a plain, unambiguous, and complete document, (when construed with the accompanying agreement), which leaves nothing for explanation. It contains no doubtful or elliptical expressions, justifying the introduction of proof of surrounding facts and circumstances in order to comprehend its meaning. There is nothing uncertain, nothing to explain.' The first part of the ■answer seems to be formed upon the idéa that the legal effect of this plain and unambiguous personal obligation can be •changed so that it will become an obligation of a corporation not then in being, by proof that all the parties knew at the — 480 — time that a corporation was to be formed to operate the mill, and that there was an oral understanding that it was to be considered to be the note of such corporation, and not of the individuals who signed it. No mutual mistake is alleged, nor is there any attempt to state an equitable counterclaim for reformation of the written agreement; but the bald proposition seems to be that the effect of a plain and unambiguous written agreement may be changed by proof of an oral mental understanding of the parties, so that it shall mean something entirely different. We shall spend no time in showing that such evidence is inadmissible for any purpose under the pleading. The principle which forbids its admission is as old as the law itself, and is not open to discussion. It is therefore plain that this part of the answer states no defense. As to the remaining allegations of the answer, it seems quite doubtful upon what theory they were framed, or what defense they were supposed by the pleader to state. Apparently, it was thought that they might be construed to state either an agreement of novation of debtors, or an agreement of assumption of the debt by the corporation, to the knowledge of the plaintiff, by which the defendants became sureties only therefor, and were released by negligent failure of the plaintiff to collect the debt of the new principal. Certainly it cannot be argued that any other defense is stated, or even suggested, by this part of the answer. The theory that a novation of debtors is stated must at once be rejected. Novation of debtors means the substitution of one debtor for another. It can only take place by mutual agreement, to which the creditor, the old debtor, and the new debtor assent, and by which the old obligation is extinguished, and a new and valid obligation is created, and takes the place of the old one. Lynch v. Austin, 51 Wis. 287, 8 N. W. 129; Spycher v. Werner, 74 Wis. 456, 43 N. W. 161; Lane v. Magdeburg, 81 Wis. 344, 51 N. W. 562. While it is alleged in the answer that the new corporation agreed to pay the note, it is nowhere — 481 — alleged that such agreement was based -upon any consideration, so as to be binding on tbe corporation; nor is it alleged that the plaintiff ever assented to any discharge of the obligation of the defendants. It seems equally plain that the remaining supposed defense, namely, that the defendants had become sureties, and were discharged by neglect of the creditor to collect of the new principal when such collection could have been easily made, is not stated by the answer. If the new corporation purchased the mill of the defendants, and, as part of the consideration therefor, agreed to pay the debt to the plaintiff, it is probably true that the defendants thereby became, as between themselves and the corporation, surety only for the payment of the debt; and it may also be true that, in case the fact of such assumption was known to the plaintiff, it would owe to the defendants the duty of having no dealing with the new principal which would jeopardize the surety’s position. Gates v. Hughes, 44 Wis. 332; Bank v. Johnson, 111 Wis. 372, 87 N. W. 237. Conceding all this to be true, however, there are fatal deficiencies in the answer, in failing to state that the corporation ever assumed to pay the_ debt for a consideration of any kind, and also in failing to state that the plaintiff was ever informed that such an agreement had been made. In the absence of these facts, the plaintiff owed the defendants no duty even to attempt to collect its debt of the corporation, because, as to the plaintiff, the defendants were still principals, and bound to pay the debt at all'hazards. Neither the fact that the corporation agreed with plaintiff to discharge the note in lumber, nor the fact that the plaintiff presented a claim in the assignment proceedings, operates to relieve the defendants of liability. The plaintiff was entitled to get its pay from any one who was willing to pay, and its efforts to that end, in the absence of knowledge of the assumption of the debt, for a consideration, by the corporation, did not prejudice its rights against the original debtors. — 482 — The inevitable conclusion is that the answer states no defense, and that the objection to the reception of any evidence under it should have been sustained. The objection having been overruled, however, and evidence having been received under the answer, it is necessary to consider in what respect the situation was changed by the evidence. In one important respect the defendants’ position is improved by the evidence. It was shown to be a fact that on the 30th day of December, 1895, the defendants transferred the sawmill and machinery, which they had bought of the plaintiff, to the new corporation, and the corporation assumed and agreed to pay the note here in suit. As to the other essential fact, namely, knowledge on the part of the plaintiff of the assumption, the case is as bare of evidence as the answer is of allegation. The burden of proof of such fact is, of course, upon the defendants. No witness testified that the fact was ever communicated to any of the plaintiff’s officers. On the other hand, the defendant Anion Reif, the president and general manager of the corporation, testifies that he has no recollection of ever writing the plaintiff anything about the relations between the defendants and the new corporation. The executive officers of the plaintiff testify positively that they never had any knowledge of any agreement of assumption, and never consented to make, nor were asked to make, any substitution of debtors. It is true that there was considerable correspondence carried on by the plaintiff with the Reif Lumber & Manufacturing Company (which was the name of the new corporation) as to the payment of the note; and it is also true the plaintiff’s officers knew that some organization under this name was operating the mill, and that in February, 1897, the plaintiff agreed to accept lumber from this organization in discharge of the balance due. It is also true that the plaintiff proved the note as a claim against the corporation in the assignment proceedings. These facts seem- to be relied upon as showing knowledge of the assumption of the debt by the cor — 483 — poration. They are quite reasonably explained, however, by tbe plaintiffs officers, as simply resulting from tbe fact that tbe concern styling itself 'as tbe Reif Lumber & Manufacturing Company was running tbe business, and was willing to discharge tbe debt, and that tbe plaintiff was perfectly willing that they should do so. None of tbe facts are necessarily inconsistent with entire ignorance of tbe situation of tbe contract relations between tbe defendants and tbe company or association so styled. While these facts may have some tendency to prove knowledge of tbe fact of tbe assumption, they are entirely insufficient to justify a verdict to that effect, when standing alone, and met by absolute denials by tbe officers of tbe plaintiff of any such knowledge. The findings of tbe jury, therefore, which find that such knowledge in fact existed, and that there was an agreement for substitution of debtors, were not sustained by tbe evidence, and should have been set aside. While tbe exceptions reserved upon tbe trial and urged in this court were very numerous, and have not been treated in detail, it is believed that tbe foregoing general remarks are •entirely sufficient to cover all tbe material questions presented on tbe appeal. By the Court. — Judgment reversed and action remanded for a new trial.