Louisville Manufacturing Co. v. Welch

Mr. Justice NELSON delivered the opinion of the court. This is a writ of error to the Circuit Court held by the ■district judge in and for the District of Louisiana. The suit was brought upon the following letter of credit signed by the defendant, and dated New Orleans, 3 May, 1845: * I hereby guaranty the payment of any purchases of bagging and rope which Thomas Barrett may have occasion to make between this and the 1st of December next.” It appeared that this letter of credit, soon after it was given, was deposited by Barrett with a house in-New Orleans, who, ■as the factors of the plaintiffs, sold, at different periods, within the time prescribed, several parcels of bagging and rope, and delivered the same to Barrett on the faith of it, giving the usual credit on the sales of goods of this description, and taking his acceptances for the price, payable at the expiration of the credit to the order of the plaintiffs. There were four different parcels sold at different times, and the usual credit given, on each of the sales, extended beyond the 1st of December, the time mentioned in the guaranty. No notice was given to the defendant by the. house in New Orleans, nor by the plaintiffs, of the acceptance of his letter of credit, or of the sales made to Barrett on the faith of it. Shortly after the maturity of the first acceptance, which was •in. the latter part of December, the clerk of the New Orleans house called on the defendant, and gave him notice the acceptance was unpaid, and that he would be looked to for payment; and also for the payment of the acceptances then running to maturity, if unpaid when they fell due. The defendant desired the clérk to obtain all he could from Barrett towárds the payment. Subsequently, and after all the acceptances had become due and were dishonored, the clerk hád •a second interview with him, when he expressed a wish that he might not be pressed for the payment immediately, observing, that he did not wish to interpose any obstacle to the collection of the demand; that he had not the means of paying the amount then conveniently; but would have them at the coming in- of the next cotton crop, •At a still later interview, the defendant expressed the opinion, that his letter restricted the time of cr.edit to' Barrett for the goods to be purchased to the 1st of December, stating that, *473 under this impression, he had delivered up to him certain securities at the expiration of the period of the credit given, which he held as an indemnity, Barrett assuring him at the time that the demand had been settled. The evidence being closed, the following instructions were, among others, prayed for, on the part of the plaintiff, and refused. 1. That the giving a reasonable credit to Barrett on the sales was no violation of the rights of the defendant; and that the credits in this case were reasonable. 2. That the mistake of the defendant as to the fact of the demand having been paid did not release his obligation. And the court gave, among others, the following instructions : — 1. That after the bagging and rope had been furnished bj the plaintiffs, they should have given immediate notice to. the defendant of the amount furnished, and the sum of money for which they looked to him for payment. 2. That the credit to Barrett should not have extended beyond the term mentioned in the said letter of credit, to wit, the 1st of December. The jury found a verdict for the defendant. I. We are of opinion, that the court below erred in the construction given to the terms of the letter of credit. It guarantied the payment of any purchases of bagging and rope that Barrett might have occasion to make between its date and the 1st of December. The limitation is as to the time within which the purchases were to be made ; not as to the time of the credit to be given to the purchaser. As credit was contemplated, indeed was the special object of the guaranty, that which was given upon the. sales of goods of this description in the ordinary course of trade must have been intended. And, for aught that appears in the case, this was the credit given. The time for which credit was to be given upon the purchases is left indefinite in the instrument, and must receive a reasonable interpretation; one within the contemplation of the parties ; and that obviously is as we have stated. Samuell v. Howarth, 3 Mer. 272. There might be some doubt upon the language used by the court below on this point, whether, in charging that the credit to Barrett should not have been extended beyond the 1st of December, it was not intended to refer to the purchases of the goods, and not to the period of credit given. But when taken in connection with the seventh instruction prayed for and refused, all ambiguity is removed. Besides, no question appears to have been raised, that the *474 price was claimed for any goods sold beyond the limit of the guaranty. II. We are also of opinion, that the court erred in the instruction, that, after the bagging and rope had been, furnished t.p Barrett, the plaintiffs should have given immediate notice to the defendant of the amount furnished, and of the sum of money for which they looked to him for payment. The rule as laid down by this court in Douglass and others v. Reynolds and others (7 Peters, 126) is, that, in a- letter of .credit of this description, all that is required is that, when ail the transactions between the parties under the guaranty a:< e closed, notice of .the amount for which the guarantor is held responsible should, within a reasonable time afterwards, be cornmunicated to him. What, is a reasonable time must depend upon the circumstances of each particular case, and is generally a question, of fact for the jury to determine. Lawrence v. McCalmont et al., 2 Howard, 426. It was also ruled in that case, that, when the debt fell due against the principal debtor, a demand of payment should be made, and in case of non-payment by him, that notice of such demand should be given in a reasonable time to the guarantor, and that otherwise he would be discharged from his liability. ■ When the case came before the court a second time, and which is reported in 12 Peters, 497, the principle here" stated was somewhat'qualified, the court holding that, in case of the insolvency of the principal debtors, and total inability to respond to the surety before the debt fell due, the demand and notice might be dispensed with. The court refers to a class of cases both in England and in ■this country, drawing the distinction between the liability assumed by a guarantor, and that of the drawers or indorser of commercial papers; the former being held liable on his guaranty in .the absence of any demand and notice, unless some damA age or loss had been sustained by reason of the neglect; while, ■in order to charge the latter, strict demand and notice must be •shown according to the law merchant The authorities are very full on this, head, and are founded mpon sound and substantial reasons. 8 East, 242; 2 Faunt. 206; 3 B. & Cr. 439, 447; 1 Ib. 10 ; 5 M. & S. 62; 5 M. & Gr. 559 ; 9 S. & R. 198; 1 Story, 22, 35, 36; Chitty on Bills, 324; Chitty, jr. 733; 3 Kent, Com. 123. When this case was before the court the second time, one of the grounds' upon which a new trial was ordered was the refusal of the court below to instruct the jury, that, if they found the principal debtors, at or previous to the time the payment of *475 the debt fell due, insolvent, the omission to demand paymertt and give notice to the guarantor did not discharge him from his liability. The rule, therefore, above stated, was not only laid down very distinctly, but applied in that case in the final disposition of it by the court. The same doctrine is very fully stated and enforced by MrJustice Story in Wilder v. Savage, already referred to; and also laid down in his work on Promissory Notes (§ 485), and by Chancellor Kent in his Commentaries (Vol. III. p. 123.) The same course of reasoning and authority would seem to be equally applicable to the notice required of the goods furnished or credits given under the guaranty, and on the faith of it at the close of the transactions, and of the amount for which the party intended to look to the guarantor for payment, so as to advise him of the extent of his liabilities: We perceive no reason why the rule in respect to notice should be more strict in thi's stage of the dealings of the parties, than at the time when the debt becomes due; or that the guarantor should be discharged for the delay in giving this notice, when no loss or damage has resulted to him thereby. He has already had notice of the acceptance' of the guaranty, and of the intention of the party to act under it. The rule requiring this notice within a reasonable time after the acceptánce is absolute and imperative in this court, according to all the cases ; it is deemed essential to an inception of the contract; he isj therefore,' advised of his accruing liabilities upon the guaranty, and may very well anticipate, or be charged with notice of, an amount of indebtedness to the extent of the credit pledged. Still, it may be reasonable that he should be advised • of the actual amount of liability, when- the transactions .are closed; and, if any loss happens in consequence of the omission to give the nbtice within, a reasonable time, the fault is attributable to the laches of 'the creditor, and must fall on him. Upon this view, the doctrine governing the question of notice at the close of the dealings on! the faith of the guaranty, and also at the subsequent period when the indebtedness under it becomes due, is consistent and reconcilable, and places the duty of the creditor on the one hand, and the obligation of the guarantor on the other, in both instances, upon those general principles which have always been applied to contracts, of this description, and preserves and maintains throughout the settled distinction on the subject of. notice between the liability assumed by the guarantor, and that of the drawer or indorser of commercial paper. ■ This intermediate notice required in this court does not appear to be a necessary step to charge the guarantor according *476 to the English cases, as notice of acceptance and intention to. act upon the guaranty is regarded as sufficient, until the debt becomes due and payable; then reasonable notice of the default of the principal to pay must be given, as otherwise, if loss or damage should happen in consequence of the omission, it would operate as a discharge to that extent. Returning, then, to the case in hand, we think the court erred in charging the-jury in respect to this intermediate notice of the goods furnished, and of the sum for which the plaintiffs intended to look to the-defendant for. payment, in holding that it should be given immediately upon the closing of the dealings under the guaranty; as reasonable notice, in the cases in which it is required, is all the diligence that is essential in order to comply with the rule. According to the instruction, the jury must have understood that notice to charge the defendant should- have been as strict as in the case of a drawer or indorser of a bill of exchange. The eighth, instruction refused, to wit, that the mistake of the defendant as to the fact of the debt having been paid did not discharge him, is not very intelligible ; but, as a proposition standing alone, should have been given or explained. The refusal implied that the mistake operated to discharge the defendant, which we presume was not intended. The instruction is incautiously drawn, and was, doubtless,- connected with some other matters that have not been brought into it. It was probably connected with the facts embodied in the -first instruction, in which the court was requested to charge that the admission of the defendant to the clerk that he had given up certain papers to Barrett which would have indemnified him, on his assurance that the debt had been settled, was an acknowledgment of due notice that the plaintiffs had sold the goods on the faith of the letter of credit. This instruction was properly refused, as the inference sought to be drawn from the statement was not a matter of law. At most, it could only be a question for the jury, accompanied with proper directions of the court as to the law. The admissions were made more than a year after the debt had become due, and the failure of Barrett to make payment. The time when the defendant possessed this knowledge was material in order to make out due- notice, and this is not embraced in the proposition upon which the- court was called upon to charge. If submitted to the jury, this must necessarily have entered into the instructions that should have been given to them. The court was also right in refusing the fifth instruction, as it respected the promise of the defendant to the clerk to pay, as the effect of the promise, if made, depended upon the ques *477 tion whether it was made with a full knowledge of ail the faets going to discharge him from his obligation. This question was, therefore, properly submitted to the jury. But, upon the grounds above stated, and principally the misconstruction of the terms of the letter of credit, which was fatal to the right of the plaintiffs, and the error in respect to the degree of diligence to be used in giving notice of the transactions under it, the judgment must be reversed, and the case remitted, and a venire de novo awarded for a new trial. Order. This cause came on to be heard on the transcript of the record from the Circuit Court of the United States for the District of Louisiana, and was argued by counsel. On consideration' whereof, it is now here ordered and-adjudged by this court, that the judgment of the said Circuit Court in this cause be, and the same is hereby, reversed, with costs, and that this cause be, and the same is hereby, remanded to the said Circuit Court, with directions to award a venire facias de novo.