Ætna Indemnity Co. v. Auto-Traction Co.

GILBERT, Circuit Judge, after stating the case as above, delivered the opinion of the court. It is the contention of the plaintiff in error that the rescission of [97] the contract released and discharged it from its obligation upon the contract of guaranty; that, by the rescission for nonperformance, the contract was entirely set aside, and the relation between the parties thereto was as if the contract had never been made, and that the party rescinding could recover only upon a quantum meruit, and could not allege a breach of the contract; and that the guarantor could become liable upon his written guaranty only in the event of a breach of the contract which he guarantied. We can discover no substantial reason for holding that the giving of the notice of recission or the filing of the original complaint should release the plaintiff in error from its liability as it was sought to be enforced by the amended complaint. There is nothing in cither act to show that the defendant m error intended to release the plaintiff in error. On the contrary, Ihe opposite intention is clearly expressed in both. Nor can the plaintiff in error contend that it has in any way been prejudiced by such action of the defendant in error. Its relation to the automobile company was in no. wise altered thereby, nor was it prejudiced thereby. The automobile company had done nothing to carry out the contract. It had not even commenced the manufacture of the vehicles. It had broken its contract in toto. It was under obligation to return the purchase money which had been advanced by the other parties thereto, and this was all that was sought to be obtained by either the notice of rescission, the original complaint, or the amended complaint. But whatever may have been the effect of the notice of rescission and the commencement of the action, the judgment is in our opinion sustainable, on the ground that the plaintiff in error had been indemnified upon the liability which it assumed on the bond. In section 2824 of the Civil Code of California it is provided: “A guarantor who has been indemnified by the principal is liable to the creditor to the extent of the indemnity, notwithstanding that the creditor, without the assent of the guarantor, may have modified the contract or released the principal.” The terms of this statute are sufficiently comprehensive to include the case of a rescission of a contract. The section is taken from the statutes of New York in which the courts of that state have deduced the rule “that a surety taking security from his principal loses his privileges as a surety and becomes a trustee for the creditor.” Moore & Barney v. Paine, 12 Wend. (N. Y.) 123. See, also, Smith v. Estate of Steele, 25 Vt. 427, 60 Am. Dec. 376. But the plaintiff in error questions the sufficiency in law of the evidence to support a finding that it was indemnified. The evidence consists, first, in the letter of the plaintiff in error of date December 4, 1903, written in answer to the demand of the defendant in error for the return of the money which had been advanced on the contract. In that letter it is said: “As we are fully protected from any loss, we cannot take any steps at this time.” In addition to this, there was the testimony of the attorney for the defendant in error that he had seen the bond given by the automobile company to the plaintiff in error which he said was a' bond to protect [98] the latter "against any possible loss, or any possible liability that might be occasioned or caused” by reason of the bond given for the faithful performance of the contract, that the agent of the plaintiff in error exhibited the document to him in his office. There is testimony also of another attorney for the defendant in error that the agent of the plaintiff in error said to him: “Give me a little time to see Gen. Hart, who is the president of the Universal Automobile Company, and, if it is as you say, the amount will be paid, because it makes no difference to us; we have got full security; we are fully indemnified by the Universal Automobile Company.” Mr. Eddy testified that he notified the manager of the plaintiff in error that the automobile company had failed to complete the vehicles “and we should hold them, the Ejtna Indemnity Company, liable for the money. The manager looked over some papers he had on the desk, and said it did not make any difference to them, that they were wholly protected and we could do whatever we desired in regard to collecting our money.” The record shows, moreover, that the agent of - the plaintiff in error signed a stipulation by which it was agreed that the indemnity bond should be produced in court on the trial of the cause and in addition to that it appears that he was subpoenaed to produce that instrument at the trial; but that the paper was not produced. The plaintiff in error contends that no more appears from all this evidence than that the Universal Automobile Company executed its bond to the plaintiff in error, and it argues that such an instrument without surety does not amount to indemnity. We do not so understand the evidence. It is true, that the witness who saw the bond testified that it was in the form of a bond given by the Universal Automobile Company to the ./Etna Indemnity Company; but it does not appear from that statement that the witness meant to say that it was a bond without a surety. There is more reason to infer from his testimony that it was a bond with surety, for such is the general understanding of the use of the word “bond.” It would have been an idle act for the plaintiff in error to take from its principal the latter’s own undertaking without surety to hold it harmless. The plaintiff in error had full opportunity to produce the bond in court. It chose not to do so, but to rely upon technical objections and such defects as might be found in the evidence which was offered to prove that it was indemnifiéd. Under those circumstances it cannot complain that it is taken at its word when it said through its manager that it was fully protected from any loss. Every intendment and presumption is against the party who might remove all doubt by producing the document. Cross v. Bell, 34 N. H. 82. The plaintiff in error objected to the admission in evidence of the letter of the plaintiff in error and the declarations of its manager concerning the indemnity received from the automobile company, on the ground that the manager or officer of a corporation cannot make admissions as to past transactions so as to bind the corporation, and contends that it was error to admit such evidence. AVe find no merit in the contention. The declarations were made [99] in connection with the assent ol the plaintiff in error to the rescission of the contract, and as ground for refusing to meet the obligation which it had assumed, and to pay the money which was due to the defendant in error, and as ground for relegating the defendant in error to his legal remedy by an action. But, aside from the evidence of such declarations, there was sufficient in the testimony of the witness who saw and examined the bond to sustain the finding of the court that the plaintiff in error was indemnified. The judgment of the Circuit Court is affirmed.