Dr. Koch Medical Tea Co. v. Poitras

| N.D. | Dec 30, 1916

Lead Opinion

Bruce, J.

(after stating the facts as above). This opinion is written after a rehearing. The main question which is presented revolves .around the following instruction to the jury:

“There has been some testimony offered and received in this lawsuit with regard to representations made by Mr. Duroeher and Mr. Poitras to Mr. Marion and Mr. Tetrault with reference to whether or not this was simply a recommendation rather than a guaranty of payment. I ■say to you now you will pay no attention to that evidence. I am convinced now I should not have admitted evidence on that subject, because neither Mr. Poitras nor Mr. Duroeher, under the evidence in this case, were agents of the plaintiff in any respect in the getting of this agreement, and it doesn’t make any difference what kind of representations they made to these men in order to get them to sign it, — that the plain-. tiff, not knowing anything about the matter, would not be bound by that at all; and the plaintiff having acted upon that agreement as signed in the form that it is in without any knowledge of any representations or misrepresentations made by Mr. Durocher or Mr. Poitras, if they did make any such, is an innocent party in this mátter, and is not bound by any such representations at all, so you will pay no attention to those matters.”

We think that, under the circumstances of the case, the above instruction was incorrect, and that a new trial should be ordered.

The learned trial judge, no doubt, proceeded under and sought to apply the general rule of law that “fraud practised by the principal upon the surety, ... to which the creditor or his agent was in ho sense a party, will not as a rule, affect the liability of the surety to the creditor.” Spencer, Suretyship, § 55; note to 39 Ann. Cas. 501; note to 21 L.E.A. 409.

The case, however, which is before us is a peculiar one. At least the contract which is before us is peculiar. It bears upon its face the-evidence of being cunningly drawn, and of an attempt on the part of a foreign corporation to obtain the services of agents, but at the same time to avoid responsibility for their acts.

Instead of the usual contract of guaranty which, under the earlier cases.at any rate, requires a notice of acceptance to be binding (see W. T. Rawleigh Medical Co. v. Laursen, 25 N.D. 63" court="N.D." date_filed="1913-03-29" href="https://app.midpage.ai/document/w-t-rawleigh-medical-co-v-laursen-6736904?utm_source=webapp" opinion_id="6736904">25 N. D. 63, 141 N. W. 64, and note-in 48 L.R.A.(N.S.) 199), it contained a direct contract between the-defendants Marion and Tetrault and the medical company. This contract recited a consideration of $1 as passing between the said guarantors and the said company.

At the bottom of the document, as a whole, was a paragraph or provision by -which some parties were to recommend the principal and the guarantors, and which was so closely connected with the guaranty itself' that one might be easily misled into believing that when he was signing-the one he was signing the other.

This contract, according to plaintiff’s own testimony, is put into the-hands of the would-be purchaser or new agent (Poitras), “with instructions about getting recommendations and sureties, and if he does that satisfactorily it is accepted.”

Poitras then was acting in a dual capacity. He was not merely getting a guaranty for the proper performance of his own contract in regard to the purchase of the medicine, but for the payment of a past debt of Durocher’s, which he had assumed and which had no real connection with that transaction, and which itself was several years old. He was, according to the terms of the contract of guaranty, paying into the hands of the sureties and for and on behalf of the plaintiff medical company, the beneficiary, the sum of $1. He was making a direct contract between them and that company. He was not even engaged in transmitting an offer from the sureties to the company which had to be accepted in order .to become binding, but in making a final and consummated contract. This, indeed, we are justified in believing was the very purpose of the wording of this peculiar instrument. It was to avoid any possible defense that there was merely an offer of suretyship and which had not been accepted. See discussion in W. T. Rawleigh Medical Co. v. Laursen, supra.

Not only is this so, bnt the agency was ratified by the company. By shipping the goods and suing on the contract and guaranty, it'ratified the payment of the dollar and the making of the direct contract.

Such being the case, the plaintiff was bound by and responsible for the fraudulent acts of Poitras and Durocher. If the defendants were induced to sign the guaranty on account of the false representation that it was merely a testimonial as to the honesty of Poitras, the contract was void. Note in 21 L.H.A. 410.

And this even though the defendants did not read it or have it read to them before signing. One of them did not have his glasses with him, so could not read. The other could not read English.

It was, at the most, for the jury to say whether they were negligent in not having the contract read to them, and whether the plaintiff suffered any detriment by that negligence.

Even if it had been read, the contract was so drawn, and the position of the clauses such, that they might easily have signed the guaranty, thinking that they were signing the recommendation clause only.

The plaintiff is hardly in an equitable position in this case, and it is on this theory only that the failure by an illiterate man to have a contract read to him precludes a defense. It is on the equitable theory that “where one of two innocent parties must suffer, he whose act or negligence first makes the loss possible must bear the burden.” Here we have .a paper cunningly drawn, which contains a contract, a guaranty, and a recommendation, all so closely printed together that one might easily sign the one thinking that it was the other. Here, if the defendants’ testimony is to be believed, the agent of the company tells the signers that the instrument is merely a recommendation. The defendants sign an original agreement of guaranty and a direct contract between them and the beneficiary. The consideration of this, among other things, is the sum of $1 given to them by the beneficiary. The agreement is made then, not for the accommodation of the principal only, but for that of the beneficiary; for he pays for it.

It is not a case where one is called upon to sign an instrument of a •certain nature, and is sought to be held to a knowledge of all that it may reasonably contain, and that is germane to its subject. It is a case rather where one, by fraud and misrepresentation of the nature of the instrument, induces another to sign a totally different instrument than that which was contemplated by him. In such a case the fraud can •certainly be pleaded in an action between the original parties to the contract. Schuylkill County v. Copley, 67 Pa. 386" court="Pa." date_filed="1871-02-09" href="https://app.midpage.ai/document/county-of-schuylkill-v-copley-6234055?utm_source=webapp" opinion_id="6234055">67 Pa. 386, 5 Am. Rep. 441.

We are not unaware of the case of Saginaw Medicine Co. v. Batey, 179 Mich. 651" court="Mich." date_filed="1914-03-27" href="https://app.midpage.ai/document/saginaw-medicine-co-v-batey-7947879?utm_source=webapp" opinion_id="7947879">179 Mich. 651, 146 N. W. 329. We are satisfied, however, that in that •ease the court failed to consider the reason for an effect of the consideration of $1 for the guaranty, and the fact that, if a binding contract is made, which shall bind the guarantor without further acceptance hy the medicine company, someone must act for that company in the making •of the contract, and that someone can only be the person who pays the money and obtains the guaranty.

But it is claimed that the defendant is precluded from asserting ' agency on the part of Poitras and Durocher on account of the fact that the theory of the case which was adopted by the trial court, and which was that such agency was not proved and was necessary for the defense, was acquiesced in by him.

The court, however, failed to realize that the agency had been proved, .•and that by the plaintiffs themselves, and the position of counsel was forced upon him by the erroneous rulings of the court.

It is true that, iu seeking to have his evidence admitted, he largely accepted the theory of the court, but he really had no other option. lie had to admit that, as far as he was concerned, independent proof of ■agency was not possible, as Poitras was absent from the state. Since the court had ruled that proof of agency was necessary on his part to the introduction of evidence of the facts surrounding the signing of the ■document, he was driven to the expedient of seeking to introduce it on another theory. The evidence, at any rate, was afterwards admitted, and agency having been proved, it was error for the court to instruct the jury not to consider it.

The judgment of the District Court is reversed and a new trial is -ordered.

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Concurrence Opinion

Goss, J.

(concurring). I concur fully in what is said by Justice Bruce in the main opinion. But do not believe this reversal should .rest upon the single ground of agency of the principal for the plaintiff in procuring this guaranty. The law should be' announced upon other •questions presented. Justice Bruce differs from the views herein expressed upon some of the questions discussed.

The defendants Marion and Tetrault answered separately, and by ■amended answers allege that they signed their names under the belief that they were signing a recommendation only, induced by the false and fraudulent representations of Durocher and Poitras and with no knowledge that they were signing a guaranty or assuming any liability or were sureties, and that their signatures thereto were obtained by deception and fraud. Also that “so much of said agreement as provided for the payment of the debt owing by Alphonse Durocher by said Poi■fcras was fraudulently inserted in said agreement after the same was signed by defendant, and without his knowledge or consent by the said plaintiff or someone acting for or on behalf of said plaintiff.” Further, “that at all times mentioned said Durocher and said Poitras were agents of and acting for said plaintiff.”

Hpon the issues so joined, trial was had. Defendants offered proof that their signatures were obtained by such fraud and deception, but ■upon objection that the same was “incompetent, irrelevant, and immaterial; not binding upon the plaintiff in that there has been established no agency on the part of Durocher or Poitras to make any representations whatever in behalf of the plaintiff, and that any representations that they may have made would not be binding upon the plaintiff,” and sustained by the court, said proof was limited to its bearing upon the question of material alteration. The court stated: “These representations that you purpose to prove, to the effect that they were just simply recommending him, are not material so far as the plaintiff is concerned unless they knew about it, or unless these people got the recommendations made, — unless you purpose to show that they were agents of the plaintiff.”

Counsel for defendants’ sureties stated that he could not prove agency, but afterwards withdrew that statement. The court allowed . this proof in evidence as bearing upon whether the paragraph of the guaranty wherein Poitras assumed $975 of the debts of Durocher had been left blank as to both the amount in figures and also the words “Alphonse Durocher,” twice written therein in ink in blank spaces in the printed form. In the former opinion of this court, not prepared by the writer, it was held that the defendants were thereby bound by the theory of the case to an admission that they could not establish agency, and upon that theory the judgment was affirmed. But upon facts developed from the record upon rehearing had, a majority of this court is satisfied that defendants are not bound by any such theory of the case upon trial, because there was no theory of case adopted and consistently followed throughout the trial. It is apparent that neither counsel nor court fully comprehended the questions of law involved in the offered proof under the issues presented by the pleadings, and both court and counsel went astray. This is apparent from the rulings during the trial, from the statements of counsel, and from instructions. Under these circumstances justice demands that the proper theory of the law under the defenses interposed be outlined herein. It must not be understood that any criticism of trial court or counsel is intended. There seems to be somewhat of a dearth of authority upon the questions presented. They are somewhat unusual, and it is not surprising that the real issues presented by the pleadings and proof offered were not fully comprehended offhand on trial.

This opportunity is taken to state that this court as now constituted has never knowingly lent its aid to the enforcement of such contracts as the one in suit, which bears upon its face sufficient badges of fraud to indicate its intended nse for that purpose, and as clearly constituting a written trap for the unwary, whether literate or illiterate. And the ■■courts of this state, the attorneys, and litigants are informed hereby of what their rights should be when so entrapped. The answers are sufficiently broad to present the defenses of fraud and misrepresentation, agency and material alteration. And upon all of them an issue of fact for the jury’s determination is presented by the proof.

It may be assumed, however, for the purpose of this decision, that plaintiff company is an innocent third person without notice of the fact that the guaranty was obtained of the sureties through the deceit, misrepresentation, and fraud of the principal Poitras, until after suit-brought. Nevertheless the offered proof, wholly independent of any theory of agency of Poitras for the company, was admissible to show that when these sureties signed this purported guaranty they did so under the assumption that they were signing instead the recommendation as to honesty, sobriety, and industry printed as a separate paragraph immediately after the printed guaranty. The law as to this seems to be well established. The following is from the recent work of “Spencer on Suretyship & Guaranty,” § 55, p. 76: “It seems, however, that if the surety signs by reason of the fraud of the principal as to the nature of the instrument of guaranty, he will be bound to the creditor only where his want of ordinary care and prudence made the deception possible.” This authority cites Page v. Krekey, 137 N.Y. 307" court="NY" date_filed="1893-02-28" href="https://app.midpage.ai/document/page-v--krekey-3596388?utm_source=webapp" opinion_id="3596388">137 N. Y. 307, 21 L.R.A. 409, 33 Am. St. Rep. 731, 33 N.E. 311" court="NY" date_filed="1893-02-28" href="https://app.midpage.ai/document/page-v--krekey-3596388?utm_source=webapp" opinion_id="3596388">33 N. E. 311, and Walker v. Ebert, 9 Am. Rep. 548, and note thereto (29 Wis. 194" court="Wis." date_filed="1871-06-15" href="https://app.midpage.ai/document/walker-v-ebert-6600822?utm_source=webapp" opinion_id="6600822">29 Wis. 194). Under these authorities an alleged surety may show that his signature was obtained through fraud or misrepresentation, or that he supposed he was signing an instrument of a different nature. While such testimony is not necessarily conclusive upon the creditor where the action.- is brought by the creditor against the surety, yet such proof made throws upon the creditor two burdens, — the first that of showing that he accepted and acted upon the guaranty presented to him, and without notice of the fraud, misrepresentation, or deception practised by the principal upon the surety. And when he has done this, he has not established his cause of action upon the guaranty. Secondly, he must further establish that, in reliance upon the purported guaranty, he has been damaged, and also prove the amount of his damage. This damage may be recovered as upon the guaranty, but nevertheless the recovery sounds in damages, and the amount of such recovery must be limited to the actual damages-sustained and proven. As illustrative; in this case the plaintiff sold goods to Poitras upon the strength of this guaranty, but said principal fully paid for all goods he purchased, and in addition paid a portion of the debt of Durocher to the company assumed by Poitras under the contract. Hence, under the portion of the guaranty relating to future delivery of goods, this plaintiff has not been damaged by any negligent act of these sureties in signing the guaranty. And plaintiff’s recovery-in any event against them must sound in damages, and be based upon the negligence of the sureties. Quoting from Page v. Krekey, supra; “But even in such a case [as at bar] the person who has signed -the paper is not liable upon it unless it is found that he failed to observe proper care and caution and was chargeable with negligence in attaching-his signature. . . . Such cases are not governed by the rules applicable to the bona fide holder of negotiable paper procured by fraud,, but by the equitable rule that, where one of two innocent parties must suffer, he who has put it in the power of a third person to commit the fraud must sustain the loss.”

The facts in that case were on all fours with these before us, and numerous cases are cited. And in Walker v. Ebert, the Wisconsin court in an opinion by Chief Justice Dixon holds that the rule applies even to negotiable instruments under the law merchant, and the reasoning of these cases seems unanswerable. The principle is also sustained by Taylor v. Atchison, 54 Ill. 196" court="Ill." date_filed="1870-06-15" href="https://app.midpage.ai/document/taylor-v-atchison-6954141?utm_source=webapp" opinion_id="6954141">54 Ill. 196, 5 Am. Rep. 118; Wait v. Pomeroy, 20 Mich. 425" court="Mich." date_filed="1870-05-13" href="https://app.midpage.ai/document/wait-v-pomeroy-6634838?utm_source=webapp" opinion_id="6634838">20 Mich. 425, 4 Am. Rep. 395; Burson v. Huntington, 21 Mich. 415" court="Mich." date_filed="1870-10-11" href="https://app.midpage.ai/document/burson-v-huntington-6634947?utm_source=webapp" opinion_id="6634947">21 Mich. 415, 4 Am. Rep. 497; Gibbs v. Linabury, 22 Mich. 479" court="Mich." date_filed="1871-04-18" href="https://app.midpage.ai/document/gibbs-v-linabury-6635167?utm_source=webapp" opinion_id="6635167">22 Mich. 479, 7 Am. Rep. 675. The cases cited in these opinions are Putnam v. Sullivan, 4 Mass. 54, 3 Am. Dec. 206; Nance v. Lary, 5 Ala. 370" court="Ala." date_filed="1843-06-15" href="https://app.midpage.ai/document/nance-v-lary-6501995?utm_source=webapp" opinion_id="6501995">5 Ala. 370; Whitney v. Snyder, 2 Lans. 477" court="N.Y. Sup. Ct." date_filed="1870-09-15" href="https://app.midpage.ai/document/whitney-v-snyder-5475061?utm_source=webapp" opinion_id="5475061">2 Lans. 477; Veeder v. Lima, 19 Wis. 297; Thomas v. Watkins, 16 Wis. 550; Chapman v. Rose, 56 N.Y. 137" court="NY" date_filed="1874-03-24" href="https://app.midpage.ai/document/chapman-v--rose-3579639?utm_source=webapp" opinion_id="3579639">56 N. Y. 137, 15 Am. Rep. 401; McWilliams v. Mason, 31 N.Y. 294" court="NY" date_filed="1865-03-05" href="https://app.midpage.ai/document/mcwilliams-v--mason-3591758?utm_source=webapp" opinion_id="3591758">31 N. Y. 294; Powers v. Clarke, 127 N. Y. 417, 28 N. E. 402; Baylies, Sureties & Guarantors, 214, and Burge, Suretyship, 218 ; to which might be added the English case of Lee v. Jones, 17 C. B. N. S. 482, 144 Eng. Reprint, 194.

Whether any damage is established by plaintiff’s proof that, upon its approval of this written guai'anty, it released Durocher and his sureties does not arise upon the record and it may not arise upon another trial. Suffice it to say that Duroeher acted jointly with Poitras. in procuring these defendants as sureties, and was a joint party to and participated in any fraud perpetrated by the principal Poitras upon these sureties. Under these circumstances the purported discharge, if fraudulent, was not such, and Duroeher and bondsmen would still beheld to plaintiff under Duroeher’s bond, for which the one in suit was substituted, with the latter turning his agency or business over to Poitras. If the original bond is valid and because of fraud not released, it is difficult to understand wherein plaintiff has been damaged by these defendants becoming sureties. Without damages there can be no recovery. And the instructions to the jury, as well as the rulings during-the trial, have erroneously foreclosed these defendants of this defense.

On material alterations the trial court instructed that, to constitute-a material alteration and release, the sureties, the portions of the guaranty relating to assumption of a past indebtedness of $975, must have-been in blank as to both amount and person named. This was on the theory that there was a delegation of authority to fill in said blank as. to amount. With this we cannot agree. The amount was material. No theory of delegated authority to fill in the blanks applies. If plaintiff received this guaranty with the amount in blank as the proposal of' the sureties, plaintiff cannot alter that proposal in any material matter, without the sureties’ consent;

On the third defense, a question of fact of agency was sufficiently shown to at least require a jury’s finding thereon. This guaranty was a substitute for an earlier one running to the company from Duroeher, and upon which a liability had already accrued of nearly $1,000. An official of plaintiff, and one of its witnesses, has testified that, in line with his duty, he prepared this bond and forwarded it to Duroeher for him to obtain sureties, looking toward such a substitution. The-company obtained through Durocher’s efforts new security for its old claims. In so doing they have taken a contract with the new sureties, running directly to themselves, and, for a consideration of $1, paid the sureties by plaintiff. Any misrepresentation and fraud in obtaining this substitution and contract of indemnity, for which they have-paid the consideration and procured through the act of Duroeher or Poitras, is imputable to plaintiff if performed by him as their agent.. They cannot accept the profits and advantages of a guaranty for a past debt without responsibility for the method employed under these circumstances by one who must have been their agent in so acting. Somebody acted for them in this transaction, and that person must have been their agent in executing this contract between themselves and the sureties.

It is doubtful if this guaranty should be held to relate to more than the delivery of goods to Poitras in the future. It is elementary that sureties are favorites under the law, and that their liability will not be enlarged beyond the plain and certain import of the contract of guaranty. Am authorized to state that Justice Christianson and Chief Justice Fisk concur herein. Justice Bruce concurs in all except what is said on material alteration.