Eckhart v. Heier, 158 N.W. 403

Eckhart v. Heier

158 N.W. 403 | S.D. | 1916

WHITING, J.

This cause is before us on an appeal from an •order overruling a 'demurrer to the complaint. Plaintiff seeks the foreclosure of a real-estate mortgage, and the party demurring was made a party defendant because, as 'alleged in said complaint :

“In order to induce plaintiff to accept the said principal note, interest coupons, and the said mortgage, and advance *384moneys 'thereon, the said hank and the said J. B. Gundert [this appellant] for a valuable consideration, promised and agreed [in writing] to and with plaintiff that they would stand -back of, and become responsible for, the said loan and 'the principal note and interest coupons.”

It is the contention of appellant that such allegation shows ■him to be a mere indemnitor; that his liability does not arise until plaintiff has been unable to collect from the makers of the note; and that, for those reasons, the complaint does not show a cause of action to have accrued. Respondent contends that, where one contracts to “stand back of and ’become responsible for” a note, such contract is one collateral to the contract evidenced 'by a note, and is one to answer for the debt or default of another, .thus being, under section 1969, C. C., a contract of guaranty.

[1] The authorities recognize the essential difference between a guaranty of a note, which is a covenant to pay same, and a covenant of indemnity against loss through nonpayment. The distinction arises out of the terms of the contract. In the case of a guaranty the covenant is collateral to the other contract and the failure of the third party is a breach of the terms of the contract of guaranty; in the other case the covenant is not collateral tO' the other contract, 'and the mere failure of the third party to pay is not a breach of the indemnitor’s convenant — he did not covenant that he • would pay 'but covenanted merely to malee good any loss resulting from nonpayment. Wicker v. Hoppock, 73 U. S. (6 Wall.) 94, 18 L. Ed. 752; Burton v. Dewey, 4 Kan. App. 589, 46 Pac. 325. One does not merely covenant tO' save a payee of a note harmless when he covenants to- “stand back of and become responsible for” the note. Plis covenant is collateral to .the contract evidenced by such note. It is the note —the contract evidenced thereby — that he covenants to stand hack of and be responsible for. H(e covenants that the note will1 be paid and such covenant is broken- by its nonpayment. A contract of guaranty is a collateral undertaking which presupposes another contract, existing or anticipated, containing covenants of some third party running in favor of the guarantee. I-t is the performance of such covenants that the promisor guarantees. It is thus a contract to answer for the debt, default, o-r miscarriage *385of another. Upon the other hand, a contract of indemnity is one which, if it refers to and1 is founded upon another contract, either .existing or anticipated', covenants1 to ’ protect the promisee front some accrued or anticipated! liability, arising upon such other contract; it is not a contract to answer for the contractual debt, default, or miscarriage of another than the promisee,' but a contract to indemnity the promisee from loss owing to' his contractual liability. 20 Cyc. 1402; 22 Cyc. 80; 16 Aim. & Eng. Ency. Law, 168. Of course there are many contracts of indemnity that have no reference to the indemnitee’s covenants contained in. some other contract, hut are entered into to' indemnify - the promisee against losses from •something other than- his contractual liabilties. Thus there can he a contract indannifying the promisee against loss growing out of an act or failure to- act. Such, is a contract to indemnify one for loss that may grow out of a third party’s failure to perform a contract, such as such party’s failure to pay his note given to the indemnitee. Such a contract is one of indemnity because by it the promisor “engages to save another harmless from the legal consequences- of the conduct * * * of some other party." Section 1969, C. C. Under the facts alleged in' the complaint, appellant hound himself -as- a guarantor.

The order appealed from is affirmed.