First National Bank of Tama City v. Schlichting

40 Iowa 51 | Iowa | 1874

Day, J.

The answer admits that the note in question was executed by Ehlers, the appellants and others, to secure the Tama County Bank for advances to be made to Ehlers. The allegation that said Tama County Bank sold and transferred the note, and handed over the bond and contract referred to in the petition to the plaintiff, and that plaintiff thereby became the owner of the note, the bond and contract, is not denied in the answer, nor is there any general denial; hence this allegation is admitted.

The defendants also admit that they were appointed a committee to act on behalf of the sureties on said note, and to take charge of the mortgaged property of Ehlers. The evidence shows that the Tama County Bank refused to make any advances until after the execution of the bond, and that subsequently the bank did advance to Ehlers to the amount of the judgment herein recovered. The first advancement was applied in part to the payment of an old note of Ehlers’ to the bank, upon which the defendants with others were sureties. It is urged that the court erred in admitting the bond, and in gi ving the following instruction: “ As to the bond which was signed by these defendants, — the legal effect of this bond is this: It is a waiver of any breach of the original contract. That is, if this bond was fairly obtained from these defendants; it is a waiver of any defense they might have on account of an improper application of the money advanced by the bank, and it attaches to their original contract, so to speak, and makes them liable.”

I. It is claimed that the obligation of the bond to indemnify against the damages therein specified, is special, and 1. contract . exeoíited’to secure. Erailed as to its benefit to the obligee therein Bamed, G. IT. Warren, cashier, or the Tama County Bank, and that it is assignable only after breach. This position, although at first view plausible, is not sound. The instrument executed by defendants and the various other parties to the Tama County Bank, although called a note, is, on account of the conditions attached to it, a mere contract to indemnity the bank on account of advances which it might make to Ehlers.

The conditions were of such a character as to very much impair the value of the security, and they imposed upon the bank duties so onerous and impracticable that the bank refused to make any advancements upon the agreement as it then existed. The bond modified this agreement. It obviated the effect of its obnoxious provisions. It enhanced its value as a security. When the money was finally advanced by the bank, can it be doubted that it was advanced upon the faith of the agreement, as enlarged and extended by the provisions of this bond ? And when the bank made this advancement what right did it acquire? Clearly the right to insist, as against these defendants, upon the terms of the original contract, and the provisions of the bond. As to these defendants the bond interpolated a new term into the agreement. Before, any one was at liberty to insist that the money had not been applied according to the agreement, and if such defense was made and maintained, the bank was without remedy; but now the defendants agree to pay all damage which may be sustained from the making of such defense. In legal effect it is the same as though the conditions of this bond had been incorporated into the original agreement, and executed by the defendants. When the money was advanced, a right arose to insist upon the agreement so modified. It was competent for the Tama County Bank to assign the right of action as it existed in its hands, and to substitute the plaintiff in its place, with all its rights. The petition alleges in substance that this was done, and the answer admits it.

2. It is claimed that this instruction gives a too extensive operation to the bond. If no conditions had been attached to 2_._. -• the instrument executed to the Tama County Bank, and it had remained a simple promissory note, it would have bound the makers absolutely to pay all the advances made pursuant to it, without reference to the purpose for which it was made, or the use to which it was applied. The bond refers to the contract attached to this instrument, and provides for the payment of all damages which may be sustained because of any of the makers taking advantage of it. It, in effect, stipulated that the contract shall impart an unconditional, unqualified liability, and that if any of the makers refuse to so regard it, the defendants will make good the damages occasioned thereby. It is clear that these defendants might alone have been sued upon this agreement. If they had been so sued, and had set up as a defense the breach of the contract herein referred .to, and had thereby defeated a recovery, this would have constituted a breach of the bond, for which 'they would have been liable. ■ But surely it will not be claimed that they have a legal right to interpose a defense and occasion a damage, which they are under a legal contract to pay if it shall be occasioned. This would merely cause a circuity of action, and increase the expense of litigation. The defendants would be enabled to defeat one action, but by the act of defeating it they would render themselves liable to another. Their contract to pay all damages which such' a defense might occasion, must amount to a waiver of the right to interpose such -a defense themselves. The construction which the court placed upon the bond, we regard in all respects as correct. The objections urged to'the admission of the bond in evidence are the same as those presented to the instruction. They require no further notice.

We discover no error^in the record.

AFFIRMED.