French v. Bates

149 Mass. 73 | Mass. | 1889

Field, J.

The First Congregational Society of Maplewood, on July 12, 1877, gave two promissory notes, one to King, as trustee, for the sum of five thousand dollars, and one to French for the sum of twenty-five hundred dollars. Each note contained a promise to pay the principal sum in five years from date, “ with interest semiannually, at the rate of eight per centum ” per annum, “payable on the first days of January and July of each year during said term, and for such further time as said principal sum, or any part thereof, shall remain unpaid, reserving the right to pay five hundred dollars of the principal on the first day of July of each year.” The note to King was secured by a first mortgage, and that to French by a second mortgage, upon the real property of the society. On the same day the defendants in these cases, with other persons, signed on each note a guaranty to the payee as follows: “ For value received, and in consideration of the loan for which the above note is given, which loan is this day made at our request, we, the undersigned, hereby severally, and not jointly (one sixth part each), guarantee . . . the punctual payment of the interest on the above note, and in default of such payment by the promisor, we hereby promise to pay the same on demand, waiving demand on the promisor, and notice.”

These suits are brought by French and King respectively against three of the guarantors severally to recover interest accruing after the maturity of the notes.

The first question is, whether, by the terms of the guaranties, the guarantors are liable for the interest accruing after the maturity of the notes. The contention is, that, construing all the papers together, it appears that it was the intention of the parties that the guarantors should only be liable for the payment of interest until the principal debt became payable; that the payees relied wholly upon the society for the payment of the principal debt, and that it could not have been the intention that the guarantors should be liable for the payment of interest indefinitely, or be compelled to pay both principal and interest in order to relieve themselves from the liability to pay interest, if the payees did not choose to collect at maturity, by foreclosure of the mortgage or otherwise, debts drawing interest at the rate of eight per centum annually.

Whatever may have been the expectation of the parties, the contracts they actually made must be found in the written papers. Interest is payable on the principal sum of these notes after maturity at the rate of eight per centum per annum, by virtue of the contract, and it is payable as interest, and not as damages for breach of the contract to pay the principal sum. This, we think, would be held even by those courts which allow the statutory and not the stipulated rate of interest after maturity, when the provision is not express that the stipulated rate shall continue after maturity. See Union Institution for Savings v. Boston, 129 Mass. 82.

It has been suggested, that after the maturity of the notes separate actions could not be maintained by the payees to recover the interest and the principal, and that it is unreasonable to construe the guaranties as covering an incident of the debt when they do not cover the debt itself. Whether in an action to recover the principal the interest then due must be included as an incident, and if not included, whether, after judgment recovered for the principal debt, an action for interest could be maintained, need not be decided. See King v. Phillips, 95 N. C. 245; Fake v. Eddy, 15 Wend. 76. The promises to pay interest and to pay the principal are severable, and we see no objection to the maintenance of an action after the maturity of the notes upon an express promise to pay interest without including it in the principal debt. Sparhawk v. Wills, 6 Gray, 163. Andover Savings Bank v. Adams, 1 Allen, 28. We have no doubt that the payment of the principal sum at maturity, and the payment of interest either before or after maturity, or both, may be separately made the subject of a guaranty.

The guaranties promise the punctual payment of the interest; but from this we cannot infer that the guaranties were intended to be confined to the payment of interest accruing before the maturity of the notes, because, by the terms of the notes, interest accruing after maturity was made payable on the first days of January and July of each year, in the same manner and at the same rate as before, so long as the principal sum remained unpaid. If any inference could be drawn' in construing guaranties of commercial paper from the usage of banks and business men to collect notes when they become due, there is not the same reason to draw the same inference when the notes have a long time to run, and are secured by mortgages on real property. It is notorious that such notes are often permitted to remain unpaid for a long time after maturity if the security is satisfactory. The notes themselves contemplate the possibility that the principal sums may not be paid at maturity, for they make provision for the payment of interest after maturity as well as before. In these respects these eases differ from Hamilton v. Van Rensselaer, 43 N. Y. 244, and Melick v. Knox, 44 N. Y. 676.

It is argued that the manifest object of the guarantors was to prevent a foreclosure of each mortgage for non-payment of interest before the maturity of the notes. There is nothing in the agreed statement of facts that indicates this except that the guarantors promise to pay the interest only. The guaranties recite that the loans were made at the request of the guarantors. We do not know whether the guaranties were furnished because the lenders of the money wanted better security, or because the borrower wanted to be sure that there would be no foreclosure for breach of condition before the notes matured; but if the latter was the intention, it was not carried into effect, for it was not agreed that, if the promisor did not pay the interest as it became due, the mortgagees should, until the maturity of the notes, collect it of the guarantors, and not proceed to foreclose the mortgages. As there is no limitation in the guaranties, and as the notes provide for the payment of interest after as well as before maturity, we cannot construe the papers as limiting the obligation of the defendants to the payment of interest accruing before the maturity of the notes. There is no further contention by the defendants in regard to the suits brought by French.

In the suits brought by King as trustee, the effect of the agreement entered into by King and French, and of the payments of money by French under this agreement, must be considered. French was second mortgagee, and as such had the right to redeem the land from the first mortgage; but he was under no obligation to pay the note secured by the first mortgage. If he paid it and took an assignment of the first mortgage, it must be considered, in the absence of any agreement or declaration of his to the contrary, that he paid it for the protection of himself as second mortgagee. As French in making the agreement with King did not act, or assume to act, in behalf of the maker of the note, or of the guarantors, they cannot avail themselves of the stipulations contained in the agreement. They are neither bound by those entered into by French, nor can they enforce those entered into by King. They are strangers to the agreement, and the agreement has no effect upon their rights and obligations under the guaranty. The neglect of the first mortgagee to foreclose the mortgage does not discharge the guarantors; they can pay the debt after its maturity whenever they choose, and compel the holder of the mortgage to discharge it or to assign it to them, but until they pay the debt, they cannot complain that the holder does not foreclose the mortgage. Wilcox v. Fairhaven Bank, 7 Allen, 270. Allen v. Brown, 124 Mass. 77. Watertown Ins. Co. v. Simmons, 181 Mass. 85.

The covenant not to foreclose the mortgage before October 1, 1885, is not an agreement giving time to the principal debtor, and does not discharge the guarantors, because, as has been said, the principal debtor is not a party to tbe agreement containing this covenant, and neither the principal debtor nor the guarantors could require the performance by King of any of his covenants contained in this agreement. Frazer v. Jordan, 8 El. & Bl. 303, 312. Greely v. Dow, 2 Met. 176.

The payments made by French under the agreement do not purport to have been made in behalf of the principal debtor, or of the guarantors; but it is expressly provided that they should not “ operate as payment of any part of the principal or interest of said first mortgage ”; and as French was under no obligation to make any payments on account of the debt secured by this mortgage, he could agree with King that any money he paid should be applied toward a purchase of the mortgage and of the debt secured by it, rather than toward a payment of this debt and a discharge of the mortgage. The security given to King has not been impaired by the acts of anybody, and can be transferred to the guarantors undiminished if they pay the debt.

For these reasons a majority of the court are of opinion that the guarantors are liable to pay interest on the notes so long as the principal sum remains unpaid, and that in the suits brought by King as trustee the facts do not show that they have been discharged. The judgment for the defendants must be reversed, and there must be judgment for the plaintiffs in the suits for the amounts respectively agreed upon in the agreed statements of facts.

So ordered.