Mamerow v. National Lead Co.
69 N.E. 504
Ill.
1903
Check Treatment
Mr. Justice Ricks

delivered the opinion of the court:

Plaintiff in error’s contention is, that the superior and Appellate Courts erred in construing the guaranty to cover purchases made by the Berner-Mayer Company after March 19, 1897,-—the date of the guaranty. This question was raised by a holding presented to the court and refused, to the effect that the guaranty only covered all indebtedness existing at the time of its date. This contention, we think, is without merit. The preamble of the instrument recites that the parties to the guaranty “desire that the said National Lead Company shall continue to sell goods to the said Berner-Mayer Company, and have requested it so to do,” and the language of the guaranty itself purports to cover all debts, of whatever nature or character, “now due or which may hereafter become due from said Berner-Mayer Company to the said National Lead Company.” As was said by the Appellate Court: “Looking at the instrument as a whole, it is certainly open to the construction that it was intended to cover debts not only due but which might become due thereafter, in pursuance of the express wish of the guarantors that the lead company should continue to sell goods to the Berner-Mayer Company. It cannot fairly be said that the recitals limit the guaranty to said present indebtedness, as counsel contends.”

It is next urged that the guaranty in question does not apply to or cover sales made by the defendant in error to the Berner-Mayer Company upon thirty days’ credit, and that as the entire demand is for goods so sold, the defendant in error ought not to recover on the guaranty. This question was raised in the trial court by plaintiff in error requesting the court to hold, as a matter of law, that plaintiff in error was not liable to defendant in error “for goods sold and delivered by said National Lead Company to the Berner-Mayer Company upon thirty days’ credit.” This holding the court refused. In support of this contention plaintiff in error cites Miller v. Stewart, 9 Wheat. 680, Shreffler v. Nadelhoffer, 133 Ill. 536, and other cases, wherein the propositions are announced and held that the “liability of a surety is not to be extended by implication beyond the terms of the contract,” and that the surety or guarantor will not be held answerable unless the contract is strictly pursued. We are unable to see how this court is aided or plaintiff in error benefited by the rules here invoked. They can only be applied when it is determined what is the legal effect of the guaranty in question, or, in other words, the scope of the undertaking of the guarantors. The contract must be construed by and from its own terms and provisions, as far as they furnish a guide, and in aid thereof the circumstances of the making of the contract may be taken into consideration. By the express words of the contract the makers guarantee the “payment, upon demand, of all moneys, debts, obligations and demands, of whatever nature or character, now due or which may hereafter become due from the BernerMayer Company.” The language is broad, and if given the interpretation it would usually import, must be held to cover not only the indebtedness existing at the time of .the execution of the guaranty and might then be due or might thereafter become due, but also such indebtedness as might, in due course of trade, thereafter be created and become due. If a guaranty is clear in its terms it must be interpreted and construed according to the language used; “that is to say, the parties must be presumed to have meant that which their language clearly imports. It is not what one of the-parties may have intended, but what is shown by "the contract to have been the intention of both parties.” Peoria Savings, Loan and Trust Co. v. Elder, 165 Ill. 55.

Upon examination of the contract in question it appears, from its recitals, that defendant in error had sold and delivered goods to the Berner-Mayer Company on open'account, and that the latter owed the defendant in error for goods so sold and for other accounts. It also appears that the guarantors were “interested in the said Berner-Mayer Company, as stockholders and directors thereof;” that defendant in error had refused to permit the indebtedness of the Berner-Mayer Company to increase until the present indebtedness was amply secured; that the guarantors desired that the defendant in error should continue to sell goods to the said Berner-Mayer Company, and so requested; that the guarantors agreed to furnish to defendant in error security of all accounts, “due and to become due.” From these recitals it is evident that plaintiff in error and his co-guarantors knew, not only that defendant in error had been selling the BernerMayer Company goods upon open account, but that these accounts so existing comprised both classes of debts,— that is, those that were due and those that were not due but were to become due. Furthermore, as directors of the Berner-Mayer Company it was the duty of the guarantors to have knowledge of its affairs and the nature, extent and character of its indebtedness, and the recitals of their undertaking tend most strongly to show that they did know. They desired defendant in error to continue to extend credit to the Berner-Mayer Company, and agreed that they would, on demand, pay defendant in error all moneys, debts, obligations and demands, of whatever nature or character, then due or that might thereafter become due. Their guaranty was not, by such language, limited to sales on open account that should be payable by the Berner-Mayer Company upon demand of defendant in error, but “moneys, debts, obligations and demands, of whatever nature or character;” nor such debts or obligations, only, as defendant in error could any moment demand and thereby make due, but the guarantors would, on demand, pay the debts, obligations and demands due and thereafter to become due. The general, and we may say the sole, object of the guarantors was to obtain from defendant in.error the further continuation of sales to the Berner-Mayer Company on time. Defendant in error needed no guaranty if it was to sell for cash, and the use of the words “obligations and demands, of whatever nature or character,” in conjunction with the words “all moneys, debts,” would seem useless and meaningless unless the parties contemplated that the goods to be sold on credit would be upon the usual terms of credit, or that notes or other evidences of the indebtedness arising from such sales might be taken by defendant in error, otherwise “all moneys and debts” would have, according to plaintiff in error’s contention, been descriptive of the full extent of their undertaking of payment.

Counsel for plaintiff in error says that the guarantors should have had the right to go to defendant in error at any time and require defendant in error to demand payment, and if not paid by the Berner-Mayer Company the guarantors should have had the right to pay at once and be subrogated. They might have had that right if they had so contracted, bubwe are unable to construe the contract before us as so providing or intending. •

It is said in support of this contention, that if this contract is held to be a continuing guaranty and to be applicable to sales upon thirty days’ credit, then, in law, there is no protection to the guarantor, and that defendant in error might as well have sold on ten or thirty years’ time as upon thirty days’ time. This contention is not sound. We think the greater weight of authority is agreed that where the guaranty is a continuing one, and is unlimited as to duration and amount for which the guarantor will be liable, such time and amount must be reasonable, under the circumstances of the particular case. (Lehigh Coal Co. v. Scallen, 61 Minn. 163; 14 Am. & Eng. Ency. of Law,—2d ed.—1140.) The guarantors could have limited their undertaking both as to time and amount had they seen fit to do so, but from a reading of the guaranty it would seem that their desire and intention were that both should be unlimited.

Nor were the guarantors withoht reasonable protection against the acts of the Berner-Mayer Company under the contract as it is construed by us. As to all the indebtedness created after the execution of the guaranty the undertaking was collateral and continuing, and could be revoked or withdrawn at any time thereafter upon notice to defendant in error, and the guarantors’ liability would, in such case, only cover the sales made pursuant to it and before the notice. (14 Am. & Eng. Ency. of Law,—2d ed.—1160, and authorities cited.)

The case of Hunt v. Smith, 17 Wend. 179, is mainly relied on by plaintiff in error in support of his contention. We have examined that case and do not think it applicable to the guaranty before us. In the case cited the guaranty was an express undertaking to pay for goods that might be furnished á proposed purchaser to the amount of $70, and concluded with the expression, “and I will be responsible to you for that sum.” Goods were sold, relying on that guaranty, on thirty days’ credit, and the court held that the guaranty did not cover such sales. A marked difference will be found between the guaranty there and the one at bar. In Hunt v. Smith there was a direct and absolute undertaking to pay to the amount in the guaranty, and the guaranty was an accommodation one, in which the guarantor had no show of interest, while in the case at bar the guarantors, as shown by the recitals in the instrument of guaranty, were in fact, though not in law, the persons to whom and for whose benefit the sales were to be made. They were both directors and stockholders of the Berner-Mayer Company, and were making a personal, strenuous effort and extending their personal credit in. their endeavor to carry the failing business of the Berner-Mayer Company. Its credit was then impugned and impaired, and they were vitally interested in maintaining and continuing the credit, and, as it seems to us, the whole consideration to the guarantors was that defendant in error should sell to the Berner-Mayer Company on credit.

Plaintiff in error contends that he was entitled to timely notice of the default of the Berner-Mayer Company, and that as notice was not given for about a year and a half after the failure and assignment of said company, he is released. Plaintiff in error offered a holding that it was the duty of defendant in error to give him “notice of the default of the Berner-Mayer Company within a reasonable time,” and also offered another holding to the effect that although plaintiff in error was a stockholder and director of the Berner-Mayer Company, such fact would not relieve defendant in error from its duty to give timely notice of the default; and further asked the court to hold that the burden of proof was upon the defendant in error to show that it had given notice of default within a reasonable time. The court refused these holdings.

The general rule undoubtedly is, that where the guaranty, as here, is a collateral, continuing one, the guarantor is entitled to reasonable notice of the default of the principal debtor. (Taussig v. Reid, 145 Ill 488.) The purpose of this notice is to enable the guarantor, if he elects to pay the guaranty and at once proceed against the principal debtor, to re-imburse himself for the moneys thus paid. The right to this notice is not an absolute right, however, in the sense that the failure to give it will, in all cases and under all circumstances, release the guarantor, but it is a relative right, and the failure to give it can only be availed of when it is made to appear that the guarantor has suffered loss by such failure. (Taussig v. Reid, supra.) If at the time of the default of the principal debtor the latter is insolvent, so that the creditor cannot collect his debt or any part thereof, the failure to give notice of the default can work no injury to him, and therefore such failure would be no defense. There must not only be a want of notice within a reasonable time, but also some actual loss of damage thereby caused to the guarantor, and if such loss or damage does not go to the whole amount of the claim, but is only to a part, the guarantor, is not wholly discharged, but only pro tanto. Before a guarantor can be discharged by the failure of the creditor to give notice, it is incumbent. upon the guarantor to show that he is prejudiced by such failure. (Rhett v. Poe, 2 How. 457; 14 Am. & Eng. Bncy. of Law,—2d ed.—1152.) Such being the rule, it would seem that the question of notice or want of notice is a matter of defense. The guarantee has made a case by showing a guaranty broad enough to cover the transaction, and a sale or sales in compliance with and in reliance upon the guaranty and the default of the principal, and if the guarantor seeks to relieve himself from the liability, and upon the ground that notice of the default was not given him within a reasonable time, the burden rests upon him to show the failure to give the notice, and the consequent injury by the loss of the whole or a part of the debt for which he stood as surety. Furst & Bradley Manf. Co. v. Black, 111 Ind. 308; Rhett v. Poe, supra; Voltz v. Harris, 40 Ill. 155; Farmers' and Merchants Bank v. Kercheval, 2 Mich. 505.

In Furst & Bradley Manf. Co. v. Blade, supra, the court say: “The failure to give notice, and the resulting damages, were, however, matter of defense.” In the case at bar evidence was offered by plaintiff in error for the purpose of showing failure to give notice of default and consequent injury. The evidence was objected to and the objection sustained.

The entire offer as made by plaintiff iu error was, that he had no notice until December, 1898, that credit had been extended by defendant in error to the Berner-Mayer Company subsequent to the date of the guaranty sued on, and had no notice of the default of the Berner-Mayer Company until the same date; that the Berner-Mayer Company was in possession of a large amount of goods, and continued to do business in Chicago, New York and Brooklyn until December 17,1897, and was in possession of enough goods during all the time that intervened from the making of the guaranty until December 17, 1897,— the date upon which it made an assignment,—to have satisfied the claim of defendant in error.

A creditor is not required to give notice of default to a guarantor where the guarantor has notice from an independent source, or where it is his duty, under the law, to take notice, or, in other words, where, in law, he is chargeable with notice. The law does not require a useless act. In the case at bar the guarantors, by their written guaranty, styled themselves as both directors and stockholders of the Berner-Mayer Company. As directors it was their duty to know the liability and financial condition of the company, and 'from the recitals in the guaranty they did know, at the time the guaranty was made, that the company was in debt to defendant in error to such an extent, and its financial condition and character had then become such, that defendant in error would not extend it further credit without the guaranty in question. In Rhett v. Poe, supra, in discussing a similar question to the one here presented, it is said (p. 483): “If the drawer of the bill was in truth the partner of the acceptor, either generally or in the single adventure in which the bill made a part, in that event notice of dishonor of the bill by the holder to the drawer need not have been given. The knowledge of one partner was the knowledge of the other, and notice to one notice to the other.” Mr. Thompson, in his work on Corporations, in speaking of the duties of directors of corporations, uses the following language: “It is a sound view, at least in so far as the question respects the fights of third parties, that the directors of a corporation are in law conclusively presumed to know its condition, its business, its receipts and expenditures, and all the general facts which go to make up that condition and business, as shown by the entries on its regular books. The reason of this is, that it is their duty to know these things in the exercise of their official functions. ' This doctrine is said to be one founded in public policy, essential to the safety of third persons in their dealings with corporations, and to the protection of stockholders interested in the welfare and safe management of corporations.” (4 Thompson on Corporations, p; 4024.) To the same effect is the case of United Society of Shakers v. Underwood, 9 Bush. 609; 15 Am. Rep. 731.

We think, under the facts disclosed by the record in this case, that the rule announced by Mr. Thompson, supra, is applicable. Plaintiff in error, by his written guaranty, declared himself both a stockholder and a director of the defaulting company. He knew, then, that it was in embarrassed circumstances and that it required the guaranty of the men composing its directorate to enable it to continue its business. It would seem, too, from the express language of the guaranty, that the recitals and undertakings of the guarantors in that instrument were the consideration upon which defendant in error accepted the guaranty and continued the sales under it. The record showing, as we think it does, that the sales made after the guaranty were in the due course of business and within the terms of the guaranty with defendant in error, it is our duty to hold that plaintiff in error was bound to take notice, and will be presumed to have had notice, of the extent of the purchases made by the Berner-Mayer Company under the guaranty, and of its default in payment.

In this view of the case, the refusal of the court to admit the evidence offered, if error at all, was harmless. The record shows that the last item of defendant in error’s account did not become due until December 9, 1897, and on the 17th of the same month,—eight days after the default,—the Berner-Mayer Company made an assignment for the benefit of its creditors and less than nine per cent of its indebtedness was realized from its assets. The duty of defendant in error to make demand of payment and give notice of default did not, if at all, arise until within a reasonable time after the transactions with the Berner-Mayer Company, based upon the guaranty, were closed. (Ferst v. Blackwell, 39 Fla. 621; Douglas v. Reynolds, 7 Pet. 113; Montgomery v. Kellogg, 43 Miss. 486.) The day after the assignment defendant in error began an attachment against the Berner-Mayer Company, but received nothing by it, receiving only its per cent of the general distribution under the assignment. Under such conditions we would not be prepared to say that the offer made by plaintiff in error as to the financial condition of the Berner-Mayer Company between the date that the debts became due, December 9, 1897, and the date of the assignment of the company, (the 17th,) was sufficient evidence upon that question to relieve him from liability, even if the plaintiff in error had been entitled to notice. The rule is, that the plaintiff in error must have shown the Berner-Mayer Company had sufficient goods between those 'dates that plaintiff in error, by receiving notice, could have realized the debt, or some portion of it, that was lost by the failure to give the notice. The mere offer to show that it was in possession of goods of a large or small amount, taken in connection with its failure and the payment of but so small a per cent of its indebtedness under the assignment, would contradict any presumption, arising from the mere possession of a large amount of goods, that plaintiff in error could have realized the debt by timely notice and action, or that plaintiff in error, by notice, could have paid and saved himself.

The judgment of the Appellate Court is affirmed.

Judgment affirmed.