Johnson v. Charles D. Norton Co.

• Decision Date: 27 January 1908
• Docket Number: 1,714.
• Citation: 159 F. 361
• Parties: JOHNSON v. CHARLES D. NORTON CO.
• Court: U.S. Court of Appeals — Sixth Circuit

159 F. 361

JOHNSON v. CHARLES D. NORTON CO.

No. 1,714.

United States Court of Appeals, Sixth Circuit.

January 27, 1908

This was an action against a guarantor upon three letters of guaranty, in the following words:

'January 16, 1903.

'To Charles D. Norton Company, Philadelphia, Pa.-- Gentlemen In respect to the coal accounts of the Lehigh Valley Traction Company, the Philadelphia & Lehigh Valley Traction Company and the Allentown Electric Light & Power Company respectively, with you. We hereby personally, jointly and severally make this contract of guaranty, to wit:

'That to the extent of twenty thousand dollars ($20,000) we guarantee the payment of any and all amounts due or to become due from the said companies or either of them to you for coal furnished from time to time to them or on their order respectively. This contract and guaranty to be a continuous one, and to apply to all credits given to the said companies or either of them within the limits of the amount above set forth, until such time as we shall in writing notify you of our withdrawal of this guaranty, in the event of which notice our guaranty shall cease on all coal supply thereafter.

'Yours truly,

(Signed) Tom. L. Johnson,

'Robt. E. Wright.'

'February 19, 1903.

'To Charles D. Norton Company, No. 219 Stephen Girard Bldg., Philadelphia, Pa.-- Gentlemen: In respect to our letter or contract addressed to you bearing dates January, 1903, guaranteeing accounts of the Lehigh Valley Traction Company, the Philadelphia & Lehigh Valley Traction Company and the Allentown Electric Light and Power Company, we beg to say that the guaranty therein contained is to cover shipments both by Charles D. Norton & Co., and Charles D. Norton Co., or either.

'(Signed)

R. E. Wright,

'Tom. L. Johnson.'

'Lehigh Valley Traction Company, Allentown, Pa.

'Commonwealth Building, Allentown, July 1, 1903.

'Messrs. Chas. D. Norton & Co., No. 209 Stephen Girard Bldg., Philadelphia, Pa.-- Gentlemen: In respect to the contract of guaranty entered into by us with you in January, 1903, whereby we agreed to become the guarantors as therein stated of certain indebtedness of the Lehigh Valley Traction Company, the Philadelphia and Lehigh Valley Traction Company and the Allentown Electric Light and Power Company respectively to you, we have this to say: That if you comply with the suggestion that has been made by those companies, or either of them, that for that indebtedness and for the notes representing it you should accept renewal notes from time to time from those companies and so continue to do the same until otherwise notified by us such action on your part shall not relieve us from our guaranty, but that our liability under that contract shall continue as heretofore and as set forth in the contract.

'Yours respectfully,

(Signed) Tom L. Johnson,

'Robt. E. Wright.'

Notes and renewal notes were taken from the principal debtor, the Lehigh Valley Traction Company; the last renewals being three notes, each for $6,603.48, dated, respectively, September 20, October 20, and October 21, 1904, maturing 60 days after date of each. Demand and notice were duly made and given.

A demurrer to the petition was overruled. A reply was then filed averring that the plaintiff had not pursued the principal debtor to judgment. It also averred that the property of the Lehigh Valley Traction Company was in the hands of a receiver appointed by a Pennsylvania court under a mortgage foreclosure proceeding; that the claim of the plaintiff was for coal supplied to maintain the operation of the traction company, and the claim of plaintiff was entitled to preference over the mortgage debt, and the property in the hands of the receiver was more than enough to pay all preferential debts; that the plaintiff filed its said claim before a master directed to report preferential debts, but has not prosecuted same to judgment, nor instituted any suit against the said Lehigh Valley Traction Company. A demurrer to this answer was sustained so far as it contained affirmative matter. Thereupon the case was submitted to a jury upon evidence adduced by the plaintiff in support of its petition. The jury, by direction, returned a verdict for $19,810.42, being the aggregate of the principal due upon the three notes mentioned with interest upon $6,603.47 from December 20, 1904, and interest upon a like amount from December 21, 1904, and upon a like sum from January 18, 1905.

J. C. Brooks, for plaintiff in error.

G. M. Dahl, for defendant in error.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON Circuit Judge (after stating the facts as above).

The traction companies, whose contracts Mr. Johnson guaranteed, were companies operating lines of railway in the state of Pennsylvania. The Charles D. Norton Company and Charles D. Norton were dealers in coal, carrying on business in that state, and the object of the guarantee was to secure them in the sale and delivery of coal to the former companies used from day to day for the operation of their several lines. There is no evidence as to where the contracts of guaranty were signed, and no express agreement that the guarantee was given in view of the law of any particular state. If we assume the guarantee to have been written in Ohio, the state of the residence of Mr. Johnson, one of the guarantors, the implications from the character and circumstances of the contract are that the contract of guaranty was to be fulfilled in Pennsylvania, and that the guaranty was given with a view to the law of the place of performance. Cox v. United States, 6 Pet. 172, 8 L.Ed. 359; Boyle v. Zacharie, 6 Pet. 635, 644, 8 L.Ed. 527; Bell v. Bruen, 1 How. 169, 11 L.Ed. 89; United States Bank v. Daniel, 7 Pet. 33, 9 L.Ed. 989; Pritchard v. Norton, 106 U.S. 124, 136, 1 Sup.Ct. 102, 27 L.Ed. 104. Upon this assumption we should interpret and give effect to the guaranty according to the law of Pennsylvania.

For the plaintiff in error it is contended that, according to the laws of Pennsylvania, this guaranty is conditional, and that the guarantor is not liable until the principal debtor has been pursued to insolvency. To sustain this counsel cite: Isett v. Hoge, 2 Watts (Pa.) 128; Brown v. Brooks, 25 Pa. 210; Hoffman v. Bechtel, 52 Pa. 190; National Society v. Lichtenwalner, 100 Pa. 100, 45 Am.Rep. 359; Hartman v. First National Bank, 103 Pa. 581. It may be doubted whether under the Pennsylvania decisions it is essential to pursue an insolvent principal to judgment; such a course being fruitless. Cambell v. Baker, 46 Pa. 243; Janes v. Scott, 59 Pa. 178, 98 Am.Dec. 328.

A contract of guaranty is a well-known form of commercial contract, and it is not to be conceded, on the Pennsylvania cases cited, that the liability of a guarantor should be made to depend upon an unsuccessful resort to an equitable proceeding to assert a claim as preferred over mortgage debts because created for supplies to keep an insolvent railway line in operation. Certainly, if it did not appear that harm had resulted to the guarantor as a consequence, a court of law would not repel a plaintiff upon such a defense. See National Loan Association v. Lichtenwalner, 100 Pa. 100, 45 Am.Rep. 359. Passing this, we find that these decisions of the Pennsylvania courts are not based upon any local statute, custom, or usage, having the force of local law and purport only to be the view of the Pennsylvania courts as to the general commercial or common law in respect to the interpretation and effect of contracts of guaranty.

In holding that a general guaranty of payment is a conditional guaranty, dependent upon the exercise of due diligence in collecting from the principal debtor, the Pennsylvania courts are not in line with the great weight of authority. In the absence of some special limiting or qualifying words, the line of distinction between a guaranty of payment and a guaranty of collection is well settled. The one signifies an unconditional contract, and the other a conditional contract. 14 Am. & Eng.Enc. of Law, 1141; 20 Cyc. 1450. Of the many decisions holding that a simple guaranty of payment is an absolute guaranty, we cite only a few: Neil v. Ohio Agricultural Bank, 31 Ohio St. 15; City Savings Bank v. Hopson, 53 Conn. 453, 5 A. 601; Yancey v. Brown, 3 Sneed (Tenn.) 89; Klein v. Kern, 94 Tenn. 34, 28 S.W. 295; Brown v. Curtiss, 2 N.Y. 225; Miller v. Rinehart, 119 N.Y. 368, 23 N.E. 817; Donley v. Camp, 22 Ala. 659, 58 Am.Dec. 274; Sanford v. Allen, 1 Cush. (Mass.) 478; Inkster v. Marshal National Bank, 30 Mich. 143; Dana v. Conant, 30 Vt. 246; Wren v. Pearce, 4 Smedes & M. (Miss.) 91. Most of the cases, English and American, hold that neither notice of the acceptance of the guaranty nor demand of payment from the principal debtor with notice to the guarantor are requisite steps to the liability of a guarantor of payment. In this particular, the Supreme Court of the United States holds otherwise, though they do hold that the guarantor is relieved only to the extent that he has been injured by default in such demand and notice. Douglass v. Reynolds, 7 Pet. 113, 126, 8 L.Ed. 626, s.c. 12 Pet. 497, 9 L.Ed. 1171; Davis v. Wells, 104 U.S. 160, 170, 26 L.Ed. 686. That it is not essential to show an unsuccessful effort to coerce payment by the principal debtor is the plain conclusion from the Supreme Court cases cited, as well as from Memphis v. Brown, 20 Wall. 289, 311, 22 L.Ed. 264, where the question arose upon a guaranty that:

'The city of Memphis will and does hereby guarantee the contractors the payment of said accounts so assessed against the property owners for the payment according to plans and specifications.'

The court said of this:

'It will be perceived that this is a...