Bedford v. Kelley (In re Kelley's Estate)
| Decision Date | 03 January 1913 |
| Docket Number | Docket No. 15. |
| Citation | 173 Mich. 492 |
| Parties | In re KELLEY'S ESTATE. BEDFORD v. KELLEY. |
| Court | Michigan Supreme Court |
By extending the time for payment the payee of a note releases the surety, guarantor, or indorser who has not consented to the extension.
Surety and guarantor are similar in that each promises to answer for the debt or default of another, the surety assuming liability as a regular party to the primary undertaking, while the guarantor's liability arises out of an independent collateral agreement by which he undertakes to pay the obligation if the principal fails to respond.
To release either, an extension of time must be more than a mere agreement to indulge or forbear, and must have the essentials of a binding contract, must be reasonably definite as to time, must be for a valuable consideration, payment of interest in advance being a sufficient consideration.
Though evidence to show the relations of the parties and attending circumstances is admissible as an aid in interpreting or construing a writing that is doubtful or ambiguous, it is not competent to contradict the plain provisions of an instrument.1
Makers of a demand note, as collateral to loans or advances made by a bank in which they were interested, continued liable while extensions of time were given by the bank to the corporation, until revocation by act of the guarantors or other act of the parties: the death of one of the guarantors terminated the progressive nature of the indemnity agreement and extensions of time to the principal debtor thereafter released the estate of decedent from liability.
Guaranties are of two classes; (1) the consideration being entire, passing wholly at one time, (2) the consideration passing at different times and being separable or divisible: the former are revocable by the guarantor and do not terminate at his death, upon notice of the fact; the latter may be revoked as to subsequent transactions by the guarantor, upon notice to that effect, and are terminated by his death and notice of that event.
Delay for about four years after decedent's death in attempting to enforce collection of an indebtedness, guaranteed by a joint note of decedent and others, where the principal debtor was a corporation that was solvent over two years after such death, when it became insolvent, no notice being given to decedent or his estate of default, was laches sufficient to release the liability of the estate of decedent and bar contribution to the joint indemnitors.
Error to Berrien; Coolidge, J.
John W. Bedford and others presented a claim against the estate of Frank M. Kelley, deceased, for contribution. From a judgment of the commissioners on claims allowing the claim, defendant estate by Lafayette Kelley, administrator, appealed to the circuit court. Judgment for claimants and said administrator brings error. Reversed, new trial denied.
Gore & Harvey, for appellant.
Humphrey S. Gray and Frank H. Ellsworth, for appellees.
In March, 1911, claimants recovered a verdict and judgment in the circuit court of Berrien county against the estate of Frank M. Kelley, deceased, for $1,340.45, as his proportional liability upon a collateral note for $10,000, signed by him and six others, as guarantors for the West Michigan Nurseries Company. Said note was dated February 6, 1903. Said Frank M. Kelley died June 24, 1904. On June 12, 1908, payment having been insisted upon, these claimants, being three of the seven makers of the note, paid to the Farmers' & Merchants' Bank of Benton Harbor, Mich., the holder of said note, the $10,000 demanded, whereupon said note was surrendered to them. On November 1, 1909, they presented a claim for contribution, in the probate court of Berrien county, against the estate of said Frank M. Kelley, deceased, based on the payment by them of said note. The commissioners on claims against said estate allowed their claim at the sum of $2,698.76, and an appeal was taken by the administrator to the circuit court, where trial by jury was had, resulting in the verdict and judgment above stated. Said administrator thereupon removed the case to this court for review on writ of error.
The note in question was given as collateral to protect a line of credit extended to the West Michigan Nurseries, a corporation in which said Frank M. Kelley and the other signers were interested. The West Michigan Nurseries was organized and incorporated in 1896, having its headquarters at Benton Harbor, Mich.; its nurseries being located at Eau Claire in Berrien county. The claimants herein and said Kelley were all stockholders and directors in said company. Kelley, who was a farmer residing in Berrien county, was a director from the time it was organized until he died. The company borrowed money from time to time for the furtherance of its business and prior to 1903 had obtained a line of credit to the amount of $5,000 from the Farmers' & Merchants' Bank, of Benton Harbor, secured by a collateral note for $5,000 signed by members of the board of directors of said nursery company, among whom was said Kelley. The indebtedness of the company had gradually increased until, in February, 1903, it owed the bank $13,000, and, at the insistence of the cashier of the bank that the loan could not be continued without increased collateral, the directors of the West Michigan Nursery Company gave to the bank the note in question, which is as follows:
On the back of said note appears the following indorsement:
"This note is given as collateral to other notes of different amounts and dates made by the West Michigan Nursery Company, favor of Farmers' & Merchants' Bank, Benton Harbor, Mich."
Negotiations for this line of credit were conducted with the bank by H. L. Bird, treasurer of the company. He testified that when these negotiations were had, and after the previous note for $5,000 was given, he fully explained the transaction to the directors of the nursery company, including deceased, and told them it was necessary to borrow money from time to time as the business demanded, that it was difficult and practically impossible to be constantly getting the directors together, and that, for the efficient transaction of business, continued acceptable collateral in sufficient amount to satisfy the bank was required, so that he could have it available whenever needed. After the note in controversy was given, the nursery company continued to do its business at the bank as previously, giving its notes, sometimes making payments on its indebtedness; then again borrowing more and renewing, in whole or in part, whenever its paper at the bank fell due, the bank in the meantime holding the $10,000 note as collateral therefor. The notes given by the company to the bank in the transaction of its business were 90-day paper. This course was continued until January 2, 1906, when all notes then held by the bank against the company, except one secured by other collateral, were substituted by, and their amounts merged into, one note of the company for $14,750. Interest was paid on this note, and it was renewed for the same amount on August 5, 1907.
On June 12, 1908, the nursery company having been found to be insolvent and unable to meet its obligations, after repeated demands and insistence by the bank, which yet continued to hold the $10,000 note as collateral to the company's indebtedness, claimants here, Bedford, Preston, and Bird, took up said note, paying the bank the $10,000, which was thereupon credited by the bank on the $14,750 note of the company. Kelley had then been dead four years. When he died, in June, 1904, the nursery company was a large, prosperous, and growing concern, and solvent. It so continued until October, 1906, when a severe and disastrous freeze destroyed its nursery stock and entailed immense losses which it was unable to retrieve, resulting in insolvency. No demand was ever made by the bank upon Kelley or the representatives of his estate for the payment of this note. And, so far as shown, no notice of dishonor of the notes for which this note was held as collateral, or of any failure on the part of the nursery company to meet its obligations, was given to Kelley or his administrator until November 1, 1909, over five years after his death, when claimants presented this claim for contribution against his estate in the probate court.
On February 6, 1903, when this $10,000 note was given, the bank held 11 notes of the nursery company, of various dates and amounts, totaling $13,000. These, being 90-day paper, were soon retired; most of them being taken care of at maturity by renewal notes for the same length of time, upon which interest was paid in advance. The history of the company's indebtedness, traced through the books of the bank and verified by witnesses, show a varying indebtedness, never less than the $13,000, represented by a sequence of 90-day notes, one occasionally being paid at maturity, but most often renewed with advance interest paid. Of the original $13,000, claimants trace, through repeated renewals and changing accounts, $8,250 as continued on until finally merged into the $14,750 note given January 2, 1906, and later renewed. While the note in question was payable on demand and, by the indorsement upon it, was collateral to certain other notes running for 90 days, "of different amounts and dates, made by the West Michigan...
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