Dewey v. W. B. Clark Investment Co
| Citation | 50 N.W. 1032,48 Minn. 130 |
| Parties | Everett H. Dewey v. W. B. Clark Investment Co |
| Decision Date | 18 January 1892 |
| Court | Minnesota Supreme Court |
Argued January 6, 1892
Appeal by plaintiff, Everett H. Dewey, from an order of the district court, Hennepin county, Lochren, J., made July 11, 1891 overruling a demurrer to the answer.
John Paulson made his note, with interest coupons, February 1 1888, to T. E. Penney for $ 450 and interest, and secured its payment by a mortgage on 80 acres of land in Brookings county, South Dakota. On March 23, 1888, plaintiff bought this note and mortgage, and they were duly assigned to him. Defendant at the same time, in consideration of the purchase indorsed upon the note and executed an instrument as follows:
The debt having fallen due and being unpaid, plaintiff took no measures to enforce the mortgage, but brought this action upon the guaranty, alleging Paulson to be a nonresident of this state, and utterly insolvent. Defendant answered setting forth the facts above stated. The plaintiff demurred to the answer, on the ground that it did not state facts sufficient to constitute a defense to the action.
Order affirmed.
Fred W. Reed, for appellant.
This appeal must turn upon the interpretation of the contract sued upon. This the courts have always construed to mean that the guarantor will pay the note if it cannot be collected by due process of law. And due process of law is had when an execution is returned unsatisfied in an action on the note, or the maker is shown to be insolvent. Nichols, Shepard & Co. v. Allen, 22 Minn. 283; Lemmon v. Strong, 59 Conn. 450; Gary v. Cannon, 3 Ired. Eq. 64. It is the rule in expounding instruments of this character that the words of the guarantor are to be taken as strongly against him as the sense will admit. Drummond v. Prestman, 12 Wheat. 515; Sickle v. Marsh, 44 How. Pr. 91; Gates v. McKee, 13 N.Y. 232.
Appellant's position is simply this: Respondent sold appellant this note. To induce the purchase, it transferred as security a collateral contract, -- this mortgage. As a further inducement to purchase, it made as security this other collateral contract, -- this guaranty, -- two absolutely independent contracts. By this last contract respondent agreed that, if the note could not be collected from John Paulson when due, it would pay the note, and thus be entitled by subrogation to all collateral remedies. Nichols, Shepard & Co. v. Allen, 22 Minn. 283; Brackett v. Rich, 23 Minn. 485; Conner v. Howe, 35 Minn. 518; Day v. Elmore, 4 Wis. 190; Osborne v. Smith, 18 F. 126; Stone v. Rockefeller, 29 Ohio St. 625; Jones v. Ashford, 79 N.C. 173; New Orleans Canal & Banking Co. v. Escoffie, 2 La. Ann. 830; Jones v. Tincher, 15 Ind. 308; Cullum v. Emanuel, 1 Ala. 26.
Cobb & Wheelwright, for respondent.
Contracts of guaranty are to be construed like other contracts, and the intent of the parties, as collected from the whole instrument and the subject-matter to which it applies, must govern. Such intention must be ascertained from the language of the instrument, and the facts and circumstances attending its execution. Locke v. McVean, 33 Mich. 473; Mathews v. Phelps, 61 Mich. 327. The sale of the note and the guaranty thereof by respondent, together with the transfer of the mortgage to appellant, constituted one entire transaction. The purchase of the mortgage constituted the only consideration for the guaranty, and the mortgage was attached to the debt itself. The mortgage constitutes the chief value of the debt, and is what is generally purchased, rather than the note. Barman v. Carhartt, 10 Mich. 338; Johnson v. Shepard, 35 Mich. 115; Brainard v. Reynolds, 36 Vt. 614; Borden v. Gilbert, 13 Wis. 670; Newell v. Fowler, 23 Barb. 628; Baxter v. Smack, 17 How. Pr. 183.
The rule announced in Day v. Elmore, 4 Wis. 190, cited by appellant, was subsequently repudiated in Borden v. Gilbert, 13 Wis. 670.
One Paulson executed a promissory note to one Penney, and at the same time executed to him a mortgage on certain real estate to secure its payment. Penney was the secretary of the defendant company, and, although the fact does not distinctly appear, and probably is not material, we infer that the note and mortgage, although taken in the name of Penney for convenience, were in fact the property of the defendant. Subsequently, and before the maturity of the note, the defendant sold it to the plaintiff, guarantying its collection, and at the same time, and as part of the same transaction, sold and transferred to plaintiff the mortgage and caused Penney to execute to him the proper instrument of assignment. Paulson, the maker, is utterly insolvent, but the plaintiff has never resorted to the mortgage security, or attempted in any manner to collect the note out of it, although it is sufficient to pay the debt. A demurrer to an answer setting up these facts as a defense to an action brought on the guaranty presents the question whether, upon the facts stated, defendant's contract of guaranty is conditioned upon plaintiff's first resorting to and exhausting the mortgage security. The first step towards ascertaining defendant's liability is to determine the meaning of a contract guarantying collection. The whole law on this subject, stated generally, is that the guarantor agrees to pay the debt in case it...
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