German Sav. Bank v. Drake Roofing Co.

• Decision Date: 15 October 1900
• Parties: GERMAN SAV. BANK v. DRAKE ROOFING CO. ET AL.
• Court: Iowa Supreme Court

112 Iowa 184

83 N.W. 960

GERMAN SAV. BANK

v.DRAKE ROOFING CO. ET AL.

Supreme Court of Iowa.

Oct. 15, 1900.

Appeal from district court, Polk county; T. F. Stevenson, Judge.

Action at law on a contract of guaranty. Defendants pleaded no notice of the acceptance of the guaranty, of advancements made thereon, or of the default of the principal debtor. They also pleaded extension of time to the principal, and change in the principal contract without their assent. The case was by agreement tried to the court without a jury, resulting in a judgment for plaintiff; and the defendants other than the Drake Roofing Company and J. F. N. Drake appeal, Reversed.Phillips, Ryan & Ryan, for appellants.

W. G. Harvison, for appellee.

DEEMER, J.

The Drake Roofing Company was engaged in the business of gravel roofing in the city of Des Moines. Prior to October 2, 1895, it had been doing business with plaintiff, a banking corporation in the same city. Wishing to branch out in its business, the roofing company, through its secretary, J. F. N. Drake, applied to the bank for further accommodations, by way of loans, to enable it to buy materials in larger quantities and at better rates. The secretary did not wish to furnish sureties every time he called for a loan, and a guaranty was agreed upon. The attorney for the bank prepared the instrument, which was as follows, to wit: “For the purpose of inducing the German Savings Bank, of Des Moines, Polk county, Iowa, to extend credit to the Drake Roofing Company, the undersigned, J. F. N. Drake, F. O. Drake, A. P. Cottrell, and R. T. C. Lord, hereby guaranty to the said German Savings Bank payment of all notes, checks, drafts, overdrafts, and other evidences of indebtedness which may accrue from the said Drake Roofing Company to the said German Savings Bank within six months from the date of this guaranty, not to exceed the sum of five hundred dollars, it being the intention of this contract to secure payment to the said German Savings Bank; and the undersigned hereby agree to pay to the said German Savings Bank all notes, checks, drafts, overdrafts, and other evidences of indebtedness from said Drake Roofing Company to said German Savings Bank which may accrue within six months from the date hereof, not to exceed five hundred dollars, waiving demand, notice, and protest on the part of the said German Savings Bank in collecting said sums from said Drake Roofing Company.” The secretary took this to the defendants, who signed it, and he (the secretary) returned the same to the bank. A few days after the delivery of the instrument the roofing company was allowed to overdraw its account to the extent of $509. Thereafter, and about the time the bank's quarterly statement was due, it requested the roofing company to make a note for $500, to cover that amount of the overdraft. The request was granted, and on the 5th day of November, 1895, the roofing company, through its secretary, executed and delivered a demand note for the sum of $500, payable to the bank. This note was renewed on February 10, 1896, and again on April 1, 1896,--each time by a demand note bearing 8 per cent. interest, and providing for attorney's fees. No notice of the acceptance of the guaranty, or of advances made thereon, was ever given the defendants. At the time of the transactions in question the Drake Roofing Company was insolvent, and, as it failed to pay the last renewal note, this action was brought on that note, and the instrument of guaranty hitherto set out. The defenses have already been stated, and, as they are each and all relied on, they will be considered in the order in which they were set out.

When defendants signed the letter of guaranty, the Drake Roofing Company was not indebted to the plaintiff. The advancements were made by the bank after the delivery of the instrument of guaranty, and the primary question is, was notice of the acceptance of the guaranty necessary? The authorities relating to this question are in hopeless conflict, and, although some of the rules are fairly well settled, there is a want of harmony in the decisions applying them to special circumstances. When the guaranty is a letter of credit, or an effort to become responsible for a credit that may or may not be given to another, at the option of the party to whom the application for credit is made, the decided weight of authority is that the guarantor must within a reasonable time be notified of the acceptance of the guaranty. But they differ more or less in determining what is a guaranty and what an offer to guaranty. Two very satisfactory and conclusive reasons are given for this general rule. The first is that the so-called guaranty is a mere offer or proposition, and is not complete until the party making the offer is notified of its acceptance, when the minds of the parties meet, and the contract is completed. The second is that the party making the offer is entitled to know whether or not his offer has been accepted, that he may know his responsibility, and so regulate his course of conduct towards the principal debtor that he may not suffer loss. See, as supporting the rule, Edmondston v. Drake, 5 Pet. 624, 8 L. Ed. 251;Douglass v. Reynolds, 7 Pet. 113, 8 L. Ed. 626;Lee v. Dick, 10 Pet. 482, 9 L. Ed. 503;Adams v. Jones, 12 Pet. 207, 9 L. Ed. 1058;Davis v. Wells, 104 U. S. 159, 26 L. Ed. 686;Machine Co. v. Richards, 115 U. S. 524, 6 Sup. Ct. 173, 29 L. Ed. 480; Claflin v. Briant, 58 Ga. 414; Taylor v. McClung, 2 Houst. 24; Tuckerman v. French, 7 Greenl. 115; Kellogg v. Stockton, 29 Pa. St. 460; Kincheloe v. Holmes, 7 B. Mon. 5;Allen v. Pike, 3 Cush. 238;Mussey v. Rayner, 22 Pick. 223;Rankin v. Childs, 9 Mo. 673;Mayfield v. Wheeler, 37 Tex. 256; McCollum v. Cushing, 22 Ark. 540; Geiger v. Clark, 13 Cal. 579;Cooke v. Orne, 37 Ill. 186;Oaks v. Weller, 13 Vt. 106;Steadman v. Guthrie, 4 Metc. (Ky.) 147; Kay v. Allen, 9 Pa. St. 320; Beebe v. Dudley, 26 N. H. 249. In Douglass v. Howland, 24 Wend. 35, Justice Cowen wrote an elaborate opinion entirely repudiating the doctrine of notice as necessary to the consummation of the contract; but that case has not been generally followed, and has been doubted, if not overruled, by Jackson v. Griswold, 4 Hill, 522. See, also, Beekman v. Hale, 17 Johns. 140. There are a few cases that seem to hold a guaranty relating to future advances binding, although no notice of acceptance is given the guarantor. These decisions are opposed to the great weight of authority, and we are not inclined to follow them. See Whitney v. Groot, 24 Wend. 82;Wright v. Griffith, 121 Ind. 478, 23 N. E. 281, 6 L. R. A. 639: Bank v. Coster's Ex'rs, 3 N. Y. 303;Lonsdale v. Bank, 18 Ohio, 126;Yancey v. Brown, 3 Sneed, 89. But even here the conflict is more in the application of principles to particular facts, than in the principles themselves. The difficulty seems to be in distinguishing between an absolute guaranty and a mere offer to, or proposal of, guaranty. In some cases it is held that notice of acceptance must be given the guarantor even though his promise be absolute in terms. Chief Justice Marshall so held in Russell v. Clarke's Ex'rs, 7 Cranch, 69, 3 L. Ed. 271. Judge Story appears to have been of the same opinion. See Cremer v. Higginson, 1 Mason, 323, Fed. Cas. No. 3,383. See, also, Allen v. Pike, supra; Talbot v. Gay, 18 Pick. 534; and Craft v. Isham, 13 Conn. 28. But New York and some other states hold to the contrary. See cases already cited. But here, again, the conflict seems to be founded primarily on the construction of the contract, and on the divergent views as to what constitutes an absolute guaranty. Conceding for the purposes of the case that no notice of acceptance of an absolute guaranty is required, and holding, as we do, that a mere offer or proposal of guaranty requires notice of acceptance by the other party, we are to determine to which class the instrument in suit belongs. The best statement of the rule we have been able to find is that announced in Machine Co. v. Richards, 115 U. S. 524, 6 Sup. Ct. 173, 29 L. Ed. 480, where Gray, J., speaking for the court, says: “A contract of guaranty, like every other contract, can only be made by the mutual assent of the parties. If the guaranty is signed by the guarantor at the request of the other party, or if the latter's agreement to accept is contemporaneous with the guaranty, or if the receipt from him of a valuable consideration, however small, is acknowledged in the guaranty, the mutual assent is proved, and the delivery of the guaranty to him, or for his use, completes the contract. But if the guaranty is signed by the guarantor without any previous request of the other party, and in his absence, for no consideration moving between them, except future advances to be made to the principal debtor, the guaranty is, in legal effect, an offer or proposal on the part of the guarantor, needing an acceptance by the other party to complete the contract.” See, also, De Cremer v. Anderson (Mich.) 71 N. W. 1090. The case at bar clearly belongs to the latter class stated by Justice Gray. There is no evidence of any request from plaintiff to defendant guarantors, or of any consideration moving from it, and received or acknowledged by them at the time they signed the guaranty, or that credit was extended the Drake Roofing Company at the time the letter of guaranty was delivered. Indeed, it clearly appears that the...