Holmes v. Elder

• Decision Date: 23 May 1936
• Citation: 94 S.W.2d 390
• Parties: HOLMES v. ELDER et al.
• Court: Tennessee Supreme Court

94 S.W.2d 390

HOLMES v. ELDER et al.

Supreme Court of Tennessee.

May 23, 1936.

Appeal from Chancery Court, Gibson County; V. H. Holmes, Chancellor.

Proceeding by F. G. Holmes, clerk and master, against A. S. Elder and others. To review a decree of the Court of Appeals reversing a judgment for the plaintiff and dismissing the bill, the plaintiff brings certiorari.

Decree of Court of Appeals reversed and that of chancellor affirmed.

Taylor, Adams & Freeman, W. W. Herron and W. R. Landrum, all of Trenton, for appellant.

Harry H. Elder and W. R. Kinton, both of Trenton, and Lloyd S. Adams and J. D. Senter, Jr., both of Humboldt, for appellees.

CHAMBLISS, Justice.

Petitioner Holmes recovered a judgment for $12,471.35 in the trial court, Circuit Judge Bond sitting for the chancellor by interchange, against Elder et al., as sureties on a bond for $20,000 executed in 1927 to secure the payment to petitioner of his deposits in the Gibson County Bank, principal on the bond. The Court of Appeals reversed and dismissed the bill, and this court granted certiorari and has heard argument.

When the bond was made, petitioner was serving his second term as clerk and master and he was reappointed in 1931. The bank failed in 1932. Although the bond did not express any limitation as to time, the Court of Appeals was of opinion that "the law read into the bond sued upon the provision that it would expire with obligee's term of office, to wit: October 19, 1931, and that, therefore, the sureties were discharged of all liability thereon when Mr. Holmes qualified for his third term on October 19, 1931." The chancellor had held the sureties liable, being of opinion that "there was no limitation as to time in the bond," and that, "to construe it with reference to expiration of the term in which made would be to read into the bond a provision not inserted therein." Said he:

"I find no analogy in this respect between bonds of public officials and depositary bonds, as insisted by defendants, and as held in the case from the Court of Appeals (Colo.) relied on by defendants, for the reason that terms of office for which bond is given by public officers are fixed by Statute and sureties thereon necessarily engage themselves to be liable only for the fulfillment of the officer's contract with the Government for the term of his office.

"The term of the depositary is not fixed in this case either by Statute, or by the terms of the undertaking. On the other hand, the express terms of the bond are that the sureties will be liable for funds now deposited, or hereafter deposited, by Holmes, Clerk and Master, and without any limit as to time when deposited."

As the determination of the issue thus presented calls for a construction of this bond, it is here quoted in full:

"Know all men by these presents, that we, Gibson County Bank, as principal, and T. K. Happel, W. A. Cresap, A. S. Elder, R. R. Collins, J. E. Arnold, and Harry H. Elder, as sureties are each held and firmly bound unto F. G. Holmes, Clerk and Master of the Chancery Court at Trenton, Tennessee, and his successor in office, in the sum of Twenty Thousand Dollars ($20,000.00), for the payment of which we bind ourselves and each of us, our heirs, executors or administrators jointly and severally by these presents.

"The condition of this obligation is this:

"This bond is made to cover any and all funds that may be deposited now or hereafter in said bank by said Clerk and Master to his credit as such Clerk and Master. Now, if said Gibson County Bank shall safely keep said funds of said Clerk and Master and pay out the same upon checks drawn by him as such Clerk and Master on said funds in said bank, then this obligation is to become null and void and of no further effect, otherwise, to remain in full force and virtue.

"Witness our signatures and the signature of the Gibson County Bank by its duly authorized officers on this the 2nd day of March, 1927 at Trenton, Tennessee.

                   "[Signed]
                           "A. S. Elder, Surety
                           "R. R. Collins
                           "J. E. Arnold (Surety)
                           "Harry H. Elder (Surety)
                           "Gibson County Bank
                             "By T. K. Happel, Pres
                             "By W. A. Cresap, V. P
                               and Cashier
                           "T. K. Happel, Surety
                           "W. A. Cresap, Surety."
                

Laying grounds for its conclusion, the opinion of the Court of Appeals first holds that the obligation is one of suretyship, rather than of guaranty, and stresses the rule that obligations of this character are to be strictly construed and may not be extended by implication beyond the express terms of the undertaking. Hardison & Co. v. Yeaman, 115 Tenn. 639, 649, 91 S.W. 1111; City of Sterling v. Wolf, 163 Ill. 467, 45 N.E. 218.

It might well be contended that the obligation sued on is one of guaranty, that the primary obligation to pay these depositors was that of the bank, an obligation wholly independent of this bond, and that the bond was a collateral undertaking only to answer for the default of the bank. However, conceding that the contract here is one of suretyship, the rule is one for guidance in construction only, and is subject to the basic rule that the instrument is to be considered as a whole, in the light of the circumstances surrounding its making, with the primary purpose of ascertaining just what was within the contemplation of the parties. As expressed by Edward Beal, English author and scholar, in his Cardinal Rules of Interpretation (2d Ed.) page 71, "The purpose of interpreting an instrument is to see what is the intention expressed by the words used. If from the imperfection of language it is impossible to know what the intention is without inquiring further, then see what the circumstances were with reference to which the words were used, and what was the object, appearing from those circumstances, which the persons using them had in view."

And just here, as bearing on the application in the instant case of the stricti juris rule invoked, it will be borne in mind that this rule of construction is not applied in all cases of suretyship. Quite generally it is confined to cases of volunteer, uncompensated, accommodation sureties, and not extended to corporate or other paid sureties. This distinction is recognized in our cases, and it was pointed out by Mr. Justice Lurton, at one time the distinguished Chief Justice of this court, in Supreme Council Catholic K. of A. v. Fidelity & Casualty Company (C.C.A.) 63 F. at page 58, in these words:

"With reference to bonds of this kind, executed upon a consideration, and by a corporation organized to make such bonds for profit, the rule of construction applied to ordinary sureties is not applicable. The bond is in the terms prescribed by the surety, and any doubtful language should be construed most strongly against the surety, and in favor of the indemnity which the assured had reasonable ground to expect. The rule applicable to contracts of fire and life insurance is the rule, by analogy, most applicable to a contract like that in this case."

Now, while the bond before us is not a corporate bond, or one for which it appears that a consideration was directly paid, when the underlying reasoning is considered an analogy is apparent. The signers are the president and the cashier and other officers and stockholders of the principal obligor; prima facie they drafted the instrument they signed, and they became parties to this obligation for the purpose, not alone of securing to this depositor the repayment of trust funds coming into his hands officially, but of securing to themselves, through the institution which they officered and in part owned, the financial benefits incident to the use and handling of such funds. Indeed, their relation to this contract of indemnity, while on the face thereof and technically, that of sureties, partook, in substance and in fact, of that of principals. So that, we are not inclined to adopt the view that that special and tender consideration commonly accorded personal, uncompensated sureties is due respondents here. We quote from National Surety Co. v. Campbell, 108 Wash. 596, 185 P. 602, 604, as follows:

"Admitting the rule that in every doubtful case the presumption should be against a continuing guaranty, especially in the case of an uncompensated surety, yet where...