J. R. Watkins Co. v. Keeney

• Decision Date: 20 January 1925
• Citation: 52 N.D. 280,201 N.W. 833
• Parties: J. R. WATKINS CO. v. KEENEY et al.
• Court: North Dakota Supreme Court

52 N.D. 280

201 N.W. 833

J. R. WATKINS CO.

v.KEENEY et al.

Supreme Court of North Dakota.

Dec. 20, 1924.

Rehearing Denied Jan. 20, 1925.

Syllabus by the Court.

Fraud practiced by the principal upon the surety, to which the creditor or his agent is in no sense a party, does not, as a rule, affect the liability of the surety to the creditor.

A person who delivers an instrument with blanks therein, which are afterwards filled in an unauthorized manner, may, nevertheless, be bound thereby when, in a good-faith reliance thereon, third persons have justifiably acted in such a way as to be prejudiced if the instrument be held invalid.

If one signs a surety bond containing blanks, he must be understood to intrust it to the principal, to whom he delivers it, to be filled properly. Delivery of the bond with the amount of the indebtedness due the creditor from the principal in blank, although such indebtedness is, in general terms, assumed or guaranteed by the sureties, does not, by implication, in the absence of express authorization, confer authority on the creditor to fill such blank, and thereby convert the bond into an account stated as between the creditor and the sureties.

Held, under the facts and for reasons stated, that the filling of blanks in a surety bond by the creditor, when not expressly or impliedly authorized, so as to contain the amount of the existing indebtedness, owing by the principal to the creditor, constitutes a material alteration and avoids the instrument.

Appeal from District Court, Richland County; Chas. E. Wolfe, Judge.

Action by the J. R. Watkins Company, against M. D. Keeney and others. From a judgment for plaintiff, and from an order denying new trial, defendants appeal. Reversed, and new trial ordered.

Purcell & Slattery, and Lauder & Lauder, all of Wahpeton, for appellants.

Dan R. Jones, of Wahpeton, Tawney, Smith & Tawney, of Winona, Minn., and Lawrence, Murphy & Nilles, of Fargo, for respondent.

JOHNSON, J.

This is an appeal from a judgment of the district court of Richland county in favor of the plaintiff in the sum of $2,859.13 and from an order denying a motion for a new trial. Keeney defaulted.

The plaintiff is a foreign corporation, with its principal place of business in the city of Winona, Minn. It is engaged in the business of manufacturing and distributing remedies, spices, and other goods, wares, and merchandise through salesmen, to whom definite territory is assigned. The defendant Keeney had a contract of salesmanship with the plaintiff, covering the south half of Richland county, “except the west range.” The contract involved in this litigation is dated December 1, 1920. He had been salesman for plaintiff in the same territory for several years, apparently executing a new contract each year. The other defendants Theede and Green are variously referred to as sureties or guarantors. Without determining their exact status, we shall, in this opinion, call them sureties. The contract is substantially the same as the one described in J. R. Watkins Medical Co. v. Payne, 47 N. D. 100, 180 N. W. 968. Immediately following the signature of the company and of defendant Keeney appears the obligation signed by the sureties, as follows:

“In consideration of the execution of the foregoing agreement by The J. R. Watkins Company, which we have read or heard read and hereby agree and assent to, and the sale and delivery by it to the party of the second part, as vendee, of its goods and other articles, and the extension of the time of payment of the indebtedness now due from him to said company, as therein provided, we, the undersigned sureties, do hereby waive notice of the acceptance of this agreement and diligence in bringing action against said second party, and jointly, severally and unconditionally promise and guarantee the full and complete payment of said indebtedness, the amount of which is now written in said agreement, or if not we hereby expressly authorize the amount of said indebtedness to be written therein, and jointly, severally and unconditionally promise to pay for said goods and other articles, and the prepaid freight and express charges thereon, at the time and place, and in the manner in said agreement provided.”

We set this undertaking out in full, because it is somewhat different from the engagement made by the sureties in the Payne Case, appearing on pages 103 and 104 of the official report (180 N. W. 969). In that case the sureties executed the agreement in consideration of $1 and also in consideration of the execution of the contract. In the case at bar the recital of $1 has been eliminated and instead the consideration for the obligation of the sureties is the execution of the agreement by the plaintiff and extension of the time of payment of existing indebtedness due plaintiff from Keeney. In the Payne Case there was no recital in the obligation signed by the sureties with respect to the amount of the indebtedness, except by reference to such amount as it appeared in the body of the main contract. In the case at bar this part of the agreement has been modified by inserting therein the following clause, after the word “indebtedness”:

“The amount of which is now written in said agreement, or, if not, we hereby expressly authorize the amount of said indebtedness to be written therein.”

Reference should also be made to the contract under consideration in the case of Dr. Koch Medical Tea Co. v. Poitras, 36 N. D. 144, 161 N. W. 727. The obligation of the sureties in that case was a guaranty of “the full and complete payment of all indebtednessof the party of the second part to the party of the first part, arising under the agreement.” It was there held that insertion in the contract, by plaintiff, of the amount due it from the assignor of Poitras, after the execution thereof by the sureties, constituted a material alteration. It will be observed in the case at bar that the agreement of Keeney's codefendants purports, upon its face, to give express authority to an unnamed person to fill the amount of the existing indebtedness in a space left blank for that purpose.

[1] The sureties answered and contested the right of the plaintiff to recover as against them. They sought to prove, among other things, that they were induced to sign the instrument by the representations of the principal Keeney to the effect that he would procure the signature of another as coobligor, and, also, that at the time he was not indebted to the company in any amount. The trial court excluded this testimony and offers of proof of the same general tenor, on the theory that Keeney, in procuring the sureties, was not acting as agent of the plaintiff, but, rather, for himself; that, therefore, any fraud practiced or misrepresentations made by him were not binding on the plaintiff, unless it had actual knowledge thereof; and that, inasmuch as the evidence showed, and there was no offer of proof to the contrary that the plaintiff had no knowledge of any alleged fraud or misrepresentation of which Keeney was guilty when he induced his codefendants to sign the contract of guaranty, the plaintiff was not bound thereby. In other words, the trial court applied the general rule, stated in the Poitras Case, supra, to the effect that fraud practiced by the principal upon the surety, to which the creditor or his agent is in no sense a party, does not affect the liability of the surety to the creditor. It is strenuously urged by counsel for the defendants and appellants that the trial court erred in this regard; that Keeney was, in fact, the agent of the plaintiff in procuring guarantors of pre-existing indebtedness; and that the filling of the blank as to the amount of the preexisting indebtedness was wholly unauthorized and constituted a material alteration of the instrument so as to render the same unenforcible against the sureties.

It seems to be conceded that, if Keeney was the agent of the plaintiff in procuring the execution of the bond, the plaintiff cannot escape the consequences of the fraud alleged to have been committed by him in order to induce the other defendants to sign the instrument. It is strenuously urged, however, that Keeney was acting for himself and not as agent of the plaintiff, when he induced his codefendants to execute the instrument. It is said that the entire transaction was for his benefit; that his and the plaintiff's interests were antagonistic; and that he procured more goods, an extension of time, and additional credit from plaintiff in reliance on the undertaking of Keeney's codefendants.

In support of the contention that Keeney was agent of the plaintiff, the sureties rely largely...