National Loan and Building Society v. Lichtenwalner

• Decision Date: 20 March 1882
• Citation: 100 Pa. 100
• Parties: National Loan and Building Association <I>versus</I> Lichtenwalner.
• Court: Pennsylvania Supreme Court

100 Pa. 100

National Loan and Building Association versus Lichtenwalner.

Supreme Court of Pennsylvania.

March 9, 1882.

March 20, 1882.

March 9th 1882.

Before SHARSWOOD, C. J., MERCUR, GORDON, PAXSON, TRUNKEY, STERRETT and GREEN, JJ.

ERROR to the Court of Common Pleas of Lehigh county: Of January Term 1882, No 176.

COPYRIGHT MATERIAL OMITTED

R. E. Wright & Son (T. B. Metzger with them), for plaintiff in error.—In order to hold a guarantor the creditor need only prove that he has exercised due diligence in resorting to the ordinary processes of law for the collection of the debt, or that a resort to such processes would have been fruitless. He is not bound to resort to unusual or extraordinary process to compel a general sequestration of all the promissor's estate for the benefit of all his creditors, to pursue him through bankruptcy and then to institute like proceedings against other persons and other estates to the end that the aggregate dividends finally realized may pay his debt: Gilbert v. Henck, 6 Casey 208; Kirkpatrick v. White, 5 Casey 177; Janes v. Scott, 9 P. F. S. 182. Where the stockholders of a bank are liable under an act of incorporation for an amount equal to the stock subscriptions, their liability is not that of sureties but is special and sub modo only, it only accrues where the assets of the banks are exhausted. Neither can it be enforced except by a judicial decree first obtained: Craig's Appeal, 11 Norris 397; Mean's Appeal, 4 Norris 75; Patterson v. Wyomissing Mfg. Co., 4 Wright 17.

We submit that the court erred in holding that this plaintiff must pursue to a conclusion all these complicated, expensive and extraordinary processes, or prove them fruitless before his contract could avail him.

James S. Biery (Stiles & Son with him), for the defendant in error.—The certificate was overdue when it was transferred and guaranteed. The plaintiff contented himself with simply demanding payment of the bank, without bringing suit. To excuse this want of due diligence he relies on the alleged insolvency of the bank, but the evidence was far below the standard required to be shown to excuse a resort to legal process in such case. The proof must show clearly that the principal "was so utterly insolvent as not to make it worth while to sue him:" McClurg v. Fryer, 3 Har. 295. The bank continued to do business until the assignment in January 1878, and a part of this very claim, and other claims, were paid without suit.

The only way to test insolvency was by proceedings under the Banking Act of April 16, 1850, P. L. 477: Wright v. Davenport, 16 P. F. S. 148. Not only could prior dividends paid to stockholders have been recovered as assets of the bank for creditors (Stang's Appeal, 10 W. N. C. 409), but the liability of stockholders for unpaid balances of subscriptions, and their extra liability under the charter, should have been enforced by appropriate proceedings set in motion by the plaintiff, before he resorted to the defendant as guarantor; and the plaintiff having failed to take such action the guarantor is not liable in this action: Ogilvie v. Ins. Co., 22 Howard 380; Stang's Appeal, 10 W. N. C. 409; Marsh v. Borroughs, 1 Woods 463; Briggs v. Penniman, 8 Cowen 386; Gratz v. Redd, 4 B. Monroe 178; Norris v. Johnson, 34 Maryland 485; Means's Appeal, 4 Norris 79. The fact that such liability of stockholders is secondary or collateral does not relieve the plaintiff from the duty of pursuing it: Johnston v. Chapman, 3 P. & W. 20.

Mr Justice PAXSON delivered the opinion of the court, March 20th 1882.

That this is a contract of guaranty is settled by abundant authority: Bank v. Haynes, 8 Pick 423; Curtis v. Brown, 2 Barb. 55; Isett v. Hoge, 2 Watts 128; Johnston v. Chapman, 3 Penna. R. 18; Hoffman v. Bechtel, 2. P. F. S. 190; Woods v. Sherman, 21 Id. 100. It is equally clear that such contract imposes upon the plaintiff the duty of exercising due diligence to enforce payment from the principal before resort can be had to the guarantor. Campbell v. Baker, 10 Wright 243; Reigart v. White, 2 P. F. S. 439; Hoffman v. Bechtel, Ibid. 190. What is due diligence? There are many cases upon this point, and the general tenor of them appears to be that the contract for due diligence requires that a suit be brought within a reasonable time after the maturity of the claim and be duly prosecuted to judgment and execution before an action can be sustained against...