Schoonover v. Osborne Bros.

• Decision Date: 18 May 1899
• Citation: 79 N.W. 263,108 Iowa 453
• Parties: L. SCHOONOVER v. OSBORNE BROS., WILLIAM M. OSBORNE, LEWIS D. OSBORNE, and DAVID OSBORNE, Appellants
• Court: Iowa Supreme Court

79 N.W. 263

108 Iowa 453

L. SCHOONOVER v. OSBORNE BROS., WILLIAM M. OSBORNE, LEWIS D. OSBORNE, and DAVID OSBORNE, Appellants

Supreme Court of Iowa, Des Moines

May 18, 1899

Appeal from Jones District Court.--HON. W. G. THOMPSON, Judge.

ACTON against defendants, Osborne Bros., William M. Osborne, Lewis D. Osborne, and David Osborne, on a promissory note, and for the amount of an account against Osborne Bros., William M Osborne, and Lewis D. Osborne, which it is claimed defendant David Osborne guarantied. The action was aided by attachment which it is claimed was levied upon all the property of the defendants. Defendants Osborne Bros., William M. Osborne, and Lewis D. Osborne pleaded usury, and also a counterclaim on the attachment bond. Defendant David Osborne denied the allegations of the petition; alleged that, if he signed the note and guaranty bond sued on, he was not in his right mind when he did so, and that there was no consideration therefor and further alleged that he made no guaranty to plaintiff but that his guaranty, if any, was to the firm of Shaw & Schoonover. He also alleged that his liability on the guaranty, if any, has been extinguished by payment of the principal obligation, and further pleaded a counterclaim on the attachment bond. On the issues thus joined the case was tried to a jury, resulting in a verdict and judgment for plaintiff in the sum of thirty-two thousand and forty-six dollars and sixty-four cents. Defendants appeal.--Affirmed in part, and reversed in part.

REVERSED.

Sheean & McCarn, M. W. Herrick, F. O. Ellison and Jamison & Smyth for appellants.

Remley, Ney & Remley and Ercanbeck & Lawrence for appellee.

OPINION

DEEMER, J.

Prior to June 28, 1894, Shaw & Schoonover was a co-partnership consisting of W. T. Shaw and plaintiff, doing a banking business in the city of Anamosa, Iowa. On that day the firm was dissolved, and plaintiff purchased, and became the sole owner of, the assets of the firm. Osborne Bros. is also a co-partnership, engaged in the livery business, and in the buying and selling of stock. Its members were William M. and Lewis D. Osborne. This co-partnership had been doing business with the firm of Shaw & Schoonover for many years prior to its dissolution, and continued to do business with plaintiff thereafter, and until the commencement of this suit. The note on which the action in part is based is for ten thousand dollars, and was executed by Osborne Bros. and David Osborne, the other defendant, on the first day of January, 1891. The account which is the other part of plaintiff's cause of action is for money advanced Osborne Bros. by Shaw & Schoonover, and by Schoonover individually, covering a period of years from August 5, 1882, down to August 5, 1896, and the balance claimed to be due is seventeen thousand two hundred and six dollars and thirty-one cents. Plaintiff seeks to charge defendant David Osborne with the payment of this account by reason of the following instrument of guaranty: "Anamosa, Iowa, May 25th, 1894. I hereby agree to be security to Shaw & Schoonover for whatever sum of money they have, or may hereafter, let my sons, Osborne Brothers, have to use in their business. David Osborne." The account covers interest items amounting to nearly eleven thousand dollars, which it is claimed were charged from time to time on daily balances, with the knowledge and consent of Osborne Bros. These charges were made at the rate of ten per cent. until the legal rate by contract was changed to eight and after that at eight per cent. There never was any written agreement by Osborne Bros. to pay any rate per cent. as interest. The account that Shaw & Schoonover had with Osborne Bros. was never closed, but was continued after plaintiff succeeded to the interests of his firm just as it had been prior to that date. Osborne Bros. were charged with checks drawn on the bank, and with interest, and credited with the deposits, just as if there had been no change in the membership of the banking firm. After Schoonover succeeded to the business of that firm, Osborne Bros. deposited more than twenty thousand dollars, which was credited to their account. At the time of the dissolution of the firm they were indebted to it in the sum of sixteen thousand five hundred and eighty-five dollars and eighty-five cents, as shown by the books of the bank. Defendant David Osborne asked instructions to the effect that, if the jury found his mental condition was such at the time he signed the note and guaranty that he did not know what he was doing, their verdict should be for him. He further requested the court to charge that he was not liable on the guaranty for money advanced by plaintiff, and that, if Osborne Bros. made payments on their account after the dissolution of the firm of Shaw & Schoonover which equaled or exceeded the amount due that firm at the time of its dissolution their verdict should be for him, in so far as the account was concerned. Some other instructions were asked, which it is not necessary to refer to at length. The court refused these instructions, and charged the jury that plaintiff was entitled to rely on the letter of guaranty, and that David Osborne was responsible to him for the amount of his account against Osborne Bros.

As there was no evidence of David Osborne's mental incapacity, the court was right in not submitting that question to the jury. The other propositions are of more difficulty; and the first is, is defendant David Osborne liable to plaintiff on a guaranty made to Shaw & Schoonover? Announcement of a few elementary principles of law will help to solve this question: A contract of guaranty or suretyship is said to be strictissimi juris, and one in which the guarantor has the right to prescribe the exact terms upon which he will enter into the obligation, and to insist on his discharge if those terms are not observed. It is not a question whether he is harmed by a deviation to which he has not assented. He may plant himself on the technical obligation: "This is not my contract. 'Non haec in foedera veni.'" Barns v. Barrow, 61 N.Y. 39; Kingsbury v. Westfall, 61 N.Y. 356; Fellows v. Prentiss, 3 Denio 512; Allison v Rutledge, 13 Tenn. 193, 5 Yer. 193; Bussier v. Chew, 5 Phila. 70; Penoyer v. Watson, 16 Johns. 100. "A rule never to be lost sight of in determining the liability of a surety or a guarantor is that he is a favorite of the law, and has a right to stand on the strict terms of his obligation, when such terms are ascertained. This is a rule universally recognized by the courts, and is applicable to every variety of circumstances." 1 Brandt Suretyship (2d ed.), 134, 135; People v. Chalmers, 60 N.Y. 154; State v. Churchill, 48 Ark. 426 (3 S.W. 352, 3 S.W. 880). Again it has been said: "A surety or a guarantor usually derives no benefit from his contract. His object generally is to befriend the principal. * * * The guarantor is liable only because he has agreed to become so. He is bound by his agreement, and nothing else. * * It has been repeatedly decided that he is under no moral obligations to pay the debt of his principal. Being then bound by his agreement alone, and deriving no benefit from the transaction, it is eminently just and proper that he should be a favorite of the law, and have a right to stand on the strict terms of his obligation. To charge him beyond its terms, or to permit it to be altered without his consent would be, not to enforce the contract made by him, but to make another for him." In applying these rules courts have usually held that a guaranty addressed to a particular person can only be acted upon and enforced by that party. See Taylor v. Wetmore, 10 Ohio 490; Bank v. Diefendorf, 90 Ill. 396; Crane Co. v. Specht, 39 Neb. 123 (57 N.W. 1015); Penoyer v. Watson, 16 Johns. 100. Thus, in Smith v. Montgomery, 3 Tex. 199, the defendant wrote and forwarded a letter of credit, as follows: "Col. Smith & Pilgrim--Gentlemen: Mr. A. W. Tennard wishes to get some dry goods on time. If you will furnish. I will see you paid, as far as the amount of $ 3,000, and much oblige, yours, with respect, James S. Montgomery." This was addressed on the back to Smith alone. Smith and Pilgrim had been partners in business, but a short time before had dissolved partnership. The letter, on the back, being addressed to Smith alone, it was delivered to him, and he supplied the goods to Tennard, who failed to make payment; and suit was brought to recover from Montgomery, as guarantor. The court, in deciding the case, says: "Upon consideration, we must look to the address on the face of the letter, and not to the direction on the back of it, to ascertain the party to whom its application and promise were intended by the writer to have been made; that, bearing upon its face a direction and address full and complete and free from ambiguity, we must take that as the certain criterion to determine its application, without regard to the discrepancy in the superscription. If the letter did not bear upon its face the proper address, resort might be had to the superscription, or perhaps to other extrinsic evidence, if necessary, to determine its direction and application. Bell v. Bruen, 42 U.S. 169, 1 HOW 169, 11 L.Ed. 89. But when the contract, on its face, is complete and perfect, and certain to every intent, as well in respect to the parties as to the subject-matter, we do not think it admissible to resort to anything extrinsic to control the express terms and clear import of the face of the instrument. * * * It is a well-settled rule, applicable to this class of cases, that the liability of a guarantor or surety cannot, by implication or otherwise, be extended beyond the terms of his actual engagement. It does not matter that a proposed alteration would...