Jackson v. Decker

This action was brought to reform and recover upon certain guaranties signed by George G. Decker and his co-partner in the firm name of Decker & More, and by the McKinley & Helilter Investment Company. The defendant George G. Decker alone answered the complaint. It appeared upon the trial that the plaintiff’s intestate, Maurice J. Smith, bought of George G. Decker and his co-partner certain promissory notes, made by different parties, but all of the same general character and description. One of them was purchased on the 24th day of May, 1887. It was made by one Henderson, of McPherson, Kan., for the sum of $1,000, was dated the 1st day of May, 1887, was payable five years after date at the Girard National Bank in Philadelphia, with interest at the rate of 7 per cent, per annum, payable semiannually. Accompanying such note was a mortgage or trust deed to secure its

“That in consideration of said sale the undersigned guaranty the collection in full of said note with seven per cent, interest upon the same, upon the following conditions: First. In case of default in the payment of said note or interest due on same, or a failure to comply with the requirements named in the trust deed, securing said note, the holder of said note shall, at the request of the undersigned, at once forward said note and trust deed for collection. Second. Said trust deed shall be foreclosed in the. usual course provided by law, and the land sold. In case there is no bid sufficient to cover the debt and costs, the land described in the trust deed may, at the option of the undersigned, be bid in in the name of the holder of this note. Third. In ease the land is so purchased, the undersigned hereby bind themselves to take full charge of said land, and sell same within two years after the above-described note matures, and, in case said land does not sell for a sufficient amount to pay the debt in full, to make good and pay any deficiency.

“[Signed] The McKinley and Heliker Investment Company,

“W. B. McKinley, Secretary.

“Decker & More.”

Interest was "paid on the note up to a certain time by Decker & More, they having received the money for that purpose from the McKinley Company, but when the note matured it was not paid. It was presented some time after maturity at the Girard National Bank, and payment was demanded, but there were no funds there with which to make payment, and none had ever been deposited with that bank for that purpose. Decker & More never made any request to the plaintiffs, as holders of the note and mortgages, to forward the same for collection; nor have they given any directions with reference to the enforcement of the security collateral to the note. It further appears that the lands covered by the mortgage were sold in September, 1893, by the constituted authorities in the state of Kansas, for unpaid taxes, and that the lands were conveyed to the purchaser at the tax sale. Another of the notes was Bought by the plaintiffs’ intestate about the 12th or 15th of August, 1887. It was made by Elijah D. Harding and Mary M. Harding, of McPherson, Kan., for the sum of $500, dated May 1, 1887, and with reference to this note substantially a similar state of facts is disclosed. Decker & More sold the note in connection with which' a mortgage or trust deed was given as collateral, and a guaranty of the same character and in the same words, and signed in the same way, as that connected with the Henderson note, was also given to the plaintiffs’ intestate. The note was payable at the same place, and it was presented for payment, and payment was refused for the same reason as in the case of the Henderson-note, and the lands were, also sold for taxes, and conveyed to a purchaser at the tax sale. The same inaction of Decker & More with reference to the conditions of the guaranty was also proven-as to this note. On the 27th of April, 1888, the plaintiffs’ intes

The contracts of guaranty sued upon in this action are personal obligations of the firm of Decker & More. There is nothing, either in the form of the contracts or in the history of the transactions, so far as disclosed by the proofs, to authorize a finding that Decker & More, in making the sale to the plaintiffs’ intestate of the promissory notes secured by the farm mortgages, were acting in any other capacity than as dealers personally and directly with Mr. Smith. Although those guaranties are signed by the McKinley & Heliker Investment Company, they are also signed by Decker & More without any qualification or limitation, or anything that would indicate that they were agents for anybody. The guaranties were given upon full consideration, because they are part of, and inseparably connected with, the several transactions of the sales of the notes. But they were not guaranties of payment of the principal of eitheiof the three notes, or of the interest of two of them. They were merely guaranties of collection except as to interest on the Horney

“The fundamental distinction between a guaranty of payment and one of collection is that in the first case the guarantor undertakes unconditionally that the debtor will pay, and the creditor may, upon default, proceed directly against the guarantor, without taking any steps to collect of the principal debtor, and the omission or neglect to proceed against him is not (except under special circumstances) any defense to the guarantor; while in the second case the undertaking is that, if the demand cannot be collected by legal proceedings, the guarantor will pay, and consequently legal proceedings against the principal debtor, and a failure to collect of him by those means, are conditions precedent to the liability of the guarantor; and to these the law, as established by numerous decisions, attaches the further condition that due diligence be exercised by the creditor in enforcing his legal remedies against the debtor.”

Omitting the matter of interest on the Horney note, there can be no doubt as to the nature of the guaranty attached to each of the notes sold to the plaintiffs’ intestate. It is declared to be a guaranty for the collection in full of said notes, and the only question, so far as the liability of the defendant Decker is concerned, is whether there is anything in the contracts of guaranty to change the relation of Decker & More to that guaranty by relieving the plaintiffs from the duty of proceeding against the makers of the notes or to enforce the security, by diligent pursuit of remedies for that purpose. It is claimed by the learned counsel for the appellants that the contracts of guaranty are not for the collection generally of the notes and mortgages, but are contracts for the collection of the notes out of the mortgaged premises in a particular way and by specially provided steps or mode of procedure. 111686 contracts cannot be so construed. In each instance there was a sale of a promissory note, which constituted a primary and original liability. The trust deeds or mortgages were collateral to such notes. The holder of the notes, upon default in their payment, had an immediate right of recourse against the land, to foreclose the mortgages, without any control or interference of the guarantors. The conditions annexed to the guaranty were conditions in favor of the guarantors. They were not conditions imposing burdens upon such guarantors, but gave them privileges. They were not obliged to do anything, so far as the holders of the notes were concerned, under those conditions, unless they were availed of by the guarantors. The first condition is that, in case of default in the payment of the note or interest or a failure to comply with the requirements of the trust deed, the holder of the note should, if the guarantors requested, at once forward the note and the trust deed for collection. There is no obligation there assumed on the part of the guarantors to take the burden of suing upon the notes or foreclosing the mortgages, but for their own protection, if they desired to do so, they could insist that the holder proceed at once and without any delay to enforce the remedies arising upon the security. And so as to the second condition. It was made in favor of the guarantors, and required that the trust deed or mortgages should be foreclosed in the usual course provided by law, and the land sold; and, when that was done, if there were no bids sufficient

The Henderson note became due in May, 1892. No effort was made by the plaintiffs to enforce that note, or the security collateral to it. The deed to the purchaser at the tax sale of the land covered by the Henderson mortgage was not made until September 20, 1893. The Harding note became due in May, 1892. The deed to the purchaser at the tax sale of that property was not made until October, 1893. The Horney note became due in April, 1893. The deed to the purchaser at the tax sale of the property covered by the Horney mortgages was not made until February, 1896. Thus, in the case of each of these mortgages or trust deeds, the plaintiffs could have proceeded to enforce their remedies upon the securities, and the guarantors would have had an opportunity to avail themselves of the second and third conditions contained in the contracts of guaranty had the plaintiffs diligently pursued their rights and remedies. It cannot be said that a resort to the enforcement of the securities would have been ineffectual, or a mere idle ceremony. It is a mere speculation so to consider. We cannot find in this case anything to excuse the plaintiffs from the performance of the duty which was incumbent upon them. The undertaking of guarantors such as Decker & More has been held to be only one that the debt will be paid if the principal be prosecuted with reasonable diligence, and the guarantor is discharged from all liability by the want of such diligence on the part of the creditor in prosecuting the principal debtor; and it has also been held that, where the facts are undisputed, the question of what is reasonable diligence is a question of law for the court. Craig v. Parkis, 40 N. Y. 181 . It is true that this is largely controlled by the nature of the security, and the residence, perhaps, of the parties; but in this case these notes were purchased with the knowledge that they were made by nonresidents, and that the securities were upon lands in a distant state;' and there cannot, therefore, be any excuse arising from the circumstances referred to: There is nothing in the case to show that the maker of either of the

It is claimed, however, that the plaintiffs were entitled to recover upon one of these guaranties for certain installments of interest due and unpaid before the maturity of the note, and that claim is well founded. To the guaranty of the Horney note was annexed a fourth clause, in these words, viz.: “We further guaranty the payment of the interest as it matures on the principal sum of said loan until the said principal is paid.” That was a promise enforceable at once on the interest becoming due, and in default of payment of it by the maker. The allegations of the complaint in the third cause of action are broad enough to allow a recovery of unpaid interest on this note up to the date of its maturity. The evidence shows that it would amount to $87.50, and for that sum judgment should have been given in plaintiffs’ favor.

The judgment must be modified by inserting therein a provision that the complaint be dismissed as to all the causes of action set forth therein, except as to so much of the third cause of action as relates to the claim for interest on the note therein referred to, which interest was not paid prior to the maturity of said note, and remained unpaid at the time of the trial; with costs of the action in the court below only. All concur.