Fletcher v. Derrickson — 16 N.Y. Super. Ct. 181

Majority

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Thaddeus R. Fletcher, Plaintiff, v. James T. Derrickson, James Gaunt and John Clapp, Jr., Defendants.

Headnote

1. Where a debtor, in consideration of forbearance of a debt owing by him, agrees to deliver to the creditor goods at a future day, at a stipulated price, to a specified amount, to be applied in payment of his debt to that extent, and breaks his agreement by neglecting to deliver, the creditor in an action against his debtor upon the agreement, is entitled to recover as damages for the breach thereof, the amount so agreed to be paid, although the market value of the goods is the same or even less than the price at which they were to be received.

2. In an action on a guarantee of the performance of an agreement, the measure of damages, as against the guarantor, is the amount which the plaintiff would recover against the principal, if the action' were brought against him upon the agreement itself.

3. Hence, where A. (a debtor) agreed to pay $2,000 in paper, at 3 J cents a pound, on certain future days named, on his indebtedness, and the defendants guaranteed the performance of the agreement, in consideration whereof the creditor agreed to forbear and to accept the paper in payment: Held, in an action against the defendants upon their guarantee, on the neglect of A. to deliver the paper, that the plaintiff is entitled to recover the full sum of $2,000, notwithstanding the market value of the paper when it should have been delivered, was not greater than the rate at which it was to be received.

4. The rúle that, in an action by the vendee of goods against the vendor for refusing to deliver, the plaintiff can recover only the difference between the market value and the sum to be paid on the delivery, has no application to such a case.

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5. Where, on a purchase of property, promissory notes are given by the purchaser to the plaintiff, a third person, a creditor of the vendor, the money secured thereby, to "be applied when paid to satisfy himself and also other creditors, the plaintiff is a trustee of an express trust, and entitled to recover the whole amount; and for that reason when the payment of a por1 tion thereof in goods is guaranteed, he may recover the whole amount so to be paid from the guarantor, although his own debt has been already satisfied in part or in whole out of other notes.

( Before Woodruff and Pierrepont, J. J.)

Heard, March 1;

decided, June 26, 1858.

This action was tried on the 12th of November, 1857, before Mr. Justice Slossoh and a jury. The jury found a verdict for the plaintiff, for nominal damages only, and on the plaintiff’s exception to the charge the case came to the General Term. The following are the facts appearing on the trial:

On the 19th September, 1854, Jacob Maeek and another sold certain paper mills, &c., to Messrs. A. M. & D. P. Squires; and to secure the payment of a part of the consideration money, the purchasers gave to the plaintiff promissory notes, payable at various times, to the amount of $25,500 and a mortgage upon the premises so sold. It was agreed, as a part of the terms of sale, that these notes should be given to the plaintiff, and that he should apply the payments made to him, to the satisfaction of certain pre-existing incumbrances on the property, including a previous mortgage to himself, and when they were paid then the balance realized from the said notes should belong to Maeek. All the said prior incumbrances had been paid under this arrangement, except $3,400 held by one Bigelow and a balance, to the plaintiff on his said prior debt, of about $500 at the time of the trial of this action.

On' or about the 9th day of May, 1855, the said A. M. & D. P. Squires, submitted to the plaintiff an offer, the terms whereof are expressed in writing, signed by the Squires, in the following words, viz.:

“It is agreed between Thaddeus R. Fletcher of the first part and A. M. & D. P. Squires of the other part as follows: That the said Squires shall make and deliver to the said Fletcher, two thousand dollars in wrapping paper at three and a half cents per pound; the paper to be made out of hay or straw, as the principal material,” &c., &c. (describing the paper), “the first one

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thousand dollars to he paid in the month of October next, the other in the month of November next. And the said Fletcher on his part agrees that if James T. Derriclcson & Co. will sign the guarantee on the back of this instrument, he will accept of said paper and will apply the amount thereof he has in debts against the said Squires, falling due in June next, secured on property at Hubbells Falls, Essex, Yt., and voill suspend the payment of two thousand dollars due in June next, in the meantime.

“ 9th May, 1855. A. M. & D. P. Squires.”

Upon- the back of this writing the following indorsement was made, signed by the defendants:

“To T. R. Fletcher, Esq., Sir: If you make an agreement with the Messrs. Squires as is within written, we hereby for value received, guaranty that the said Squires shall perform said agreement on their part.

“ James T. Derricksoh & Co.”

Upon the delivery of this agreement with the guarantee thereon so signed, and in consideration thereof, the plaintiff executed on his part an agreement to forbear the collection of the sum of $2,000 due in June, until the times therein mentioned for the delivery of the paper (October and November), and that the amount of $2,000 of wrapping paper when paid should be applied upon the debts he had against the Squires, due in June.

The debts thus referred to, were the promissory notes which the plaintiff held under the arrangement first above mentioned.

The plaintiff performed on his part by forbearance, as stipulated in the agreements.

None of the paper was delivered at any time.

The defendants were duly notified as well of the acceptance of their guarantee, as also of the non-delivery of the paper.

The paper was shown to be worth, at the times when it should have been delivered, three and one-half cents per pound.

This action was brought upon the defendants’ guarantee, and it was held on the trial that the paper being worth, on the days when it should have been delivered, the precise sum which the plaintiff had agreed to allow therefor, no damages were shown

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to have been sustained by reason of the breach of the agreement, and the jury were instructed to find a verdict for nominal damages; and the jury accordingly rendered a verdict for the plaintiff for six cents. To this ruling on the subject of damages, the plaintiff excepted. And upon this exception, the case came to be heard at the General Term, pursuant to an order, made on the trial that it be so heard, and that the judgment be in the meantime suspended. ,

0. W. Prentiss, for the plaintiff.

1. The guarantee was absolute for the .performance of the contract, that is, for payment of the debt. It was not for indemnity. The rule of damages is, therefore, the amount of the debt. (McGee v. Reon, 4 Abbott’s P. R., 8; Churchill v. Hunt, 3 Denio, 321 ; Clark v. Burdett, 2 Hall, 197 .)

II. The rule of damages is the same against the guarantor as against the person for whom he guarantees, viz., the amount of the debt. The guarantor’s liability may, however, be larger. (W. W. Story on Cont., 2 ed., 740.)

III. There is less reason for the guarantor to claim the rule of damages adopted by Justice Slosson, than for an indorser of a note or bill to claim it when the indorsement has been taken as collateral security or in payment of a precedent debt.

IV. The guarantor, being a subsequent mortgagee, has the benefit of the mortgage security of the plaintiff by paying the debt guaranteed, to that amount. He would be-entitled,, if hé had no mortgage, to the benefit of the securities in plaintiff’s hands.

V. There is no resemblance between the contract guaranteed and a purchase and sale of cotton, or the like, on time, at a fixed price, where the difference between the contract and the subsequent risen or fallen price is the rule of damages. The contract there is executory on both sides; here it is executed on the plaintiff’s side. The guarantor’s contract was simply that the principal should pay the debt of the plaintiff in a particular manner. The price fixed was merely descriptive of the quality of the paper. (Brown v. Curtiss, 2 Comst., 225.)

VI. “ The guarantor will be bound to the full extent of the

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terms of his agreement, and they will be construed against him and in favor of the guarantee as far as their reasonable import will allow.” (W. W. Story on Cont., 2 ed., 741; Walrath v. Thompson, 4 Hill, 200 .)

E. J. Phelps, for the defendants.

I. It is a well settled rule, that in actions upon contracts for the future delivery of goods, at a specified price, the measure of damages is the difference between the contract price and the market value, at the time the goods should have been delivered. (Sedgwick on Damages, 260; Dey v. Dox, 9 Wend., 129 ; Davis v. Shields, 24 Wend., 322 ; Beals v. Terry, 2 Sandf. S. C., 127; Kipp v. Wiles, 3 Sandf. S. C., 585.)

II. This rule applies to the present case. The paper was worth in market, when the contract required its delivery, just the price agreed to be allowed for it. The notes on which it was to be applied in payment, were fully secured by mortgage, and, so far as appears, were perfectly good, independent of the mortgage. The plaintiff has therefore sustained no loss, unless in the forbearance for a short time to proceed in the' collection of his notes. And this is compensated, in legal contemplation, by the interest accrued on them in the meantime.

No attempt was made at the trial to prove any damages.

lit. The case bears no analogy to that of a guarantee for the payment of a note. The contract of the defendants was for the delivery of wrapping paper, at a given price. How that price was to be paid, whether in cash or by allowance (on a good note, is quite immaterial. The measure of damages is the plaintiff’s loss. And he has lost nothing.

IV". Judgment should be rendered on the verdict, that the defendants recover their costs. (Code, §§ 304, 305.)

V. At any rate, plaintiff could only recover the $500 due to himself.

By the Court.

—It was not denied nor doubted, on the argument, nor, so far as appears on the trial, that the agreement with the indorsement thereon signed by the defendants, constituted a valid, binding contract of guarantee by

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the defendants, that the Messrs. Squires should perform the agreement on their part, according to its legal import.

The breach of that agreement by the Messrs. Squires, and notice of such breach to the defendants being proved, the only question raised was, what damages the plaintiff is entitled to recover.

Whatever damages the plaintiff would have been entitled to recover against the Messrs. Squires for the breach of their agreement, the plaintiff was entitled to recover from the sureties who guaranteed its performance. The obligation of the principal and that of the sureties were plainly co-extensive and concurrent, and their liability respectively the same. The defendants’ guarantee, when accepted, was absolute and unconditional.

The agreement of the Messrs. Squires was, we think, when properly construed, an undertaking to pay to the plaintiff two thousand dollars, in paper of a particular description, at certain specified times, and to be measured for the purpose of ascertaining the quantity at three and one-half cents a pound.

Payment of a money demand was the primary object of the agreement; it provides that the first one thousand dollars “ shall be paid ” in October, the other in November, and the amount shall be applied upon money demands to become due, and payment of which are to be forborne to corresponding dates.

We cannot discriminate between this agreement and a more simple promise, sometimes called a promissory note, by which the maker promises to pay a sum named, in chattels, on a day named and at a specified rate. And to such an agreement, the rule of damages upon breach of an agreement between vendor and vendee, where the price has not been paid, has no application. Heiein we think consists the error in the defendants’ claim on the trial. The case was likened to such an agreement, and inasmuch as the vendee in such case recovers only the difference between the contract price and the market value, it was held that there being here no difference the damages are nominal only\

This is not the proper view of the rights of the parties. For a sufficient consideration the Squires had agreed to pay in paper the sum of two thousand dollars; that sum had already been advanced to them and was in their hands; it matters not that the plaintiff held other security for the same indebtedness; to

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hold, that this would affect the plaintiff’s title to recover upon this agreement according to its terms, is practically, to say that the agreement itself is without consideration, for plainly, if it be of binding force at all, it is a security that the plaintiff shall have the two thousand dollars and have it in paper.

The construction given to it on the trial was, that the defendants guaranteed, not that the two thousand dollars should be paid, and paid in paper, but that the plaintiff should have whatever profits he would be entitled to, if paper should rise in the market to a higher price than three and one-half cents.

This is indeed the practical result of an agreement between vendor and vendee, where the price is not paid, not because that is the construction of the agreement, but because that gives to the vendee all the beneficial results contemplated by it, in the form of full compensation for the breach. Not so where the agreement to deliver is upon a past consideration. Such an agreement, made on such mutuality as renders it binding, gives title to the whole value of the subject to be delivered.

Again, the holder of an. existing debt, however secured, may require and receive security therefor, with such guarantee for the payment as he may be able to obtain, and if he obtain such guarantee upon a valid consideration, he may enforce against the surety the payment of the whole debt. The theory upon which this case was disposed of, would enable the surety in such latter case to say, “if the debt guaranteed by me had been paid according to the terms of the new security, you must have applied the amount upon the previous indebtedness; it not being paid your claim upon such previous indebtedness remains in full force; you have therefore lost nothing by the failure of my principal to pay the new note or obligation, which was guaranteed by me, and your damages are therefore nominal."

It is true in the present case, that the plaintiff holds in full force against the Squires the original debt, and the mortgage security he held therefor. But he stipulated for and obtained additional security. In order to obtain that additional security, he agreed to forbear, and did forbear; he also consented to receive payment in paper instead of money. The security he so obtained, was a guarantee of the payment of the debt, and that guarantee he is entitled to enforce.

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We recur therefore to the observation that the true construction of the agreement is, that it is an undertaking to pay a specific sum of money in chattels, at a rate agreed upon, and on a future day named. And the fact that when the payment is made, it will discharge a money demand already existing, although it made a new and sufficient consideration necessary to support the agreement, does not alter its construction or legal effect, when its binding character is established or conceded.

The rule of damages in such a case, is not, as we believe, open to discussion in this Court. There has been formerly some conflict of views upon the question, whether the rule of damages is the value of the specific articles agreed to be delivered, or the sum which was agreed to be paid in such articles. But in no case that has fallen under our observation, has it been claimed that the plaintiff’s damages were not measured by one or the other of these standards.

In Gleason v. Pinney ( 5 Cow., 411 ), where it appeared that the value of the articles in which payment was to be made, was less than the sum to be paid, it was held (in opposition to the opinion of the Chief Justice reported at page 152,) that the plaintiff was entitled to recover the value of such articles.

And in Clark v. Pinney ( 7 Cow., 681 ), where the articles in which payment was to be made, had risen in the market, it was held that such a contract was to be treated like a contract of purchase by a vendor who paid the purchase money in advance, and that the plaintiff was entitled to recover the highest price which the articles bore in the market, between the time when they should have been delivered and the day of the trial.

But the first named case came under review in the Court of Errors (see 5 Wend., 393 ), and on an unanimous reversal by that Court of the judgment below, it was held that although the value of the articles was less than the sum to be paid, the plaintiff was entitled to recover the latter; and the opinions there apply the same rule as the measure of damages, whether the articles are worth more or less. They treat the agreement as made in favor of the debtor, and as giving him the option to pay according to the very terms of the agreement in chattels if he so elect, but if he neglect to avail himself of the privilege,

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leaving him liable for the sum mentioned to be paid, and for that only. (See 2 J. R., 235; 3 Comst., 88.)

It makes no difference upon the facts stated in this case, whether the defendants are held liable for the sum agreed to be paid, or for the price of the paper; the amount is precisely the same.

The case last mentioned is conclusive, we think, that upon the facts proved, the plaintiff was entitled to recover two thousand dollars with interest from the times when by the terms of the agreement it should have been paid.

It was argued by the defendants’ counsel, that at most the plaintiff could only recover five hundred dollars, upon the ground that inasmuch as his original mortgage debt had been reduced to that sum, he had no personal interest in the contract save to that extent, and therefore could have sustained no greater damages.

The plaintiff was made, by the original arrangement between himself and Squires and the vendors of the mortgaged property, a trustee to collect the purchase money, and apply it to the payment of several parties. The notes were given to him, and the property was mortgaged to him. The agreement under consideration was made with him, and the guarantee was to him. He was therefore a trustee of an express trust, although the instrument sued on was made with him for the benefit of others as well as himself. It was his right and his duty to enforce the agreement, for the benefit of all who were interested. He was, we think, clearly entitled to maintain the action in his own name, and no objection was suggested by the answer, either that the suit was not brought by the real party in interest, or that other parties should have been joined with him. If such an objection could have been properly taken, it was waived.

There must be a new trial, costs to abide the event.

Ordered accordingly.