Opinion
04-08-1880
CARDWELL v. ALLAN, trustee, & als.
Guy & Gilliam, for the appellant. W. W. Henry, for the appellees.
I. B as maker and R and C as endorsers make two notes each for $1,000, which are discounted at the E & A bank, and the proceeds go to the credit of B. The notes are discounted much on the faith of a deed of trust by which C and wife conveyed to A a tract of land in trust to secure to the bank the payment of the notes, with the following covenant--And it is expressly covenanted and agreed, that upon the default of payment of either of said notes, or any part thereof, the said A shall upon the request of the president or other authorized officer of the said E & A bank, after giving thirty days' notice, & c., proceed to sell at public auction the property hereby conveyed for cash, or so much as shall be necessary to defray the expenses, & c., and pay off and discharge any part of the sum of $2,000 hereby secured to be paid then remaining unpaid; and for the remainder, & c. The notes were not paid at maturity; and were not protested, nor was there any notice to the endorsers. HELD:
1. The deed of trust with the covenant therein, bound C to the extent of the trust subject, though there was no protest or notice to the endorsers.
2. The bank was not bound to give notice to R, so as to hold him liable, in order to hold C liable.
II. In this case C repeatedly applied to officers and directors of the bank for a postponement of the sale of the land under the deed of trust, promising to pay the debt, and never objected that the note had not been protested or that notice had not been given him. HELD: He must be presumed to have known when he applied for delay of the sale, and made the promises to pay, that the notes had not been protested.
This was a suit in equity in the circuit court of Prince Edward, brought in January, 1876, by Wiltshire Caldwell to enjoin the sale of a tract of land under a deed of trust executed by Caldwell and wife, by which they conveyed the land to Edgar Allan to secure the payment of two notes each for $1,000, made by Benjamin S. Hooper, and endorsed by R. H. Hooper and said Cardwell, and discounted at the English and American bank at Farmville. The grounds on which the plaintiff claimed to enjoin the sale of the land was--That R. H. Hooper and himself were accommodation endorsers of the notes, that the whole proceeds had been placed to the credit of the maker Benjamin S. Hooper; that when the notes fell due and were not paid they were not protested, and no demand or notice was made upon or given to either of the endorsers.
The bank in its answer admits that no protest or demand or notice was given to either of the endorsers; but they do not admit, but require proof, that the endorsers received no part of the proceeds of the notes. But however that might be, the plaintiff by his deed of trust had bound himself at least to the extent of the trust fund, to pay the notes if they were not paid at maturity, and the provisions of the deed are referred to, to sustain this view; and it is further alleged that the notes were discounted on the faith of this security, and would not have been discounted without it.
The answer further states that the plaintiff had repeatedly applied to different directors and officers of the bank and its counsel for a postponement of the sale of the land, and promised payment of the notes. And in fact he had not only admitted his obligation to pay the said notes since they fell due, but he has entered into an arrangement with Benjamin S. Hooper to reimburse himself the amount he was bound to pay; to-wit, by buying goods at the store of said Hooper to the value of some $1,100, and by procuring the said Hooper to pay certain monthly instalments on fifty shares of stock of a building fund association, amounting to near $1,000; thus admitting his liability upon said notes.
The deed of trust after reciting that the property was conveyed to secure to the said bank the payment of the sum of two certain negotiable notes, describing them, proceeds--" And it is hereby expressly covenanted and agreed, that upon the default of payment of either of said notes, or any part thereof, the said Edgar Allan shall upon the request of the president or other authorized officer of the said English and American bank, after giving thirty days' notice of the time and place of sale, proceed to sell at public auction, the property hereby conveyed, for cash, or so much as shall be necessary to defray the expenses of executing this trust, and to pay off and discharge any part of the sum of two thousand dollars hereby secured to be paid, then remaining unpaid, and for the remainder, if any, as said Wiltshire Cardwell shall direct," & c.
The parol evidence fully sustained the answer upon the allegations, that the notes were discounted on the faith of the security of the deed of trust, and would not have been discounted without it; and that Cardwell, after the notes fell due, had repeatedly applied to directors and officers of the bank for a postponement of a sale of the property under the deed of trust, and promised to pay the debts; and there was also evidence that he had made an arrangement with Benjamin S. Hooper, by which he received from Hooper enough or nearly enough to pay them. Whether the plaintiff knew when he made the promises to pay the notes that the notes had not been protested, does not appear from any evidence in the cause; he does not aver in his bill that he did not know the fact.
The cause came on to be heard on the 28th of March, 1876, when the court dissolved the injunction and dismissed the bill. And thereupon Cardwell applied to a judge of this court for an appeal; which was awarded.
Guy & Gilliam, for the appellant.
W. W. Henry, for the appellees.
OPINION
STAPLES, J.
In the argument of this case here several interesting questions of commercial law were discussed by counsel. But their decision is not deemed necessary in the view we have taken of the merits of the controversy. It is conceded that the notes endorsed by the appellant were not protested, and that notice was not given of their non-payment. Is this such laches in the bank, the holder of the notes, as discharges the appellant? It appears that on the 25th of July, 1873-- the day upon which the notes were made by Benjamin S. Hooper, and endorsed by the appellant, the latter gave to the bank a deed of trust to secure their payment upon certain real estate owned by him; and in that deed it was expressly covenanted and agreed, that upon default made in payment of either of said notes, or any part thereof, the trustee, upon request of the proper officer of the bank, after thirty days' notice, should sell the estate therein conveyed for cash. Nothing is said in the deed with respect to demand, protest, and notice. The right of the bank to enforce the trust was complete, upon default being made. Upon the happening of that event, the liability of the appellant became complete so far as the property was concerned.
The case of Mory v. King, 7 Eng. C. L. R. 57, cited by counsel for the appellee, is directly in point. There the appellant pleaded that the bill when due had not been presented to the acceptor for payment, and that due notice of the dishonor had not been given. The plaintiff in reply, relied upon the bond of the defendant. Chief Justice Abbott, with whom the other justices concurred, said--" The bond is given by Tuffenel, and the defendant who were both parties to the bill. Now in that character, if no bond had been given, it is clear they would have been liable in case the formalities stated in the pleas had been complied with; and if the only object of the bond had been to give the plaintiff a security of a higher nature, and to make the party liable in case those formalities had not been complied with, I think we should have found it so expressed in the deed, and not finding it there, I therefore conclude that the parties meant to engage to pay the bill at all events, as sureties for the acceptor, in case he did not pay it." See also Hilton v. Catherwood, 10 Ohio St. R. 109; Mitchell v. Clark & Hodgson, 35 Verm. R. 104.
Here it is to be observed the action is not on the notes, but it is a proceeding under the deed. If the appellant intended to insist upon demand and notice, before the liability of his property should attach, it is fair to presume he would have so provided. As he has failed to do so, the presumption is he intended to waive these formalities, and there was very good reason for his so doing. The evidence tends strongly to show, that there were unsettled matters between the appellant and the maker of the note; that the appellant had in his own hands means of indemnity against any loss growing out of his endorsement, if indeed he was not actually indebted to the maker in an amount sufficient to cover both notes.
The learned counsel for the appellant insists, however, that the testimony relied on to establish the existence of this indemnity or indebtedness is merely hearsay. The witness who testified on this point, says, the appellant referred him to the maker for confirmation upon the subject of the indebtedness, and the maker in response to the inquiries of the witness who was a director in the bank, explained the arrangements between the appellant and himself, by which the former was indemnified and protected. If this be true, it fully explains the fact that the appellant agreed that his property should be forced upon the market at a cash sale, upon thirty days' notice, to pay the whole amount of the debt. That the appellant considered himself the real debtor, and as absolutely bound, upon default made, is proved by the further fact that after the dishonor of the notes, he not only recognized his liability for them, but he repeatedly promised payment; he asked for indulgence and entered into negotiations for a postponement of the sale of his property.
During the whole two years following the dishonor of the notes, these promises were repeatedly made, and these negotiations were going on. Not a word was said about the failure to protest the notes. The matter was never alluded to till it was suggested by counsel, retained to prevent a sale, after every effort for further indulgence had failed.
It has been said, that the appellant at the time he made those promises was not aware of the failure to protest the notes. The only testimony offered in support of the alleged ignorance, is the opinion of a witness, derived from an inquiry made by the appellant, himself. It is worthy of observation that the appellant has never said he was ignorant of the failure to protest the notes. He has made no such allegation in his bill. And although he has known from the beginning that the bank relied upon these promises, he has not attempted to avoid their effect, as he might have done by giving his own deposition, and by proving he was ignorant of the laches of the bank at the time they were made. Throughout, he has been studiously silent with respect to the matter of demand and notice.
Under such circumstances, the appellant's repeated acknowledgements of liability and promise to pay, must be held sufficient proof of an agreement to waive demand and notice. Second Daniel on Negotiable Inst., section 1147 to 1162; Walker v. Laverty, 6 Munf. 487; Pate v. McCluer, 4 Rand. 164.
It is insisted, however, and much stress is laid on this point, that although the appellant may have waived notice to himself, he did not thereby dispense with notice to the first endorser. That the bank ought to have given the latter notice of the non-payment of the notes; and having failed to do so, the first endorser is discharged, and the appellant deprived of all recourse upon him. This, however, is a misconception of the duties of the bank. Where there are several successive endorsers of a note, the holder may and ordinarily does, give notice to all, with a view to preserve his recourse upon all. But he is not bound to do so. He may, if he pleases, give notice to any one of the endorsers; and that endorser, if he desires to have recourse upon any antecedent endorser, must use due diligence in giving notice of the dishonor of the note.
The bank might in this case have given notice to the first endorser, and if it desired to hold him liable, it was necessary to give such notice. But it was under no obligation to do so for the benefit of the appellant as second endorser. Nor was it essential it should do so in order to preserve its rights against the appellant. The deed imposed no additional duty upon the bank with respect to protest and notice.
The fact is, it imposed no duty of any kind. It is a covenant by the appellant that upon default being made in the payment of the notes, the trustee shall sell the property and apply the proceeds to their payment. There is no other condition. To say that this deed imposes upon the bank the duty of giving notice to the first endorser for the benefit of the appellant is to insert stipulations not found in the instrument, and which do not legitimately arise out of the transaction itself.
It would seem, however, that none of the parties looked to the first endorser. During the entire two years following the dishonor of the notes, no allusion was made to him. The appellant did not enquire whether he had notice, nor did he complain that the first endorser had been discharged by the laches of the bank. This may have been due to the fact that the first endorser was known to be insolvent; or it may have been that the appellant, by the execution of the trust deed, and by his arrangements with the maker, had made himself liable absolutely for the debt, and was so understood to be by all the parties. Whatever may have been the reasons, we think the appellant is not discharged by the failure of the bank to have the notes protested and to give notice of non-payment to either of the endorsers. We are therefore of opinion the decree of the circuit court is plainly right, and must be affirmed.
DECREE AFFIRMED.