Lee v. Dick

IN error to the circuit court of the United States for the district of West Tennessee.

On the 24th of September 1832, Samuel B. Lee, the plaintiff in error, of Memphis, Tennessee, addressed to N. & J. Dick and Company, at New Orleans, a letter in the following terms:

'Gentlemen-Nightingale & Dexter, of Maury county, Tennessee, wish to draw on you at six and eight months; you will please accept their draft for 2000 dollars, and I do hereby guarantee the punctual payment of it.

'SAMUEL B. LEE.'

On the same paper containing this guarantee, and on the same day, Mr Lee wrote a letter to P. B. Dexter, one of the firm of Nightingale & Dexter, in which he says, 'I have no objections to guaranty your bill, except it might affect my own operations. I however send guarantee for 2000 dollars, which you can use if you choose. The balance, I have no doubt, your friend Mr Watson will do for you. I would cheerfully do the whole amount; but expect to do business with that house and do not wish to be cramped in my own operations.'

On the 5th of October 1832, Nightingale & Dexter, at Nashville, having forwarded the letter of guarantee given by the plaintiff in error, drew a bill of exchange for 4250 dollars on N. & J. Dick, at New Orleans, payable six months after date; which bill was accepted on the faith of the guarantee, and they paid the same, and gave notice to Mr Lee that they looked to him for the money.

The defendants in error not having been repaid the amount of the bill by the drawers, instituted an action against Samuel B. Lee, on his guarantee; and in September 1835 the cause was tried, and a verdict and judgment were rendered in favour of the plaintiffs.

During the progress of the trial of the cause, the following bill of exceptions was tendered, and was sealed by the court.

The court charged the jury, that if the defendant intended to guaranty a bill of exchange, to be drawn for 2000 dollars, he would not be liable upon a bill drawn for upwards 4000 dollars; but if he intended to guaranty 2000 dollars of a bill to be drawn for a larger amount, that then he would be liable for the 2000 dollars. That the court was of opinion the letter accompanying the guarantee was admissible in evidence, to explain whether the guarantor meant to guaranty a bill for 2000 dollars or only 2000 dollars in a bill for a larger amount: and it was the opinion of the court, that the true construction of the guarantee was, that he intended to guaranty the payment of 2000 dollars in a bill to be drawn for a larger amount. The court also charged the jury, that no notice by N. & J. Dick & Co. to the defendant, that they intended to accept or had accepted and acted upon this guarantee, was necessary.

The defendant prosecuted this writ of error.

The case was submitted to the court, in printed arguments, by Mr Peyton, for the plaintiff; and by Mr Bell, for the defendants.

Mr Peyton stated, that:

In this case it appears that the plaintiff, as matter of accommodation, did, on the 24th day of September 1832, at Memphis, in the state of Tennessee, at the request of the house of Nightingale & Dexter, of Maury county, Tennessee (a distance of more than two hundred miles from Memphis), agree to guaranty the payment of a draft of 2000 dollars, to be drawn thereafter by the house of Nightingale & Dexter on the firm of N. & J. Dick & Co., of New Orleans; that Nightingale & Dexter, on the 5th of October 1832, drew a draft in favour of H. R. W. Hill on N. & J. Dick & Co. of New Orleans, for the sum of 4250 dollars; which draft having been paid by N. & J. Dick, they instituted suit in March 1835 against S. B. Lee, upon his guarantee.

Upon the trial of the cause below, the court permitted a letter to be read, which was written by the plaintiff of Mr P. B. Dexter; to the reception of which the plaintiff in error objected. It was shown that N. & J. Dick & Co. accepted the bill of 4250 dollars upon the faith of the said guarantee, and proved also that they paid it, and gave notice to the defendant that they looked to him for the money. But there is no proof of notice that the guarantee of the plaintiff was accepted; nor was there any proof of a demand of the money from the house of Nightingale & Dexter, and notice of their failure to pay given to the plaintiff. The plaintiff in error relies upon the following points and authorities:

1. The guarantee was for a draft of 2000 dollars; the draft in this case was for 4250 dollars. If A guaranty a specific amount to be secured by a draft to that identical amount, he is not liable for any part of a draft for a greater amount. He might have been aware that the means and ability to pay, in case of loss, by misfortune or otherwise, of his friend, would not reach beyond that point: and if he had known that he intended to contract a debt beyond his means, it might have been a sufficient cause for declining to become bound for any part of that amount. As for the letter written by the plaintiff to Dexter, it was inadmissible in evidence, because it cannot change the guarantee in any essential manner whatever. The guarantee is the written contract; this letter is not between the same parties; it was not necessarily exhibited by Dexter to the defendants. But, if it is to be received in evidence, is it at all inconsistent with the guarantee? He does not state in his letter how, or in what manner, he is willing to guaranty his part of the amount desired to be raised; whether he will secure that sum by guarantying part of a large draft, or the whole of a small draft; whether he was willing to involve his name and credit with that of any other man on a large draft or not. To determine this question, we must refer to the guarantee itself: that clearly shows the manner, as well as the amount which he was willing to guaranty. The terms of this written contract, between the plaintiff and the defendants, are clear and unambiguous: ought their force and effect to be extended, by a reference to the latter of plaintiff to Dexter, not a part of that contract, a private letter, couched in friendly terms, making an apology for not agreeing to go further, and do more than he had done in the written agreement? Did he write this letter for the eyes of the defendants? Might it not have been withheld from them, with propriety, by Dexter?

Nightingale & Dexter wish to draw for a large amount of money on N. & J. Dick & Co. It could not be effect without security. The defendant is unwilling to go further than a specific amount, secured in a draft to be drawn for that amount. In his letter to Dexter, he says: 'I send a guarantee for 2000 dollars, which you can use if you choose. The balance, I have no doubt, your friend. Mr Watson, will do for you,' &c. But, suppose Mr Watson does not do so: is the bill or draft to be for double the amount, and the balance unsecured? This is made certain by a reference to the guarantee. How could it be supposed that the plaintiff would have guarantied one dollar alone, and without Mr Watson, or some other responsible guarantor for the balance, of a larger amount than 2000 dollars? He had no right to suppose any further credit than the draft of 2000 dollars would be extended, unless some one would guaranty the payment of the amount over and above that sum. He had an important interest that the credit should not be so extended, without security. But, at all events, his name and his credit were not to be involved with any other or greater amount than that specified in the guarantee. In support of this point, the plaintiff refers to the following authorities: Philips v. Astling, 2 Taunt. Rep. 206, 212; 3 Wheat. Rep. 151, 152.

2. The plaintiff relies, mainly, on the want of notice; and contends that the defendants were bound to give him notice-first, of the acceptance of the guarantee by the defendants, and that they had or would extend the accommodation on the footing of it, and to what amount he was liable: second, that the defendants were bound, after the payment of the money for Nightingale & Dexter, to make a demand of them for payment, and give notice of such demand and refusal to the plaintiff.

What is the meaning of this guarantee? If you, Mr Dick, will accept the draft of the house of Nightingale & Dexter at six or eight months, I will guaranty that you shall be punctually paid the money. Is the plaintiff to remain in ignorance of his liability until the draft falls due? Is this responsibility to be sprung upon him by a protest? by the loss of his credit? and without one hour's time to prepare for the shock? It is a part of the contract itself; it is a well settled principle in 'the law and usages of merchants,' that a party giving such a guarantee has a right to be informed, within a reasonable time, whether it is accepted, and to what extent he is liable. This knowledge is not a formal matter, but may be, and generally is, most material, not only as to his responsibility, and the necessity of providing the means to meet that responsibility, and save his credit, which is so vitally important to a merchant; but it may be equally important in future proceedings, dealings, &c. between the parties. It may excite him to vigilance in looking to his own final security. These undertakings for the debt of another have always been strictly construed by the courts. The case of Douglass and others v. Reynolds and others, decided in this court at January term 1833, reported in 7 Peters's Rep., commencing at p. 113, is directly in point. In p. 125, the court says: 'the party giving a letter of guarantee has a right to know whether it is accepted,' &c., and assigns the most conclusive and satisfactory reasons for that 'right.' In the case of Edmondson v. Drake & Mitchel, decided at January term 1831, reported in 5 Peters 624, 637, the court says, 'it would, indeed, be an extraordinary departure from that exactness and precision which pecularily distinguish commercial transactions, which is an important principle in the law and usage of merchants; if a merchant should act on a letter of this character, and hold the writer responsible, without giving notice to him that he had acted on it. The authorities quoted at the bar on this point, unquestionably establish this principle.' In 7 Cranch 92, in the case of Russell v. Clark's Executors, Chief Justice Marshall says, 'plaintiff must give immediate notice to the defendant of the extent of his engagements,' in such a case as the present. This principle is so clearly and so recently established by the decisions of this court in the cases above recited, that it is not deemed to be important by the plaintiff to accumulate authorities upon this point. He referred to a few others, viz. 7 Peters's Rep. 113, 125; 5 Peters 624, 637; 1 Mason's Rep. 340; 7 Cranch 91, 92.

3. The plaintiff contends, that a demand of payment should have been made of Nightingale & Dexter; and, in case of non-payment by them, that notice of such demand and non-payment should have been given in a reasonable time to the plaintiff: and, for want of this, he is discharged from his guarantee.

In the case of Douglass and others v. Reynolds and others, before referred to in 7 Peters 127, there will be found an authority directly in point. The court says: 'by the very terms of the guarantee, as well as by the general principles of law, the guarantors are only collaterally liable upon the failure of the principal debtor to pay the debt. A demand upon him, and a failure on his part to perform his engagements, are indispensable to constitute a casus foederis,' &c. 'The guarantors are not to be held to any length of indulgence of credit which the creditors may choose,' &c.

This position is sustained by the other authorities referred to on the preceding points. The only notice given by N. & J. Dick & Co., as appears from the record, was, that they looked to the plaintiff for the money.

The court below charged the jury, 'that no notice by N. & J. Dick & Co. to the defendant, that they intended to accept, or had accepted and acted upon this guarantee, was necessary.' Thus the plaintiff was kept in ignorance of his liability for a firm, at a great distance from his residence, the condition of which was unknown to him: having no motive, no interest to inquire into its condition, although it was in failing circumstances; and all others, whose fate depended upon its success, had an opportunity of knowing the facts, and the privilege of endeavouring to provide a remedy. This cannot be the fair interpretation of the rule of law applicable to such cases. In permitting the letter of the plaintiff to Dexter to be read, it was agreed, 'that it should go to the jury, together with the bill of exchange, and their effect be charged upon by the court. The court was of opinion, that the letter of the plaintiff to Dexter was admissible in evidence, to explain whether the guarantor meant to guaranty a bill for 2000 dollars only, or 2000 dollars in a bill for a larger amount: and it was the opinion of the court, that the true construction of the guarantee was, that he intended to guaranty the payment of 2000 dollars, in a bill to be drawn for a larger amount.' Now, it is evident that the opinion of the court, as to the intention of the guarantor, was derived not from the guarantee itself, but from a piece of evidence-the letter. If that letter was admissible at all, it was as matter of evidence, to go to the jury; and they were the proper triers of its force, weight and meaning. The court decided the fact of intention from evidence adduced; which evidence and conclusion it was the province of the jury to weigh and decide upon for themselves. The court, in the very same paragraph, says: 'that, if the defendant intended to guaranty a bill to be drawn for 2000 dollars, he would not be liable upon a bill drawn for upwards of 4000 dollars.' And then instructs the jury that such was not his intention, but that he intended to guaranty a part of a large draft, &c. This was deciding the whole question. The jury had nothing to do but to render a verdict against the defendant below.

Mr Bell, for the defendants.

It was objected, upon the trial, that the guarantee was for 2000 dollars, and the bill drawn by Nightingale & Dexter was for 4250. The letter accompanying the guarantee, together with the bill for 4250 dollars, were offered in evidence to prove that Lee had engaged to guaranty 2000 dollars, part of a bill for a larger amount; and it was 'agreed' by counsel, that the effect of this evidence should be charged upon by the court. It was the opinion of the court, that the true construction of the guarantee was, that the guarantor intended to guaranty the payment of 2000 dollars, on a bill for a larger amount.

It is difficult to see how there could be any doubt upon this point. The letter to P. B. Dexter ought to be regarded as full and satisfactory. In one part of the letter he says, 'I have no objections to guaranty your bill, except it might affect my own operations. I, however, send you a guarantee for 2000 dollars, which you can use if you choose. The balance, I have no doubt, your friend Watson will do for you.'

But it was objected, that no notice had been given by N. & J. Dick & Co. to Lee, the guarantor, that they accepted the guarantee, or that they had accepted a bill upon the faith of it; and the court charged that no such notice was necessary.

There is no general rule of law applicable to the question presented in the record. Every case of guarantee must be decided upon its own particular circumstances. The case of Douglass and others v. Reynolds and others, 7 Peters 113, is the only one in which the doctrine is assumed, that such notice, in all cases, is necessary and the right of the guarantor; and in that case the question did not arise, and could not call for the serious attention of the court. That was clearly a case of a continuing guarantee; in regard to which, so many considerations of convenience and fairness urge the reasonabless of the doctrine, that the courts have gone very far in adding to and perfecting such contracts between parties, by assimilating them to the conditional undertakings of indorsers and drawers of bills and notes. But in the case of a limited and specific guarantee, like the present, it is submitted, with deference, that there is no settled rule of law requiring notice to be given, either of the acceptance of the guarantee, or that any liability has been assumed upon the faith of it. There are cases, unlike the present, however, in which it was proved that injury had been sustained by the want of such notice; and where it was ruled, that no notice having been given was a fatal omission.

The transaction in the case before the court is peculiar. The precise nature of it appears from the facts set forth in the bill of exceptions. The bill, part of which was guarantied by Lee, was made to enable the drawers, Nightingale and Dexter, to raise funds in Tennessee; and it was accepted by N. and J. Dick & Co. for their accommodation, upon the faith of the guarantee. Lee does not give a guaratee to the holder of the bill, that the drawers shall accept, or when accepted, that they shall pay it, or that the drawers shall pay the bill to the holders upon failure of the acceptor to pay-the usual case of guarantee: it is a contract of guarantee, collateral to, and separate from, the bill, entered into by Lee, who had no dealings with the drawers, that Nightingale and Dexter, the drawers of the bill, and who he knows, from the very nature of the transaction had no funds in the hands of the acceptors, shall be punctual in providing funds to meet their own bill at maturity.

He agrees, that if N. and J. Dick will draw a bill for the accommodation of Nightingale and Dexter, and they should fail to make punctual provision for its payment, he would pay it, upon demand, himself. All the circumstances of the case, showed that when the guarantee was given, he could not doubt that it would be accepted, and acted upon. It was a presumption he was bound to act upon. If he had had notice that the bill was accepted upon the faith of his guarantee, all he could have done would have been to urge Nightingale and Dexter to make the necessary provision to meet the bill when due. N. and J. Dick & Co., upon the request, and the guarantee of Lee, accepted a bill at six months for the accommodation of Nightingale and Dexter: it becomes due, and they have to pay it out of their own funds.

The question is, shall they lose the benefit of his guarantee, or shall Lee escape responsibility upon the ground that no notice was given to him that his guarantee was accepted, or that a bill had been accepted upon the faith of it, until the maturity of the bill, and after payment of it out of their own funds by the acceptors, upon the default of the drawers to make the necessary provision. What law, or rule of law, created by judicial construction, compels such a result, in the case of a guarantee which does not appear upon the bill; and when the transaction is specific and single? It is respectfully submitted, that no case of this nature, has ever gone off upon such a principle. The general rule, in relation to notices, in the case of a guarantee not appearing upon a bill or note, is that the guarantor cannot object to the want of it. That this is the doctrine recognized by the writers upon this subject, may be seen in Chitty on Bills 204, 229, 230, 259, and the cases there referred to. There is a distinction between the rights of guarantors who are parties to bills and notes, and those whose names do not appear upon them. Notice of a failure to accept or pay a bill or note guarantied by a separate contract, does not appear to be required in any case. When the guarantor is party to the bill or note, the rule is not so strict as in an ordinary case of indorsement. It is going beyond all former rules and decisions in analogous cases, to require notice to be given to the guarantor, by an indorser or acceptor of a bill, that he took the bill, or became a party to it upon the faith of the guarantor, before there was any default of payment.

It is also objected that demand of payment should have been made by N. and J. Dick & Co. of Nightingale and Dexter, and notice of failure to pay upon such demand given to Lee, before he could be charged. The undertaking of Lee was absolute, that Nightingale and Dexter should make punctual provision for the payment of the bill. In some cases where the guarantor is a party to the bill, if the guarantee is absolute no notice is necessary. 20 Johns. Rep. 365.

In all cases of guarantee it may be laid down as a general rule, that if the guarantor is not prejudiced by the want of notice he cannot object. 8 East 242; Chitty on Bills 259.

Mr Justice THOMPSON delivered the opinion of the Court.