Union Bank of Louisiana v. Beatty

SroFFOKD, J. The arguments of counsel upon the re-hearing and further reflection have satisfied some members of the Court that, in the opinions formerly pronounced in this cause, too much weight was given to a presumption that the resolution of the Bank touching the sale to Marcháis was notified to the sureties and constituted the inducement to their undertaking. If the Bank had sought out the sureties and made representations to them for the purpose of persuading them to become accessory to the contract of Marcháis the case would present the aspect under which it has already been considered. But, if mere presumptions are to influence our decision wo might, perhaps, be authorized to go behind the resolution of the 1st "Feb. 1850, and to infer that the first proposition in regard to the contract proceeded from the sureties to the Bank rather than from the Bank to the sureties; for the purchase was originally suggested by Marcháis himself to the Bank, in his letter of the 23d Nov., 384f), in which he mentioned the names of all the defendants in this suit as persons who would endorse his notes to bo given for the price. It can hardly be supposed that he would have named these gentlemen as endorsers, without having consulted them and procured their assent to his proposition. And, in that event, they must have been induced to become his sureties solely by their friendship for him and confidence in his statements, and not by any representation, or resolution, of the Union Bank. Moreover, the circumstance that these substantial men, neighbors and intimate acquaintainces of Marcháis, familiar with the condition and prospects of the Branch at Thibo-daux, were ready to become his sureties for so largo an amount, may have led the Bank into the sale, and thus enabled him to conceal his delinquencies when they might otherwise have been discovered, in season, perhaps, to save the Bank, by a recourse upon his official sureties. Such a view-of the facts would shift the equity of the case to the other side. At any rate, it admonishes us of the danger of speculation upon what may have been the motives of the sureties, in the absence of proof of any communication between them and the Bank. Such proof being wanting, we have, upo i mature consideration, concluded that the parties must stand upon their naked engagement. The defendants have bound themselves in solido with Marcháis, as sureties, on his promissory notes to the Union Bank, for value received. This is their solemn written admission. There is no shadow of evidence of any fraud on the part of the Bank. Although the consideration of the notes, as between the Bank and Marcháis, may be enquired into by the sureties, it is only for the purpose of ascertain *385 ing whether there was a valid principal obligation to support the accessory promise, for, the surety may' oppose to the creditor all the exceptions belonging to the principal debtor (not personal to him) which are inherent to the debt; but if the principal debtor is bound by the very .contract to which the surety accedes, the surety, (saving the qualifications hereinafter stated) is likewise bound. This flows as a consequence from the nature of suretyship. “Le cautionnement est un contrat par lequel quelqu’un s’obligé pour un débiteur envers le créancier, á lui payer en tout ou en partie ce que le débitcur lui doit, en accédant á son obligation.” Pothier’s Obi., No. 360, Merlin’s Rep. herho caution. Suretyship is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. O. 0. 3004, 3014. And, in a case like the present, where no communication has passed between the creditor and the surety, the remark of Troplong is certainly true; “ le créancier ne s’engage á rien, et, des lors, le contrat est unilateral.” Cautionnement, § 18, O. C. 1758. It is only necessary that the contract between the debtor and creditor should be valid as between themselves to lay a sufficient foundation for the accessorial engagement of the surety; because the legal consideration or cause juridique of the latter contract is to be found in the service rendered to the principal by the surety acceding to his obligation at his instance, and thus giving him a credit he might not otherwise enjoy; and, if the- principal contract be valid, the law looks only to this presumed beneficence of the surety as the cause of his obligation, and therefore holds him bound, no matter how unfounded may have been those interior motives of interest or confidence which really led to the act of beneficence. 4 Mareadé, 375. Marcháis bought the assets of the Thibodaux Branch, which had been under his management for many years; he bought, according to a schedule prepared by himself; the greater part of the assets thus described existed in kind and furnished a proper object of sale; some of them did not exist in the particular shape described by Marcháis,- hut yet existed in claims of the same amount upon himself for undetected embezzlements; he was well aware, at the time of the sale, of the condition of these pretended claims upon other persons but real claims upon himself, and therefore,, was- effectually precluded from ever asserting their non-existence as a ground for not paying the price. We are thus driven to the conclusion that the principal contract was not, either wholly or in any part, affected -with nullity, hut it being a good and valid contract, the validity of the collateral undertaking follows. The recital in the notes that they were given for value received by Marcháis having been shown to be true, the sureties are concluded. Although the case has undergone elaborate investigation, no authorities have been cited from the civil law or from the jurisprudence of countries upon which the Civil law has stamped its impress-, to sustain the position that a surety, in a case like the present, can plead an error in the principal obligation which'the debtor himself cannot plead. Nor, indeed, although some of the common law authorities seem to waiver as they approach this subject, have we been able to ascertain that any of them really justify such a position. In a neighboring State, the doctrine we deduce from the writings of the civilians as well as from the text of our Code, seems to have met the sanction of an eminent common law jurist. In the modern case *386 of Dillingham v. Jenkins, Mr. Chief Justice Sharkey observed: “It is insisted that Jenkins is a mere surety, and is not precluded by the declarations of Montgomery (the principal) from setting up failure of consideration. The consideration of a contract does not pass to the surety. His obligation arises from the consideration received by his principal. The contract of a surety is accessory to the contract of his principal, and if the principal be bound, the surety is also, unless he is discharged by some variation in the terms of the contract; but if there is no change in the risk ho took upon himself, he is not discharged. The effect of Montgomery's admission was, that he had received a consideration, or, if ho had not, he waived any objections on that score, and admitted the validity of the contract. The obligation of Montgomery was the inducement to the surety, and we cannot perceive how the surety can avail himself of a want of consideration when his principal cannot.” Dillingham v. Jenkins, 7 Sm. & M. 486. Upon the whole, we think that where no communication is shown to have taken place between the creditor and the surety, and no actual or constructive fraud is attributable to the creditor, and there has been no discharge subsequent to the contract, the liability of the principal is the test of the liability of the surety. And, whilst we believe this rule to be in harmony with our law, we are also satisfied that it must contribute to the security of commerce as well as to the public confidence and repose. But the defendants have once more urged upon our consideration the plea that they were released by the action of the Bank, in imposing upon Marcháis an additional obligation not embraced in their resolution, to-wit: that of acting without compensation, as their agent in transacting any business they might have in the parishes of Assumption, Lafourche Interior and Terrebonne. - It is sometimes said that sureties are the favorites of the law; an infelicitous phrase, for the law has no favorities. 'I he meaning is that, as their contract is one of beneficence, sureties have a.right to stand upon its very terms, and the least variation therein will absolve them. But the rule will not relieve the defendants ; for their responsibility did not attach until the notes which they had signed as sureties in absolute and unqualified terms, had been delivered by Marrchais, to whom they entrusted them, to the Bank in whose favor they were drawn; but Marcháis had then already assumed the obligation which they say varied the terms of their contract. Their error springs from considering themselves as parties to the resolution of the Bank, the source of all the difficulty in the cause. As there is no evidence that this resolution was intended for, or was communicated to the sureties, it must, under the circumstances, be left out of view, except so far as it may afiect the validity of the contract of Marcháis. The same remarks will apply to another branch of the defence, viz : the alleged neglect of the Bank to procure a certified statement of the assets, as called for by their resolution. Wo think that the payments made by Marcháis were imputed in accordance with the convention of the parties at the time the advance of ten thousand dollars was agreed upon, and as there is nothing to impeach this good faith of the Bank when the imputation was made, the defendants cannot now require these payments to be imputed differently. *387 It is therefore ordered that the decree heretofore rendered in this causo be «annulled «and set aside, and the judgment of the District Court reversed; and proceeding to render such judgment as should have been rendered, it is hereby ordered, adjudged and decreed that the plaintiffs do recover from the defendants John 0. Beatty, Louis Bush, James A. Beuclday, Henry Michel Thibo-daux and Leufroid Barras, in solido, the sum of two thousand and thirty-three dollars twenty-two cents, with interest thereon at the rate of seven' per cent, per annum, from the fourth December, 1851, till final payment; also the further sum of sixteen thousand dollars, with interest thereon at the rate of four per cent, per annum from the 1st March, 1850, to the 1st March, 1852, and at the rate, of seven pel- cent, per «annum from the 1st March, 1852, till final payment; with a credit in favor of the first of the «above mamed defendants, John G. Beatty, in the sum of three thousand and seventy-five dollars, and interest thereon at the rate of seven per cent, per annum from the first of June, 1852; that on the issues made by the defendants for the return of their notes in the hands of the plaintiffs, other than the notes sued on, and for the cancellation of the signatures and extinguishment of the liability of the defendants thereon, there bo judgment against defendants and in favor of the plaintiffs, confirming their title to all the said notes. It is further ordered that the plaintiffs recover of the defendants in solido all costs in both courts. Buchanan, J. I think the plaintiffs are entitled to recover, but for reasons somewhat different from those expressed in the opinion read by Mr. Justice Spofford. This action is instituted upon promissory notes, joint and several in their form, signed by the defendants and one Marcháis, and pa3rablo to the order of plaintiffs. The notes read; “ We, P. Marcháis, as principal, and James A. Scudday, J. 0. Beatty, L. Bush, H. M. Thibodaux and L. Barras, as securities, promise to p.ay in solido, for value received, &c.” By signing these notes, the defendants became debtors, in solido with Ma/i'chais, of the bank, and the effects of their engagement are governed by the rules applicable to other.debt-tors in solido. Civil Code, Art. 3014. All defences which are competent to co-debtors in solido, are therefore competent to these defendants, A co-debtor in solido, who is sued by the creditor, may plead all the exceptions resulting from the nature of the obligation. Civil Code, Art. 2094. Now it is too well settled to admit of controversy, that the acknowledgment of value received in a promissory note, does not estop the maker from alleging and proving a want of consideration. That is precisely what the defendants have done here, and their plea appears to me entirely admissible, under the form of the engagement into which they have entered. On this point, 1 perhaps go farther than the doctrine of the opinion read by Mr. Justice Spofford. I proceed to examine how far the defence of want of consideration, is sustained by the facts and the law. It is proven, that the $16,000 notes sued upon, were given in part payment of a sale to Marcháis of numerous bonds and bills receivable, constituting the assets of the branch of the Union Bank at Thibodaux, according to an inventory made by Marcháis, and verified by a committee of the Board of Directors of the branch bank. The plea avers this inventory to h«ave been incorrect, through the fraud of Marcháis and of the bank, the former of whom had embezzled and converted to his own use a portion of those assets, previous to the sale, they being intrusted to his charge as *388 Cashier of the bank; and the latter, well knowing of said embezzlement, yet concealed it from defendants. By means whereof defendants plead that the sale was void, and the notes for the price are without a consideration. The charge of fraud against plaintiffs, being not only unsustained by proof, but abandoned in argument, needs no farther notice. The fraud of Marcháis is sufficiently proved: and the position of the parties, at the moment of the sale of assets, and of the delivery of the notes for the price, may bo thus defined: Marcháis was supposed by the plaintiffs to have in his hands, for safe-keeping and for collection, as their Cashier, mortgaged bonds and discounted notes, belonging to the plaintiffs, to the amount of eighty thousand dollars and upwards ; but in truth, twenty odd thousand dollars in amount of said bonds and notes had been previously collected, appropriated or transferred by Marcháis, and were not the property7 of the bank at the time of the sale. Under these circumstances, the bank sold to Marcháis the whole of the assets supposed to be in his hands as their Cashier, at their par value, say eighty-three thousand dollars, of which nineteen thousand cash, and the remainder in four notes of sixteen thousand dollars each. Upon a deliberate review of the case in all its bearings, I am satisfied that the error under which the defendants, in common with the bank, labored, in relation to the existence of the full amount of bonds and notes embraced in the sale, is not an error which avoids the contract of defendants, either in whole or in part. It is undoubtedly true, that the existence of the thing sold is an essential of the contract of sale. But it is likewise a principle of our law, that, if the considerations expressed in the contract do not exist, yet the contract is valid, provided sufficient consideration can be shown. See the French text of the Article 1894 of the Louisiana Code, there being a misprint in the English text. Now it is evident that if the assets in question did not exist in kind, Marcháis was, at any rate, responsible to the Bank for their value ; and bis responsibility was not merely the ordinary one, of an agent towards his principal, but the extraordinary one, of liability to a criminal prosecution and imprisonment at hard labor, under the Statute of 1821. (Bullard & Curry, p. 269.) The effect of the sale, then, was to give Marcháis a legal title to that which he already possessed, not only illegally but feloniously ; or, at all events, to free him at once from a civil and from a criminal prosecution. Here we find a consideration abundantly sufficient for the contract of the defendants. Nor is this all. By the charter of the Union Bank, sections 14 and 36, (Acts of 1832, pages 56 and 08,) the Bank is required to exact security from their cashiers and other servants for the faithful discharge of their duties. We are bound to presume that such security had been giyen b}7 Marcháis. The effect of the sale, then, to Marcháis, was to release himself, and consequently his official sureties, from the bond given by him and by them to the Bank. This, of itself, is a sufficient consideration for the notes in question. The mention of Marcháis’■ official bond, suggests another view of the case, which aírords, perhaps, the best solution of this vexed question of defendants’ liability. If defendants be released from their obligation towards plaintiff, it must be by reason of Marcháis' official delinquency. Could plaintiff thereupon turn to Marcháis’ official sureties for indemnification? And if not, why not? It appears to me, that the first of these questions must be answered in the negative. The official sureties of Marcháis might successfully argue that the condition of *389 their bond was fulfilled, — that they were only bound that Marcháis should ac count for every thing that came into his hands as cashier ; that he had so accounted; that the Bank had accepted his account, and had taken his notes> with five securities, for the balance which that account exhibited. Here, after all, is the test. One of two innocent parties must suffer a loss ; either the plaintiff or the defendants. Which of these parties has trusted Mar-chais ? Unqestionably, the defendants. Had it not been for their act in guaranteeing the debt of Marcháis — nay, more, in making it their own, by a solidary obligation, the Bank would have preserved a recourse which it has now lost. Again, had it not been for the act of defendants, the official sureties would have been interested in watching the movements of Marcháis, and would not have suffered him to leave the country and remain absent many months, before any investigation of his affairs leading to the discover}' of his frauds.