Summary
stating that a surety may be released from liability because of a change to the principal
Summary of this case from Spencer v. Frontier Ins. Co.Opinion
13098
March 26, 1931.
Before BONHAM, J., Dillon, April, 1930. Affirmed and remanded with directions.
Action of T.W. Berry, as receiver of the Bank of Latta, against W.J. Adams and others. From an order overruling a demurrer to the complaint the defendants appeal.
The order of Judge Bonham appealed from was as follows:
This matter came before me at the Spring, 1930, term of the Court of Common Pleas for Dillon County, on demurrer to the complaint, interposed by all of the defendants, except J.C. Bethea, who is styled liquidating agent of the Bank of Dillon.
The history of the transactions leading up to this litigation is thus stated: The plaintiff is the receiver of The Bank of Latta, which is in process of liquidation. As such receiver, he deposited the funds of the Bank of Latta, as he collected them, in the People's Bank of Dillon, and as security for the safety of his deposits demanded, and received from the directors of that Bank, a bond of guarantee to the effect that, if the People's Bank of Dillon failed to pay over to him on demand any sums of money which he at the time of such demand had therein, as such receiver, they would pay it. The obligors on the bond were the defendants herein, except E. A. Peterkin, who appears as the administrator of the estate of J.J. McKay, one of the directors and one of the obligors, who has died, and except J.C. Bethea, who is the liquidating agent of the Bank of Dillon. This bond was executed in 1925. There were then three banks in the town of Dillon, viz.: the People's Bank of Dillon, the Bank of Dillon, and the First National Bank of Dillon. In the spring of 1928 these banks merged, or were consolidated; the Bank of Dillon taking over the assets of the other two banks, and assuming their liabilities. In November, 1928, the consolidated bank, to wit, the Bank of Dillon, closed its doors, and went into liquidation; J.C. Bethea is its liquidating agent. As stated, J.J. McKay, one of the original guarantors, has died before the commencement of the action, and E.A. Peterkin, as his personal representative, is made a party to the action. The complaint sets forth these facts, and further alleges that, when the Bank of Dillon closed its doors in November, 1928, the plaintiff had in it as receiver of the Bank of Latta, of the funds of said bank, the sum of $27,947.57, for which he has made demand on the defendants, but payment has been refused.
The grounds of demurrer are: That the complaint does not set forth facts sufficient to constitute a cause of action, in that: (1) It does not show a breach of the conditions of the bond; (2) the complaint shows on its face that there was no breach of the bond; (3) the complaint shows on its face that, if plaintiff sustained any loss, it was by reason of the failure of the Bank of Dillon, for which loss these defendants were, and are, in no wise liable under the bond alleged in the complaint.
The argument in support of the demurrer proceeds upon the theory that the makers of the bond undertook to indemnify the plaintiff, as receiver, for the delict of the People's Bank of Dillon, whereas his loss was caused by the failure of the Bank of Dillon; that the status of the People's Bank of Dillon has been altered since the execution of the bond, and the position of the guarantors on the bond changed; that, by reason of these alterations, the obligors have been released from liability on their obligation. I cannot assent to this proposition. It is true, as argued, that a contract of guaranty, or suretyship, "is said to be strictissimi juris, and one in which the guarantor has the right to prescribe the exact terms upon which he will enter into the obligation, and to insist on his discharge if those terms are not observed." There can be no question of the correctness, and fairness, of the rule thus stated; but the facts of this case do not support the effort to invoke it here. It applies when the obligee changes the position of the parties, or alters the terms of the agreement of suretyship; but surely it can have no application when the obligors themselves bring about the change in the positions of the parties. They cannot discharge themselves from their assumed liability by themselves changing the position of the parties without the consent of the obligee. It is true that there is nothing in this complaint which expressly shows that the obligors on the bond actively promoted the consolidation of the People's Bank of Dillon with the Bank of Dillon; but it does appear that they were directors of the People's Bank, and of necessity were stockholders, and it is an irresistible conclusion that they knew of, and assented to, the consolidation. Indeed, it could not have been consummated without their assent. There is nothing in the complaint to show that plaintiff had any previous knowledge of the consolidation, or that he was advised of it, or that he assented to his deposits being taken over by the consolidated bank. It is argued that, when the plaintiff pleads that he had in the Bank of Dillon, the consolidated bank, when it closed, certain moneys, he shows that he has acquiesced in the transfer of his deposits to that bank, and is now estopped to hold these defendants obligors on their bond of indemnity on the part of the People's Bank of Dillon. This argument does not appeal to me. The funds of the plaintiff in the People's Bank were transferred to the Bank of Dillon, apparently without saying to the plaintiff so much as "by your leave." All the banks in the town had merged into the Bank of Dillon; it was necessary for him to deposit the funds of the defunct bank of which he was receiver in some safe place of deposit. To say now that because he placed them in the only bank then open in the town he thereby ratified the act of consolidation released the obligors on the bond, and has estopped himself to proceed against them thereon, seems to me a far cry. As I understand it, estoppel in pais arises when one, by his conduct, or representations, has induced another to change his position, and it would work a hurt to the latter if the former were allowed to deny or repudiate his conduct or representations. It may arise when one remains silent when in equity and good conscience he should speak. What obligation rested upon the plaintiff to say to the obligors on the bond that he still held them liable thereon? What is there in his conduct to show that he had consciously released them from their obligations? Estoppel is akin to waiver; waiver is the voluntary relinquishment of a known legal right. There is nothing in the record to show that plaintiff had anything to do with the transaction that transferred his funds to the consolidated bank, nor is there anything to show that he induced these obligors on the bond to change their position, or that he, by word or deed, led them to think or understand that he relinquished his claim upon the bond. I fail to find in this proceeding anything from which it may be legitimately inferred that he ever intended to release the obligors from liability on the bond.
It is not stated how much of the sum which was in the Bank of Dillon when it closed its doors in the name of the plaintiff as receiver of the Bank of Latta, was transferred to the Bank of Dillon by the People's Bank of Dillon when the banks were consolidated. If the obligors on the bond of indemnity are liable, they are liable only for the sum which the plaintiff, as receiver of the Bank of Latta, had in the People's Bank of Dillon, and which was transferred by said bank to the Bank of Dillon in pursuance of the articles of consolidation. For the recovery of any sums which plaintiff, as receiver, placed in the Bank of Dillon after the consolidation, he must look to the Bank of Dillon. Hence it was not necessary to make J.C. Bethea as liquidating agent of that bank a party to this action.
The demurrer is for that; the complaint does not state facts sufficient to constitute a cause of action. The Supreme Court has laid down a rule by which a demurrer on the general ground shall be judged. In Vogel v. Elford Agency, the Court said this:
"In Guy v. McDaniel, 51 S.C. 436, 29 S.E., 196, 197, the Court said:
"`In determining the question whether a pleading is demurrable on the ground that it does not state facts sufficient to constitute a cause of action, the Court must construe the allegations liberally, with a view to substantial justice between the parties. If, therefore, by a liberal interpretation of the language used, a cause of action is stated, even though the allegations may be so indefinite or uncertain that the precise nature of the charge is not apparent, the demurrer should be overruled.'" Vogel v. Elford Agency, 153 S.C. 305, 150 S.E., 774, 775.
"As long as a complaint states facts which entitle the plaintiff to some relief, it is error to sustain a demurrer upon the general ground." Norris et al. v. Brown et al., 154 S.C. 138, 151 S.E., 274.
"Where a complaint states facts entitling plaintiff to some relief it is not demurrable." Simon v. Sabb, 56 S.C. 38, 33 S.E., 799.
"A cause of action is stated when the facts alleged show some right of plaintiff, and the invasion of that right by some delict or breach of duty by defendant." Ward Co. v. Ford, 58 S.C. 560, 36 S.E., 916.
The complaint now before this Court, and which is challenged by demurrer, shows: That the defendant, with the exception of Bethea, liquidating agent of the Bank of Dillon, entered into an obligation by which they bound themselves to indemnify plaintiff, as receiver of the Bank of Latta, if the People's Bank of Dillon failed to pay to him the money he then had, or any moneys he should thereafter have in such People's Bank of Dillon, as such receiver. He has lost that money, and defendants refuse to make it good. He alleges in his complaint that, which is true, and for the purpose of the demurrer it must be taken to be true, shows that his loss was caused by the failure of the Bank of Dillon, to which bank his funds had been transferred by the action of the defendants named, who were directors of the People's Bank. Certainly enough is stated in the complaint to entitle plaintiff to have his alleged wrongs inquired into. Under the authorities cited, and others which might be cited, it is held that this complaint is not demurrable, for the causes assigned.
It is, however, subject to amendment. This Court has power to bring in, retain or dismiss parties to an action. People's Bank of Hartsville v. Bryant et al., 148 S.C. 133, 145 S.E., 692.
Wherefore, for the reasons hereinabove set forth, it is ordered that the demurrer to the complaint be, and is, overruled; that the complaint be amended by striking from it the name of J.C. Bethea, as liquidating agent of the Bank of Dillon, as a defendant, and all demands against him in said action; that plaintiff set out in his complaint the amount of money which he, as receiver of the Bank of Latta, had on deposit in the People's Bank of Dillon at the time of its consolidation with the Bank of Dillon; and that he set out in the complaint and the prayer thereof the sum so found to have been in said People's Bank at the time of the consolidation, in lieu and instead of the sum now alleged in the complaint and prayer.
Ordered further that a copy of the amended complaint be served on the attorneys for the defendants within twenty days after notice of the filing of this order, and that defendants have twenty days after the service upon them of the amended complaint in which to answer it.
Messrs. Lide McCandlish, for appellants, cite: Bond did not cover loss of deposit by assignee bank: Ann. Cas., 1913-C, 817; 17 L.Ed., 604. Guarantor released by change in principal debtor: 28 C.J., 994.
Mr. N.B. Hargrove, for respondent, cites: Complaint not demurrable: 70 S.C. 572; 153 S.C. 305; 154 S.C. 138; 56 S.C. 38; 58 S.C. 560. No estoppel: 51 N.H. 287; 141 S.C. 281; 13 S.C. 355.
March 26, 1931. The opinion of the Court was delivered by
This is an appeal from an order of his Honor Judge Bonham, dated April 29, 1930, overruling a demurrer to the complaint interposed by the defendants. The substance of the complaint and the grounds of demurrer are sufficiently stated in the order, which will be reported.
The conclusion reached in the decree is correct, but, in our opinion, should have been placed upon a somewhat different basis as follows:
The effect of the merger or consolidation by which the Bank of Dillon took over the assets of the People's Bank and of the National Bank, and assumed their respective liabilities was to change the paymaster, as regards the deposit account of the receiver of the Bank of Latta in the People's Bank. By it the Bank of Dillon became the debtor of the receiver in the place of the People's Bank, whose obligation to the receiver had been personally guaranteed by the defendants, directors of the People's Bank. If this consummation had been effected without the consent of the director-guarantors, it would have unquestionably constituted such a change in the obligation of the guarantors as would have discharged them from their guaranty.
As is said in 28 C.J., 994:
"A guarantor may be released from further liability by a change in the principal debtor or obligor, unless he consents thereto" — citing Byers v. Hickman, 112 Iowa, 451, 84 N.W., 500; McConnon v. Evans, 152 Ky., 491, 153 S.W. 773; Saunders v. Ducker, 116 Md., 474, 82 A., 154, Ann. Cas., 1913-C, 817; People v. Backus, 117 N. Y., 196, 22 N.E., 759; May v. Waniger (Tex.Civ.App.), 164 S.W. 1106; Lester v. Romney, 41 Utah, 436, 126 P., 325.
In order to counteract this possible claim of immunity on the part of the guarantors, it was incumbent upon the person guaranteed, the plaintiff here, to allege and prove that the change of debtors was made with the knowledge and consent of the guarantors. There is in the complaint no direct allegation of this fact, but, as it is alleged that the guarantors were directors of the People's Bank, which was a party to the merger or consolidation, and as it could not be consummated except by corporate action by the directors and stockholders of each of the submerged banks, it must be assumed that at least a majority of the directors of the People's Bank participated in, and consented to, the merger or consolidation. The complaint therefore contained sufficient allegations to justify a submission of this issue to a jury.
The following questions must arise upon the trial of the case:
(1) Did the guaranty of the directors of the People's Bank follow the transfer of the receiver's deposit account to the Bank of Dillon?
(2) Was there a novation, a substitution of the debt of the Bank of Dillon for the debt of the People's Bank to the receiver?
(3) Did the conduct of the receiver after the merger was consummated constitute a waiver of the obligation of the guarantors?
(4) Did the conduct of the receiver after the merger was consummated constitute an estoppel against the receiver, preventing his enforcement of the guaranty?
The judgment of this Court is that the order overruling the demurrer be affirmed for the reasons herein stated, and that the case be remanded to the Circuit Court, with leave to the plaintiff to amend his complaint as he may be advised, and with leave to the defendants to answer such amended complaint.
MR. CHIEF JUSTICE BLEASE, MR. JUSTICE STABLER and MR. ACTING ASSOCIATE JUSTICE JOHN I. COSGROVE concur.
The order of the Circuit Judge in overruling the demurrer is satisfactory to me.