U.S. Supreme Court Louisville Manufacturing Company v. Welch, 51 U.S. 10 How. 461 461 (1850)
Louisville Manufacturing Company v. Welch
51 U.S. (10 How.) 461
ERROR TO THE CIRCUIT COURT OF THE UNITED
STATES FOR THE DISTRICT OF LOUISIANA
The following guarantee, viz.,
"I hereby guarantee the payment of any purchases of bagging and rope which Thomas Barrett may have occasion to make between this and the 1st of December next"
extends the liability of the guarantor to purchases upon a reasonable credit, made anterior to 1 December, although the time of payment was not to arrive until after that day.
The vendor was not bound to give immediate notice to the guarantor of the amount furnished, or the sum of money for which the guarantor was held responsible. It was sufficient to give this notice within a reasonable time after the transactions were closed, and the question what was a reasonable time was a question of fact for the jury.
If the principal debtor be insolvent at the time when the payment becomes due, even this notice is not necessary unless some damage or loss can be shown to have accrued to the guarantor in consequence of his not receiving such a notice. And in no instance, in case of a guarantee, will the guarantor be exempt from liability for want of the notice unless loss or damage is shown to have accrued as a consequence.
But when a party intends to avail himself of the guarantee by making sales on the faith of it to the person to whom it is given, such party must give notice within a reasonable time to the guarantor of his acceptance and intention to act on it.
Where the guarantor took defense upon the ground that he had before notice given up securities belonging to the receiver of the guarantee which would have made him whole, the time of his doing this should have been given to the jury as an essential ingredient for their judgment upon the question whether or not he had received reasonable notice of his liability.
The admission of the guarantor when called upon for payment did not conclusively bind him as a matter of law, because it may not have been made with a full knowledge of all the facts in the case. It was therefore properly left to the jury to decide whether so made or not.
The Louisville Manufacturing Company was incorporated by an act of the Legislature of Kentucky, and was domiciliated and transacting business in that state.
On 3 May, 1845, Michael Welch gave to one Thomas Barrett the following letter of credit, viz.:
"I hereby guarantee the payment of any purchases of bagging
and rope which Thomas Barrett may have occasion to make between this and the 1st of December next."
"New Orleans, 3 May, 1845"
This letter of credit was deposited by Barrett with the house of Worsley, Forman & Kennedy, the factors of the Louisville Manufacturing Company, who made sundry sales of bagging and rope to Barrett upon the following credits, viz.:
Up to 22 July, 1845, and on that day, the sales of bagging and rope by plaintiffs to Barrett amounted to $891.32, for which, on that day, Thomas S. Forman, agent of plaintiffs, drew a bill on Barrett to the order of the Louisville Manufacturing Company, due and demandable on 20 December, 1845, which bill was accepted by Barrett.
On 28 August, 1845, Barrett drew on himself and accepted a bill for $605.07 to the order of the plaintiffs, due 10 January, 1846.
On 18 September, 1845, Barrett drew on himself and accepted a bill for $531.50 to the order of the plaintiffs due 15 January, 1846.
On 1 December, 1845, Barrett drew on himself and accepted a bill for $433.08 to the order of plaintiffs due on 20 January, 1846.
The first named bill for $891.32 was not protested, having been withheld from the protest at the instance of Barrett. The other three bills were protested at maturity.
The circumstances which occurred prior to the institution of the suit are stated in the evidence given upon the trial, which was made a part of the bill of exceptions.
On 1 August, 1847, the Louisville Manufacturing Company brought an action by filing a petition against Michael Welch in the Circuit Court of the United States for the District of Louisiana, which came on for trial in May, 1848. The following is the evidence which was given.
"And afterwards, to-wit, on 11 May, 1848, the testimony of W. Chambers was offered in evidence."
"I was a clerk in the houses of Worsley & Forman, Worsley, Forman & Kennedy, and Forman & Kennedy, from the winter of 1842 to July, 1847. In the spring or summer of 1845, Thomas Barrett deposited with Worsley, Forman & Kennedy a letter of credit from Michael Welch guaranteeing the payment of bagging and rope which Barrett might purchase to a certain amount, within a certain named period. On the said letter of credit, Worsley, Forman & Kennedy did,
as factors of the Louisville Manufacturing Company, sell to Barrett, at various times, sundry invoices of bagging and rope belonging to said Louisville Manufacturing Company, for which they took his acceptances for account of said company as follows, viz., one dated 22 July, 1845, due 20-23 December, for $891.32; one dated 28 August, 1845, due 10-13 January, 1846, $605.07; one dated 18 September, 1845, due 15-18 January, 1846, $531.50; one dated 1 December, 1845, due 20-23 January, 1846, $433.08."
"Subsequently to taking the acceptance last named, they sold him bagging and rope to the amount of $78.86, which stands to his debt on open account."
"Mr. Welch was not notified by Worsley, Forman & Kennedy that the letter of credit had been deposited with them at the time it was deposited, nor until after the maturity of the acceptance first named above. Shortly after the maturity of the said bill in the latter part of December or early part of January, I think between 5 and 10 January, I saw Mr. Welch in person; informed him of the sales of bagging and rope made by Worsley, Forman & Kennedy to Mr. Barrett on his letter of credit; told him that the acceptance of Barrett for $891.32 was unpaid; that he would be looked to for the payment of it, and the other acceptances should they not be paid. He requested me to try and get all I could from Barrett."
"On 7 May, 1846, I addressed him a letter urging him to settle the claim. Saw him in person, don't recollect the date of the interview, and urged him to settle the business. He requested that he might not be pressed for payment, saying that it was a very hard case; that he did not wish to place any obstacle in the way of collecting the money; that he had not then at command the means of paying it conveniently; that he would have more ample means when the next cotton crop came into market."
"On 26 April, 1847, I had an interview with Mr. Welch. He remarked that he understood the letter of credit to restrict the time of the credit which might be given for goods purchased under it to the month of December; that under the impression, to protect himself against the liability, he retained under his control certain valuable papers of Barrett's until the expiration of the time to which he thought his liability extended, when, upon the assurance of Mr. Barrett that the debt was settled, he surrendered the papers."
"I remarked to him that in the interview which I had with him in the spring of 1846, he assured me that it was not his intention to place any obstacle in the way of the collection
of the money; that he asked, as a favor, that he might not be pressed for its immediate payment, representing that he had not then the means at command to pay it, but that he would be able to pay it with less inconvenience when the next cotton crop came into market; that he had induced the belief that he would pay it as soon as he could do so. He replied that it was at that time his intention to pay it, and that he would have done so but that he subsequently learned that he would lose a much larger sum by Mr. Barrett; that he would be unable to bear so heavy a loss, and had come to the determination not to pay this claim, or any other claim growing out of his liability for Barrett, unless compelled by law."
"The papers to which I refer as having been in the hands of Mr. Welch, and which he said he might have retained to indemnify him, I did not understand him as saying had been placed in his hands by Mr. Barrett for that purpose, but came into his hands without any reference whatever to this liability, but that if he had known he was liable, he could and would have retained them."
"Mr. Welch did not, as well as I remember, make to me any promise to pay the bills except in the manner previously referred to."
"Worsley, Forman & Kennedy, or Worsley & Forman, their predecessors in business, had previously sold to Mr. Barrett bagging and rope to a large amount, upon a letter of credit of Mr. Welch and Mr. Elgee, acting as the agent of Worsley, Forman & Kennedy. I would not have sold goods to Mr. Barrett on time upon his individual responsibility alone."
"On the day of the maturity of the bill first maturing, the one for $891.32, due 20-23 December, Mr. Duff, a young man who had charge of Mr. Barrett's business, called on me and told me that Mr. Barrett was sick; that he would be unable to pay the bill on that day, and requested that Worsley, Forman & Kennedy would take it up, representing that he would be in funds to pay it in a few days, and, as soon as he was able, would pay it. In consequence of which the bill was taken up by Worsley, Forman & Kennedy, as agent of the Louisville Manufacturing Company."
"New Orleans, February 23, 1818"
"To be admitted as evidence, as if sworn to and given in open court."
"WM. DUNBAR, for Welch "
"STOCKTON & STEELE, for Plaintiff "
"New Orleans, February 23, 1848 "
"And on the same day the testimony of W. W. Whitehead was offered in evidence."
"I am acquainted with the bagging and rope trade in New Orleans; have been several times, at different periods, in the commercial house of Worsley, Forman & Kennedy, and Forman & Kennedy; know that those articles are sometimes sold for cash and sometimes on time. Time sales made about this period of the year are most frequently made payable about the beginning of the ensuing year, but vary as to the time; sometimes the bills are drawn payable as early as November and December, and sometimes the time is extended to January, February, and March. Time sales are also sometimes made on shorter time, to-wit thirty, sixty, ninety, and one hundred and twenty days."
"W. W. WHITEHEAD"
"New Orleans, May, 10, 1848"
"The above evidence is taken by consent of parties, and it is agreed that it may be read on the trial of the case of Louisville Manufacturing Company v. Welch as testimony by either party."
"STOCKTON & STEELE, for Plaintiffs "
"WM. DUNBAR, for Defendant "
"New Orleans, May 10, 1848"
"And further on the same day, the testimony of D. Griffon was offered in evidence."
"I certify that the two accounts, A and B, are taken from the books of the late Thomas Barrett, and are a true copy of the same, and that they contain a full and correct statement of the accounts of Thomas Barrett and Michael Welch, Esq. I was a clerk in the house of Thomas Barrett during the period of the above two accounts, and know them to be correct, having compared them with the books. There were not at any time any funds or notes placed in the hands of Mr. Welch to secure him for his guarantee of 3 May, 1845; if there had been, I should have known it. I have known that Captain Welch traded from Alexandria to New Orleans as captain of a steamboat, and was here every eight or ten days, from 3 May, 1845, up to this time."
"New Orleans, 23 February, 1848."
"We agree that the above evidence may be used as if the witness was sworn and examined in open court in the case of Louisville Manufacturing Company v. Welch, and that
the accounts A and B be taken without requiring the production of the books of Barrett."
"STOCKTON & STEELE, for Plaintiffs "
"WM. DUNBAR, for Defendant "
"New Orleans, February 23, 1848"
Then followed a transcript of long accounts between Welch and Barrett
The following bill of exceptions was taken upon the trial:
"Be it remembered, that on the trial of this cause, and before the jury retired, the plaintiffs by their counsel, Stockton & Steele, requested the court to charge the jury as follows:"
"1. That the statement made by defendant to witness Chambers, who had called on behalf of plaintiffs to demand payment, that on the assurance of Barrett that the debt had been paid, he, Welch, had given up papers and security, by which he could have secured himself from loss, was an acknowledgment that he had due notice of the fact that the plaintiffs had sold the goods to Barrett on the faith of the letter of credit."
"2. That if notice of the purchase of goods from plaintiffs on the letter of credit was given within a reasonable time by Barrett to defendant, it enured to the benefit of plaintiffs as effectually as if the notice had been given him directly from the plaintiffs."
"3. That the immediate and strict notice required to be given by the holder of a protested bill of exchange or promissory note is not requisite in cases of guarantee."
"4. That if there was no other notice, that given by plaintiffs at the time of the protest of the first bill, or shortly before or shortly after the date, was sufficient."
"5. That the statement made by Welch, the defendant, to witness, Chambers, while the latter was acting for plaintiffs in endeavoring to collect the debt, that he had not then the means to pay the debt, but after another cotton crop he would be able to pay, and that 'he did not wish to throw any obstacles in the way of the collection of the debt,' was a waiver of all objections to the payment thereof, was an acknowledgment of his legal liability, and a promise to plaintiffs to pay them the debt."
"6. That the failure to protest any of the bills of exchange was not a giving of further time to the debtor, Barrett, and the liability of the defendant was in no way affected thereby."
"7. That the giving a reasonable credit to Barrett on the sales was no violation of the rights of Welch, and that the credits in this case were reasonable. "
"8. That the mistake of Welch as to the fact of the debt having been paid does not release his obligation."
"Whereupon the court instructed the jury as desired by the plaintiffs in their second, third, and sixth points of instruction, but refused to give any of the other instructions asked by the plaintiffs, to which ruling of the court the plaintiffs by their said counsel excepted, tendered this their bill of exception, and prayed that it might be signed, which is done accordingly."
"And be it further remembered that at the same time the defendant, by William Dunbar, his counsel, asked the court to charge the jury as follows:"
"1. That upon acceptance by the plaintiffs or their agents of the letter of credit, notice should have been given in a reasonable time to the defendant that they had accepted the guarantee and that they meant to furnish Thomas Barrett with bagging and rope upon the faith of defendant's guarantee."
"2. That after the bagging and rope had been furnished by them, they should have given immediate notice to the defendant of the amount furnished, and the sum of money for which they looked to the defendant for payment."
"3. That the credit to Thomas Barrett should not have been extended beyond the term mentioned in said letter of credit, viz., 1 December, 1845, the term mentioned in said guarantee."
"4. That if the defendant had been released or discharged by the failure of the plaintiffs or their agents to give the proper notices to the defendant as before charged, the obligation of the defendant on the guarantee could be revived, or the laches or neglect of the plaintiffs, or their agents, waived only by a promise of the defendant to pay with a full knowledge of all the circumstances, and that the promise must be explicit, and made out by the most clear and unequivocal evidence."
"5. That if the jury believe that time was given by the plaintiffs or their agents to Thomas Barrett, at the maturity of any of the drafts or notes sued on, without the consent of the defendant, the defendant is hereby relieved from the payment of anyone of them upon which said time was given."
"Whereupon the plaintiffs objected to the court giving such instructions so asked by the defendant through his said counsel, but the court overruled said objections of the plaintiffs and gave to the jury all the said instructions so asked as aforesaid by the defendant; to which ruling and instructions by the court the plaintiffs by their said counsel excepted, tendered this their bill of exceptions, and prayed the same might be signed, which is done accordingly. The court, in refusing to give the fifth instruction asked by the plaintiffs, stated to the jury that it was
a question of fact for their own determination, and that for that reason he refused to give that instruction."
"THEO. H. McCALEB, U.S. Judge "
The jury found a verdict for the defendant, and the plaintiffs sued out a writ of error, under which the case was brought to this Court.
MR. JUSTICE NELSON delivered the opinion of the Court.
The suit was brought upon the following letter of credit signed by the defendant and dated New Orleans, 3 May, 1845: "I hereby guarantee the payment of any purchases of bagging and rope which Thomas Barrett may have occasion to make between this and the 1st of December next."
It appeared that this letter of credit, soon after it was given, was deposited by Barrett with a house in New Orleans who, as the factors of the plaintiffs, sold at different periods within the time prescribed several parcels of bagging and rope and delivered the same to Barrett on the faith of it, giving the usual credit on the sales of goods of this description and taking his acceptances for the price, payable at the expiration of the credit to the order of the plaintiffs.
There were four different parcels sold at different times, and the usual credit given on each of the sales extended beyond 1 December, the time mentioned in the guarantee.
No notice was given to the defendant by the house in New Orleans, nor by the plaintiffs, of the acceptance of his letter of credit or of the sales made to Barrett on the faith of it.
Shortly after the maturity of the first acceptance, which was in the latter part of December, the clerk of the New Orleans house called on the defendant and gave him notice the acceptance was unpaid, and that he would be looked to for payment, and also for the payment of the acceptances then running to maturity if unpaid when they fell due. The defendant desired the clerk to obtain all he could from Barrett towards the payment. Subsequently, and after all the acceptances had become due and were dishonored, the clerk had a second interview with him, when he expressed a wish that he might not be pressed for the payment immediately, observing that he did not wish to interpose any obstacle to the collection of the demand; that he had not the means of paying the amount then conveniently, but would have them at the coming in of the next cotton crop.
At a still later interview, the defendant expressed the opinion that his letter restricted the time of credit to Barrett for the goods to be purchased to 1 December, stating that
under this impression, he had delivered up to him certain securities at the expiration of the period of the credit given, which he held as an indemnity, Barrett assuring him at the time that the demand had been settled.
The evidence being closed, the following instructions were, among others, prayed for on the part of the plaintiff and refused.
1. That the giving a reasonable credit to Barrett on the sales was no violation of the rights of the defendant, and that the credits in this case were reasonable.
2. That the mistake of the defendant as to the fact of the demand having been paid did not release his obligation.
And the court gave, among others, the following instructions:
1. That after the bagging and rope had been furnished by the plaintiffs, they should have given immediate notice to the defendant of the amount furnished and the sum of money for which they looked to him for payment.
2. That the credit to Barrett should not have extended beyond the term mentioned in the said letter of credit, to-wit, 1 December.
The jury found a verdict for the defendant.
I. We are of opinion that the court below erred in the construction given to the terms of the letter of credit. It guaranteed the payment of any purchases of bagging and rope that Barrett might have occasion to make between its date and 1 December. The limitation is as to the time within which the purchases were to be made, not as to the time of the credit to be given to the purchaser. As credit was contemplated -- indeed was the special object of the guarantee -- that which was given upon the sales of goods of this description in the ordinary course of trade must have been intended. And for aught that appears in the case, this was the credit given.
The time for which credit was to be given upon the purchases is left indefinite in the instrument, and must receive a reasonable interpretation, one within the contemplation of the parties, and that obviously is as we have stated. Samuell v. Howarth, 3 Meriv. 272.
There might be some doubt upon the language used by the court below on this point whether, in charging that the credit to Barrett should not have been extended beyond 1 December, it was not intended to refer to the purchases of the goods, and not to the period of credit given.
But when taken in connection with the seventh instruction prayed for and refused, all ambiguity is removed.
Besides, no question appears to have been raised that the
price was claimed for any goods sold beyond the limit of the guarantee.
II. We are also of opinion that the court erred in the instruction that, after the bagging and rope had been furnished to Barrett, the plaintiffs should have given immediate notice to the defendant of the amount furnished and of the sum of money for which they looked to him for payment.
The rule as laid down by this Court in Douglass v. Reynolds, 7 Pet. 126, is that in a letter of credit of this description, all that is required is that when all the transactions between the parties under the guarantee are closed, notice of the amount for which the guarantor is held responsible should, within a reasonable time afterwards, be communicated to him.
What is a reasonable time must depend upon the circumstances of each particular case, and is generally a question of fact for the jury to determine. Lawrence v. McCalmont, 2 How. 426.
It was also ruled in that case that when the debt fell due against the principal debtor, a demand of payment should be made, and in case of nonpayment by him, that notice of such demand should be given in a reasonable time to the guarantor and that otherwise he would be discharged from his liability.
When the case came before the Court a second time, and which is reported in 37 U. S. 12 Pet. 497, the principle here stated was somewhat qualified, the Court holding that in case of the insolvency of the principal debtors and total inability to respond to the surety before the debt fell due, the demand and notice might be dispensed with.
The Court refers to a class of cases both in England and in this country drawing the distinction between the liability assumed by a guarantor and that of the drawers or endorser of commercial papers, the former being held liable on his guarantee in the absence of any demand and notice, unless some damage or loss had been sustained by reason of the neglect, while, in order to charge the latter, strict demand and notice must be shown according to the law merchant.
The authorities are very full on this head, and are founded upon sound and substantial reasons. 8 East 242; 2 Taunt. 206; 3 Barn. & C. 439, 447; 1 id. 10; 5 Mau. & Sel. 62; 5 Man. & G. 559; 9 Serg. & R. 198; 1 Story 22, 35, 36; Chit. on Bills, 324; Chitty, Jr. 733; 3 Kent.Com. 123.
When this case was before the Court the second time, one of the grounds upon which a new trial was ordered was the refusal of the court below to instruct the jury that if they found the principal debtors, at or previous to the time the payment of
the debt fell due, insolvent, the omission to demand payment and give notice to the guarantor did not discharge him from his liability. The rule, therefore, above stated, was not only laid down very distinctly, but applied in that case in the final disposition of it by the Court.
The same doctrine is very fully stated and enforced by Mr. Justice Story in Wilder v. Savage, already referred to, and also laid down in his work on Promissory Notes § 485, and by Chancellor Kent in his Commentaries Vol. III, 123.
The same course of reasoning and authority would seem to be equally applicable to the notice required of the goods furnished or credits given under the guarantee, and on the faith of it at the close of the transactions, and of the amount for which the party intended to look to the guarantor for payment, so as to advise him of the extent of his liabilities. We perceive no reason why the rule in respect to notice should be more strict in this stage of the dealings of the parties than at the time when the debt becomes due, or that the guarantor should be discharged for the delay in giving this notice when not loss or damage has resulted to him thereby. He has already had notice of the acceptance of the guarantee and of the intention of the party to act under it. The rule requiring this notice within a reasonable time after the acceptance is absolute and imperative in this Court according to all the cases; it is deemed essential to an inception of the contract; he is therefore advised of his accruing liabilities upon the guarantee, and may very well anticipate, or be charged with notice of, an amount of indebtedness to the extent of the credit pledged. Still it may be reasonable that he should be advised of the actual amount of liability when the transactions are closed, and if any loss happens in consequence of the omission to give the notice within a reasonable time, the fault is attributable to the laches of the creditor, and must fall on him.
Upon this view, the doctrine governing the question of notice at the close of the dealings on the faith of the guarantee, and also at the subsequent period when the indebtedness under it becomes due, is consistent and reconcilable, and places the duty of the creditor on the one hand, and the obligation of the guarantor on the other in both instances upon those general principles which have always been applied to contracts of this description, and preserves and maintains throughout the settled distinction on the subject of notice between the liability assumed by the guarantor and that of the drawer or endorser of commercial paper.
This intermediate notice required in this Court does not appear to be a necessary step to charge the guarantor according
to the English cases, as notice of acceptance and intention to act upon the guarantee is regarded as sufficient until the debt becomes due and payable; then reasonable notice of the default of the principal to pay must be given, as otherwise, if loss or damage should happen in consequence of the omission, it would operate as a discharge to that extent.
Returning, then, to the case in hand, we think the court erred in charging the jury in respect to this intermediate notice of the goods furnished, and of the sum for which the plaintiffs intended to look to the defendant for payment, in holding that it should be given immediately upon the closing of the dealings under the guarantee, as reasonable notice, in the cases in which it is required, is all the diligence that is essential in order to comply with the rule. According to the instruction, the jury must have understood that notice to charge the defendant should have been as strict as in the case of a drawer or endorser of a bill of exchange.
The eighth instruction refused, to-wit, that the mistake of the defendant as to the fact of the debt having been paid did not discharge him, is not very intelligible, but as a proposition standing alone, should have been given or explained. The refusal implied that the mistake operated to discharge the defendant, which we presume was not intended. The instruction is incautiously drawn, and was doubtless connected with some other matters that have not been brought into it. It was probably connected with the facts embodied in the first instruction, in which the court was requested to charge that the admission of the defendant to the clerk that he had given up certain papers to Barrett which would have indemnified him, on his assurance that the debt had been settled, was an acknowledgment of due notice that the plaintiffs had sold the goods on the faith of the letter of credit.
This instruction was properly refused, as the inference sought to be drawn from the statement was not a matter of law. At most, it could only be a question for the jury, accompanied with proper directions of the court as to the law. The admissions were made more than a year after the debt had become due, and the failure of Barrett to make payment. The time when the defendant possessed this knowledge was material in order to make out due notice, and this is not embraced in the proposition upon which the court was called upon to charge. If submitted to the jury, this must necessarily have entered into the instructions that should have been given to them.
The court was also right in refusing the fifth instruction, as it respected the promise of the defendant to the clerk to pay, as the effect of the promise, if made, depended upon the question
whether it was made with a full knowledge of all the facts going to discharge him from his obligation.
This question was therefore properly submitted to the jury.
But upon the grounds above stated, and principally the misconstruction of the terms of the letter of credit, which was fatal to the right of the plaintiffs, and the error in respect to the degree of diligence to be used in giving notice of the transactions under it, the judgment must be
Reversed and the case remitted and a venire de novo awarded for a new trial.
This cause came on to be heard on the transcript of the record from the Circuit Court of the United States for the District of Louisiana and was argued by counsel. On consideration whereof it is now here ordered and adjudged by this Court that the judgment of the said circuit court in this cause be and the same is hereby reversed, with costs, and that this cause be and the same is hereby remanded to the said circuit court with directions to award a venire facias de novo.