Globe Bank v. McLean , 84 Colo. 207 ( 1928 )

THESE parties appear here in the same order as in the trial court, and for convenience we refer to them as there.

Plaintiff brought this action to recover of defendant as one of the guarantors of a promissory note. A demurrer to the complaint was overruled and defendant answered. A demurrer to the answer was overruled in part and sustained in part. A reply was filed and the cause was tried to the court without a jury and submitted on written briefs. June 1, 1926, the court found in favor of defendant and ordered judgment entered thereon. Apparently plaintiff's counsel were not present at the time for the court ordered its exception saved and granted it ten days in which to file a motion for new trial. That motion was accordingly filed and in it the alleged errors were specifically set forth. The motion was overruled and judgment entered June 14. To review that judgment plaintiff prosecutes this writ.

Prior to September 20, 1920, plaintiff and "The City Bank" were banking corporations engaged in that business in the city of Denver, and defendant was a director and vice president of the latter. On said date plaintiff bought the assets of the City Bank under a contract which provided for the execution of a "guaranty agreement." Said agreement was accordingly executed and signed by defendant and eight others as representatives of the City Bank. Defendant's liability thereunder is the main question requiring consideration here.

The contract for the sale of the City Bank's assets was signed on behalf of the City Bank by defendant and two other of its directors, and on behalf of plaintiff by three of its directors: Paragraph 5 of that contract reads:

"5. It is understood and agreed that the members of the board of directors of said the City Bank shall execute and deliver to said the Globe National Bank a guaranty agreement (a copy of which, marked "Exhibit B," is hereto attached) guaranteeing to said the Globe National Bank the correctness of said general journal and daily statement as a statement of the condition of said the City Bank at the close of business on September 30, 1920, and guaranteeing the payment to said the Globe National Bank of the notes, bonds (except Liberty bonds) and other securities included in said general journal and daily statement."

Among the provisions of the guaranty contract, executed in conformity to said paragraph 5, are the following:

"Whereas, said the Globe National Bank, in making said purchase, desires a guaranty * * * of the payment of its (the City Bank's) notes, bonds and other securities * * *.

"The undersigned jointly and severally guarantee to said the Globe National Bank the payment at maturity or at any time thereafter, on demand, of each and every of the notes, bonds and securities of every kind and nature included in said purchase * * *.

"The undersigned further agree that, in every instance upon the written consent of two members of the liquidation committee of said the City Bank, the time of payment of any of said notes may from time to time be extended by said the Globe National Bank, or new notes payable directly to said the Globe National Bank may be taken in payment thereof, and that with like consent the time of payment of any such new notes may be extended, or other notes taken in payment thereof, all without releasing or in any manner or degree modifying or changing the liability of the undersigned under this contract of guaranty, it being the intent and meaning hereof that the undersigned shall be and remain obligated hereunder to said the Globe National Bank for the payment of all indebtedness represented by said notes payable to the order of said the City Bank, and for all renewals and extensions thereof made in the manner aforesaid."

Defendant was a member of the liquidation committee above mentioned, and also became a member of the board of directors of the Globe National Bank.

Among the notes so guaranteed was one for $47,500. On this there was a default of approximately $23,000, which was paid by four (other than defendant) of the signers of the guaranty agreement. In consideration of such payment the plaintiff released those four from further liability.

Another of the notes so guaranteed was the Curtis note for $20,500. The bank examiner objected to this as an asset of the plaintiff and the signer of it settled by conveying its security to the City Bank, whereupon said note was surrendered to her and marked "paid" on the books of the Globe. As a part of this transaction Skinner (a director of the City Bank and a signer of the guaranty contract) gave to plaintiff his note in lieu of the Curtis note, and took from the City Bank, to secure him against loss by reason thereof, the note of the City Bank secured by the property which Curtis had transferred in payment of her note. Skinner then turned over to plaintiff, as collateral, said note of the City Bank to him, together with its security. All this Skinner did at the request of the liquidation committee. The Skinner note to plaintiff was also signed by "The City Bank Liquidating Committee by W. J. Galligan by George McLean." Galligan also was a member of the liquidating committee. Said note was not paid and plaintiff brought this suit against defendant as a maker of the guaranty contract.

1. If Skinner's note to plaintiff is covered by the guaranty contract the judgment must be reversed. Two well established principles governing the interpretation of contracts must be borne in mind: (a) In case of doubt a contract is construed most strongly against him who drafted it. (b) Where a doubt exists as to the proper construction of a given clause, it should be construed in favor of him for whose protection it was obviously inserted. It should further be observed that the answer herein was filed July 22, 1925, and the replication October 31 following, and that it is a matter of common knowledge in this state, admitted in defendant's brief, and not denied, that the Globe National Bank went into the hands of a receiver October 1, 1925, and has ever since been, and now is, an insolvent institution. Since, on the controlling facts, there is no material conflict in the evidence the findings for defendant are of no moment. Defendant contends that since the Curtis note was "paid," in the manner hereinbefore described, and since the Skinner note is neither one of those purchased from the City Bank nor a renewal signed by a maker of the original, he is not liable. But his contract was, not to pay said original notes, nor yet to pay renewals executed by the makers of said originals, but "for the payment of all indebtednessrepresented by said notes." It is insisted that the indebtedness represented by the Curtis note has been paid by the Skinner note; although the Globe has never received a dollar thereon and there is nothing to indicate that it ever will. If the defendant and his associates on the liquidation committee had succeeded in having cancelled and returned to the makers all of the original paper bought from the City Bank, but failed to remit to the Globe Bank, certainly the indebtedness to the Globe Bank would not have been discharged. The fact is that the debt due the Globe, represented by the Curtis note, is the identical debt still due the Globe, and now represented by the Skinner note. Curtis has been discharged so far as the Globe is concerned, but the Globe and its depositors have received nothing. The guaranty contract was not a contract for the discharge of the debtors of the City Bank, whose obligations had been transferred to the Globe. Its only purpose was to assure the Globe that the debts evidenced by "each and every of the notes, bonds and securities of every kind and nature" would be paid the plaintiff unless it released the makers without the consent of two members of the liquidating committee of the City Bank. To hold that the words "new notes" refer only to notes signed by the same parties who signed the original paper is to give the contract a strained construction and, as to its primary purpose and intent, to read it out of existence. The Globe Bank was perfectly free to do as it pleased with paper taken over from the City Bank. The guarantors were not concerned with any changes therein unless they were to be held under their contract. In that event their consent had to be obtained. They authorized their agents, two members of the liquidating committee, to give that consent. In the instant case those agents did so. Why, if not to keep the guaranty good?

2. Moreover, were defendant otherwise released from his guaranty by reason of the substitution of the Skinner note for the Curtis note he would not be permitted to avail himself of that defense under the circumstances disclosed by this record. As a director and vice president of the City Bank he was a maker of the guaranty agreement. As a director of the plaintiff he was obliged to insist upon its enforcement. As a member of the liquidating committee he was instrumental in imposing upon the Globe a worthless obligation in lieu of a good one. His relation to both banks and their depositors was one of trust, in the discharge of which he is held to the utmost good faith. His conduct having resulted in serious loss to the institution of which he was a director, and advantage to himself in an equal sum, he can not be heard to plead the strict letter of the contract in extenuation thereof.

3. The defendant says that the release of his four coguarantors without his express consent released him. But section 5125, C. L. 1921, was passed in 1899 and the cases cited in support of the release were decided by this court long prior thereto. Said section is not mentioned in the briefs and the record does not indicate that it was ever brought to the attention of the trial court. It reads: "A creditor of joint debtors may release one or more of such debtors, and such release shall operate as a full discharge of such debtor or debtors so released, but such release shall not release or discharge or affect, the liability of the remaining debtor or debtors. Such release shall be taken and held to be a payment in [on] the indebtedness of the full proportionate share of the debtor or debtors so released."

That this act precludes defendant's complete release is clear. To what extent, if any, it reduces his liability we can not here determine. The trial court has yet to consider the effect of said release, the question of the sufficiency of the consideration for it, whether defendant (by reason of the action of his agents, the liquidating committee) gave his express or implied consent thereto, and the right of defendant, in view of his duty as a director of plaintiff, to claim any advantage under it. All this may call for some amendment of the pleadings and for the production of additional evidence.

The judgment is accordingly reversed and the cause remanded for further proceedings in conformity herewith.

MR. CHIEF JUSTICE DENISON, MR. JUSTICE WALKER and MR. JUSTICE BUTLER dissent.