DOUGLASS V. REYNOLDS, BYRNE & CO., 32 U. S. 113 (1833)

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U.S. Supreme Court

Douglass v. Reynolds, Byrne & Co., 32 U.S. 7 Pet. 113 113 (1833)

Douglass v. Reynolds, Byrne & Company

32 U.S. (7 Pet.) 113


Action upon the following letter of guarantee, written by the defendants and delivered to the plaintiffs;

"Port Gibson, December, 1827"


"Gentlemen: Our friend, Mr. Chester Haring, to assist him in business, may require your aid from time to time, either by acceptance or endorsement of his paper or advances in cash; in order to save you from harm by so doing, we do hereby bind ourselves, severally and jointly, to be responsible to you at any time for a sum not exceeding $8,000, should the said Chester Haring fail to do so. Your obedient servants,"




One count in the declaration was for money lent and money had and received. Held that upon a collateral undertaking of this sort, no such suit is maintainable.

The depositions of several witnesses, clerks in the counting house of the plaintiffs, were admitted on the trial of the cause, in which the witnesses stated that they knew that the letter of credit was considered by the plaintiffs as covering any balance due by C.H. to them for advances from time to time to the amount of $8,000; that advances were made and moneys paid by them on account of C.H. from the time of receiving the said letter, predicated on the letter's always protecting the plaintiffs to the amount of $8,000, and that it was considered in the counting house as a continuing letter of credit, and so acted upon by the plaintiffs. Held that this evidence was rightly admitted to establish that credit had been given to C.H. on the faith of it from time to time, and that it was treated by the plaintiffs as a continuing guarantee, so that if in point of law it was entitled to that character, the plaintiffs clam might not be open to the suggestion that no such advances, acceptances, or

endorsements bad been made upon the credit of it. The evidence was not open to the objection that it was an attempt by parol evidence to explain a written contract.

Nothing can be clearer upon principle than that if a letter of credit is given but in fact no advances are made upon the faith of it, the party is not entitled to recover for any debts due by him from the debtor in whose favor it was given which have been incurred subsequently to the guarantee and without any reference to it.

The guarantee given by the defendants covered successive advances, acceptances, and endorsements made by the plaintiffs to the amount of $8,000

Page 32 U. S. 114

at any subsequent times, toties quoties, whenever the antecedent transactions were discharged. It was a continuing guarantee.

Every instrument of this sort ought to receive a fair and reasonable interpretation according to the true import of its terms. It being an engagement for the debt of another, there is certainly no reason for giving it an expanded signification or liberal construction beyond the fair import of its terms.

The cases of Russell v. Clarke's Executors, 7 Cranch 69, and Drummond v. Prestman, 12 Wheat. 515, cited.

A party giving a letter of guarantee has a right to know whether it is accepted and whether the person to whom it is addressed means to give credit on the footing of it or not. It may be most material not only as to his responsibility, but as to future rights and proceedings. It may regulate in a great measure his course of conduct and his exercise of vigilance in regard to the party in whose favor it is given. Especially it is important in the case of a continuing guarantee, since it may guide his judgment in recalling or suspending it.

If this had been the case of a guarantee limited to a single transaction, it would have been the duty of the plaintiffs to have given notice of the advances, acceptances, or endorsements made under it within a reasonable time after they were made. But this being a continuing guarantee, in which the parties contemplate a series of transactions, and as soon as the defendants had received notice of the acceptance, they must necessarily have understood that there would be successive advances, acceptances, and endorsements which would be renewed and discharged from time to time; there is no general principle upon which to rest that notice of each successive transaction, as it arose, should be given. All that could be required would be that when all the transactions under the guarantee were closed, notice of the amount for which the guarantors were responsible should, within a reasonable time afterwards, he communicated to them.

A demand of payment of the sum advanced under the guarantee should be made of the person to whom the same was made, and in case of nonpayment by him, notice of such demand and nonpayment should have been given in a reasonable time to the guarantors; otherwise they would be discharged from the guarantee. By the very terms of this 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. The creditors are not bound to institute legal proceedings against the debtor, but they are bound to use reasonable diligence to make demand and to give notice of nonpayment.

An account was stated between the plaintiffs and Chester Haring showing an apparent balance against Haring of $22,573,

Page 32 U. S. 115

and at the foot of the account the plaintiffs gave a receipt for several promissory notes, payable at distant periods, dated on the same day with the account. The notes were drawn by C. Haring, and endorsed by Daniel Greenleaf. The receipt stated that "the notes, when discounted, the proceeds to go to the credit of this account." The notes were discounted and the proceeds received by the plaintiffs, but, being unpaid, they were protested; notice of their nonpayment was given to the endorsers, and they were afterwards taken up by the plaintiffs as endorsers thereof. Held: if the plaintiffs below, by their endorsements were compellable to pay and did afterwards pay the notes upon their dishonor by the maker, and these notes fell within the scope of the guarantee, they might without question recover the amount from the guarantors.

He who receives any note upon which third persons are responsible as a conditional payment of a debt due to himself is bound to use due diligence to collect it of the parties thereto at maturity, otherwise by his laches the debt will be discharged.

This was an action on the case, instituted in the district court by Reynolds, Byrne & Company against the defendants on a letter of credit or guarantee, signed by them and addressed to the plaintiffs in the following terms:

"Port Gibson, December, 1827"

"Messrs. REYNOLDS, BYRNE & Co."

"Gentlemen: Our friend, Mr. Chester Haring, to assist him in business, may require your aid from time to time, either by acceptance or endorsement of his paper or advances in cash. In order to save you from harm by so doing, we do hereby bind ourselves severally and jointly to be responsible to you at any time for a sum not exceeding $8,000 should the said Chester Haring fail to do so. Your obedient servants,"




This letter of credit was delivered to the plaintiffs, and upon the faith of it they were in the habit of accepting and endorsing bills and making advances for Chester Haring, and they from time to time received partial payments and consignments of cotton, to be sold by them and the proceeds placed to his credit.

Page 32 U. S. 116

The transactions between Chester Haring and the plaintiffs commenced after the receipt of the letter of guarantee, and continued until March or April, 1829.

The first count in the declaration, after setting out the letter of credit, charged, that the plaintiffs did, on the faith of that letter,

"accept and endorse the drafts or paper of said C. Haring, to a large amount, to-wit, the sum of $8,000, upon certain terms, and payable at the times expressed in said drafts and paper of the said C. Haring, which said drafts and paper of the said C. Haring, so accepted and endorsed by the plaintiffs as aforesaid, they, the plaintiffs, became liable to pay, and in consequence of their said acceptances and endorsements, did take up, pay and discharge the same, at the maturity thereof."

The count then charged the failure of Haring to discharge or pay the paper so endorsed and accepted by the plaintiffs, &c., and concluded with a general breach of the guarantee of the defendants, &c. The second count was indebitatus assumpsit for money lent, had and received, &c., and the defendants pleaded the general issue.

The evidence upon which the questions of law arose and which were decided by the court is fully stated in the opinion.

Page 32 U. S. 117

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