Hodgson v. Burroughs

Offutt, J., delivered the opinion of the Court. Richard H. Hodgson was, during 1930 and prior thereto, engaged in business in the Town of Salisbury on the Eastern Shore of Maryland as a mortgage loan broker. ⁴¹⁷ Among his clients was James S. Burroughs, who resided in Snow Hill, Maryland, for whom Hodgson had from time to time since 1920 invested money in mortgages. On August 1st,' 1930, Hodgson had in his possession $5,000, which he had collected for Burroughs, and on that day he wrote Burroughs this letter: “Your Thomas B. Walston — $3000.00 mortgage and your Marshall S. Wilson — $2000.00 mortgage are being paid, and we have closed for you in lieu thereof a $5000.00 first mortgage investment from Stella V. Green and James F. Green, her husband, and herewith enclose the mortgage note and mortgage duly assigned to you for $5000.00, with interest due you thereon from June 1, last, and assignment properly recorded at our Clerk’s Office. In the transaction there is no loss of interest to you.

In connection with the enclosed investment, there is fire insurance on the buildings on the property for $2500.00 which we are having marked to your use, and will be able to forward same to you during the coming week. “The property securing the enclosed investment is a first mortgage on their home property located along the westerly side of the State highway leading from Salisbury to Delmar and about three miles from Salisbury, containing approximately 36.52 acres of land. The investment we believe is a good one and like other investments taken and looked after for you by us, guarantee to you the return of your principal and interest under any and all circumstances. “At your earliest opportunity after the receipt of this letter, you may send us all papers you have in connection with the Thomas B. Walston and Marshall S. Wilson investments, and upon receipt of same will write the necessary releases thereto and return them to you for your signature.” The mortgage thus inclosed being in default, Burroughs, the assignee, assigned it on April 8th, 1935, to F. W. C. Webb and F. C. Bounds for foreclosure. As the result of negotiations between Mr. Bounds and former ⁴¹⁸ Judge Joseph L. Bailey, Bounds received a check for $100 from Judge Bailey, and a check for $953.40 from Hodgson, paying three years’ interest then due on the mortgage, and the costs of the foreclosure which had then accrued, the foreclosure proceeding was abandoned, and the mortgage reassigned to Burroughs. On August 14th, 1935, Bounds wrote Judge Bailey that it had been understood that the taxes due on the mortgaged property would be paid by him and suggesting that they be paid at least up to 1935.

They were not paid, and on August 30th Bounds again wrote that unless they were paid by September 14th, 1935, the property would be re-advertised for sale. They were not paid, and on September 24th, 193,5, the mortgage was again assigned to Webb and Bounds for foreclosure, who on June 17th, 1936, docketed a foreclosure suit, and on June 17th, 1936, advertised it for sale. In ordinary course it was sold in the foreclosure proceeding for $2700, which, after deducting the expenses of the foreclosure suit, state and county taxes, left a balance due Burroughs on account of the mortgage of $2274.43. Thereupon Burroughs, on December 30th, 1936,. brought an action by titling against Hodgson, in the Circuit Court for Wicomico County, and on January 28th, 1937, filed a declaration therein in which he claimed that Hodgson was liable to him on his, Hodgson’s, guaranty for that deficit.

The narr. contained two counts, the first embodied the theory that the defendant was liable on an express guaranty, and the second that he was. liable under an implied warranty as an endorser of the mortgage note. A demurrer to the first count was overruled, and a demurrer to the second count sustained. The defendant then pleaded the general issue to the first count, upon which the plaintiff filed the general replication. Hodgson then filed a suggestion and affidavit for removal, and the case was sent to the Circuit Court for Dorchester County, where it was tried before the court and a jury.

The trial resulted in a verdict and judgment for the plaintiff for $2725.57. The appeals in this ⁴¹⁹ case and in No. 35 on the docket of this term, are from that judgment. There was in the case evidence tending to prove facts which may be thus stated: The mortgage inclosed in the letter from Hodgson to Burroughs, dated August 1st, 1930, was dated October 1st, 1929, and was executed by Stella B. Green and James F. Green, mortgagors, to Richard H. Hodgson, to secure a loan of $5000, evidenced by a writing obligatory from the mortgagors to Hodgson. On December 10th, 1931, Burroughs assigned it to the First National Bank of Snow Hill as collateral security for a loan from that bank to him, and on April 8th, 1935, that bank reassigned it to him.

The acquaintance between Hodgson and Burroughs began in 1920. Hodgson said that Burroughs came to his office without any invitation from him and requested that he, Hodgson, notify him when he “had a good investment.” Burroughs said: “Mr. Hodgson said he heard I had some money to loan on some first class mortgages: I told him I did. He said he had some first class mortgages to loan and he told me to come over to Salisbury. I went over and invested some money with him.

He said they were first class mortgages and he would guarantee them and collect the interest every six months and send me the interest, and also look after my fire insurance and it would not cost a cent. I asked him how he could do all that. He said the people that got the money for them, they paid him a percentage.” Hodgson denied that he had had any such conversation. The relation of Judge Bailey to the transaction is obscure, but the evidence is sufficient to permit an inference that in the negotiations following the first default in the mortgage he acted as agent for Hodgson.

Carroll E. Bounds, an attorney acting for Burroughs, prior to April 18th, 1935, called on Hodgson to pay interest then in arrear on the mortgage, but he “delayed the matter indefinitely and would not pay any interest.” Then the first foreclosure proceeding was instituted, and on May ⁴²⁰ 2nd, 1935, in order that he might take appropriate steps to protect his interests, Bounds wrote Hodgson that the property would be sold on May 11th, 1935. It does not appear that Hodgson replied, or that he had any communication with Bounds or Webb before the day of sale, but on the day of sale there was an interview between them and Judge Bailey, in respect to which Bounds testified: “Judge Bailey agreed in your presence and my presence that if we would withdraw the property from sale at that time he would pay the foreclosure costs, these items to be paid on or ¡before June 15th, 1935, and that on or before August 1st, 1935, he would pay the taxes then due against the property for the years 1932, 1933 and 1934, and he agreed to give us a payment of One Hundred Dollars to apply on the interest and costs on that date, and he further agreed that if he did not live up to this agreement that we might readvertise the property for sale under the mortgage. Q. Now pursuant to that offer on the part of Judge Bailey, to which you have just referred, what was done with reference to the sale of the property which was to be made a few minutes later? A. It was withdrawn.” Hodgson, after categorically denying that he had had anything to do with the payment of interest and taxes payable under the Green mortgage, or the costs of the foreclosure proceeding, nevertheless gave this testimony: “Now, Mr. Hodgson, I show you here a check marked Plaintiff’s Exhibit No. 6, which purports to be a check of Richard H. Hodgson dated June 20, 1935, in the amount of $953.40, and payable to the order of Carroll E. Bounds, and I ask you if you have ever seen that?

A. I signed it. Q. Tell the court and jury the circumstances surrounding the signing of this check? A. If you are not familiar with our office it is right hard to explain to you the circumstances. This check was written by the secretary in our office; put under my nose to sign — in other words, I signed it; there was no questions asked; I was told that the money was put in bank by Uncle Joe.” ⁴²¹ Then on cross examination he gave this testimony: “Mr. Hodgson, you say that you signed this $953.40 check without knowing for what purpose it was drawn?

A. Yes, sir. If it had been nine thousand dollars I would have signed it just the same. Q. That was because you were asked to do it by Judge Bailey ? A. No, sir, I wasn’t asked by him.

Q. You mean you would sign a nine thousand dollar check somebody stuck under your nose, without knowing what it is for A. Yes, sir. Q. You said a while ago, Mr. Hodgson, that when we had a good investment we let him — meaning Mr. Burroughs — know about it. Who did you mean by ‘we’? A. Well, probably like Lindbergh and his flying machine, me and whoever might be with me.

Q. You mean you have a flying machine as your partner? A. No, sir. I spoke of it as ‘we.’ I write ‘we’ and speak of ‘we.’ I could have said T just the same. Q. When you use the term ‘we,’ you mean T?

A. Yes, sir. Q. You say you would sign a nine thousand dollar check if it was put under your nose? A. For Uncle Joe, with his check for nine thousand dollars laid down in front of me, and ask no questions. * * * When you signed that check you say your Uncle Joe Bailey’s check was lying down beside you? A. Yes, sir.

In other words they were both put down together. Q. Did you not testify a few minutes ago in the course of your direct examination that you signed this check at that time because you understood that a corresponding amount had been deposited in your account in the bank? A. No, sir; nothing said about a deposit in the bank.” Hodgson is a nephew of Judge Bailey, and during the period of the transactions in issue here they lived together and shared the same office, but both Judge Bailey and Hodgson testified that what Judge Bailey did, he did for himself and not for Hodgson. The appeal submits twenty-seven exceptions, of which those numbered one to twenty-six, inclusive, relate to rulings on evidence, and that numbered twenty-seven to the court’s rulings on the prayers.

Upon the facts stated above, the theory of the appel ⁴²² lant, the defendant below, appears to be (1) that the language of Hodgson’s letter of August 1st, 1930, did not constitute a guaranty, (2) that if it did it was without consideration and unenforceable, (3) that if valid it was a conditional guaranty predicated upon the condition precedent that the defendant’s liability under it could only become consummate upon the “failure and inability” of the principal debtors to pay, and legally sufficient proof of that fact, (4) that there was in the ease no such proof and that therefore the plaintiff was not entitled to recover, (5) that the guaranty ran only to the appellee and on the Green mortgage, that when Burroughs assigned it to the bank, the liability of the guarantor to Burroughs was ended, and was not revived by the bank’s reassignment, of it to Burroughs, and that for that reason the appellee was not entitled to recover, and (6) that in any event the claim is barred by limitations. Appellee’s contention, on the other hand, is that the letter constituted an absolute, unconditional, guaranty, based upon a sufficient consideration, and therefore a primary and original undertaking, that its purpose and meaning was to protect the appellee against loss resulting from the investment, and, that loss having occurred, it is entitled to recover, since appellant acknowledged the obligation within three years before this action. Those theories are presented by the overruling of the demurrer to the first count of the declaration, the third, fourth and fifth exceptions, and the exceptions reserved to the overruling of the defendant’s special exception to the plaintiff’s first prayer, and the rejection of the defendant’s first, third, fourth and fifth prayers. Since a disposition of those rulings will simplify consideration of the remaining exceptions, they will be considered first.

The first and most important question to be determined is whether the language employed by Hodgson in his letter of August 1st, 1930, expressed an absolute or a conditional guaranty. In construing that language, as is the case in any other written contract, it is permis ⁴²³ sible to regard the situation of the parties, the relations between them at the time it was made, and the nature of the subject matter, not to vary the contract but to ascertain the application of its language to its object. Myers v. Myers, 153 Md. 44, 48 , 137 A. 501 ; 28 C. J. 930. It may be inferred from the evidence that in buying the mortgage Burroughs relied exclusively upon the advice and judgment of Hodgson.

It is undisputed that he, Burroughs, had never seen the mortgaged property, he knew nothing of its value except through Hodgson. Hodgson invested Burroughs’ money in the mortgage and assigned it to Burroughs without consulting him at all. Indeed it may be inferred that he knew nothing of the transaction until it had been consummated, and Hodgson sent him the mortgage and mortgage note. Appellant suggests that the letter did not sufficiently identify the mortgage and mortgage note, but since the letter describes the property, names the mortgagors, states the amount of the debt secured, and refers to the assignment of the mortgage to Burroughs and inclosed the mortgage thus described and the note in the envelope with the letter, the identification is not only sufficient but complete.

Nor is there any force in the contention that there was no consideration for the guaranty. Hodgson’s undertaking was not only to become responsible for the debt or default of another, but also to protect Burroughs against loss resulting from the purchase of property which Hodgson himself was selling, which was a sufficient consideration to support the contract. 28 C. J. 921; Partin v. Prince, 159 N. C. 553 , 75 S. E. 1080 . He, Hodgson, was the mortgagee named in the mortgage, he had held it as his own property for ten months before he assigned it to Burroughs, and it was he who received the five thousand dollars which Burroughs invested in it. There was therefore a direct and obvious benefit to him in the sale, analogous to that of a vendor in a transaction for the sale of goods, who would be liable; on an express warranty of their quality, character, or ⁴²⁴ title. 55 C. J. 652 et seq.; Code, art. 83, sec. 33; Willis-torn on Sales, sec. 194.

The vital and controlling words of the undertaking are these: “We * * * guarantee to you the return of your principal and interest under any and all circumstances.” If this is not an absolute, unqualified, and unconditional undertaking it may well be asked, “What is it?” To hold that a promise so clear and unambiguous meant anything less or different would be a severe indictment not only of the common sense of courts, but of the justice of the law. 28 C. J. 895, “A guaranty is deemed to be absolute unless, its terms import some condition precedent to the liability of the guarantor. In order to bind the guarantor under an absolute guaranty it is not necessary that there should be notice of acceptance of the guaranty, or notice. of the default of the principal, or that any steps should be taken to enforce the contract guaranteed against the principal, and the fact that these acts are not necessary in order to bind the guarantor distinguishes an absolute guaranty from a conditional guaranty, in which case these acts -are a prerequisite to holding the conditional guarantor liable.” It will be noticed that the guaranty is not that the mortgagor will pay the debt but that mortgage principal and interest will be returned “under any and all circumstances.” Such an undertaking is not only absolute and unconditional on its face (Wise v. Miller, 45 Ohio St. 388 , 14 N. E. 218 ; Klein v. Kern, 94 Tenn. 34 , 28 S. W. 295 ; Weiss v. Sullivan, 94 N. J. L. 191, 109 A. 344 ; Heyman v. Dooley, 77 Md. 162, 169 , 26 A. 117 ; Lloyd & Co. v. Matthews, 223 Ill. 477 , 79 N. E. 172 ; Holm v. Jamieson, 173 Ill. 295 , 50 N. E. 702 ; 12 R. C. L. 1064; Booth v. National