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Ky.)

MARSHALL V. HOLLINGSWORTH

35

2. GUARANTY Omw 67-DISCHARGE OF GUARAN- / decretal sale the land brought $1,324.97, less TOR-NOTICE OF DEFAULT.

than the principal and interest of the notes; Under Ky. St. § 3720b, providing that, when a negotiable instrument' has been dishon- and Hollingsworth thereupon brought this ored by nonacceptance or nonpayment, notice of action against Marshall to recover the baldishonor must be given to the drawer and to ance due on the notes, basing his right so to each indorser, and any drawer or indorser to whom such notice is not given is discharged, recover upon the ground that Marshall exthe holder's failure, upon dishonor of a note, ecuted by indorsement upon the notes at the to give notice thereof to its negotiator, who had time of the transfer thereof to him an unindorsed and guaranteed it, did not discharge conditional guaranty thereof. The plaintiff such guarantor, since his unconditional and absolute guaranty fixed him with liability iin- having succeeded in the trial court, the demediately upon default of the principal debtor. fendant appeals.

[Ed. _Note. For other cases, see Guaranty, 1. The notes mentioned each bear this inCent. Dig. $ 77; Dec. Dig. On 67.]

dorsement: 3. GUARANTY Cum 91LIABILITY OF GUARAN "For value received, I hereby transfer and TOR -- EXTENSION OF TIME OF PAYMENT

assign the within note to J. W. Hollingsworth, SUFFICIENCY OF EVIDENCE.

and guarantee the payment of same. March 24, In an action against the guarantor of a 1911. [Signed] E. D. Marshall." note, evidence held insufficient to sustain the allegations of defendant's answer that at ma

[1] Appellant's first defense was that he turity the plaintiff agreed with the maker for merely indorsed the notes in blank at the an extension of time of payment of one year. time he sold them to Hollingsworth, and that

[Ed. Note:--For other cases, see Guaranty, the guaranty was written above his signature Cent. Dig. $ 104; Dec. Dig. Om 91.]

thereafter, without his knowledge or con4. GUARANTY Ow57—DISCHARGE OF GUARAN- sent, and he so testified; but the overwhelmTOR-EXTENSION OF TIME FOR PAYMENT.

The extension of time for payment which, ing weight of the evidence on this issue is to when extended by the holder of a note to the the contrary. It is shown that appellee, Holmaker, will discharge the guarantor thereof; lingsworth, lived in Caldwell county, while must be based on a binding agreement, founded on consideration, and for a definite time: mere the land sold by appellant was in Lyon counindulgence by the holder to the maker or even ty; that appellee · knew nothing about the a naked promise to extend the time of payment land upon which the notes were a lien, or its will not operate as the guarantor's discharge.

value. Under these circumstances, it is quite [Ed. Note. -For other cases, -see Guaranty, improbable that the notes were purchased by Cent. Dig. § 68; Dec. Dig. Om 57.]

him without a guaranty. But, in addition Appeal from Circuit Court, Lyon County. to that, it is shown that the transfer of the

Action by J. W. Hollingsworth against E. notes was effected in the Farmers' National D. Marshall. Judgment for plaintiff, and de- Bank at Princeton, of which Hollingsworth fendant appeals. Affirmed.

was vice president, and that the words of the N. W. Utley, of Eddyville, and Berry & guaranty were written upon the notes by the Grassham, of Paducah, for appellant. John cashier of the bank before the name of C. Gates, of Princeton, for appellee.

Marshall was indorsed thereon; and this

testimony is supported by that of the cashier HANNAH, J. On December 22, 1910, E. D. and other attachés of the bank then present. Marshall sold and conveyed to Shirley Tis. The appellant is therefore liable as uncondale a tract of land in Lyon county. The ditional guarantor of the notes sold and consideration was $4,940.62, of which $500 transferred by him to appellee. was paid in cash upon the execution of the [2] 2. But he contends that, as no notice of conveyance, and the remainder was evidenced dishonor of the $500 note due January 1, by interest-bearing notes secured by lien re-1912, was given to him, he was thereby retained on the land so conveyed, as follows: leased from liability on that note in virtue $500 due January 1, 1912; $985.15 due Jan of the provisions of section 89 of the Negouary 1, 1913, and a like amount due January tiable Instruments Law (Kentucky Statutes, & 1, 1914; $985.16 due January 1, 1915, and a 3720b), which is as follows: like amount due January 1, 1916. The deed "When a negotiable instrument has been discontained a stipulation that default in the tice of dishonor must be given to the drawer

honored by nonacceptance or nonpayment, nopayment of the first note or in the payment and to each indorser, and any drawer or inof the interest on any of the notes should dorser to whom such notice is not given is precipitate the whole indebtedness and ren

discharged.” der it due and payable forthwith. On March If appellant had been a mere indorser of 24, 1911, Marshall sold the notes mentioned the note in question, this contention would to J. W. Hollingsworth, of Princeton, in Cald- prevail; but he was not alone an indorser; well county.

he was also a guarantor, and, as such, his Shirley Tisdale died in June, 1912, without guaranty being unconditional and absolute, having paid the $500 note due January 1st he was fixed with liability immediately upon of that year or either of the others. The default of the principal debtor, and failure administrator of his estate instituted a suit upon the part of the creditor to give notice to settle the estate. Hollingsworth was made to the guarantor of such default did not a defendant, and he filed the notes and as-operate as a discharge. Levi v. Mendell, 1 serted his lien on the land mentioned. Upon / Duv. 77.

[3, 4] 3. Section 120 of the Negotiable In- But the extension must be based on a bindstruments Laws provides that a person secon- ing agreement, founded upon consideration, darily liable on the instrument is discharged and for a definite time. 20 Cyc. 1472; 32 (subsection 6) by any agreement binding up-Cyc. 202. Mere indulgence by a creditor to on the holder to extend the time of payment the debtor, or even a promise by the creditor or to postpone the holder's right to enforce to extend the time of payment of the debt, the instrument, unless made with the assent will not operate to discharge the surety or of the party secondarily liable, or unless the guarantor; a contract valid and complete in right of recourse against such party is ex- all its essentials is requisite. Barber v. pressly reserved in the original instrument. Ruggles, 87 S. W. 785, 27 Ky. Law Rep. 1077. A guarantor is secondarily liable. Section It must he for a definite time and based on 191, Negotiable Instruments Law. And as a valid consideration. Daviess County Bank further defense appellant pleaded that when & Trust Company V. Wright, 129 Ky. 21, the $500 note matured, on January 1, 1912, 110 S. W. 361, 33 Ky. Law Rep. 457, 17 L. R. appellee agreed with Tisdale that, if he A. (N. S.) 1122. would pay the interest accrued and place Viewed in the light of these rules, the eviimprovements upon the land to that extent, dence for appellant fails to sustain his plea an extension of time of payment of that note of discharge from liability in virtue of the for one year would be granted; that this alleged extension of time. agreement was made without appellant's Judgment affirmed. knowledge or assent; that appellee thereby waived the right to declare a precipitation of the whole indebtedness, and, in effect, ex. HODGE TOBACCO CO. V. SEXTON et al. tended the time of payment of all the notes, (Court of Appeals of Kentucky. Oct. 15, 1915.) and thus released appellant from liability thereon. Whether such an extension of time

1. PLEADING Om 180_REPLY-SCOPE OF.

Under Civ. Code Prac. $ 98, subsecs. 1, 2, 3, would have released the guarantor from lia- and 4, declaring that a reply may contain a bility on any note other than the $500 one traverse, a statement of facts avoiding a deis a question we find it unnecessary to dis- fense, a counterclaim, or a cross-petition, a re

ply cannot, where another has intervened as a cuss; for appellant by his proof failed to defendant, 'set up against such person a cause of sustain the allegations of his answer. Such action which was not contained in the petition, extension of time was sought to be proven and in cases of an attempt to do so it should be

stricken. by the testimony of a brother of Shirley Tisdale in regard to certain statements made Cent. Dig. $$ 358-384; Dec. Dig. Om 180.]

[Ed. Note.For other cases, see Pleading, to him by appellee. His testimony on this

2. APPEAL AND ERROR Om171-CHANGE OF subject was as follows:

THEORY ON APPEAL. “Q. Did you ever have any talk with Mr. Where the intervening defendant, after Hollingsworth about these notes that Shirley overruling of its demurrer, filed a rejoinder to Tisdale died owing him; if so, when? A. Well, the reply which set up a wholly new cause of I don't know; the day of the sale-I don't re- action against it, the case on appeal will be dismember what day it was-the day the place posed of on the theory that the reply took the here was sold, we talked a little about the busi- place of an amended petition; for, where the ress here in Eddyville. He told me that my case is disposed of below on one theory, the brother had paid the interest on the notes, but theory cannot be changed. had not paid any of the principal; that he [Ed. Note.-For other cases, see Appeal and came to him and told him he could pay the in- Error, Cent. Dig. $$ 1053-1063, 1066, 1067, terest on the notes, but couldn't pay the prin- 1161–1165; Dec. Dig. ww171.] cipal and have money to do what he wanted to 3. PLEADING Cw196, 355 DEMURRER do on the farm; that he would like to use the

SCOPE OF. money on the place, what he had left, and that he told him it would be all right; and that he be set up by reply instead of amended petition,

Where a cause of action is attempted to did pay him the interest. * was all that was said about the notes, anyway. the defect can be reached by motion to strike Q. Did he say how much money your brother

. told him that he could pay or that he wanted

[Ed. Note.-For other cases, see Pleading, to use in improving the land? A. Didn't speci-Cent. Dig. $$ 453-455, 1102-1110; Dec. Dig. fy the amount, that I remember of, at all that Cw196, 355.] he wanted to use. Q. Did he tell you that 4. PRINCIPAL AND AGENT Omw 145 UNDIShe consented that your brother might do this? CLOSED AGENCY-LIABILITY OF PRINCIPAL. A. Yes; said to pay him the interest and he Persons giving credit to the agent of an extended the time.'

undisclosed principal may recover from the This conversation is denied by Hollings- principal moneys furnished the agent for the

business of his agency, an undisclosed princiworth; but, conceding that it was had, there pal being bound by the acts of his agent to the is no showing of such an extension as would same extent as a disclosed principal. operate to release the guarantor.

[Ed. Note. For other cases, see Principal “The extension of the time of payment given and Agent, - Çent. Dig. $$ 499, 513-520; Dec. by the creditor to the principal is an altera- Dig. Cm145.] tion of a very material part of the contract, and 5. PRINCIPAL AND AGENT On 25—ESTOPPEL TO unless consented to by the surety (or guaran- DENY AGENCY. tor), such extension or valid agreement for ex- As an estoppel is raised only where the tension for a definite time will operate to dis- owner of property or of a right knowingly makes charge him from liability for such payment." misrepresentations or acts in such a manner Elliott on Contracts, $ 3968.

that another not knowing the facts is misled Ky.)

HODGE TOBACCO CO. v. SEXTON

37

to his prejudice, the undisclosed principal of an, was its property when the attachment was agent who borrowed money inducing plaintiffs levied. They also alleged, in another parato become his surety is not estopped to deny liability; it appearing that he did not know of graph, that the agency of Whaley for the the transaction and did no act influencing tobacco company was a secret agency, or was plaintiffs.

not known and understood by the public at [Ed. Note.-For other cases, see Principal and the time of the execution of the note by Agent, Cent. Dig. $8 42-45; Dec. Dig. Om 25. For other definitions, see Words and Phrases, zens' Bank; that the tobacco company con

Whaley and they as his sureties, to the CitiFirst and Second Series, Estoppel.] 6. PRINCIPAL AND AGENT Cm 23-ACTIONS- cealed the agency and allowed Whaley to do EVIDENCE.

so; that they never knew of the agency until Where sureties who were compelled to pay the filing of the petition by the tobacco comthe debt of an agent sought to hold the agent's undisclosed principal, evidence held insufficient pany to be made a party to the suit; that, at to show the agent's authority to borrow, or in the time they became the sureties, they befact his agency, at the time of negotiating the lieved that Whaley was intending to do a loan.

business upon his own account, and was bor[Ed. Note. For other cases, see Principal and rowing the money to be put into the business Agent, Cent. Dig. § 41; Dec. Dig. On 23.]

in his own interest and right; and that the 7. SUBROGATION 1-CREDITORS OF AGENTPRIVITY.

tobacco company was now estopped, by reaWhere a principal was indebted to an son of said facts, from asserting ownership agent, sureties of the agent who had been com- to the tobacco. By another paragraph, they pelled to pay his debt cannot be substituted to alleged that the appellant, through its agent, the agent's rights against the principal unless they proceed by way of attachment or proper Whaley, had borrowed the money as an unaction.

disclosed principal for the purpose of using [Ed. Note.-For other cases, see Subrogation, it in its business of buying tobacco, and that Cent. Dig. $$ 1, 2; Dec. Dig. Oml.]

it was so used, and that Whaley's acts in borAppeal from Circuit Court, Lyon County. rowing the money were within the scope or

Action by W. A. Sexton and others against apparent scope of his agency, and prayed a W. D. Whaley, in which the Hodge Tobacco judgment against the Hodge Tobacco ComCompany intervened. From a judgment for pany and Whaley for the amount of the note, plaintiffs, the intervening defendant appeals. and asked that the attachment be sustained. Reversed and remanded, with directions.

The appellant filed a general demurrer to the Wheeler & Hughes, of Paducah, for appel- reply, and also demurred to each paragraph lant. Utley & Utley, of Eddyville, for appel- of it, all of which were overruled, and to lees.

which it saved exceptions. It then filed a re

joinder, traversing the allegations of the reHURT, J. The appellees, who were the ply, and the case, coming on for trial before plaintiffs below, by their petition alleged that the court and a jury, resulted in a verdict W. D. Whaley had procured a loan from the of the jury and judgment of the court against Citizens' Bank of Kuttawa, in the sum of Whaley and the appellant for the sum of $250, and executed his note therefor, with $225, and the costs of the action. The appelthe appellees as his sureties, and the note lant filed grounds for a new trial, which bebecoming due, and Whaley failing to pay it, ing overruled, it excepted and now appeals they were compelled to and did satisfy the to this court. note, and sought a judgment against Whaley The appellant also moved the court to disfor the amount of the note with interest. charge the attachment upon the face of the They also alleged grounds for an attachment papers of the case. Upon the trial at the and obtained an attachment, which was lev- conclusion of the testiinony for the appellees, ied upon a parcel of tobacco as the proper- and also at the conclusion of all the testity of Whaley, to secure the payment of the mony in the case, the appellant moved the judgment that they might recover. Whaley court to peremptorily instruct the jury to was the only defendant named in the petition, find a verdict for it, but these motions were or against whom a recovery was sought. He both overruled, and to which the appellant filed an answer, in which he admitted all the excepted. allegations of the petition. The appellant, [1-3] It is insisted by the appellant that Hodge Tobacco Company, filed a petition to the judgment against it ought to be reversed, be made a party, in which it alleged that it because the court erred in not sustaining its was the owner of the tobacco, which had demurrer to the reply and the different parabeen attached, and was the owner of it at graphs of it, and because the court erred in the time the attachment was levied upon it, overruling its motion for a direct verdict, and that it had been purchased for it by and its failure to sustain its motion to disWhaley, as its agent, and sought a dismissal charge the attachment. of the attachment. By an order, the Hodge The only party of whom a recovery was Tobacco Company was made a party defend sought, or against whom a cause of action ant to the suit. The appellees filed a reply, was stated in the petition, was W. D. Whain which they admitted the tobacco was the ley. The cause of action there relied upon property of the Hodge Tobacco Company, and I was the implied promise of Whaley to pay the amount of the note which they had, as | An "estoppel" means where one is the ownsureties, been obliged to pay for him. The er of property or has a right, but is precludappellant was not mentioned in any way in ed from claiming the property or to assert the petition and no recovery sought of it in the right on account of some representation the petition. The only cause of action at- or act of his in regard to the property or tempted to be stated against the appellant right, which has induced another, not knowwas in the reply of the appellees, and it was ing the facts, to act to his prejudice. An only therein that a recovery was sought element that is essential to make an equiagainst it. By the provisions of section 98, table estoppel is that the person who is insubsecs. 1, 2, 3, and 4, of the Civil Code, it voking it must have been influenced by or is very evident that, under the state of case relied upon the representations or conduct and the recovery here sought, a plaintiff of the person sought to be estopped, and cannot maintain a cause of action and seek was thereby induced to do something to his a recovery of one made a defendant by stat prejudice. Taylor v. Jenkins, 65 S. W. 601, ing a cause of action and seeking a recovery 23 Ky. Law Rep. 1574; Smither v. McGinfrom such person in a reply. According to nis, 35 S. W. 630, 18 Ky. Law Rep. 134; the provisions of the Civil Code, the plain- Wilson v. Scott, 11 Ky. Law Rep. 370. It is tiff must necessarily seek a recovery in his also essential that the one to be estopped petition, or by an amended petition. The must have had knowledge of the facts, and appellant, if it did not desire to contest up- the one relying upon the estoppel must have on the merits the cause of action stated been ignorant of the truth, and was led inagainst it in the reply, should have resorted to doing something that he would not have to a motion to strike out such part of the done but for the silence of the one sought reply as undertook to maintain a cause of to be estopped. Newell v. Dunnegan, 1 Ky. action and a recovery against it, instead of Law Rep. 354; Milby v. Akridge, 59 S. W. undertaking to reach that question by a de- 18, 22 Ky. Law Rep. 867; Watson v. Pramurrer. The appellant, however, failed to ther, 65 S. W. 439. There is no allegation make any motion to strike out from the re- that the tobacco, which was attached, was ply, but filed a rejoinder, after its demurrer in Whaley's possession when appellees bewas overruled, in which it made an issue came his sureties, or paid the note, or that with the plaintiffs upon the cause of action the tobacco was ever in the possession of stated against it. In the case of Ruffner v. Whaley, or that he was claiming or pretendRidley, 81 Ky. 165, this court held that, ing that it was his own at the time. Neiwhere a reply is treated by the lower court ther is there any allegation that appellant and parties as an amended petition, it will

ever pretended, by word or act, that the tobe so treated by this court.

[4] Persons giving credit to an agent, who bacco was owned by Whaley. Hence there

[4] Persons giving credit to an agent, who was no act nor silence on the part of appelhas an undisclosed principal, may maintain an action against the principal

for the mon- lant, which induced appellees to act to their eys furnished, upon his discovery, and an prejudice in becoming the sureties of Whaundisclosed principal is bound by the acts of ley. The mere fact that a creditor believes his agent within the scope of his agency, to that property is owned by his debtor and the same extent as a disclosed principal,

causes an attachment to be levied upon it and if it was true, as alleged in the reply, does not estop the real owner from assertthat the appellant, as the principal, borrow- ing title to it, unless the owner has, by his ed the money which Whaley received upon

acts or silence, when he ought to speak, inthe note executed to the bank, as the agent duced or caused the creditor to do some act of appellant, and that the transaction was

to his prejudice in regard to it. for appellant

, and the money to be put into [6] The question left to be determined is its business and it was so used, it seems whether there was any evidence which conthat the appellees stated a cause of action duced to show that the appellant borrowed entitling them to recover of the appellant, the money in controversy, through its agent, · and for that reason its demurrer, upon the Whaley, or that Whaley was the agent of ground that no cause of action was stated appellant, with authority to borrow money against it, was not well taken. For the same for it, and did borrow this money for appelreason, the demurrer to the third paragraph lant. If there was any evidence to support of the reply was properly overruled.

this averment, then the case should have [5] The demurrer to the second paragraph been submitted to the jury, otherwise it of the reply, wherein it was attempted to should not have been. The statements of the plead an estoppel against appellant claiming witnesses as to what Whaley said about to be the owner of the tobacco, should have being the agent of appellant were not combeen sustained. No fact is alleged showing petent evidence against appellant to prove that appellant ever knew of the fact of the such agency, and should have been excluded. appellees becoming surety of Whaley, nei- It should be stated that the three appellees ther is any factor circumstance alleged, each testified that they had no knowledge, which would show that there was ever any at the time they became the sureties of Whaduty imposed upon the appellant to give in- ley, that he was an agent of the appellant, Ky.)

AVERY BUILDING ASS'N v. COMMONWEALTH

39

to satisfy the note, and not to the appellant an entire failure of proof to show that the or any one else. The proof shows, without money was invested in the business of appelcontradiction, that on the 10th day of Decem-lant, but, instead thereof, the proof conduces ber, 1913, Whaley entered into a contract to show the contrary, altogether. If Whaley, with the appellant, by which he sold to the by an arrangement thereafter with appelappellant an unlimited quantity of tobacco lant, by which he became its agent, incurred of certain dimensions and at certain prices. expenses which he would be entitled to reThere was no provision in this contract that cover against it, the appellees, because of Whaley should buy tobacco at all. During his indebtedness to them, could not be subthe life of this contract he could not be con- stituted to his rights against appellant, in sidered the agent of appellant in any sense. the absence of any privity between him and On the 11th day of December, the day follow- appellees. The only way in which appellees ing the making of the contract between him could reach what appellant might owe and the appellant, he executed the note and Whaley would be by means of a garnishment obtained the money in controversy, and the of appellant in a proper action for that purappellees became his sureties upon the note. pose, and the recovery would have to be Whaley was introduced as a witness for ap- upon the basis of what appellant 'owed pellees, and is the only person who could Whaley, and not upon the basis of appellant possibly know, so far as the evidence dis- being their debtor. closes, what he did with the proceeds of the The court should therefore have sustained note, and he stated that at the time he exe- the motion for a direct verdict by the jury. cuted the note he was not an agent of appel- It being admitted in the pleadings that lant, but was preparing to open up and appellant owned the tobacco, and no sufficonduct a business of his own, in buying cient grounds shown to estop it from claimtobacco and delivering it to appellant, under ing it, the court should have discharged the the contract that he had with it, and that he attachment levied upon it as the property of used the entire proceeds of that note in ex- Whaley. penses incurred by him while operating The judgment appealed from is therefore under that contract. After that time, 10, 15, reversed as to the Hodge Tobacco Company, 20, or 30 days, he did enter into an arrange- and the cause remanded for proceedings conment with appellant, by which he became sistent with this opinion. the agent of appellant in buying tobacco and shipping to it.

[7] It seems that Whaley and appellant have a controversy about whether the appel- AVERY BUILDING ASS'N V. COMMONlant should pay him for certain expenses

WEALTH. incurred by him in conducting the agency (Court of Appeals of Kentucky. Oct. 14, 1915.) he had for it, in addition to the commissions 1. BUILDING AND LOAN ASSOCIATIONS 4paid him for his services; but, if his testi

FORMATION-CHANGE OF NAME.

Where an existing corporation, to comply mony can be believed, no part of the proceeds with Ky. St. § 856, providing that the words of the note, upon which appellees were his “Building Association" must form a part of the sureties, was invested in any of those ex- name of every building and loan association, penses paid by him after he became the agent Company, the words "Building Association,

added to its name, Home and Sayings Fund of appellant, and there is not a particle of under the circumstances the amendment of the testimony disclosed by the record to the con- name did not create a new corporation, as it did trary. There is no contradiction in the proof not change in any material manner the name that Whaley was not the agent of appellant original corporation by the act creating it.

or the powers or privileges conferred on the when he borrowed the money and appellees [Ed. Note. For other cases, see Building and became his sureties, and, of course, the appel- Loan Associations, Cent. Dig. § 4; Dec. Dig. lant could not be held as borrowing this m4.] money through Whaley, as its agent, when 2. BUILDING AND LOAN ASSOCIATIONS Om3— in fact and truth Whaley was not its agent.

FORMATION INCREASE OF STOCK AND IN

DEBTEDNESS. The only cause of action which appellees

Where the articles of incorporation of a could have would be one against Whaley, to building association by amendment in successive recover from him the money paid for him by years increased the capital stock and author

ized the association to increase its indebtedness them, as his sureties, or, if Whaley was the above the amount designated in its original agent of appellant at the time and had au- charter, such amendments did not render the thority to borrow money for it, appellant association a new corporation, to subject all of would then be the principal, although undis- its capital stock to the payment of an organiza

tion tax. closed at the time, and appellees could main

[Ed. Note.-For other cases, see Building and tain their action against it; but there is a Loan Associations, Cent. Dig. $ 3; Dec. Dig.. total failure of proof to show, either that m3.] Whaley was the agent of appellant at the 3. BUILDING AND LOAN ASSOCIATIONS O3time he incurred the obligation, or that he

FORMATION-EXTENSION OF FRANCHISE AND

CHANGE OF NAME. had any authority of any kind to borrow

The Home and Savings Fund Company money for appellant, and there is, likewise, I was organized in 1888, prior to the enactment

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