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Jeffrey Mfg. Co. v. Andrews.


March 31, 1938


Appeal from the District Court of the United States for the Eastern District of Illinois; Walter C. Lindley, Judge.

Author: Sparks

Before EVANS, SPARKS, and MAJOR, Circuit Judges.

SPARKS, Circuit Judge.

This is an appeal from an order entered by the District Court sustaining a motion to dismiss a complaint and rendering judgment in bar. The question presented, therefore, is whether or not the bill of complaint stated a good and sufficient cause of action.

Appellant states that its action was for damages for breach of a written undertaking by which appellee agreed, upon the occurrence of a specified contingency, to assume and pay an indebtedness owing it from a third party.

The bill of complaint set out that in January, 1935, the Kix Miller Coal Company sought to purchase from appellant two coal loaders for use in a mine operated by it under a contract, a copy of which was attached, and the pertinent provisions of which we set forth in the margin;*fn1 that appellant refused to sell the machinery unless and until appellee undertook to assume payment of any balance of the purchase price remaining unpaid in the event appellee became obligated to take over and operate the mine in order to carry out the terms and conditions of the contract, whereupon an agreement to that effect was written and signed by appellee and delivered to appellant;*fn2 that in reliance upon this agreement appellant sold and delivered to the Kix Miller Company two coal loaders for an aggregate price of $11,600; that early in 1935 the Company began to operate the mine pursuant to the contract, and operated it until November, 1935, when it became insolvent and ceased to operate it; that when it ceased to operate the mine, without reasonable prospect that such operation could be resumed, it became the duty of appellee to take over and operate the mine according to the provisions of the contract, and at the same time, it became his duty to assume payment of the unpaid balance due appellant on the loaders, in the amount of $9,280, in which amount appellant demanded judgment.

Appellant contends that the first contract, to which it was not a party, was one of suretyship by the terms of which appellee was jointly bound with his principal to its full and complete performance, and that when the principal ceased to perform, and it became clear that it would be unable to resume performance, that failure of performance created a legal obligation on the part of appellee to perform by taking over the operation of the mine. His brief and argument, therefore, are largely devoted to a discussion of the principles of suretyship and an attempt to prove that the contract of December, 1934, contains all the elements necessary to create a suretyship relationship between appellee and the other parties to it. Its contention apparently is that the only thing it needs to prove in order to fix appellee's liability, is that that contract was one of suretyship. While we are not convinced that that result follows from the agreement of January 1935, we are convinced that the agreement of December 1934, cannot be construed as one of suretyship rendering it necessary for appellee to take over the operation of the mine.

The first paragraph of the contract clearly makes appellee a guarantor rather than a surety, "The First Party guarantees and agrees * * * that the Second Parties shall and will * * * faithfully perform * * * all the terms * * * to be performed and fulfilled by the Second Parties." It is to be noted that appellee did not by this paragraph guarantee the performance of the contract, or that it would be performed, but rather, that the second parties would perform it. Appellee did not in it assume any primary liability for performance. Appellant contends, however, that the trial court was unduly impressed with this provision of the contract, and should have given more weight to other provisions which, it claims, manifest a different general intention. It calls our attention, for instance, to paragraph 4(d) which provides that deductions made by purchasers of coal on account of improper preparation shall be chargeable to and payable by the first and second parties; to paragraph 5 which relates to a deposit by the third party to secure payment by the first and second parties, and provides that in case of a deficiency, the first and second parties agree to pay it promptly, and if not paid, the third party may pay it and deduct it from the amount due from it to the first and second parties; to paragraph 6 relating to sales of coal from the first and second parties to the third; and paragraph 7 which requires the first and second parties to maintain the mine and equipment in condition, and provides for the appointment of arbitrators, one to be chosen by the third party and a second to be appointed by the first and second parties. Appellant also calls attention to paragraph 9 which provides that if the second parties fail to operate the mine, and the first party does not take it over and operate it, the third party may enter and operate it itself, or choose another person or corporation to do so. All of these provisions, appellant argues, manifest an intention on the part of the parties that the first shall be equally bound with the second for the operation of the mine. We do not so construe the contract. We find nothing in the provisions referred to imposing upon appellee any obligation to operate the mine. True, he might be charged with payments due under the contract and which the income from the operation of the mine was insufficient to cover, but that is not to say that he was charged with responsibility for operating the mine.

A case cited by appellant and described by it as a leading case in defining the fundamental nature of a surety's obligation, Reigart v. White, 52 Pa. 438, is an excellent illustration of language sufficient to create a suretyship obligation, and it also clearly shows the distinction between such language and that relied upon by appellant here. In that case, the court held that a party who wrote a letter to a vendor at some time after he had agreed to sell goods to be paid for in nails, stating, "I will be responsible for the delivery of the nails as agreed by Mr. Emory," thereby made herself a surety for the delivery of the nails. Her undertaking was very different from a guarantee that Emory would deliver the nails. Here, had appellee said he would be responsible for performance of the contract, or operation of the mine, no doubt his obligation would have been that of a surety. However, that was not his promise. Instead, he undertook, simply, that the second parties would fulfill the terms and conditions of the contract. We think it requires no citation of authorities to show that the language used created a secondary and indirect obligation rather than a primary and direct one. While the various provisions to which reference is had do indicate that the parties may have contemplated that the first party might take over the operation of the mine, certainly there is no provision by which he could be compelled to do so. Hence, we agree with the District Court in its statement that the facts pleaded do not show that it ever became necessary for him to take over and operate the mine or that he ever became legally liable to do so. It follows that the contingency relied upon by appellant to render appellee liable on his undertaking of January 1935, is not shown to have materialized, hence appellant's bill of complaint did not state a cause of action, and it was, therefore, properly dismissed.

Judgment affirmed.

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