Catskill National Bank v. Dumary , 206 N.Y. 550 ( 1912 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The plaintiff recovered a judgment against the defendant upon his guaranty of full performance by the Albany Contracting Company, a corporation, of all the obligations of a contract of June 15, 1901, between that company and the Eastern Paving Brick Company, a corporation. Pursuant to the provisions of the contract a promissory note dated November 3, 1901, for $2,000, payable three months after date to the order of the Brick Company, with interest, was made by the Contracting Company, delivered to and indorsed by the Brick Company, and on November 4, 1901, delivered to and accepted by the plaintiff in the place of the original note, which it held and surrendered. This note was not paid and was duly protested for non-payment. The action was to recover the amount payable thereunder.

The appellant asserts that the defendant did not guarantee the payment of the note. The assertion is based primarily upon certain facts appearing upon the face of the contract. The contract was executed upon a printed blank form furnished by the Brick Company. In the form the part material here was: "The party of the second part (the Contracting Company) agrees to pay for the aforesaid brick at the prices hereinbefore named and as follows: To advance the freight and unloading charges on demand, and to pay the balance of said purchase price in cash to the party of the first part (the Brick Company) or its order within * * * days from the date of the invoices, invoices to be dated on the days shipments leave Catskill, New York. Interest to be charged at the legal rate (five per cent.) after the account shall have become due. Or, if the party of the first part so desires, the party of the second part will give to the party of the first part its note at * * * days from date of shipments, without interest, with the same individual security which guarantees this contract. But said note shall not be considered to relieve either the principal or the indorser of said note from any obligation which may be carried by this contract." In this clause of the contract, as executed, the words "and unloading" were struck out and in the first blank space were inserted the figures "90," in the second blank space was inserted in writing the word "ninety," the words "with the same individual security which guarantees this contract" were struck out, and there were added in writing at the close of the clause the words "It being mutually understood and agreed by both parties to this contract, that should it become necessary to renew any of these notes, the party of the first part agrees to do so, for a length of time not to exceed ninety (90) days from the date of such renewal, the party of the second part agreeing to pay the collection charges, and one half of the interest on such renewals."

The appellant urges that the striking out of the words "with the same individual security which guarantees this contract" evidences an agreement of the parties that a note given by the Contracting Company was to be without the individual security which guaranteed said contract, to wit, the guaranty of the defendant.

We are to ascertain, if possible, whether the three parties, when they made the contract, intended that the defendant guaranteed that the Contracting Company would perform the obligation expressed by the note. The guaranty was made at the time the contract was executed and for the purpose of interpretation the instruments are to be considered as one. (Everson v. Gere, 122 N.Y. 290.) The fact that the defendant was a guarantor does not change the rule of interpretation that the intention of the parties is to be ascertained and enforced if it be lawful and adequately expressed in the instrument. Where the question is as to the meaning of the language of the contract, there is no difference between the contract of a guarantor or surety and any other contracting party. The contract of the former, however, when determined, is not to be extended by implication or construction. (Gates v. McKee, 13 N.Y. 232;Belloni v. Freeborn, 63 N.Y. 383.) The conditions under which the contract was executed may be reproduced, in so far as the findings of the trial court enable, in connection with the language used and the subject-matter of the negotiations of the parties. (Bank of Montreal v. Recknagel, 109 N.Y. 482.) We may consider the printed form as it originally was, the words stricken from and those added to it. (Strickland v. Maxwell, 2 C. M. 539.)

Inasmuch as the printed, blank form of the Brick Company was used in making the contract, including the guaranty, the form probably stated the original proposition of that company for the contract. The conclusion that the words "with the same individual security which guarantees this contract" required the indorsement of the notes by the guarantor of the contract is reached not only from the words themselves, but from the sentence which immediately follows them: "But said note shall not be considered to relieve either the principal or the indorser of said note from any obligation which may be carried by this contract." The manifest purpose of the notes provided for in the contract was to enable the Brick Company, through the discounting or sale of them, to obtain in cash, less the discount, the price of each invoice immediately upon its shipment. The Contracting Company was unwilling that its notes, creating an absolute liability at the end of ninety days, should be transferred to third parties. The defendant was unwilling that notes, in probably a large number and of substantial amounts, bearing his indorsement should exist in the financial or commercial community. The Brick Company was unwilling to yield its desire to have the notes and in obviation of the objection of the Contracting Company entered into the obligation to renew, if necessary, any of the notes for a period not to exceed ninety days from the date of the renewal, the Contracting Company, as an inducement thereto, agreeing to pay the charges of the discounting banks or holders for collecting the notes and one-half of the interest on such renewals; and the Brick Company aware or acquiring knowledge, as may be reasonably presumed, that the discounting of the notes could be effected upon the credit of the Contracting Company and of itself as the indorser, consented to the striking out of the words "with the same individual security which guarantees this contract." The striking out of those words does not indicate an intention or understanding of the parties that the defendant did not guarantee the payment of the note, because there was left the sentence: "But said note shall not be considered to relieve either the principal or the indorser of said note from any obligation which may be carried by this contract." We think the retention of the words "or the indorser" in this sentence indicates the intention of the parties in regard to the issue at hand more clearly than any other provision or feature of the contract. The appellant concedes, if we understand the language of his brief, and it is unquestionable, that those words designate or refer to the defendant. The contract is carefully and cautiously drawn. In the minds of the parties the defendant was regarded and deemed to be the indorser of the notes. He is to be liable for or upon them under his guaranty, and that liability or obligation should not enable him to successfully maintain that the notes were an absolute payment of the purchase price of the bricks or the release of any other obligation on the part of the Contracting Company or himself expressed in the contract. If he were not to be so liable the words "or the indorser" would have been stricken out with the words "with the same individual security which guarantees this contract." The contracts of indorsement and guaranty are analogous and are not infrequently regarded as synonymous when applied to commercial paper. The word "indorser" in the quoted words is the equivalent, within the intention of the parties, of the word "guarantor." This construction is reasonable and just. An obligation on the part of the Contracting Company was to pay the price of each invoice within the ninety days following its shipment. Another obligation was that, upon the request of the Brick Company, it would give upon each shipment its note for the price thereof at the ninety days without interest. The guaranty of full performance of all the obligations of the contract would include, in the absence of a fact supporting the contrary intention, the obligation to pay the notes which the contract required to be given.

The legality and transferability of the note is not questioned. It is obvious that the parties by their express agreement made the obligation to pay the purchase price divisible. Delivery and payment were to be in installments. The guaranty was general in its nature (Everson v. Gere, 122 N.Y. 290), and, under the established rule of law, made the defendant liable to the plaintiff as the holder of the note if the maker failed to pay at its maturity. (Ketchell v. Burns, 24 Wend. 456; Claflin v.Ostrom, 54 N.Y. 581; Stillman v. Northrup, 109 N.Y. 473.)

If the facts did not adequately support our conclusion, the judgment should then be affirmed upon the ground that the plaintiff is entitled to be subrogated to the right of action in favor of the Brick Company against the defendant upon his guaranty of the payment of the debt for which the note was given. This assumes that the defendant did not guarantee the performance of the obligation created by the note, and makes material the additional facts that since August, 1902, the Contracting Company has been insolvent, and since about February, 1902, the Brick Company has been insolvent and all its assets have been in the possession of a receiver. There are before us the plaintiff, who is the creditor, the Contracting Company liable as the maker of the note, the Brick Company liable as the indorser, and the defendant liable to the Brick Company for the debt evidenced and represented by the note. Each of the maker and indorser was at the commencement of the action and is insolvent, and consequently plaintiff's right of action upon the note availed it nothing. The defendant is liable to the indorser for the debt for which the note was given. The defendant ought to pay the Brick Company the moneys which it ought to pay the plaintiff. Because the Brick Company is insolvent, those moneys will not reach the plaintiff except through the application of equitable principles, if there are equitable principles applicable. A rule within those constituting the doctrine of subrogation is that the creditor shall have the benefit of any obligations or collateral securities which the principal debtor has given to the surety or person standing in the situation of a surety. Such securities are regarded as trusts for the better security of the debt, and the fact that the creditor did not originally rely upon the credit of such collateral security, or know of its existence in the first instance, is immaterial. (Vail v. Foster, 4 N.Y. 312;Curtis v. Tyler, 9 Paige, 432; National Bank ofNewburgh v. Bigler, 83 N.Y. 51; Wager v. Link, 134 N.Y. 122;Keller v. Ashford, 133 U.S. 610; New London Bank v.Lee, 11 Conn. 112; Meyers v. Campbell, 59 N.J.L. 378;First Nat. Bank v. Hunton, 70 N.H. 224; Matter of Fickett,72 Me. 266; Kramer Rahm's Appeal, 37 Penn. St. 71.) The rule is applicable here. The right of subrogation is founded upon principles of equity and not in contract. It is to be so administered as to accomplish, through general equitable rules, what is just and fair between the parties. It does not depend upon privity, nor is it confined to cases of strict suretyship. Subrogation is an act of law and a mode which it adopts to compel the ultimate discharge of the debt by him who in good conscience ought to pay it, and to relieve him whom none but the creditor could ask to pay. If in the performance of a contract conditions arise which require to effect such result the intervention of the right the court will so decree, provided that in so doing the law is not violated or a contract altered. (Pease v. Egan,131 N.Y. 262; Morehouse v. Brooklyn H.R.R. Co., 185 N.Y. 520;Arnold v. Green, 116 N.Y. 566.) The defendant became surety to the Brick Company for the payment of the debt of the Contracting Company. His guaranty was a separate, independent contract that he would pay the debt if the company did not. He placed his financial responsibility as a security for the payment of the purchase price of the bricks. The trust for the better security of the debt attached to the guaranty as it would have attached to property deposited by the Contracting Company with the Brick Company as security. The note for the debt was given by the authority of the contract, but this did not satisfy or discharge the debt either as to the debtor or guarantor. The contract expressly so provided. The Brick Company, as was contemplated by the contracting parties and within the purpose for which the note was given, indorsed the note and transferred it to the plaintiff. The note was not paid and was duly protested. The Brick Company through its indorsement became a surety to the plaintiff for the payment of the note by the contracting company (National Exchange Bank of Lansingburgh v. Silliman, 65 N.Y. 475), holding enforceable security in the shape of the defendant's guaranty, for the payment of the debt represented by the note. There was a single debt and the payment of it was guaranteed by the defendant. If he pays it to the plaintiff, he will pay the amount and for the purpose provided by his guaranty, his liability as guarantor will be extinguished and the plaintiff will receive only his due from the security expressly created and provided to pay the debt. Through subrogation the plaintiff has been properly and lawfully substituted in the place of the Brick Company and permitted to avail itself of the right of that company to enforce the right of action upon the guaranty of the defendant. The guaranty or its avails could not be diverted to the payment of the other creditors of the Brick Company and its receiver had no interest therein. There is no finding that any other party was interested in the guaranty or that the defendant was liable to any other party under it.

The judgment should be affirmed, with costs.

HAIGHT and VANN, JJ., concur; CULLEN, Ch. J., concurs in result; GRAY and WERNER, JJ., concur on ground first stated in opinion; CHASE, J., not sitting.

Judgment affirmed.