
    Guardian Trust Company of New York, Appellant, v. Stephen Peabody, Respondent.
    First Department,
    December 6, 1907.
    Guaranty — contract' construed — when surety discharged.
    Where persons interested in a corporation underwrite its agreement to secure and. repay a loan to he-made to it, not to exceed a stated sum, which agreement provides that the plaintiff shall lend the corporation, as called for, certain- sums “upon its promissory notes payable to its own order and indorsed by it,” not exceeding a stated sum, said notes to hear- legal interest payable every three months, etc., and to mature within one year from the date of the first note, the-underwriters cannot be held on -their guaranty if the. lender instead of taking. notes of- the corporation payable to its own order and indorsed by it, take a general collateral note payable to the lender and containing provisions that in case the collateral should depreciate payment shall be forthwith made or additional security furnished in default of which the note shall-become due, even though such note describes collateral furnished by the corporation as subject to the agreement aforesaid.
    Although the agreement he read into the general collateral note as part thereof the note was not of a kind of which the .underwriters guaranteed payment.
    While the contract of a guarantor should he fairly construed according to the rules for the interpretation of .contracts, when the subject of the Contract is finally ascertained, he has the right to a strict construction.
    A guarantor may specify particularly the thing guaranteed, and when he has done this the court cannot say that something, else amounted to the same thing and that w-hat was done did hot hurt the guarantor and thereby;make a -new . contract upon which to hold him liable.
    Injury to a guarantor is no test of bis- release, particularly when the contract is specific. •
    McLaughlin and Laughmn, JJ., dissented; with opinion.
    Appeal by the plaintiff, the Guardian Trust Company of Hew Yoik, from a judgment of the Supreme Court in .favor of the defendant, -entered in the office of the clerk of the county of Hew York on the 7th day of March, 1907, upon the-report of a referee dismissing the complaint .upon the merits.
    
      Henry D. Hotchkiss, for the appellant.
    
      H. Snowden Marshall, for the respondent,
   Houghton, J.:

Several men, of whom the defendant was one, were interested in the Yetman Transmitting Typewriter.Company which was in need of funds for the prosecution of its business, negotiations were had with the plaintiff for the furnishing of such necessary money. These negotiations resulted in a written agreement signed by the plaintiff, the typewriter company, and the individuals who were termed “ subscribers,” which, after reciting that the typewriter company desired to secure a loan not exceeding $80,000 to be used as working capital, and to hypothecate all of its capital stock, amounting to $500,000, par value, as collateral therefor, and that the plaintiff proposed to make such loan for the period of one year, with the privilege ’of renewal for an additional period of six months, and that the subscribers proposed to underwrite and guarantee the payment of the balance unpaid in proportion to the sums set opposite their names, provides, in substance, that the typewriter company should make, execute and deliver to the plaintiff its negotiable promissory notes, and upon the delivery of the first of such notes all the collateral security should be deposited for such note and all subsequent ones; and beginning with the discount of the first note the typewriter company should deposit with the plaintiff twenty dollars in cash- for every machine sold by it, which deposit should form a sinking fund for the payment of interest on the notes and such part of the principal as it might become sufficient to pay, and that upon failure by the typewriter company to make such deposit the plaintiff might refuse to advance any more moneys and declare all notes then held by it due and payable, and on failure of the company to pay such notes the plaintiff might sell the collateral and apply the proceeds thereto ; and in case the notes were paid a portion of the collateral was to be retained by the plaintiff for its services, and a part delivered to the subscribers and the remainder to Charles E. Yetman. Each subscriber guaranteed to the plantiff the payment of such amount of the unpaid balance of the "notes as his subscription bore to the whole.

The provision that the typewriter company should give its negotiable promissory notes was that they should be as provided in paragraph 3 of the agreement, which reads as follows:

“ III. As required and called for by the Typewriter Company, the Trust Company (plaintiff) agrees to lend the Typewriter Company upon its promissory notes, payable to its own order and endorsed by'it, such sums of money as the said Typewriter Company may require for working capital and other corporate purposes, not exceeding in the aggregate the sum of Eighty Thousand Dollars. ($80,000.) Said notes shall bear interest at the rate of six per cent per annum, payable every three months, or so near thereto as possible, and all the notes shall mature within one year from the date of the first note. The Typewriter Company shall have the privilege to renew such amounts as may remain, unpaid at the end of said year for an additional period of six months.”.

On the second day after the execution of the agreement the typewriter company presented the collateral and the plaintiff loaned to it $10,000. Instead of taking the note of the typewriter company payable to its own order and indorsed by it, the plaintiff took a general collateral note, payable to' itself (Guardian Trust Company), filled in'as to date, time of'payment, amount -and rate of inter-j est, upon the usual printed blank, which printed portion pledged' the collateral for payment of the note and any other indebtedness of the typewriter company, and .provided that in case the collateral should depreciate a payment should forthwith be made, or additional security furnished in default of which the note should forthwith become due. The blank in the printed note left for. the description of the collateral was filled in as follows : 5,000 shares Yetman Typewriter Company stock, subject to agreement between Yetman Transmitting Typewriter Co., Guardian Trust Co. and several subscribers dated- Oct. 31,1904.”

Advancements were made from time to time and similar notes taken until the plaintiff had advanced to the typewriter company the full $80,000. The plaintiff also loaned the typewriter company $23,000, in addition for $10,000 of which the same collateral was pledged without reference, however, to the agreement of October 31, 1904. The typewriter company paid only a small portion of the $80,000 and defendant’s proportion of the unpaid balance was $9,828.27,

This action is brought' to recover such latter sum, and the trial before the referee resulted in a dismissal of the complaint upon the 'merits, and from such judgment the plaintiff appeals. Counsel for plaintiff very frankly concedes that the plaintiff has no claim ■ against the sureties if the agreement of October thirty-first, by proper and necessary interpretation, provides for the giving by the typewriter company of a negotiable promissory note for each loan obtained. The'position of the plaintiff is that, although a negotiable promissory note is'nominated in the agreement, still taking the. agreement as a whole, in view of its provisions for renewal of the notes and the providing of a sinking fund for their payment, negotiable notes were not in fact provided for, and that the words “ subject to agreement” written into the blank of the note which was taken relate to the terms of payment of the note as well as to the pledging of the collateral, and that the agreement itself is thus read into the note,, and that this part of the agreement being written, the balance of the note which was printed should be disregarded on the principle that where written and printed portions óf a contract are inconsistent the writing should prevail, and that making the plaintiff the payee of the notes was so immaterial a variation as to do no harm..

In our opinion the contract of October thirty-first is too specific as to the form and character of the note to be taken to permit us. to relieve the plaintiff from its unfortunate oversight in not taking the note which the defendant and his associates guaranteed the payment of.

The agreement appears to have been very carefully drawn and each provision is separately numbered. The first subdivision provides that the typewriter company shall give its negotiable promissory notes and specifically refers to the third subdivision which specifies their form. It was notes of the prescribed character and form which the defendant and his associates guaranteed. Their guaranty was not a general one to pay the indebtedness of the typewriter company incurred with plaintiff in any form to the extent of $80,000. Bor did they guarantee the payment of a note which should contain in the body of it all of the agreement which they entered into, as would be the case if the words subject to agreement ” were read into the note and the printed part of the one taken eliminated.

While the contract of a guarantor should be fairly construed according to the reasonable rules for the interpretation of contracts, 'when the subject of the contract is finally ascertained, he has the right to a strict construction. Parties to a contract of guaranty can specify particularly the thing guaranteed, and when they have done this, courts have no right to say that something else amounted to the same thing, and that what was done did not hurt the guarantor, and thereby make a new contract upon winch to hold, him liable.

There is some difference of opinion in this court as to whether the words “ subject to agreement ” relate to the terms of payment of the note as well as to the collateral pledged.' But assuming that they relate to the terms of payment, then the effect is to read the contract into the note, and when we do that we do not have a note such as the defendant guaranteed the: payment of. Such a note would be subject to construction and possible dispute. The defendant contracted as to one not open to construction, the precise form of which he specified.

It is difficult tq see how the defendant was injured. All of the notes fell due on the same day, and on default all would become past due paper. It is possible that the defendant and his associates if they learned that the typewriter company was not paying in the twenty dollars on the sale of each machine, might have gone to the plaintiff and asked it to declare the notes due for that reason, and paid them, and thus have become entitled to possession of the notes with the collateral. Itiis true that the notes would have then been past due paper, but they would not have so appeared upon their face. Being payable, tó the typewriter company they would not have required the plaintiff’s indorsement or transfer by it, as did the notes given.

Injury, however, is not the test of release of a surety, particularly when the contract of suretyship is specific.

If the notes stand in the form taken by the plaintiff without modification or elimination by the terms of the agreement, of course they do not conform to the contract of guaranty. They require for tranfer the indorsement of the plaintiff, and in express terms subject the collateral -to any indebtedness of the typewriter company beyond the $80,000 stipulated, and give the right to. demand additional security in case of depreciation, and to declare the same due in case it is not furnished.

We are impressed with the equitable character of the plaintiff’s claim,, for the defendant together with his .associates, obtained the desired aid to his corporation at plaintiff’s expense. In our view of the law, however, we see no way to relieve the plaintiff from the consequence of its oversight in not taking the notes agreed upon, or. its possible overcaution in taking a'note which overreached the agreement.

The judgment must be affirmed, with costs.

Patterson, P. J., and Lambert, J., concurred; McLaughlin and' Laughlih, JJ., dissented.

McLaughlin, J. (dissenting):

I am unable to agree with the other members of the court that the judgment appealed from should be affirmed. I am of the opinion that ■ the written agreement signed by the plaintiff, the typewriter company and the subscribers should be read iuto the notes, and as I understand the opinion of Mr. Justice Houghton, he has reached the same conclusion. If this be done, then the words, “ subject to agreement,” etc. relate not only to the deposit of shares of stock, but to every provision of the notes. The written words in the notes referring to the agreement were entirely unpunctuated, and were in the only available space in' the printed form used, and it would be a forced and ungrammatical construction to hold that reference might be made to the agreement as regards the deposit of shares, but for no other purpose. If it be true, as the referee seemed to think, that the words “ subject to agreement,” etc., were susceptible of different meanings, then he was correct in admitting parol evidence to show the meaning in which the words were used. (Kitching v. Brown, 180 N. Y. 414; Evansville National Bank v. Kaufmann, 93 id. 273; Springsteen v. Samson, 32 id. 703 ; Solomon Tobacco Co. v. Cohen, 95 App. Div. 297.) The evidence thus admitted showed beyond question that the intention of the parties was to make every provision in the notes subject to the agreement, and that these words were inserted for that purpose. If the agreement be thus read into the notes for the purpose stated, then the question presented, by applying well-settled rules, is not difficult of solution. Where a printed form of contract is used, written words therein will prevail over the printed words, if there be provisions which are repugnant, irreconcilable or inconsistent. (Kratzenstein v. Western Assurance Co., 116 N. Y. 54; Clark v. Woodruff, 83 id. 518 ; Collins v. Knuth, 51 App. Div. 188.) As was said in Clark v. Woodruff (supra) : “ The language of printed blanks is easily assumed to be appropriate, without careful examination, while the written. words more safely and. more nearly indicate the intention of the' contracting parties.” In the present case, when the first loan was made, no form of note had been prepared, so that'the printed form of' collateral note used by the trust company was adopted, and the words j “subject to agreement,” etc., written in. If I am-correct in the conclusion -that these words had the effect of incorporating in the notes the entire agreement, then the printed provisions of the' notes repugnant to or inconsistent with the terms of the agreement may be disregarded. The effect of this is not, as the respondent' contends, to make the notes payable to the typewriter company and indorsed by it, but to identify them as those given under the agreement, though not in the exact form provided. But it is suggested that if the agreement be read into the notes, in the manner and with. the effect indicated, the result would be that they would be non-' negotiable and that the agreement provided for negotiable notes.' It is true that in the 1st paragraph of the agreement the typewriter' company agreed to make “ its negotiable promissory notes, as pro- ¡ vided in paragraph III of • this agreement,” but it is evident from. paragraph 3 and the other provisions of the agreement that the. notes were to be non-negotiable. Paragraph 3 does not refer to.' tlie notes as negotiable, and provides that tire typewriter company might renew such amounts as remained unpaid at the end of the year for an additional six months. Paragraph 4 provides that the' typewriter company should deposit with the trust company twenty. dollars for each machine sold by it, to be kept in a special sinking fund account held'as security for the notes. When and'as this fund amounted to $2,000 it was to be applied to the payment of' interest then due on all the notes and the remainder to the principal of the earliest note then unpaid. If those- deposits were not made the,trust company might declare all the notes to be then due and demand and receive payment.. These provisions and some others indicate that negotiable notes were not contemplated in the agreemént. In Roblee v. Union Stockyards Nat. Bank (95 N. W. Rep. 61) the Supreme Court of Nebraska had occasion to pass upon the negotiability of a note under somewhat similar conditions. In that' case the note was secured by a mortgage of cows, and one of the provisions was that the mortgagor should deliver the milk from the cows to the mortgagee, who was to. apply the proceeds of the buffer derived therefrom to the payment of the note. The court held that this rendered the note non-negotiable and the reference in that note to the mortgage was by no means as clear as the reference to the agreement in the present case. Here, it is conceded, as it must be, that the trust company could not have negotiated the notes, even if they had been in the precise form provided in the agreement. It 'might have declared them due and after payment by the guarantors have turned them over to them.

If it be true that the agreement should be read into the notes and that rendered them non-negotiable, then but a single question remains as to whether the fact that the notes were made payable to the trust company instead of the typewriter company and indorsed by it, was such a variance as to discharge the guarantors. It is unquestionably true that the contract of a guarantor is 'strictissimi juris and that a variance is not to be tested by the effect .on the guarantor. It must, however,, be something more than form. It must go to the substance of the contract, either as to the guarantor or the jirincipal. A variance which does not alter the obligation of the principal, or increase the liability of the guarantor, will not discharge the latter. (Western New York Life Ins. Co. v. Clinton, 66 N. Y. 326 ; Kingsbury v. Westfall, 61 id. 356 ; American Copper Co. v. Lowther, 38 App. Div. 134; affd., 165 N. Y. 625 ; Standard Underground Cable Co. v. Stone, 35 App. Div. 62.)

In American Copper Co. v. Lowther (supra) the plaintiff agreed to advance $25,000 in cash to the Fairfield Copper Company, the latter giving a bond, payment of which was guaranteed by the defendants. One Wood had theretofore advanced $3,000 to the. copper company in anticipation of this loan. He was indebted to the plaintiff in an amount in excess of this sum, and with the consent of the copper company the plaintiff credited him with $3,000-on his debt to it as part of the $25,000 advanced. It was held that although the terms of the guaranty agreement and the recitals in the bond provided that the whole amount was to be advanced in cash, the guarantors Were not released. In disposing of the question the court said: “ If the Fairfield Company had received from plaintiff on November 26, 1894, its check for $3,000; which that-company had at once delivered to Wood in payment of his. debt; even a guarantor would admit that the -transaction was an advance, of money such as would’ satisfy this contract. But this was the: same thing in substance. It was not even in point of.fact a.modifiq cation of the agreement between the principal parties, but the con-v tract they made was carried out. * * * We think, therefore,) that there was no modification, of the contract of the principals,■ and that the defendants as guarantors are liable.” •;

The variance in the 'case now before us as to form of the notes is equally inconsequential. Whether the typewriter company made its notes payable to its ow-n order, and indorsed them, or‘ whether it made them payable to the trust company, is not of the slightest importance, because its obligation and that of the guarantors were precisely the same. (Madison Square Bank v. Pierce, 137 N. Y. 444.) In legal effect, therefore, there was no modification of the agreement. The variance was in a mere • matter ■ of' form. It is true the notes, as made, would require the indorsement, of the trust company to transfer them, while if they had been made payable to the typewriter company and indorsed by it they could be given to the guarantors without further indorsement. But the objection that the trust company -under such circumstances might have refused to indorse them “ without recourse ” or otherwise, so as to transfer .title to the guarantors, is of. no weight whatever. If they had been in the other form the trust company might equally as; well have refused to give them up. The .obligation assumed by the; typewriter company is precisely the same in either ■ case, and' it is that obligation which the guarantors undertook to guarantee. As to that the contract has not been varied in the slightest degree. This being-so; the guarantors are liable. • Their liability has neither been increased nor diminished in any particular. They are in precisely, the same position they would have been 'if the notes had been payable to and indorsed by their, principal.

In conclusion, it is to be observed that whether the words- subject to agreement,” etc., relate, as I think they do,, to every provision of the notes, they certainly relate to the deposit of the shares of stock — as.to this we áre all agreed — which means that such shares were to be held in. accordance with the agreement and subject to it. This disposes of one of the contentions of the respondent and one of the objections to the form of the notes stated in the prevailing opinion, which is that by the subsequent printed provisions of the notes the shares could be held as security for the loans made»by the trust company in excess of $80,000; The agrees ment specifically provides that the shares'should be deposited to secure loans not' in excess of $80,000. The claim then that the trust company could hold these shares as security for loans by it to the typewriter company in excess of that amount,, aggregating Over $20,000, is wholly unfounded. Not more than $80,000 could be advanced under the agreement, it is true, but there is no provision that further agreements for further advances might not be made, nor can one be implied. If the typewriter company had borrowed the further amoimts from other parties, pledging its equities in the stock as security for payment,, no one would seriously contend that this constituted a- violation of the agreement, and if it could borrow from third parties it could borrow from- the trust company.

The judgment appealed from should be reversed and a new trial ordered before another referee, with costs to appellant to abide event.

Laughlin, J., concurred.

Judgment affirmed,, with costs.  