
    Knickerbocker Trust Company, Respondent, v. Hugh R. Garden, Appellant.
    First Department,
    June 15, 1906.
    Contract of Underwriting construed — tripartite agreement whereby underwriters agree to repay loans made on bonds of construction company—.agreement that lender is not to be responsible for. validity of bonds or acts of construction company — pleading—lender need not allege performance by construction company.
    When underwriters of bonds issued by a construction company an'd secured- by mortgage guarantee to a trust company making loans to the construction company to repay the loans pro rata, payments to be credited on their contract of underwriting on bonds pledged by the construction company to the lender, and when they further agree that the trust company is not tobe responsible for the performance of agreements made by the construction company, or for any invalidity of the bonds or mortgage,.and that no,underwriter shall be released from his guaranty by reason of any such invalidity, the trust company in a suit against an underwriter to enforce payment of his-proportionate share of moneys advanced .to the construction company by the trust company is not required to allege the performance by the construction company of conditions in the contract for the performance of which the construction company bound itself. . ..
    This, because "the contract expressly provides that the trust company is not to be responsible for performance by the construction company, and that no underwriter is to be relieved from his guaranty by reason thereof.
    Appeal by the defendant, Hugh R. Garden, from an interlocutory judgment of the Supreme Court' in favor of the plaintiff, entered in the office of .the clerk of the county of New York on the 20th day of December, 1905, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the defendant’s demurrer to the complaint...
    
      George Gordon Battle, for the appellant.
    
      Julian T. Davies, Jr., for the respondent.
   Patterson, J.:

The defendant demurred to the complaint in this action on the ground that it does not state facts sufficient to constitute a causé of action. The demurrer was overruled and an appeal has been taken from the interlocutory judgment entered thereon.

■ It is claimed that the complaint is defective, in that it fails to allege,the performance of certain acts or the existence of certain conditions, upon which it- is insisted, by the defendant las liability depends; The action is upon a written instrument dated the 10th' of November, 1902, .made between the - Brunswick Construction Company, the Knickerbocker Trust Company (tlie plaintiff, herein) and individual contracting parties, among whom is the defendant. It.is recited in that instrument that the construction company proposes to acquire real property in the city of New York and to construct thereon a hotel, and to authorize an issue of $7,500,000 four and one-half per cent bonds secured by a consolidated mortgage, which would, be a lien upon the property to be purchased, subsequent only to a first mortgage of $4,000,000, “ for the retirement of which provision shall be. made by reserving $4,500,000 of said consolidated mortgage bonds, and it is desired to secure underwritings - for,at least $2,000,000 of ike remaining $3,000*000 of said consolidatedhnortgage bonds and, to secure a loan from ike trust company..” ■ Tlie agreement then provides that in consideration of the premises' the individual signers hereby severally-but not jointly agree with the company to take and pay for, as hereinafter provided, the amount of said consolidated mortgage bonds set opposite their respective signatures "hereto, or such reduced amount as shall be allotted to them as herein provided, at the price of seventy-five per cent (75$) of their par value, together with, accrued interest.” The terms and; , conditions material at present are the following: The agreement was to be binding on the individual .subscribers when the amount of at W - s least $2,000,000 of “ such bonds ” shall have been underwritten, by accepted underwriters, and when the trust company shall have; agreed to make tlie loan provided for. The trust company agreed to advance to the construction Company on certain terms the: amount to be paid by the underwriters* or such part, thereof as, should be called for from time to time by the construction company for one year from the date of the first advance. “ Such advances, shall be made in such .amounts as are called for by the company - (meaning the construction company) provided that the bonds underwritten (or interim bonds representing the same),to the amount of $1,000 for each $750 so advanced shall'be deposited with the trust company at or prior to the time such advances are made, and the underwriters hereby authorize and direct the company, when and as such bonds are issued by it, to make delivery thereof to the trusf company, to be held and disposed of by it as herein provided, and the company hereby, agrees to make such delivery. * * * The underwriters hereby severally but not jointly guarantee to the trust company the repayment of a pro rata proportion of the principal of said advances with interest at the rate aforesaid, but payments to the trust company on account of such respective guarantees shall be applied upon the respective subscriptions hereunder, it being expressly understood and agreed that in no event shall any underwriter be called upon to pay any sum in excess of the amount set opposite his signature hereto, with interest, or in case his underwriting shall be reduced, the amount of his accepted underwriting, with interest.” It was ágreed that the recitals herein are made by the company and the underwriters, and that the trust company is not to be responsible therefor or for any informality in or invalidity of said bonds or mortgage, and that no underwriter is to b'e released from his guarantee because of any such informality or invalidity.” On the 1st of December, 1902, the agreement of November tenth was modified by providing for an advance to be made by the trust company on the underwritten subscriptions before the bonds therein underwritten should be delivered to it, and by the amendatory provision it was mutually agreed that the trust company might prior to the delivery to it of such bonds advance to the construction company not more than $600,000, provided the last-named company should deposit with the. trust company contracts' assigned in blank for the sale of the real estate intended to be bought by the construction company on which contracts there should have been paid at least the amount-so advanced by the trust company ; such contracts to be held as collateral security for such advance until the bonds were delivered as provided.

The defendant became an underwriter for $100,000 of the issue of $2,000,000 bonds, his subscription being at the rate of seventy-five cents on the dollar. The amount was afterwards reduced. He failed to pay the amount of his subscription and thereupon this action was brought to enforce his liability. In the complaint there is set forth the making of the agreement and supplemental or modifying agreement, and the defendant’s subscription to the bonds; that oil-the -15th of December,- 1902,-amd at various times thereafter; -thp plaintiff loaned- and advanced-upon -the'securities’ and "guarantees in the agreements provided- for,"’to the BrutisvHdcltiGonstruction Oom- . pany.,- various, sums, amounting" in tiie-aggregate to $1,687,50®’,. pay- • able with interest-at. six per*ce;nt;-’that tiie‘loan was*evidenced' .and seéured by the' several'promissory-notes of the- construction -company, duly made and’delivered to the ’ plaintiff- at‘.or about the respective dates-on which tire aforesaid sums; aggregating $1,(687,500,' weie -respectivelyádváuced'pfbat’tlie ariidunt' tlmS" loaned was sev- ’ enty-five per-cent of the amount agreed-to’be paid by all the underwriters under the -agreements ; • that there had been, deposited with the- plaintiff,, at or about the time-the' 'advances-w'ere" made, contracts ‘ assigned-in blank as= provided foiuin,--the supplemental or modifying’ 7 agreement, and also the bonds ¡which "by the riraiiM agreement were • to be deposited with the trust" company.. It is also alleged that by-the-main agreéinent, in consideration’-of " the" making of the loan by - the plaintiff to the construction'-company, the ’defendant -agreed tó purchase and takefrom ‘said-construction company the amount- of ’ bonds subscribed forby him and guaranteed-tb'the plaintiff the repay- - ment’ of * Ms pro- ratolproportion- of the principal of -said ad bailees ■' - made- by the plaintiff .to the- construction company; with" interest- ' thereon;-that pursuant to -the1 terms-of‘the main agreement the " plaintiff reduced-the (amount of cash* which’the agreement specified!the defendant w-oníd- pay from .$75,00® - to ’$37,500';- that th& pro-’■ rote proportion-of the--principal-of said loam to the construction. . company, the repayment--of which was - guaranteed by the deferid--ant; amounts-to $28;125 of principal, upon tiie payment of which., with interest, the defendant is entitled to‘receive’$37,500'par’value of said bonds;-that defendant has-rnademo payments-whatever on account of the bonds-that lie is entitled to receive--under said agreements nor on. account of his said guaranty:;' that -the plaintiff now holds, subject to thedbrms ’and conditions of defendant’s Said agreements, $37,500. par-value of -the -aforesaid four and one-half per - ■ cent consolidated mortgage- bonds ; that pursuant to the terms of the agreements-the plaintiff, from tittle to -time, detached and .col- - lec-ted the-coupons-oh the bon*‘held by it, which hadi heeii credited oh the defendant’s subscription ;■ that-thé repayment of the loan was duly demanded of the construction company by the plaintiff, and that the same has not been.paid,

It is insisted by the defendant that the' complaint is insufficient because certain conditions were contemplated, in the agreements which should have been performed before he-became liable upon his guaranty, and they are: First, that uhe construction company should have acquired the real estate ; seeond, that it should have constructed" the hotel thereupon; third, that it. should have placed or cause to be placed thereon a first mortgage of $4,000,000 ; fourth, that it should have authorized .an issue ' of $7,500,000 consolidated bonds, and that out of said bonds it should have reserved $4,500,000 to retire the first mortgage, and all that having been done, $2,000,000 of the remaining bonds should have been set aside, and that his subscription bound him only .to take.a proportioiiof'bondsso specifically selected and set aside, being a part of the remaining $3,000,000 of bonds so specifically selected and set aside, after the retirement of the first mortgage had been provided for. • '

We agreenvith the court below-that it was not incumbent upon the plaintiff to make further allegations'than those contained in the complaint to set forth a cause of action against the defendant. His guaranty is a general one, - The plaintiff did not by the agreements bind itself in any way to the performance by the construction com: pany of any of the matters contained in the recitals as being within the .purposes and intention of the construction'company, Those recitals are. not representations or stipulations of the plaintiff. It is expressly stated in the- agreement of iSTovetnber 10, 1902* that the recitals therein are made by the construction company and the underwriters and that the trust company is not to be-responsible therefor. . The purpose of the agreements is obvious. The underwriters or subscribers bound theinselves to take a certain proportion of an issue of bonds to be made by the construction company. It became desirable that money should be realized upon those subscriptions to enable the construction company to buy the real estate and to construct the hotel, and in' order‘to accomplish that, the plaintiff, on the faith of the subscriptions and upon the guaranty of the underwriters, undertook to make those advances, «looking in the event of the.non-payment of the advances by the borrower to the subscriptions and the guaranty of the underwriters for reimbursement. The plaintiff did nqt agree, with the defendant that his subscription should apply only to a residue of bonds¿ after a certain mortgage had been paid off or provided for, or that the construction company should actually accomplish any of the purposes specified in the recitals made by, it in the .agreement. The Words, “.remaining $3,000,000” in the preamble of the agreement of November 10, 1902, simply relate to a balance of. the $7,500,000 and not whát was left after a" specific appropriation of the other bonds. By the agreement of' November .tenth, the defendant and the. other underwriters expressly authorized the construction company when and as such' bonds were issued to lilake delivery thereof to the trust company; and it is shown by the amendatory agreement that before the delivery of the bonds the trust company was authorized to advance a certain sum of money upon the deposit of executory contracts made between the construction company and the sellers of the real estate. - It is distinctly provided in the agreement of November tenth that the trust company was not only not to' be responsible for any of the recitals made in that' agreement, but it ■was also not to be responsible for any informality in or invalidity of the bonds or mortgage, and that no underwriter is to be released from his gharanty because of any such informality or invalidity.

It was not incumbent upon the plaintiff, in order to maintain its action, to make further allegations than those contained in the complaint, and the interlocutory judgment should be. affirmed,,, with costs, with leave to. the defendant to. withdraw the -demurrer and answer the complaint within twenty days after the service of the order to be entered on this decision, and qn payment of costs in this court and.in- the court below.

O’Brien, P. J., Ingraham, McLaughlin and Houghton, JJ., concurred.

Judgment affirmed, with costs, with leave to defendant to withdraw. demurrer and to answer'on payment of costs iii this court and • in the court 'below. Order filed.  