
    Third National Bank of Cincinnati v. Laidlaw.
    
      Contract of guaranty not construed against guarantor, when — Mutual intention of parties — Arrived at in circumstances of the transaction.
    
    A contract of guaranty is not subject to the rule that a promise will be construed against the promisor, and liability will not by construction be enlarged beyond the fair import of its terms, but in order to arrive at the mutual intention of the parties in the language used, resort may be had to the circumstances of the transaction and the situation in which the parties stood.
    No. 12739
    Decided April 30, 1912.
    Error to the Circuit Court of Hamilton county.
    The plaintiff bank brought suit in the court of of common pleas of Hamilton county to recover $17,616.29 for breach of contract of guaranty. Robert Laidlaw and L. M. Moraques were named as defendants in the petition, but Moraques was not found and the suit proceeded against Laidlaw alone. In its petition the plaintiff alleges that on January 4, 1905, it loaned to the International Mahogany Company the sum of $26,345.86, which company executed and delivered to the plaintiff its note for that sum due in four months after date, with interest after maturity at 8 per cent, payable semi-annually; that plaintiff took from said Mahogany Company warehouse receipts calling for Cuban mahogany lumber as collateral security for said loan, whereby said Mahogany Company pledged to plaintiff to secure the payment of said loan certain Cuban mahogany lumber then owned' by said Mahogany Company, and in possession of 'the Export Storage Company in Cincinnati, Ohio, as warehouseman of said Mahogany Company; that said Mahogany Company in making said loan, and in executing said promissory note therefor, and in pledging said lumber to secure the payment thereof, acted by and through the defendant Laid-law, who was its president, and plaintiff made said loan at the request of the defendants and on the faith of their guaranty whereby at and prior to the making of said loan they, for value received, jointly and severally guaranteed to plaintiff that if said Mahogany Company should default in paying said loan, and the plaintiff should sell its collateral, the proceeds of the sale of said lumber, after deducting all expenses, would not be less than the amount of money loaned by the plaintiff plus accrued interest, and they jointly and severally agreed to make good to the plaintiff any loss it might. suffer if the net proceeds of the lumber should be less than the plaintiff’s claim; that said Mahogany Company thereafter became and was duly adjudged bankrupt and did default in paying said loan and that plaintiff sold its collateral, and the net proceeds of the sale of said lumber pledged to secure the loan after deducting all expenses were less by the sum of $17,616.29 than the amount so loaned by plaintiff to said company, plus interest; that the plaintiff has suffered the loss of said sum which it has demanded of defendants who refused to nay it.
    The defendant, Laidlaw, answered, and in his answer admits that the plaintiff bank on or about January 4, .1905, renewed a loan to the International Mahogany Company in the sum of $26,-345.86, for which amount said company on said day executed and delivered its promissory note in favor of said bank, payable in four months with 8 per cent, interest; that by said note there was pledged by said Mahogany Company as collateral for its payment Export Storage Company receipts numbers 529, 378, 420, 541, 401, 472 and 593 calling for 377,520 feet of Cuban mahogany lumber, log run, by permitting to remain on deposit with said Third National Bank receipts calling for said 377,520 feet of Cuban mahogany lumber, log run, which receipts then were and for many years prior thereto had been in the exclusive possession of plaintiff; that at said time, and as part of the transaction of, making and delivering said note and extending said loan, and of pledging said warehouse receipts therefor calling for said .amount and kind of said lumber, this defendant did with his co-defendant, L. M. Moraques, sign and deliver to said bank a guaranty, being the same guaranty which the plaintiff attempts in its petition to describe. The defendant says that said guaranty was made at the time that said note was made, and wa&.part of said transaction, and was based upon there being 377,520 feet of Cuban mahogany lumber, log run, in possession of said Export Storage Company, called for by said warehouse receipts, and as specified in said note, to which notes said guaranty makes reference, and which is part of said guaranty as fully as if its terms were set forth specifically in said guaranty. Defendant further says that said warehouse receipts held by said bank as security for said note, called for 377.520 feet of Cuban mahogany lumber, log run, and that said receipts were and are a part of said guaranty as fully as if their terms were expressly set forth therein and that said guaranty refers to no other lumber. Defendant says that said guaranty was that the net proceeds of the sale of lumber, to-wit, 377,520 feet of Cuban mahogany lumber, log run, called for by the warehouse receipts aforesaid and by said note, should, after deducting all expenses of the sale of the same, in case said Mahogany Company made default in payment of said note, and in case said bank sold said amount of said lumber, be not less than the amount of said note with interest thereon, and that said guaranty applied only to said amount and kind of said lumber, and only to said note. Defendant says that said plaintiff did not sell said 377.520 feet of Cuban mahogany lumber, log run, called for by said warehouse receipts and by said promissory note, and that there has been no breach of his said guaranty. Defendant admits that said Mahogany Company executed said note by this defendant as its president, and that said Mahogany Company was thereafter adjudged a bankrupt, and did default in the payment of said note, and defendant denied all the other allegations.
    Plaintiff replied and admitted that the collateral security for the note described in the petition was evidenced by seven storage receipts reciting in the aggregate the storage of 377.520 feet of Cuban mahogany lumber, log run, the numbers of the receipts being the same as stated in the answer, which receipts had been in plaintiff’s possession for several years prior thereto, but that the lumber covered by said warehouse receipts and sold by plaintiff was in amount less and in quality inferior to that described in said receipts. The plaintiff denies each and every other allegation in the amended answer and particularly denies that defendant’s contract of guaranty was in any respect otherwise than as described in the petition.
    On the trial of the case at the conclusion of the plaintiff’s testimony, the court on motion of the defendant arrested the case from the ' jury and directed a verdict for the defendant. Plaintiff’s motion for a new trial being overruled, judgment was entered for the defendant. This judgment was affirmed by the circuit court and this proceeding is brought to reverse the judgments of the courts below. Further facts are stated in the opinion.
    
      Messrs. Maxwell & Ramsey, for plaintiff in error, cited and commented upon the following authorities:
    
      Cambria Iron Co. v. Keynes, 56 Ohio St., 501; Merchants National Bank v. Cole, 83 Ohio St., 50.
    
      Messrs. Harmon, Colston, Goldsmith & Hoadly and Messrs. Ernst, Cassatt & Cottle, for defendant in error, cited and commented upon the following authorities:
    
      Birdsall v. Heacock, 32 Ohio St., 177; Lent v. Padelford, 2 Am. Lead. Cas., 141; Cambria Iron Co. v. Keynes, 56 Ohio St., 511; United States v. 
      Boecker, 21 Wall., 653; United States v. Freel, 186 U. S., 309; 2 Page on Contracts, Secs. 1115, 1116; Farmers & Mechanics’ Natl. Bank v. Lang, 87 N. Y., 209; McMurray v. Noyes, 72 N. Y., 523; Wallace v. Straus, 113 N. Y., 238; Clay et al. v. Edgerton, 19 Ohio St., 553; Norrington v. Wright, 115 U. S., 188; Bowes v. Shand, 2 App. Cas., 463; Filley v. Pope, 115 U. S., 213, 29 L. Ed., 372; Cleveland Rolling Mill Co. v. Rhodes, 121 U. S., 255, 30 L. Ed., 920; Mehurin v. Stone, 37 Ohio St., 49; Hull v. Myers, 90 Ga., 674; Bradford Belting Co. v. Gibson, 68 Ohio St., 442; Railway Co. v. Bank, 56 Ohio St., 386; Ensel v. Levy & Bro., 46 Ohio St., 255; 2 Herman on Estoppel & Res Adjudicata, 1240; M’Neil v. Hill, Wool. C. C, 96.
   Johnson, J.

The guaranty sued on was as follows:

“Cincinnati, January 3d, 1905.
“For value received we hereby jointly and severally guarantee to the Third National Bank of Cincinnati, Ohio,, in respect of any loans heretofore or hereafter made by it to the American Mahogany Company, or the International Mahogany Company, for which warehouse receipts calling for Cuban mahogany lumber, or logs, are taken as collateral security, that the net proceeds, after deducting all expenses, of the sale of said lumber or logs, should said company default in its payments and the bank sell its collateral, shall-not be less than the amount of money loaned by the bank plus any accrued interest and—
“We agree to make good to said bank any loss it may suffer should the net proceeds of the lumber or logs be less than the claim of the bank.
“This guarantee applies to a loan represented by note dated January 5th, 1905, amounting to $26,345.86,' and the renewal of same or any part thereof.
“L. M. Moraques, “Robert Laidlaw.”

The note referred to, and which is conceded to have been made when the guaranty was delivered, is on the ordinary form used by banks which include provisions for collateral security. It is for $26,345.86, dated January 4, 1905, payable to the bank and due four months after date with 8 per cent, interest, payable semi-annually, and with the following collateral security clause: “having pledged as collateral security for the payment of this note, and of every other liability of the undersigned to said Bank, whether as maker, endorser, surety, or otherwise, due or to become due, or which may hereafter be incurred, the following property, viz: Export Storage Co. Receipts Nos. 529, 378, 420, 541, 401, 472, 593, calling for 377,520 feet of Cuban mahogany lumber, log run. The market value of which is now $...........” On default by the Mahogany Company the bank sold the lumber, and it is conceded that it did not have, and did not sell, 377,520 feet, but a quantity much less, which when sold, realized a sum which was $17,616.29 less than the amount due on the note.

The question presented is, as to the construction of the conditional guaranty and, whether evidence is competent to show the circumstances surrounding the transaction, to aid in the construction and in arriving at the intention of the parties in the giving and accepting of it. Defendant contends that the guaranty related only to the value of 377,520 feet of Cuban mahogany lumber, log run, and was conditioned on the sale by the bank of substantially that quantity and quality. Plaintiff contends that by the terms of the guaranty defendant guaranteed (in respect of any loans plaintiff had made, or might thereafter make, secured by warehouse receipts for Cuban mahogany lumber, or logs) that the net proceeds of the collateral would pay the loan.

On the trial the plaintiff tendered testimony with reference to the whole course of dealings between the Export Storage Company, the lumber company and the plaintiff bank, to connect the defendant Laidlaw personally, with all the steps and all the transactions in order, as claimed, to show all the surrounding circumstances attending the transaction of January 5, 1905, for the purpose of aiding the court in the construction of the contract sued upon. Substantially the testimony offered tended to show, that Mr. Laidlaw, defendant, who was president of the Mahogany Company and Mr. Kellogg, president of the plaintiff bank, and who was also vice-president of the Storage Company had conducted the neeotiations with reference to the loans referred to in the note, and in the guaranty, and that during the time that the loans were in existence repeated conversations were had between them respecting all the matters connected with the lumber and the loans of the bank upon it; that at times the bank was apprehensive about the security, and that much correspondence was had with Mr. Laidlaw which was tendered in evidence; that on May 27, 1904, the president of the plaintiff bank requested by letter, to Mr. Laidlaw, that an inspection be made of the lumber by a reliable inspector, “in order that both you and ourselves should know something about what we have there”; that defendant Laidlaw replied on the following day, May 28, 1904, stating: “I see no reason why we should not find out exactly what we have in these piles of lumber which are security for the loans at your bank.” In the same letter he states that he does not know what the inspection will cost, but would find out and suggests that he would make an effort to sell some of the lumber to some purchasers under the arrangement between the parties and states: “They have really not had time to answer. Then if the Keith Lumber Company concludes to take ten or twenty cars of this lumber, as they have been talking of doing, and they come here about the first of the month as they promised, then it would not be necessary to go to the trouble of tearing down these piles and building them again when it could all be done if the lumber was sold.” The testimony tendered was rejected by the trial court, to which the plaintiff excepted.

A guarantor, like a surety, is bound only by the words of his contract. Other words cannot be added by construction or implication, but the meaning of the words actually used, is to be ascertained in the same manner as the meaning of similar words used in other contracts. The language used, is to be understood in its plain, ordinary sense, as read in the light of surrounding circumstances, the situation of the parties, and the object of the guaranty, and that construction given which most nearly conforms to the intention of the parties* Parol evidence is not admissible to enlarge or to limit the terms of the instrument. But evidence of the surrounding circumstances is competent, in order to arrive at the intention of the parties, as declared by the words employed, and as in 'construing all contracts, the words employed by the parties will be construed in the light of these circumstances. Morgan v. Boyer, 39 Ohio St., 324; Cambria Iron Co. v. Keynes, 56 Ohio St., 501; Merchants Natl. Bank v. Cole, 83 Ohio St., 50; 20 Cyc., 1439. In Morrell v. Cowan, 7 Ch. Div. (L. R.), 151, which involved the construction of a guaranty, it is said: “in determining the construction of this instrument the court is entitled to look at the surrounding circumstances; that is to say, it is entitled to consider, first, who the parties were; secondly, in what position they were; and, thirdly, what the subject-matter of the agreement was.” The trial court refused to permit this testimony on the ground that under the issues made by the pleadings, the knowledge of Laidlaw, or his good faith, were not put in issue, and that in the absence of such an issue made by the pleadings, such testimony was not competent. This view was adopted by the learned circuit court. It is true that there was no such issue in-the case, but the testimony was not offered with reference to any such issue, or for the purpose of showing- bad faith, or fraud on the part of the defendant, but for the purpose of putting the court in possession of the circumstances under which the transaction occurred, so as to better enable it to arrive at the intention of the parties in the making and accepting of the guaranty, and better to construe the language employed in it. It will be noted, that the guaranty itself does not stipulate, that the warehouse receipts calling for Cuban mahogany lumber should be issued by any particular company or for any particular quantity, or quality of such lumber, and it is to be particularly noted that the guaranty does not stipulate, that the bank and the Mahogany Company shall maintain any particular proportion, between the lumber and the amount of the loans, which might be made by the bank to the lumber company. So far as the guaranty itself goes, its language is broad and full.

It is in respect of any loans heretofore, or hereafter made, for which warehouse receipts calling for mahogany lumber are taken as collateral security; that the net proceeds after expenses shdll not be less than the amount of money loaned by the bank, with interest, and agrees to make- good to the bank any loss, should the net proceeds be less than the claim of the bank. The last clause which provides, “This guaranty applies to a loan represented by a note dated January 5, 1905, amounting to $26,245.86 and the renewal of same or any part thereof,” is claimed by the defendant to limit the guaranty to that note, and it is urged that the doctrine expressio unius est exclusio alterius, applies. That maxim is not of universal application, but is to be invoked as an aid in arriving at intention and not to defeat the intention of parties. The paper itself is dated January 3. The date of the note as given in this clause is January 5. The actual date of the note is January 4. It is conceded both the note and guaranty, were delivered at the same time. The evidence tendered showed that the guaranty had been prepared before that day, in anticipation of the arrangement, and the reasonable inference is that, that clause was added so as to specifically include the note which was expected to be, given soon in the future. We are forced to this conclusion by a consideration of the other terms of the guaranty, and by the terms of the note itself which recite: “having pledged as collateral security for the payment of this note and of every other liability of the undersigned to said bank * * * due, or which may hereafter be incurred the following property * * * Export Storage Company receipts * * * calling for 377,520 feet Cuban mahogany lumber.” This precludes the view that it was the intention of the parties that the 377,520 feet of lumber must be had and kept as security for this particular note. That is, defendant did not stipulate that that particular quantity of lumber should stand between him and liability on his contract.

We think it clear, from a careful consideration of these terms and conditions of the guaranty itself, and of the particular note referred to therein, that the evidence tendered should have been admitted for the purposes above stated. The position of the defendant as president of the lumber company, the position of. the president of the bank in the storage company, and the manner in which the entire transaction was conducted, as disclosed by that testimony, places the defendant in a different relation to this guaranty than that of a mere stranger. As was said in Iron Co. v. Keynes, 56 Ohio St., 514, in which some of the directors of the company signed the guaranty on behalf of their company: “They were not only pecuniarily interested in the successful operation of its business, but were charged with the general superintendence of its affairs. To give it power to buy, was to promote prospective personal gain to themselves.” In Luckenbach v. McDonald, 164 Fed. Rep., 296, defendants were respectively president and secretary of a corporation and endorsers of a note given by the company. The note not having been protested and not having been presented for payment to them, they claimed to be released for want of notice of dishonor, under the negotiable instruments’ law. Evidence was admitted showing their relationship to the company and to the note, and that it was in fact for their accommodation, and the court say: “If there was no other evidence in the case except the note itself, with these defendants appearing as they do upon the back of the note as endorsers, of course this section would apply, and they could not be held in any other capacity. It would then have been necessary for the plaintiff to prove presentment and notice.”

It is seriously contended by defendant, that he had a right to suppose from his contract that he had an ample security of 377,520 feet of lumber, between him and his ultimate liability, on the ground that the guaranty, practically incorporated all the terms of the note, in its own terms, and provided that substantially that amount of lumber should be held to secure the note. As above pointed out, no such definite intention can be found in the language used, because the note itself provided that the 377,520 feet of lumber had been pledged as collateral security for that note, and of every other liability which had been then, or might thereafter, be incurred. The learned circuit court took the view of the defendant’s counsel, and in its opinion cites the case of Farmers’ & Merchants’ Natl. Bank v. Lang, 87 N. Y., 209, in support of its conclusion. In that case the guarantor guaranteed to the bank “all pledges of property, warehouse receipts and other vouchers” given by the principal debtor, and further “that the property so transferred and set over to said bank shall not be ‘misapplied. or diverted’ to any other purpose.” The guarantor was in no way connected with the principal debtor. He was purely an outside party. The writing did not absolutely guarantee the payment of the money which was loaned by the bank, but on its face stated that the guaranty was that the property transferred and set over would not be “misapplied or diverted” to any other purpose while such loans remained unpaid, and if any “default or misappropriation of the property so pledged shall be made,” the guarantor was to make good any deficiency. In that case the defendant showed by evidence, that the cashier of plaintiff had consented with the principal debtor that he should not set aside or have on hand all of the property described in the receipts, and that the bank had waived its right by an arrangement with the principal debtor. In this case the note provided that the lumber was held for this debt, and any other debt, and the evidence tendered shows that the bank had requested the guarantor himself to join in an inspection of the property called for by the receipts, “in order that you and ourselves should know something about what we have there.” And the defendant Laidlaw had recognized his duty as president of the lumber company to assist in seeing that the lumber was present as “called” for, and had suggested methods of obtaining the information.

For these 'reasons we conclude that the trial court erred in instructing the verdict for the defendant, and the judgments of the courts below will be reversed.

Jtidgments reversed and cause remanded.

Davis, C. J., Shauck, Donahue, and O’Hara, JJ., concur.  