Guardian Trust Co. v. Peabody

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, [650] 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 [651] 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 [652] 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 [653] 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.