#### First National Bank of Waterloo, Appellant, *v.*Helen Story and Others, as Executors, etc., of Leonard Story, Deceased, Respondents.

Fourth Department,

July 7, 1914.

Guaranty and suretyship — contract — interpretation — general words — intent of parties — indebtedness not within scope of guaranty agreement.

Guaranty and surety bonds, like all contracts, are to be construed so as to effectuate the intent of the parties as expressed in the agreement, and it is only when their intention has been thus ascertained that the principle of *strictissimi juris*applies.

Words in a contract should not be taken in their broadest import when they are equally appropriate in a sense limited to the object the parties had in view.

Where a guaranty agreement recites that a certain corporation desires to obtain loans, discounts and credits from a bank, and that the bank requires security “for such loans and discounts and for all other indebtedness or liability of the said company to it,” and thereupon agrees that the obligors for “the purpose aforesaid” will guarantee and warrant the payment of any loans by the bank to the corporation, it is evident that the purpose of the obligors in giving the bond was that the corporation might secure of the bank loans, credits and pecuniary obligations, and that the purpose of the bank was to obtain security for such loans as it might furnish, as well as for “all other indebtedness or liability of said company to it.”

*280The clause “all other indebtedness or liability of said company to it,” was not intended to cover any future indebtedness acquired by the bank in other ways than by the furnishing of loans, credits and discounts to the corporation.

The apparent purpose of the parties is not to be enlarged by broad, general provisions in the charging part of the contract, further than is necessary and appropriate to accomplish the purposes expressed in the recital.

Where the bank at the time of making the agreement held the note of a third party, secured by certain bonds of the corporation, and later surrendered the note and took the bonds in payment, but it does not appear that the corporation was in any way concerned in the transaction out of which the indebtedness on the note arose, or profited by it, the bonds are not covered by the guaranty agreement.

This is so, although the agreement recites in the charging part that the obligors guarantee and warrant, among other, things, the payment of “other obligations in writing of every name and kind” made by the corporation, “which the said bank now has or which it may hereafter have, hold, purchase or obtain.”

Such provision must be interpreted in the light of the pur-pose of the parties and limited to include only such obligations as were obtained by the plaintiff in furtherance of that purpose.

Kruse, P. J., dissented, with opinion.

Appeal by the plaintiff, First National Bank of Waterloo, from a judgment of the Supreme Court in favor of the defendants’ testator, Leonard Story, entered in the office of the clerk of the county of Seneca on the 18th day of January, 1913, upon the decision of the cpurt after a trial before the court at the Seneca Trial Term, a jury having been waived. The judgment dismissed the complaint upon the merits.

The joint and several bond, executed by six obligors, one of whom was defendants’ testator, upon which plaintiff’s cause of action is based, reads as follows:

“ Whereas, the Waterloo Organ Company, a domestic corporation formed under the laws of this State, desires to obtain loans, discounts, credits and other pecuniary accommodations of and from the First National Bank of Waterloo, N. Y., and, “Whereas, the said bank requires security for such loans and discounts and for all other indebtedness or liability of said company to it, and,

“ Whereas, the undersigned are interested in said company as stockholders, or otherwise, and are willing to become such security;

“ Now, *Therefore,*for the purpose aforesaid and in con*281sideration of the sum of one dollar to each of us duly paid at the ensealing and delivery hereof,, and for other good and valid consideration, the receipt of which is hereby acknowledged and confessed, we, the undersigned, do hereby jointly and severally for ourselves, and our and each of our heirs, executors and administrators, guarantee and warrant unto the said bank, its successors and assigns, the prompt payment at maturity of each and all the notes, checks, drafts, bills of exchange, and other obligations in writing of every name and kind, made, signed, drawn, accepted or endorsed by the said Waterloo Organ Company, which the said bank now has, or which it may hereafter have, hold, purchase or obtain within one year from date hereof, but our liabilities hereunder shall not at any time exceed the sum of Fifteen Thousand Dollars ($15,000), and interest thereon.

“And in case default is made in the payment at.maturity of any of the above mentioned obligations, or in the payment of any lawful claim or demand held by said bank against said company, we do hereby jointly and severally covenant, promise and agree to pay the same to the said bank, its successors or assigns upon demand.

“ This instrument is intended to be a full, complete, and perfect security and indemnity to the said bank to the extent and for the time above stated, for any indebtedness or liability of any kind owing by the said company to it from time to time, and to be valid and continuous without other or further notice to us or to any of us.

*“In Witness*Whereofetc.

In view of the full recital of the facts material in the decision of this appeal, which appears in the opinion of the trial court, it will not be necessary to refer to them further than may be found serviceable for the convenient amplification of the single point upon which the judgment in favor of defendant has been directed.

*W. Smith O’Brien [Bacon & Huff,*attorneys], for the appellant.

*Charles A. Hawley [George E. Zartman,*attorney], for the respondents.

*282Robson, J.:

The obligations of the Waterloo Organ Company for the payment of which plaintiff sought to hold defendants under the guaranty bond consist of fifteen bonds of the organ company each for the sum of $500 with interest, less certain payments made thereon. These bonds are part of a series of eighty bonds of like tenor, which bear date December 1, 1894, and became due ten years thereafter. One Kendig, then the owner of the bonds, sometime prior to 1901 had put them up as collateral to two notes given by him to plaintiff, and at the time the guaranty bond in question was made the plaintiff held his notes with these bonds as collateral thereto. It does not in any way appear that Kendig’s indebtedness to plaintiff was incurred for the benefit of the Waterloo Organ Company, nor that it in any way profited by or was in any way concerned in the transactions out of which the indebtedness arose. July 24, 1901, plaintiff surrendered these notes to Kendig, retaining in payment therefor these bonds, which it theretofore had held as collateral security for that indebtedness. With this new arrangement the Waterloo Organ Company, so far as appears, had nothing to do and was in no way affected by it beyond the fact that the ownership of the bonds was changed from Kendig to plaintiff. The Waterloo Organ Company was adjudged a bankrupt in July, 1902, and but a small fraction of the amount of these bonds has been paid from the bankrupt’s estate. As to the balance unpaid thereon the bonds are defaulted. Under these facts the question here to be determined is are these defaulted bonds an indebtedness of the Waterloo Organ Company the payment of which was secured to it by this guaranty bond ?

It is, of course, true that guaranty or surety bonds, like all contracts, are to be fairly construed so as to effectuate the intent of the parties as it has been expressed in the terms of the contract. The principles applied in the construction of such contracts have been satisfactorily stated by Martin, J., in *Ulster County Savings Inst.*v. *Young*(161 N. Y. 23, 30) as follows: *“*The liability of a surety is measured by his agreement, and is not to be extended by construction. His contract, however, is to be interpreted by the same rules which are applicable to the *283construction of other contracts. The extent of his obligation must be determined from the language employed when read in the light of the circumstances surrounding the transaction. Hence, where the question is as to the interpretation and meaning of the language by which a party has bound himself, there is no difference between the contract of a surety and that of a principal or other party sustaining a different relation. It is when the intention of the parties has been thus ascertained that the principle of *strictissimi juris*applies, and then it is that the courts guard the rights of the surety and protect him against a liability which is not strictly within the terms of his contract.” It is beyond question that these bonds of the Waterloo Organ Company, being an indebtedness of it acquired by plaintiff during the life of the guaranty bond, and in the payment of which the Waterloo Organ Company has made default, are apparently within the classes of indebtedness payment of which is guaranteed by the general provisions of the guaranty bond. But as has been said by Collin, J.: “ Indeterminate forms of expression inconsistent with the evident design of a contract are to be understood in a sense subservient to the general purposes of the contract. The generality of the words used should be restrained by the particular occasion. * * * Words should not be taken in then broadest import when they are equally appropriate in a sense limited to the object the parties had in view. ” *(People ex rel. N. Y. C. & H. R. R. R. Co.*v. *Walsh,*211 N. Y. 90, 100.) We may, therefore, inquire what object the parties had in view and the purpose sought to be accomplished by the guaranty bond. Naturally we turn to the recital in the instrument for the expressed intention of the parties. The occasion of the obligors givingthe bond as there expressed is that the Waterloo Organ Company *“*desires to obtain loans, discounts, credits and other pecuniary accommodations of and from the First National Bank of Waterloo, N. Y.” The purpose of the plaintiff is thus expressed: *“*Whereas, the said bank [plaintiff] requires security for such loans and discounts and for all other indebtedness or liability of said company [Waterloo Organ Company] to it;” and it is further stated that the obligors *“*are interested * * * as stockholders, or otherwise, and are willing to become such *284security ” and agree for “the purpose aforesaid” to “guarantee and warrant ” the payment, etc. The manifest purpose of the obligors in giving the bond was that the organ company might secure of the plaintiff loans, credits and pecuniary accommodations. The purpose of the bank was to get security for such loans and accommodations as it might furnish it as well as “all other indebtedness or liability of said company to it.” It is to accomplish these purposes that the bond was given, and these purposes, as thereinbefore expressed, are explicitly recognized as the purpose to be served by the guaranty agreement of the obligors. It will be observed that the indebtedness and liability referred to in the second clause of the recital may well be held to apply to indebtedness of the company then held by the plaintiff, of which it appears that it then had a considerable amount. If this expression had been intended to cover such future indebtedness as plaintiff might acquire in other ways than by furnishing such loans and discounts to it as are theretofore recited, then it would naturally be expected that the expression would have been “ all other indebtedness or liability, which it now has, or which it may hereafter have, or acquire. ” Nor is the apparent purpose of the parties to the instrument to be enlarged by the broad general provisions appearing in the charging part of the contract beyond the expression of an agreement to an extent necessary and proper to accomplish the purpose expressed in the recital. As was said by Earl, J., in *National Mechanics’ Banking Assn.*v. *Conkling*(90 N. Y. 116, 120): “ The recital in such bonds, undertaking to express the precise intent of the parties, controls the condition or obligation which follows, and does not allow it any operation more extensive than the recital which is its key, and so it has been held in many cases.” This statement is supported by extensive citation of authorities.

Appellant calls attention to the fact that in the charging part of the bond it is expressed that payment of such “other obligations [of the organ company] in writing of every name and kind ” made by the organ company, “ which the said bank now has, or which it may hereafter have, hold, purchase or obtain,” etc., is expressly guaranteed by the obligors; and it is claimed that the use in that connection of the words “purchase *285or obtain ” clearly exhibits an intention to include within the terms of the guaranty all such written obligations of the organ company as plaintiff might procure during the life of the bond. But this general provision, as well as those following, which are equally comprehensive in general expression, must in like manner be interpreted in the light of the purpose of the parties as therein expressed, and, therefore, limited to include only such obligations as were obtained by plaintiff in furtherance of or within the natural fulfillment of that purpose. As so interpreted we see no contradiction in the terms of the bond and effect is given to every part thereof.

The judgment should be affirmed, with costs.

All concurred, except Kruse, P. J., who dissented in a memorandum; Foote, J., not sitting.

Kruse, P. J. (dissenting):

I think the contract of guaranty covers the bonds in suit. It covers all obligations of the Waterloo Organ Company, which, in the language of the contract, “the said bank now has, or which it may hereafter have, hold, purchase or obtain within one year from date hereof,” and the only limitation upon that liability is that it shall not exceed the sum of $15,000 and interest thereon.

After the joint and several covenants and promise made by the guarantors to pay to the bank the obligation in case of default, the contract of guaranty concludes with the following statement: “This instrument is intended to be a full, complete, and perfect security and indemnity to the said bank to the extent and for the time above stated, for any indebtedness or liability of any kind owing by the said company to it from time to time, ánd to bé valid and continuous without other or further notice to uS or tó any of us.”

Assuming that the sole purpose of the stockholders-of the Waterloo Organ Company in making this contract of guaranty was to obtain loans, discounts and credits and other pecuniary accommodations from the bank, it is clear from the recital in the bond that in order to obtain such accommodations the bank not only required security for the loans and discounts, but for all other indebtedness or liability of the com*286pany which it might purchase or obtain within the time and limitation therein stated.

Furthermore, it was important to the stockholders as well as the bank that the general credit and financial standing of the organ company should be maintained. While the contract did not require the bank to take care of these outstanding obligations, I think it was contemplated that it might do so; and in Considering this circumstance the situation must be viewed as it was when the contract was made and not when the bonds were acquired.

To hold that these bonds are not covered by the contract of guaranty does violence to the plain language of the contract, as it seems to me. Upon the first trial there was an express finding that the bonds were covered by the contract, and this court explicitly stated in its opinion that the bonds were so covered. *(First National Bank of Waterloo*v. *Story,*131 App. Div. 472, 474.) Although there was a reversal in the Court of Appeals *(First National Bank*v. *Story,*200 N. Y. 346) there is no suggestion to the contrary in its opinion. The reversal was upon another ground.

I think the judgment should be reversed and judgment directed for the plaintiff.

Judgment affirmed, with costs.