#### Herman F. Bindseil, Respondent, *v.*Federal Union Surety Company, Appellant.

First Department,

March 5, 1909.

Guaranty and suretyship — reformation of instrument for mistake — guarantor not relieved from liability when alteration not fraudulent.

Where an undertaking securing compliance with the Liquor Tax Law was executed and delivered in blank to take the place of a prior undertaking which had been lost, with an understanding that the person to whom it was'delivered should fill out. the blanks so as to limit the liability of the guarantor" to a specific sum, but without fraud and by pure mistake the blank was filled in so as increase the liability, either party may have the instrument reformed to express the actual agreement.

As there was no fraud in filling in the clause increasing the liability, but merely a mistake, the guarantor is not entitled to have the whole instrument declared void on the theory that a fraudulent alteration of an instrument by one of the parties discharges the other from all liability.

Moreover, as the second instrument was merely to take the place of .the one lost and was to embody the same terms, the' execution of the second instrument did not destroy the original obligation and the guarantor is liable for the amount of the original bond.

Laughlin, J., dissented in part, with memorandum.

Appeal by the defendant, the Federal Union Surety Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the cleric of the county .of Hew York on the 7th day of July, 1908, upon the decision of the court rendered after a trial at the Hew York Special Term.

*Charles S.*Mackenzie, for the appellant.

*B. Gerson*Oppenheim, attorney *[Henry S. Mansfield*of counsel],for the respondent.

Ingraham, J.:

The plaintiff was the owner of certain premises in the city of Hew York which had been leased.to one Salvin who wished to maim tain an establishment for the sale of liquors on the said premises. To obtain a liquor tax certificate for that purpose it was necessary to give a bond or undertaking to the People of the State in the sum of $1,800. Salvin applied to the defendant to execute such a bond which it agreed to do on condition that the plaintiff would indemnify *776the defendant for any liability that would result to it in consequence thereof, and plaintiff executed such a bond. The complaint alleges that it was the undertaking that in the indemnity bond the liability of the plaintiff was to be limited to $900 ; “ that plaintiff herein in order to induce the defendant to sign the said bond or undertaking, and in consideration of defendant * * * so executing and delivering the same, agreed to and with the defendant herein to indemnify the said defendant to the extent of one-half of the amount of the said bond, to wit, Nine hundred dollars ($900) in the event the Surety Company should at any time thereafter be compelled to pay to the State of New York the whole or any part of the said above-described bond or undertaking.” It was further alleged that pursuant to said agreement the plaintiff signed, sealed and delivered to the defendant a' certain printed paper which when so signed, sealed and delivered was a blank form of indemnity bond not showing on its face any contract or agreement of any kind whatever, having the usual or customary phraseology of an indemnity agreement but with-blank spaces left between the printed portions thereof for the purpose of writing in the name of the plaintiff and the terms and conditions of the oral, that is, the actual understanding then or theretofore had and agreed to by and between the plaintiff and defendant; that this instrument was delivered by the plaintiff to the defendant in reliance on defendant’s promise that *“*the understandings, agreements, statements, words and phrases would be reduced to proper form and written in the blank spaces while certain printed statements, allegations, words and phrases then appearing on the said paper or so-called indemnity agreement would be crossed out, obliterated and erased and the entire paper or instrument completed so as to make the same state and conform truly and strictly with the terms, conditions, agreements and understandings then or theretofore made by and between plaintiff and defendant.” It is then alleged that in violation of the said promise, and without the consent of the plaintiff, the defendant unlawfully and fraudulently completed the said instrument in such a way or manner that the same does not state the actual agreement, but that by the agreement as subsequently filled out the plaintiff is alleged to have promised and agreed to indemnify the defendant and save it harmless from all demands, liabilities and expenses which the defendant might sus*777tain or incur by reason of its having executed the bond to the State of New York without any limitation, and not limiting the extent of the plaintiff’s liability to $900; that the said indemnity- agreement contained other terms, conditions and covenants “ which were fraudulently and wrongfully inserted therein, and to which plaintiff did not consent or agree; ” and the relief demanded was that the defendant surrender said so-called indemnity agreement, and that the same be canceled and discharged of -record.

The defendant in its answer alleged that the plaintiff executed the bond to induce the defendant to execute the bond to the People of the State of New York under the Liquor • Tax Law, and denied' the other allegations of. the complaint; and, as a separate defense and by way of counterclaim, alleged that the defendant had executed this bond in the sum of $1,800 and that prior thereto the plaintiff agreed to indemnify and save harmless the defendant from all damages, demands, liabilities and expenses that it might sustain or incur by reason of its having executed the bond to the State of New York as surety for Salvin; that an action had been brought by the State of New York against the defendant and Salvin to recover the penalty of said bond given by the defendant to the People of the ■ State; that the defendant notified the plaintiff in writing of the pendency of the said action, and requested the plaintiff to defend; that the defendant interposed an answer in said action and defended the same, which came on for trial, a verdict being rendered against the defendant, and a judgment for over $1,900 entered, which defendant has paid; that the plaintiff failed and neglected to take any steps for the protection of the defendant in that action ; and the answer demands judgment that-tlie complaint be dismissed and the defendant have judgment against the plaintiff for the amount that it had been compelled to pay. There is annexed to the answer a copy of the indemnity bond signed and executed by the plaintiff, which bond appears to have been duly executed and acknowledged before a commissioner of deeds on the 20tli of April, 1904.

The court found that in the month of April, 1904, one Davis was an employee, agent and officer of. the defendant, and was authorized in its behalf to receive and accept applications for bonds and undertakings under the Liquor Tax Law, and to accept collateral security and indemnity agreements; that Salvin, a tenant' of *778the plaintiff and in possession of the plaintiff’s premises, applied to Davis for a bond or undertaking of $1,800 under the Liquor Tax Law; that in furtherance of said application the plaintiff signed at the office of the defendant an indemnity contract wherein his liability to the defendant was limited to the sum of $900; that a few days after the plaintiff had signed -the aforesaid indemnity contract Davis visited the plaintiff, stated to him that the three forms of agreement which he had previously signed had been destroyed, and requested the plaintiff to sign three other forms which he then and there presented, promising and agreeing that they would be filled out as were the originals, particularly as to the restriction of the plaintiff’s liability to $900 ; that relying upon Davis’ representations and stipulations the plaintiff signed the said three other blank forms ; that subsequently there was recorded an' agreement whereby the plaintiff agreed to indemnify the defendant in the sum of $1,800, and that said agreement does not express the true agreement of indemnity made between the plaintiff and defendant-; and as a conclusion of law that the agreement as recorded does not accord with and does not express the true agreement of indemnity made between the plaintiff and defendant, said indemnity agreement is void and of no legal effect, and imposes no obligation upon the plaintiff and directing judgment canceling the same: From the judgment entered thereon the defendant appeals.

Upon the trial Davis was called by the plaintiff and testified that he had been an agent for the defendant, but had terminated his connection with it; that the plaintiff signed this indemnity instrument in blank in consequence of a statement of the witness that he or somebody else had spoiled the original instrument; that the plaintiff’s son had objected to his signing an instrument in blank when the plaintiff said that he knew Davis and if Davis said it was all right he knew it was all right and would sign the instruments; that Davis said it was all right and Davis handed the plaintiff a stipulation purporting to be signed by Davis which stipulated that the indemnity agreement should be binding only for half the amount of the bond or $900 ; that there was no notary present and no acknowledgment of the instrument; that the original indemnity instrument had been destroyed and he had obtained the indemnity instrument signed in blank to take its place ; that after the instrument *779was signed lie took it to the office and asked that it he filled in, instructing the person to whom he .gave it to limit the liability of the plaintiff to $900 ; that the instrument as actually filled out was the same as the original instrument with the exception that the limi- ' tation was not inserted ; that subsequently the witness had the instrument recorded without examining it. The agreement between the defendant and the plaintiff as to this indemnity bond ivas solely between Davis and the plaintiff. There is no evidence that any other officer of the company had any knowledge of the terms of that agreement. By signing the instrument in blank the plaintiff authorized Davis to fill in the blanks in accordance with their actual agreement, and Davis undertook to carry out his agreement and in the instrument restrict the plaintiff’s liability to one-half the amount of the bond given to the People of the State. Davis, to carry out that understanding, gave the instrument to one of the employees of the company to have" the blanks filled ' in and gave him directions that this understanding with the plaintiff should be carried out. For some reason not explained the limitation provision was not inserted. There is no evidence, however, that the failure to carry out that understanding was intentional or fraudulent, or that it was omitted except by mistake. Davis, whose testimony in relation to this agreement was called out by the plaintiff, on cross-examination expressly negatived any intention to defraud the plaintiff. The court did not find that there was any fraud or intent to fasten upon the 'plaintiff a liability in excess of that agreed to between himself and Davis, and such a finding if made would have been without evidence to support it. The question is, therefore, presented as to whether, where one party to a written instrument of' this character signed it in blank with the understanding that a clause limiting his liability should be inserted and authorizing the person with whom he had been dealing to fill up the agreement so as to express the contract actually made, and such an instrument is filled up, not in accordance with the actual agreement, the instrument is actually void or whether the obligor is liable for the amount that by the agreement was actually due.

It seems to me clear that either party to the instrument would be entitled to have it reformed so as to express the actual agreement of the parties. The plaintiff, however, insists that where such a mis*780take is made not only is the instrument as filled out absolutely, void but that the actual agreement between the parties is also void. There is here no dispute but that this plaintiff did agree .to indemnify the defendant for one-half of the liability that should be imposed upon it by reas on of *its*executing to the People of the State the bond to enable the plaintiff’s tenant to obtain a liquor tax certificate and authority to sell liquors upon the plaintiff’s premises which had been leased to the. tenant. The- plaintiff signed an agreement- to that effect, and when that.agreement was destroyed he signed what he understood to be another agreement to take the place of the one destroyed and which was to be to the same effect, .and agreed that this obligation should be a lien upon his property. There was no fraud or mistake in the making of the original agreement of indemnity. Both the plaintiff and Davis understood what obligation the plaintiff assumed, and it was the intention of both parties to express that agreement in the writings that were subsequently executed. The original agreement having been destroyed, the plaintiff executed an instrument which was to, contain the same terms and which was to express the original understanding of the parties. The execution of that instrument did not in any way destroy the binding obligation of the plaintiff to fulfill his agreement with the defendant upon which the defendant had executed a bond to the People of the State. The principle relied on by the plaintiff that by the execution of a new agreement covering the same subject-matter as the former agreement the new agreement takes the place of the old does not affect this question. That principle is based upon the intention of the parties by which the rights and obligations of the parties are to be expressed by the writing as finally executed. And undoubtedly that would be so in the present case. The rights of the parties would be determined by the provisions of -the final written instrument, which in this case was the new indemnity agreement,, and'which is the one now under consideration. ■'

The plaintiff then claims that a fraudulent alteration óf a written instrument by one of the parties discharges the other from- all liability under it. Assuming that this would be so if there-had been a fraudulent alteration' of this agreement, the difficulty is that there was no such fraudulent _ alteration. The written' instrument was never altered. It remains to-day in the same condition in which *781it was in when executed except that the blanks have been filled which the parties understood that Davis would fill in, but for some reason, apparently by mistake so far as there is any evidence in relation to it, the clause .limiting the plaintiff's liability was not inserted. There is nothing more than a mistake in the preparation of the instrument by the omission to insert a clause that the parties agreed should be inserted, and which would entitle either party to a reformation of the • instrument to express the agreement actually made. A failure to insert in a written agreement a provision which the parties agreed should be inserted has never been held to be a fraudulent alteration of an agreement which discharged all the parties to it from any obligation under it. From the findings of fact and the undisputed evidence, it seems to me that all the relief the plaintiff was entitled to was a reformation of the contract by inserting in the written instrument as executed a clause limiting the liability of the plaintiff to one-half of the penal obligation of the bond, and to the extent of such one-lialf the plaintiff was liable. There is then presented the question as to the extent of the plaintiff’s liability. The court found, that the plaintiff had executed in triplicate an indemnity agreement, which was one of the regular printed forms of indemnity used by the defendant, similar in form to the defendant’s Exhibit B, which was the agreement as recorded with some printed words stricken therefrom, and some of the blank spaces filled in in typewriting and ink. Just what printed words in this written agreement had been stricken therefrom is not found and does not appear from the evidence. The plaintiff testified that in the original agreement at the .end of the 9th clause there was written in typewriting that this, was to cover one-half of the bond, $900, and Davis expressly testifies that the original instrument, which was destroyed, was in the exact form of the instrument as subsequently recorded, with the exception Of this limitation of liability to $900. I think upon this testimony the liability of the plaintiff was limited to $900 and interest fi;om the commencement of the action against the defendant by the People of the State of New York. Upon the finding of the court and the undisputed testimony, the defendant was, therefore, entitled to judgment against the plaintiff for $900 and interest.

The judgment appealed from should, therefore, be modified by *782reforming the-instrument so as to correctly, express the rfeal contract made between the parties by inserting a clause limiting the, plaintiffs liability to $900 and giving judgment for thedefendant against the plaintiff on defendant’s counterclaim for $900, with interest from the 16th day of May, 1905, without costs in this court or in the. conrt below..

■McLaughlin, Houghton and Scott, JJ., concurred; Láughlin, «) ., dissented.

Laughlin, J. (dissenting):

The plaintiff prayed for the cancellation of the bond and the déíendant pleaded, in effect, that the bond was a valid instrument; and was enforcible for the full amount thereof, for which á couin; terclaiin was interposed. Neither party has demanded the reformation of the bond, and I am of opinion that it is not competent for this court, on appeal, to grant relief which neither party demanded by his pleading or upon the trial. On the facts found the plaintiff was not entitled to have the instrument canceled and the defendant was riot entitled to its counterclaim. I agree that the facts point toward the rights of the parties being as indicated in the .prevailing opinion, but I think the proper procedure would be to dismiss the - complaint on the facts foutid and leave it for the plaintiff to bring an approjuiate action for the. reformation- of the bond: or for the defendant to bring an action for the reformation and the enforcement of the bond.

. Judgment modified as directed in opinion and as modified affirmed* without costs-in this court or in the court, below.