Case Name: The Utica City National Bank, Appellant, v. John K. Gunn, Respondent
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1915-07-07
Citations: 169 A.D. 295
Docket Number: 
Parties: The Utica City National Bank, Appellant, v. John K. Gunn, Respondent.
Judges: 
Reporter: Appellate Division Reports
Volume: 169
Pages: 295–300

Head Matter:
The Utica City National Bank, Appellant, v. John K. Gunn, Respondent.
Fourth Department,
July 7, 1915.
Guaranty and suretyship-—bond for payment of promissory notes, construed.
A bank which had discounted notes of a corporation for its accommodation in order to avoid criticism by the bank examiners, procured the execution of a bond by the directors of the corporation by which they bound themselves “to pay all loans and discounts or renewals, or part renewals thereof” made by the bank on the failure of the corporation to pay the same. As the notes became due they were renewed in the same form and in the same amounts as before, and as each renewal note was given, the old note was surrendered and the interest on the new note either paid in advance by the corporation or charged to the deposit account which it had in the bank, except as to three notes payable on demand with interest. The loans to and discounts for the corporation were not increased in amount after the execution of the bond. At the time of the commencement of the action on the bond the bank held notes all dated subsequent to the bond.
Held, that the notes in the possession of the bank at the time of the commencement of the action should be held to be loans and discounts or renewals thereof within the intent and meaning of the bond.
It was improper to construe the bond strictly in favor of the defendant as a surety, and thereby nonsuit the plaintiff upon the theory that the bond was intended to cover only such loans and discounts or renewals thereof as the bank should thereafter make to the corporation, and upon which it should lend more money.
Appeal by the plaintiff, The Utica City National Bank, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Oneida on the 3d day of March, 1915, upon the dismissal of the complaint by direction of the court at the close of plaintiff’s case, and also from an order entered in said clerk’s office on the 26th day of February, 1915, denying plaintiff’s motion for a new trial made upon the minutes.
Lynch, Willis & Titus [Charles T. Titus of counsel], for the appellant.
Everett, Clarke & Benedict [A. Leo Everett of counsel], for the respondent.

Opinion:
Foote, J.:
This action is brought to recover of defendant as surety upon a bond held by plaintiff the sum of $115,000 and interest, being the amount of six promissory notes of the Utica Pipe-Foundry Company held hy plaintiff, upon the ground that the defendant has, by the terms of the bond, promised and agreed to pay these notes upon the failure by the maker to pay them.
On and for some time prior to December 7, 1912, plaintiff bank held under discount promissory notes of the Utica Pipe Foundry Company to the amount of $115,000. These notes were made by the pipe foundry company and indorsed by if and discounted by the plaintiff bank for the accommodation of the foundry company. The notes were each payable six months after date, and had been several times renewed.
On December 1, 1912, the cashier of the plaintiff wrote a letter to the foundry company, which stated, in substance, that the bank examiner who had on December third completed an examination of the bank, had suggested that such large loans as the bank was carrying for the foundry company should be secured by one or more additional names, and in accordance with this suggestion he inclosed with the letter a suitable bond for execution by the directors of the foundry company, and stated that if such bond was properly executed and returned to the bank it would eliminate all future criticism on the part of the Comptroller of the Currency; also that the examiner had suggested that the notes should be made for four months instead of six months.
Upon receipt of this letter by the foundry company its treasurer, Mr. Kernan, set out to secure signatures to the bond of the five directors of the foundry company; two of them, however, refused to sign, whereupon Mr. Kernan consulted the cashier of plaintiff, and was informed that the signatures of the three remaining directors would be accepted. The form of the bond was then changed by eliminating the names of the two who had refused to sign, and the bond was executed by the other three, namely, John A. Kernan, treasurer, Charles G. Wagner, and the defendant, John K. Gunn, and as so executed the bond was delivered to the bank on or about the day of its date, December 12, 1912. The following is a copy of the bond:
"Articles of Agreement this 12th day of December, one thousand nine hundred and twelve, between the Utica City National Bank of Utica, Oneida County, State of New York, party of the first part, and the Utica Pipe Foundry Company, party of the second part.
" Witnesseth : Whereas the Utica Pipe Foundry Company requires from time to time loans and discounts from the said party of the first part, and the said party of the first part requires security and guaranty for the payment of such loans and discounts so made, now, we, John A. Kernan and John K Gunn of Utica, N. Y., and Chas. G. Wagner of Binghamton, N. Y., do jointly and severally bind ourselves and our representatives to pay all loans and discounts or renewals, or part renewals thereof, made by the said party of the first part to said Utica Pipe Foundry Company, on its failure to pay the same; so promising on the consideration that the said party of the first part shall and does make such loans and discounts in consideration of the execution and delivery of this agreement by us and each of us. The liability of the guarantors whose names are hereunto subscribed, shall not exceed • in amount the sum of One Hundred and Fifteen Thousand Dollars ($115,000.00) on account of this guaranty, with interest on the amounts borrowed.
"Dated, Utica, N. Y.
" JOHN A. KEENAN [l. s.]
"JOHN K. GUNN [l. s.]
" CHARLES G. WAGNER [l. s.] "
The letter from plaintiff's cashier to the foundry company of December seventh was shown to defendant, or its contents stated to him by Mr. Kernan, before he signed the bond, and defendant was also aware of the fact that the foundry company had outstanding bills payable to an amount greater than $115,000, but it does not appear that he knew how much of this paper was held by the plaintiff bank.
As the notes came due from time to time they were renewed in the same form and for the same amounts as before, and at the time this action was begun the bank held the following: Two notes, dated October 2, 1913, each for $20,000, and each payable four months after date; note dated November 11., 1913, $20,000, four months; note dated December, 22, 1913, $20,000, payable on demand; note dated January 12, 1914, $15,000, payable on demand; note dated January 15, 1914, $20,000, payable on dem and.
On January 11, 1914, the foundry company was adjudged bankrupt upon its own petition.
The loans to and discounts for the foundry company by plaintiff were not increased in amount after it received the bond, nor was an increase contemplated by the foundry company, the bank or the defendant at the time the bond was given. As each renewal note was given, the old note for the same amount was surrendered to the foundry company, and the interest on the new note either paid in advance by the foundry company or charged to the deposit account which it had in the bank, except as to the last three notes payable on demand, which by their terms were payable with interest.
The bond was prepared by plaintiff's cashier from a form which he had used in other cases.
Plaintiff was nonsuited upon the theory that the bond was intended to cover only such loans and discounts or renewals thereof as the bank should thereafter make to the foundry company, and upon which it should furnish new money to the foundry company. This conclusion was reached by applying' the principle of strictissimi juris to the construction of the bond in favor of the defendant as a surety.
We think that principle was carried too far in giving construction to this bond. The true rule seems to be, as stated in Ulster County Savings Institution v. Young (161 N. Y. 23), that " 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." "(See, also, First National Bank v. Story, 163 App. Div. 279.)
What, then, was the intention of the parties as to the ' indebtedness or liability of the foundry company ? No increase of the foundry company's line of discounts was in the contemplation of the parties; therefore, it must have been intended that the bond should have some application to the already existing loans. The notes subsequently made, we think, the parties intended should be covered by the bond, even if it did not cover the notes already in existence. The notes now held by the bank should, we think, be held to be loans and discounts or. renewals thereof within the intent and meaning of the bond.
We refer to the following cases as authorities tending to support such a construction of the bond: National Bank v. Thomas (220 Penn. St. 360); Powers v.. Clarke (127 N. Y. 417); Peoria Savings, Loan & Trust Co. v. Elder (165 Ill. 55); Australian Joint Stock Bank v. Bailey (L. E. [1899] App. Cas. 396).
The judgment and order appealed from should be reversed and a new trial ordered with costs to the appellant to abide the event.
All concurred.
Judgment and order reversed and new trial granted, with costs to appellant to abide event.