Miller v. Rinehart — 16 N.Y. St. Rep. 100

Majority

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Miriam C. Miller et al. Resp’ts, v. Egbert Rinehart, App’lt.

(Supreme Court, General Term, Mrst Department,

Filed May 18, 1888.)

Headnote

1. Contracts—-Construction of—What is collateral.

An association issued certain bonds secured by a second mortgage upon its real estate and a chattel mortgage upon its personal property. Certain, of these bonds were purchased by a party, the payment of three of which was guaranteed by the defendant. The owner of these bonds last mentioned died and the bonds came into the possession of his widow. In consideration of certain premises therein recited the defendant executed to her an instrument whereby he agreed and did further guarantee that in case the said bonds or the former guarantee should be canceled, destroyed or otherwise disposed of as required by the association, and notwithstanding anything which might be done at its request or on its behalf, the said guarantee should remain in full effect, and declared it to be a continuing guarantee for the payment of the par value of the bonds and interest. Subsequent to the execution of this guarantee an agreement was made between the association above mentioned and its bondholders whereby it agreed to sell to a person as trustee for the bondholders certain real and personal property, and the bondholders agreed to purchase the property at a price stated, and pay the same in bonds of the association, which were secured by a mortgage on its property, and which the bondholders agreed to cancel and to surrender upon receiving the conveyance of the property. This latter agreement was fully executed in all respects by the parties thereto and the trustee fully performed his trust. The party to . whom the defendant executed the guarantee claimed the right to apply a quarter of. the moneys derived from the sale of the lots assigned to her upon the amount guaranteed by the defendant. The plaintiff succeeding

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to the interests of this party brought this action to recover the .balance claimed to be due upon the guarantee. Held, that the second instrument executed by the defendant was a guarantee and nothing more; that it was a collateral agreement to pay such as would have been void under the statute or frauds if not in writing; that it created no original obligation, and that liability was dependent upon the breach of its obligation by the principal debtor.

2. Same—Güabanty—How dischabged.

Held, that the bonds having been purchased by the party to whom the first guaranty was executed were not held as collateral to any debt, and that therefore when they were paid there was no debt to which the guaranty attached.

3. Same—Guaranty—Dischabge of okiginal obligation mschabgikg

GUABANTY.

• Held, that by the transactions between the association and its bondholders the bonds were paid, and no further claim upon them remained against the association, and that nothing remained to which the collateral obligation could attach.

The Sea Cliff and Metropolitan Camp G-round Association, issued certain of the bonds which were secured by a second mortgage upon its real estate by a chattel mortgage upon its personal property.

Twelve of these bonds of the par value of $12,000 were purchased by one William Miller.

The payment of three of these bonds were guaranteed by the defendant, by the following instrument of guarantee.

“New York, November 21, 1876. “In consideration of the sum of one dollar, to me in hand paid by Dr. William Miller, the receipt whereof is hereby acknowledged, I hereby guarantee to him the payment of three certain bonds numbered 16, 17 and 18, being three of a series of mortgage bonds made by the Sea Cliff Grove and Metropolitan Camp Ground Association, of one thousand dollars each, dated the 1st day of October, 1876, payable five years from date, with interest at seven per cent, payable semi-annually, on the first days of April and October, at the National Shoe and Leather Bank.

“This guaranty to include principal and interest. “Witness my hand, this 4th day of December, 1876.

“EGBERT RINEHART.”

On the 4th of April, 1878, William Miller died, leaving a last will and testament which was in August, 1878, admitted to probate and letters testamentary issued thereon to Dorothy B. Miller.

In February, 1880, the defendant duly executed the following paper:

“Whereas, on the twenty-first day of November on the 4th day of December, 1876, I, Egbert Rinehart, did guar

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anty the payment to Dr. William Miller of the three bonds mentioned in the paper hereunto annexed, and marked <l A,’' as in said paper is mentioned (which said bonds are now the property of Mrs. D. B. Miller, widow of said William Miller):

“ And whereas said bonds are a lien on the lands and real estate of the association mentioned in said paper, <£A,” which paper is made a part of this instrument:

And whereas I also desire the surrender- and cancellation of said bonds, and the substitution of other securities in the place thereof, to which the said D. B. Miller, has consented and agreed:

Now, therefore, in consideration of the premises and of the sum of one dollar to me in hand, paid by said D. B. Miller, and also divers other good and valuable considerations to me paid,, the receipt of which is hereby confessed and acknowledged, I, the said Egbert Rinehart, do hereby agree and further guaranty to and with said D. B. Miller, that in the event that any or all of the matters and things hereinbefore mentioned or referred to shall happen, or in case the said bonds or my said guaranty shall be canceled or destroyed, or otherwise disposed of, as required by said association hereafter, and in spite of and notwithstanding anything that may happen or be done at the request of said association, or in behalf thereof, my aforesaid guaranty of said bonds, and my obligation created and incurred by reason of said guaranty, shall remain in full character and effect, and this is hereby declared to be a continuing, running guaranty for the payment of said sum of three thous- and dollars and interest (according to the original terms of said original guaranty) attached to and belonging to and guaranteeing any and all securities, acts, paper, writings and proceedings of said association in relation to the said D. B. Miller, and of its indebtedness to her hereafter to be done, continued or made.

As witness my hand and seal this eighteenth day of February, A. D. 1880.

In presence of

rT - n DUNCAN CAMPBELL,

- LL- s.j EGBERT RINEHART.

This paper was prepared by the attorney of Mrs, Miller, and at the time of its preparation and execution, neither Mrs. Miller nor her attorney, nor the attorney for the defendant knew the specific details of the agreement which was thereafter executed by the holders of the bonds of said association of the one part and by said association of the other part.

After the execution of the said guarantee an agreement

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was executed between the said association and its bondholders among which was Mrs. Miller, whereby it agreed to sell to one John H. Stout, as trustee for said bondholders, certain property real and personal, and whereby the said bondholders agreed to purchase said property at the price of $78,200, (being the amount of bonds held by them) and to pay said sum in the bonds of the association, which bonds were secured by a mortgage upon the property of the association, and which the bondholders "agreed to cancel, and which bonds (it being understood that there is nothing due thereon when said bonds should be surrendered), they agreed to surrender and deliver up on receiving the conveyance above mentioned.

This contract was thereafter fully executed by the association and the bondholders in all respects, and the trustee therein named fully performed his trust, and Mrs. Miller received from the lots assigned to her $3,119, one-quarter of which $779.75 she claimed the right to apply upon the $3,000 guaranteed by the defendant.

Mrs. Miller and Lillie May Miller, her daughter, having-died, one, James F. Buck, was duly appointed executor of both Mr. and Mrs. Miller, and also administrator of Miss Miller, and in September 1885, duly assigned to the plaintiff all claims upon instruments executed by the defendant and subsequently this action was brought to recover $2,220.25, the balance of said $3,000 claimed to be due upon the guarantee of the defendant.

' The defendant claimed among other things discharge of guaranty by payment of the bonds.

The action having been referred and the referee having reported in favor of the plaintiff, from the judgment thereupon entered this appeal was taken.

G. H. Crawford, for app'lt; Benjamin Estes, for resp’ts.

It is difficult to see upon what theory the conclusion of the learned referee can be sustained. Both the counsel for the plaintiffs and the referee seem to have fallen into an error in the construction of the papers which were signed by the defendant.

The counsel claims that the first paper signed made the defendant liable to the same extent as a princial debtor, because it was a separate and independent covenant to pay.

The language of the instrument, however, is at variance with this claim.

The paper is a guarantee, and nothing more; it is a collateral agreement to pay, such as would have been void under the statute of frauds, if not in writing. It created no original obligation. Liability was dependent upon the breach of its obligation, by the principal debtor. It was simply a guarantee of payment, not an absolute promise. The agree

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ment by the defendant was, if it does not pay, I will; and .he entered into no further or other obligation.

The principal debtor must make default before the guarantee became liable.

The learned referee concedes the fact that the first paper signed was • a mere guarantee, and that if that paper only existed, no cause of action remained; but he bases his conclusion upon the claim that the second paper signed by the defendant, of February, 1880, is substantially a new contract having a valid consideration, and that all parties intended that the defendant should make Mrs. Miller whole to the extent of the $3,000 in bonds held by her.

If such was the intention of the parties, their object has not been accomplished by the instrument executed by them.

The paper of February, 1880, after its recital simply declares that the obligation created and incurred by the first guarantee, should remain in full force and effect notwithstanding what might happen, and declares this paper to be a continuing running guarantee for the payment of the sum of $3,000, and interest, according to the original terms of said original guarantee attached to and belonging to, and guaranteeing any and all securities, acts, paper writings and proceedings of said association in relation to Mrs, Miller, and of its indebtedness to her hereafter to be done, continued or made.

This instrument simply continued the original guarantee. There was no obligation entered into other than that of guarantee. This is no promise to pay absolutely. The understanding is as it was before, collateral to the bonds, and .nothing else.

It might well have been that if there had been an original indebtedness to which the bonds were held as collateral that then this last instrument of guarantee might have had some force after the surrender of the bonds with the consent of the guarantor, but .the only debt was that represented by the bonds. It is true that the learned referee assumes that these bonds were held as collateral security to an indebtedness of the association to Dr. Miller, but in this he is clearly mistaken, as the complaint alleges the purchase by Dr Miller of these bonds, which allegation is not denied by the answer and therefore admitted, and this error may explain therefore the erroneous conclusion to which he arrived.' There was no debt therefore to which the bonds were held as collateral, and when the bonds were paid no debt existed to which the guarantee attached.

The paper in question speaks of guarantee all the way through. It is a reiteration of the guarantee of the bonds, and nothing more, and it is expressly stated to be a guarantee according to the original terms of said original guarantee.

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It therefore seems clear that if the bonds, the payment of which was guaranteed, have been paid, then no further obligation remains, as that which was guaranteed has been done.

There cannot be found within the instrument any agreement to pay other than by way of guarantee of the bonds.

This is the only obligation created, and when the principal debtor was discharged the guarantor was equally released.

These bonds we're paid by the transactions between the association and its bondholders.

The association agreed to sell certain of its property to its bondholders for a specified price, and to take its bonds in payment .therefor. The bondholders agreed to buy and to pay in bonds. The property contracted for is conveyed by the association, and the bondholders pay for the same by surrendering to the association their bonds at par.

By this transaction the bonds were paid, and there was no further claim upon them against the association, and thus was wiped out the original debt guaranteed, and nothing remained to which the collateral obligation could attach.

It is true, that the second guarantee speaks of the cancellation of the bonds, but fails to recognize the fact that the bonds canceled, there is nothing to guarantee, and hence it omits to provide for such a contingency, but apparently proceeds upon the theory that a guarantee of a debt may be binding after the debt is canceled and paid.

We can find nothing in these papers but a guarantee of these bonds, and although the parties may have intended differently, they have done nothing more by the instrument in question than reassert the guarantee already existing, and there does not seem to have been any other design than that the paper should be considered as a guarantee.

We are of the opinion, therefore, that the judgment must be reversed, and a new trial ordered, with costs to the appellant to abide the event.

Brady and Daniels, JJ., concur.