People v. Lee — 5 N.Y. St. Rep. 777

Majority

p. 777

People, Resp’ts, v. Lee and others, Appl’ts.

(Court of Appeals,

Filed March 1, 1887.)

Headnote

1. GUARANTY— CONTRACT — DEFENCE TO SUIT ON CONTRACT.

In an action at law, upon a written instrument (here guaranteeing the payment of money) for a sum of money claimed to be due to the plaintiff from the parties thereto, of the letter of their contract shows that they have made themselves liable for the snm claimed, it is no defense to the action to show that there are other persons who might also be resorted to by the plaintiff for a portion of the same sum.

2. Same — Acceptance oe by State — When presumed.

The State can only be hound to the acceptance of a contract of guarantey releasing other guarantors by the express action of its officers duly authorized to approve such guaranty or perhaps their omission to act thereon for such a lapse of time as would authorize a legal presumption that they intended to approve the guaranty.

3. Same — Rule as to construction — Liability of guarantor strictissimi JURIS.

While the liability of guarantors is strictissimi juris and cannot be extended by construction beyond the plain and explicit language of their contract, they are still subject to the rule that effect must be given to all of the language of the contract and a meaning and effect ascribed to each word and phrase used therein if it can be done without violating its plain meaning and intent.

4. Same — When it is retroactive.

The general rule is that a contract cannot be construed to have a retroactive operation, and that such an effect can be given to it only where by express words or by necessary implication it clearly appears to be the intention of the parties to embrace past transactions, but when this does not appear it is competent for parties to bind themselves for such liabilities.

5. Same — Ignorance of law.

It is not competent for parties to such an undertaking to allege that they were ignorant of the existence of a debt expressly provided for, or that they have been misled by the omission of their principals to notify them of its existence.

p. 778

JEugene S. Lewis, for appl’ts. JD. O’Brien, Atty. Gen., for resp’ts.

Tbe first National Bank of Buffalo had, prior to 1882, for a series of years, been annually appointed a depository of the state for canal tolls receivable in the city of Buffalo, and had annually executed and delivered to the state contracts regulating the relations between them, the performance of which had been in each year guaranteed on the part of the bank by some of its directors in their individual capacity. Early in the-season of 1882 said bank became insolvent after it had been appointed a depository, but before it had completed and delivered to the state satisfactory security for the performance of its obligations for the ensuing year, and after that time the state discontinued its relations with such bank. Upon its insolvency the bank was found to be indebted to the state in a large sum of money, and the question in this case arises over the liability of its guarantors for such debt. The complaint embraces the guaranties of both the years 1880 and 1881 in its allegations, and seeks to recover the balance appearing to be due on the account for moneys deposited at the commencement of the year 1882. These contracts and guaranties were expressed in precisely similar language, and, so far as the parties to them are concerned, are subject to the same rule of interpretation, and must be understood to have been intended to cover the same class of obligations, and to differ only in respect to the time of their execution, and the period of time covered by their provisions. Such guaranties are joint and several in character, and it would constitute no defense to an action upon any of them to show that there were other persons liable to the state for the whole or a portion of the same debt claimed of the defendants, or that such persons are not made parties to the action. The defendants here are each and all obligors upon the bonds of both 1880 and 1881, and, in the view we take of the case, it does not enlarge their liability to consider their situation as parties to the guaranty of 1880. It may be that, as the result of investigation, it will be discovered that other parties, liable to the state for a portion of the money due from the bank to the state at the time of its insolvency, may be found, and, as a consequence flowing from such fact, that the defendants in this action may have a claim for contribution from such parties, in case they are obliged to pay the whole sum due the state; but it is not perceived how that fact can affect the liability of such guarantors upon their express contract of indemnity.

The only breach of the obligations of the guaranty alleged in the complaint consists of the refusal of the bank to pay the sum claimed to be due from it by the state on the twentieth day of April, 1882, and that amount consisted of the general balance

p. 779

due on the account accruing through a series of years, and covering the operations of 1880 as well as those of 1881. Whatever, therefore, may be the liabilities or obligations of the parties to the contract and guaranty of 1880, it is entirely immaterial in this action ; for the guaranty of 1881 covers not only the transactions of that year, but also the liability resulting from the transactions of 1880 as represented by the balance due from the bank to the state at the execution of the contract and guaranty of 1881. If, therefore, it shall appear, upon the further examination of the case, that the defendants are liable upon the guaranty of 1881 for the whole balance due from the bank to the state in the spring of 1881, no question arises as to the proper application of payments made by the bank in the respective years, or as to the equities of the guarantors of the respective years as between themselves. Such rights are to be settled and adjusted in an appropriate action, to which all such guarantors are made parties, and where every one interested may be heard in his own behalf, and these coirld not be heard here for want of proper parties if for no other reasons. This is a simple-action at law, upon a written instrument, for a sum of money claimed to be due to the plaintiff from the parties thereto. If the letter of their contract shows that they have made themselves liable for the sum claimed, it is no defense to this action to show that there are other persons who might also be resorted to by the state for a portion of the same sum.

It is claimed by the appellants that the sureties on the bond of 1881 have been released from liability thereon by reason of the acceptance by the state of a contract and guaranty from the bank for the year 1882, and it is contended that such acceptance operated as a discharge of all previous guaranties. This claim seems to be disposed of by the findings of fact made by the referee. He expressly finds that the state never accepted the same as a compliance by the bank with the condition imposed upon them by the state in respect thereto. The evidence in the case seems to us fully to support this finding, and renders itnot. only probable, but quite certain, that the state authorities did not intend to accept the guaranty in question. The state could only be bound to such acceptance by the express action of its. officers duly authorized to approve such guaranty, or, perhaps their omission to act thereon for such a lapse of time as would authorize a legal presumption that they intended to approve the guaranty. During the period between the receipt of this guaranty and the insolvency of the bank but a few days intervened,, and the auditor was diligently employed in this time in inquiring into the responsibility of the persons proposed as sureties, and had received no satisfactory information upon that subject. Under these circumstances, no acceptance of such guaranty could properly be inferred, and no evidence of an actual ap

p. 780

proval of the guaranty by the state was given. The referee having failed to find that the guaranty of 1882 was received by the state in satisfaction of previous guaranties, there is no evidence in the case authorizing this court to hold that any such discharge was intended or effected, and no foundation for the claim that the sureties on the guaranty of 1881 were discharged by the acceptance by the state of the guaranty of 1882. The inquiry here may therefore be limited to the liability which the signers of the guaranty of 1881 incurred by the terms and condition of their agreement. The main question arises over their liability for the debt existing at the time of the execution of the guaranty, and arising out of the transactions and deposits of the year 1880.

It is claimed by the appellants that the guaranty taken in 1881 was intended to be prospective in its operation only, and did not cover existing deposits. It is not claimed but that the express terms of this undertaking cover such a liability, but it is contended that the words of the condition should be limited and controlled by the language of the recital, and, so restricted, could not reasonably be held, to include an existing debt. It cannot be disputed but that there is much authority tending to support the position contended for by the appellants, but we think the cases cited by them are generally cases where the language of the condition was doubtful and uncertain; and a consideration of the whole instrument, and the circumstances surrounding the situation of the parties, created an ambiguity requiring the application of rules of construction to determine the real interest of the parties. The rule contended for is, however, one of construction, and obtains only for the purpose of ascertaining the real intention of the parties in making their contract. Burr v. American Spiral Spring Butt Co., 81 N. Y., 178 ; Brandt, Sur. § 138. It cannot prevail where the language of the condition clearly and unmistakably shows an intention to incur a liability not in terms referred to in the recital. Guaranties are subject to the same rules of interpretation as other contracts and especially to that fundamental rule requiring them to be enforced according to. the meaning and intent, and in the manner designed by the parties at the time of their execution. Rochester City Bank v. Elwood, 21 N. Y. 90 : Burr v. American Spiral Spring Butt Co., 81 N. Y., 178 .

While the liability of guarantors is strictissimi juris, and can-mot be extended by construction beyond the plain and explicit language of the contract, they are still subject to the rule that effect must be given to all of the language of the contract, and a meaning and effect ascribed to each word and phrase used therein, if it can be done without violating its plain meaning and intent. The general rule is undoubtedly that a contract cannot be construed to have a retroactive operation, and that

p. 781

such an effect can be given to it only where, by express words or by necessary implication, it clearly appears to be the intention of the parties to embrace past transactions; but when this does appear it is indisputably competent for parties to bind themselves for such liabilities. We are clearly of the opinion in this case that the contract itself recognizes an existing liability on the part of the bank to the state, and provides for its extension, and the surety thereof by the guarantors. This would seem to be not only a natural course of proceeding on the part of the state while taking a new security from a debtor contemplating extended and continued transactions, but a necessary measure of precaution to avoid the complications involved in investigating the transactions of former and perhaps remote years. It would be not only difficult, but almost impracticable, for the state to have its transactions with such a depository separated into distinct divisions, and be compelled to seek its indemnity among the conflicting equities and claims of numer-' ous sureties liable upon different contracts, for the transactions of different years.

It is, however, not permissible, we think, to resort to rules of construction in such a case as this, for there is no ambiguity in the language of the contract, and it provides in express terms for the liability in question, i'n:-., it states not only that the bank shall “ well and faithfully account for and pay over all moneys deposited with it, or for which it shall in any vay become liable in and by said contract, according to the terms and provisions thereof,” but “that said bank shall account for «ul pay over all money now on deposit in said bank” “to the people of the state of New York.” More explicit language could not be used, and it is impossible to assign any other meaning to the language used than that the sureties intendto be bound for the continuing security of the existing d«;? JO

It is not competent for < m-s to such an uni' ckAg to allege that they were ign-arn'i, of the eaáufenco pressly provided for. or that thojAstve been misk- the omission of their principals to notify them of its existencee. Western N. Y. Life Ins. Co. v. Clinton, 66 N Y., 330 .

The rule applicable to the subject is well stated in lYuidt on Suretyship, § 138, in the following language: “ When the w-©3rd§" of the condition of a bond are general and indefinite as to the lime during which the surety shall remain liable, if there is a rc-cirY in the bond specifying the time during which the prescribes duty is to be performed by the principal, the general words will be limited by the recital, and the surety will only be liable for the time therein specified. The reason is that, taking the whole instrument together, it is but fair to presume that the parties had in contemplation only a liability for the time- specified. It is a rule of construction adopted for effectuating the intention

p. 782

of the parties.” See, also, Burr v. American Spiral Spring Butt Co., supra.

The conclusions reached on the propositions discussed necessarily dispose of all other questions raised by the appellants. The judgment should therefore be affirmed.

All concur.