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Louis Sachs et al. v. American Surety Company of New York.

whom the complaint was dismissed, it appearing that he had become a bankrupt since the commencement of this action.

There are practically no disputed questions of fact, defendant calling no witnesses. The bond in suit arose out of a contract of sale entered into between the parties on July 1, 1897, by the terms of which plaintiffs agreed to sell and Hay to buy certain premises situated on Broadway, in the city of New York. The purchase price was $190,000, to be paid by Hay assuming a first mortgage for $120,000, and giving a purchase money mortgage for the $70,000 balance. It was further agreed by the terms of this contract that Hay should erect upon the premises. a fireproof building in accordance with certain plans and specifications to be made, and which should meet the approval of the plaintiffs, and be based upon certain sketches then in existence. The plaintiffs, upon their part, agreed to advance the sum of $100,000 to Hay as a building loan, payable in installments as the work progressed. In the event of the contract being assigned it was provided that, in addition to having the bonds and mortgages of the owner of the said premises for $70,000 and $100,000, respectively, plaintiffs were to have the personal bonds and obligations of Hay for said sums. Hay further agreed at or before the delivery of the deed of said premises to furnish at his own expense a bond of the American Surety Company, such company to be approved by the parties of the first part (the plaintiffs), guaranteeing to the parties of the first part the faithful performance by the party of the second part (Hay) of all the terms of this contract, and agreeing to hold the party of the first part harmless from any damages resulting to them from any breach thereof to the extent of $25,000." Title to the premises was to be closed on July 9, 1897, and upon


Louis Sachs et al. v. American Surety Company of New York.


that day the contract in question was assigned by Hay to one Jackson, and as part of the same transaction plaintiffs' deed to Jackson, Jackson's and Hay's bonds, and the purchase money mortgage were delivered and executed. Before this transaction, however, the bond in suit was delivered. This bond was for the penal sum of $25,000, and was upon the condition that "if the said J. Lewis Hay shall, within the time in said agreement required, to wit, on or before February 1, 1898, erect and complete such building upon the premises in the manner and as required, * * then this obligation shall be void; otherwise it shall be and remain in full force and effect." This condition of the bond was wholly unful filled, no building being erected upon the premises. The interest on the $120,000 not being paid, a foreclosure action was commenced, and to protect themselves the plaintiffs paid the interest, procured a person who took an assignment thereof and had the foreclosure suit discontinued. The interest on the $70,000 mortgage being due and unpaid, this mortgage was foreclosed and a deficiency judgment recovered against Hay for the sum of of $51,469.44, upon which execution was issued and returned wholly unsatisfied.

The point in controversy seems to be the construction of the contract of suretyship given by the defendant and the measure of damages to be applied, if it be found that there has been a breach of its conditions. A contract of suretyship is to be construed in accordance with the same rule that applies to the interpretation of any other written instrument. The limitation of liability is not upon the interpretation, but in application of the contract after interpretation, when the rule of strictissima juris applies. Smith v. Molleson, 148 N. Y. 241. If there be ambiguity in the contract, it is construed in favor of the

Louis Sachs et al. v. American Surety Company of New York.

person who has accepted it and expects to take benefit under it. Gamble v. Cuneo, 21 App. Div. 413, aff'd 162 N. Y. 634. In arriving at the correct construction of such a contract it is always permissible to take into consideration the circumstances and surroundings of the parties at the time when the contract was made, and such construction will be given to it as will carry out the evident intent of the parties to the instrument.

In the present case it seems clear that the parties to the contract of purchase and sale contemplated that the erection of a building of the character described in the contract, upon the lands so purchased and sold, would so far increase the value of the whole property that it would furnish an abundant security for the mortgages thereon and also for the sum to be advanced in the erection of the building. It is also evident that unless a building was construed on the premises the land inself was an inadequate security for the payment of the mortgages, and, as it was vacant property, no revenue would be derived therefrom sufficient to meet the fixed charges resting upon it on the consummation of the sale. It seems fairly inferable, therefore, that what the plaintiffs desired was security for the faithful performance of the contract in the erection of the building, as by such course only could plaintiffs' purchase money mortgage be adequately secured. This, therefore, it seems to us, was the main purpose in procuring the bond of the defendant.

We agree with the contention of the appellant that the bond was not given to secure the payment of the purchase price of the premises. There was no need of it for such purpose, as the purchase price was, by the terms of the contract of sale, paid by the assumption of the $120,000 mortgage then resting upon it and the execution and delivery of the bond and mortgage of Hay for the remainder

Louis Sachs et al. v. American Surety Company of New York.

of the purchase price; and such agreement was further, carried out by the obligation assumed by Jackson, Hay's assignee, under the contract; so that by the terms of the contract and the acts of the parties there was nothing to secure in this respect, as the whole was completely performed and ceased to be in any sense executory. Respecting that portion of the contract which provided for the erection of the building and the advance of the $100,000 as a building loan, it was in its entirety solely executory. It is clear that the bond was not security for the advance of the building loan by the plaintiffs of the $100,000. Neither Hay nor his assignee, Jackson, was bound to avail himself of the provisions of the contract in this regard. Either one or both could use their own money for that purpose, or procure a loan elsewhere, or adopt any other means to raise the money. The plaintiffs were only bound to furnish this money in the event that Hay or Jackson required it; consequently the instrument cannot be construed as relating to such subject or as requiring Hay to demand the money of the plaintiffs. It is evident, therefore, that the real subjectmatter which the plaintiffs desired was security for the erection of the building. Such are the terms of the instrument sued upon, and such is the clear inference to be derived from the circumstances and surroundings, the terms of the contract, and the acts of the parties thereunder. The case presents, therefore, a concurrence of rules by which the contract is to be interpreted, and results in construing it as imposing upon Hay an obligation to erect the building in accordance with the terms of the contract. It is conceded that in this respect the contract was wholly unperformed, as no building was erected upon the premises. Therefore, there was a breach of the conditions of the bond, and the only remaining question relates to the measure of damages to be applied.

Louis Sachs et al. v. American Surety Company of New York.

The learned trial court took the view that the measure of damages became fixed upon the failure to construct the building, that the proximate result flowing therefrom was the impairment of the purchase-money mortgage taken by the plaintiffs, and, inasmuch as upon the foreclosure a deficiency judgment was rendered for $51,000, such sum furnished the measure of the plaintiffs' loss by reason of the breach. Whether, under the circumstances, as developed upon the trial, the evidence, which was regarded by the court as sufficient to establish the damage, authorized this rule as a measure of damages, need not now be either asserted or denied, as other considerations show clearly that the plaintiffs are entitled to recover the whole amount of the penalty of the bond.

The purchase price of the property was $190,000. Its actual value seems to have been but $160,000, and the plaintiffs, by virtue of their contract, were entitled to receive a profit of $30,000. Assuming that the contract has been carried out with fidelity, it appears that the whole amount of incumbrances thereon would have been $290,000. This sum includes the mortgages, the purchase price, and the $100,000 building loan. It is quite possible that to this sum there might have been added architect's fees and other expenses, which would make a grand total approximating $300,000.

The plaintiffs offered to prove upon the trial that if the building had been erected upon the premises in accordance with the terms of the contract the property would have been worth $400,000 at the time of completion, and at least that sum ever since. The defendant objected to this testimony, and, upon its objection, the court excluded. it. Had it been received it would have been shown beyond peradventure that the plaintiffs would not only have

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