Case Name: Catskill National Bank, Respondent, v. Thomas Henry Dumary, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1911-01-04
Citations: 142 A.D. 118
Docket Number: 
Parties: Catskill National Bank, Respondent, v. Thomas Henry Dumary, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 142
Pages: 118–121

Head Matter:
Catskill National Bank, Respondent, v. Thomas Henry Dumary, Appellant.
Third Department,
January 4, 1911.
Guaranty — special guaranty securing payment of promissory note-— when guarantor liable to holder in due course — subrogation — release by obligee.
A contract whereby the E. P. Company undertook to supply brick to- the A. 0. Cpmpany, contractors, provided, that if the E. P. Company so desired the A. C. Company would give to it its note at ninety days from date of shipment without interest. A clause immediately following in the printed contract stating ‘ ‘ with tlje same individual security which guarantees this contract ” was stricken-out. Attached to the contract was a guaranty signed by the defendant in the following form: “ Por value received I hereby guarantee full' performance by The Albany Contracting Co. of all the obligations of the foregoing contract.” Pursuant to this contract the A. C. Company gave to the E. P. Company a ninety days’ note for material furnished and the E. P. Company discounted the same with the plaintifE bank. After one renewal the note was dishonored-and duly protested, the plaintifE recovering judgment against the A. C. Company thereon,
■ but the execution was returned nulla bona. The E. P. Company, algo insolvent, transferred all its rights in said contract to S., who subsequently sued the defendant upon his guaranty without making the bank a party. The action was settled by the payment of money and a release, was executed by S. and the E. P. Company to the defendant covering all claims and demands arising out of the contract. It did not appear that the plaintiffbank knew of the guaranty at the time of discounting the note. In a suit by the bank against the defendant upon his guaranty,
Held, that owing to the clause stricken out as aforesaid the guarantor did not intend to attach his name to any notes given pursuant .to the contract so as to make'him absolutely liable to a transferee for value, the guaranty running only to the E. P. Company, butincluding notes given pursuant to the contract;
That the plaintifE bank as creditor of the E-. P. Company upon its indorsement of the renewal note made by the A. C. Company, was. entitled upon showing the insolvency of the E. P. Company to be subrogated to its fight to hold the defendant upon its guaranty;
That as the release given to the A. C. Company was subsequent to the time when the plaintiff’s right of subrogation had accrued and as all parties knew that the unpaid note was in the possession of the bank but ignored its rights, the release as against the bank was voidable in equity.
Appeal by the defendant, Thomas Henry Dumary, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Greene on the 4th day of April, 1910, upon the decision of the court, rendered after a trial at the Greene Trial Term before the court without a jury, and also from an order entered in said clerk’s office on the 2d day of April, 1910, granting the plaintiff an extra allowance.
On or about June 15, 1901, a contract was executed by and between the Eastern Paving Brick Company, party of the first part, and the Albany Contracting Company, party of the second part, by which the brick company undertook to supply brick to the contracting company upon certain terms. The contract provided among other things as follows: “ If the party of the first part so desires, the party of the second part will give to the party of the first part' its note at ninety days from date of shipments, without interest.” Immediately thereafter, and separated therefrom by a comma only, the following words appeared in the printed contract form used: “ with the' same individual security which guarantees this contract.” These words were crossed out by typewriter, apparently at the time when the printed contract form was filled out, and the contract finally executed by the parties. Attached to the contract, and signed by defendant herein, was a printed clause of guaranty as follows: “ For value received I hereby guarantee the full performance by The Albany Contracting Co. of all the obligations of the foregoing contract.” A ninety days’ note for $2,000 for materials furnished was given by the contracting company August 3,1901, pursuant to the contract, and on the same day discounted by the brick company with the plaintiff bank. At maturity the note was unpaid, and a ninety days’ renewal note, also pursuant to the contract, was executed by the contracting company, and discounted with the bank, and the old note taken up. This renewal note was not paid at maturity, of which the defendant herein had knowledge on or before April 12, 1902, and was duly protested. Suit was brought thereon by the bank against the contracting company on April 24,1902, and a judgment
recovered for the full amount thereof, upon which execution was returned nxdla bona. The brick company was also insolvent prior to IVIay 9, 1902, and prior to June 28,. 1904, transferred to one Stafford all its rights in the said contract. Subsequent-to said June. 28, 1904, an action was brought by said Stafford, as plaintiff, against said Dumary, as defendant, upon his said guaranty, the bank not being a party thereto. This action was. settled and compromised by a payment of $2,500, and a release was duly executed by said Stafford and the brick company to the contracting company and said Dumary on October 29, 1906, covering all claims and demands arising out of said contract. It does not appear that the bank knew of said guaranty at the time of the discount of said notes, nor just when it acquired such information, but the present action was brought by the bank June 13, 1907, against said Dumary upon his said guaranty.
Albert Hessberg and Murray Downs, for the appellant.
Marcus T. Hun, for the respondent.

Opinion:
Smith, P. J.:
The guaranty in question is in form general and not special, and without more would attach to and cover the notes given as " obligations of the foregoing contract."-- But the striking out of the words in the printed contract form regarding the individual security upon the notes to be given seems to limit the scope of the guaranty annexed to the contract and to show that the guarantor did not intend to attach his name to any notes given pursuant to the contract which would make him absolutely liable to a transferee for value. His guaranty was to the brick company of all liability, including notes given pursuant to. the contract.
The claim of the plaintiff bank herein is that, as a creditor of the brick company' upon its indorsement of the renewal note made by the contracting company, it is entitled upon showing the insolvency of the brick company to be subrogated to this company's original right to hold liable this guarantor. The brick company, so long as it held the renewal note, had a potential right of action against the guarantor, which would become an actual right in casé' collection could not be enforced by it, and the bank as purchaser of the note now seeks to succeed to all the equities of the brick company as against this guarantor. It has been held that the right of subrogation " ' is a remedy which equity seizes upon to accomplish what is just and fair between the parties' " (Morehouse v. Brooklyn Heights R. R. Co., 185 N. Y. 520, 525), and that this remedy is available to the indorsee or transferee of a bill or note. (27 Am. & Eng. Ency. of Law [2d ed.], 232.) If, now, this guarantor in this action be forced to pay the amount of this note issued by the contracting company, and by it never paid, he is doing no more than he undertook to do by the terms of his guaranty, or than the payee of the note, if it had not been transferred, could have compelled him to do by suit either on tlie note or, waiving the note, directly upon the contract pursuant to -which the note was given. Nor is he in this action deprived of the benefit of any possible defenses or counterclaims he might have, as would be the case if he had guaranteed generally the note and were then sued at law by an indorsee for value thereof. The guarantor has contracted with the brick company that the contracting company should perform its part of the contract in respect to payments for materials bought. The contracting company has admittedly failed to pay a note given on account of such materials purchased, and we see no reason in equity why the bank which purchased this note before maturity should not' be allowed, in view of the insolvency of the brick company, to enforce this guaranty by suit, the ¿ame as the payee of the note might have done had the note not been transferred.
The principal affirmative defense pleaded and raised upon the trial was the release of the brick company to the contracting company and this surety, executed on or about October 29, 1906. At; that time the right of the bank to insist upon its right of subrogation as against this surety had accrued. The surety and both companies knew of the unpaid note in the possession of the bank, and consequently any release or settlement effected between themselves which ignored the rights of the bank must be held voidable in equity at the instance of the party whose rights were thus disregarded.
The judgment should be affirmed, with costs.
All concurred.
Judgment and order unanimously affirmed, with costs.