Case Name: Nelson Duntz, Resp't, v. William L. Horton et al., as Executors, etc., App'lts
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1894-12-26
Citations: 64 N.Y. St. Rep. 413
Docket Number: 
Parties: Nelson Duntz, Resp’t, v. William L. Horton et al., as Executors, etc., App’lts.
Judges: 
Reporter: New York State Reporter
Volume: 64
Pages: 413–415

Head Matter:
Nelson Duntz, Resp’t, v. William L. Horton et al., as Executors, etc., App’lts.
(Supreme Court, General Term, Fifth Department,
Filed December 26, 1894 )
Guaranty—Compromise.
Where a party, who is beneficially interested in the execution of the guaranty of a bond and mortgage, and the ultimate benefit of which is intended for him, places such guaranty and the bond and mortgage with his creditor as security, with the right reserved to pay the latter the amount of his debt and take an assignment of them, he is prejudiced by his creditor’s discharging the guarantor from liability to pay the amount which represents his interest in the bond and mortgage.
Appeal from a judgment in favor of plaintiff.
The facts Out of which the alleged claim arose are that Arthur M. Gaylord, being indebted to the testator in the sum of $4,784, gave him his bond, secured by a mortgage upon certain premises; • that on September 18,1884, pursuant to an arrangement to that effect, the testator, at the request .of Gaylord, assigned the bond and mortgage to Nelson Beardsley, and in lieu thereof received from Gaylord $800 on his debt, and the assignment of a bond with a second mortgage on the premises, made by William and Hezekiah Howe, together with a guaranty of collection made by one Chamberlain, of which the following is a copy: “For value received of Henry H. Lewis, of Auburn, I hereby guaranty to him, his heirs and assigns, the collection of the moneys secured to be .paid by the said bond and mortgage, according to the terms thereof. Dated Auburn, N. Y., Aug. 28, 1884.” The testator then, and as part of the transaction, made and delivered to Gay-lord an instrument as follows:
“William Howe and Hezekiah Howe to Arthur M. Gaylord : Bond and mortgage dated July 21, 1884, to secure the payment of the sum of $5,000, and interest thereon from the date thereof. Amount owing me from Arthur M. Gaylord is $4,784, with interest thereon from April 1, 1884, less the sum of $800 cash paid this day; and he has assigned the above bond and mortgage to me, and has paid me such sum of $800. I do hereby covenant and agree that upon ray receiving the balance owing me, either by payment from said Gaylord, or collecting the same from said Howe bond and mortgage, or the guaranty of Chamberlain accompanying the same, that after such full payment I will transfer and assign such Howe bond and mortgage and guaranty to said Gay-lord, or to such person as may be entitled to receive the same,— such bond and mortgage and guaranty having been assigned and transferred to me for the purpose of securing to me the payment of such amount owing to me,—and, in case I shall receive the amount of such Howe bond and mortgage, I covenant and agree to pay whatever sum I may receive in excess of the amount so owing me, with interest to the time I shall receive the same. Wit- ' ness my hand and seal the 18th day of September, 1884.
' “Henry H. Lewis. [L. S.]”
The subsequent foreclosure of the Howe mortgage by Lewis was productive of nothing to apply upon the debt. Thereupon a movement made to obtain payment from Chamberlain upon the guaranty resulted in a compromise with him, and the surrender of the instrument containing it, on payment of a sum less than the amount of the debt due to Lewis. His agreement above set forth was afterwards transferred by Gaylord to the plaintiff.
E. C. Aiken, for app’lts ; F. D. Wright, for resp’t.

Opinion:
Bradley, J.
The action, as it must be termed (Code, § 2718),
is founded upon an asserted claim arising out of an alleged breach of covenant contained in the agreement above mentioned, of the defendant's testator, of date September 18, 1884, and in consequence of the satisfaction of Chamberlain's guaranty of collection of the Howe bond and mortgage without payment in full. The plaintiff seeks to recover the nominal amount of the bond and mortgage in excess of that due to Lewis, which excess at the datof his agreement was $929. By the agreement, Lewis undertook that upon receiving the balance owing to him, either by payment from Gaylord, or by collection of the Howe bond and mortgage, or from the guaranty of Chamberlain, he would transfer such bond and mortgage and guaranty to Gaylord, and that if he should receive the amount of the bond and mortgage he would pay the amount in excess of the money due him over to Gaylord. Having failed to realize anything upon the foreclosure of that mortgage, and having been led to suppose that Chamberlain was not responsible, the defendants' testator, by his attorney, made a compromise with him, and received in satisfaction of the guaranty a sum less than the amount due him from Gaylord. It turns out, and the referee found, that at the time of such compromise Chamberlain was responsible, and worth from $20,000 to $25,000: The attorney who consummated it acted in good faith, but was misled by Chamberlain into the belief that the compromise was an advantageous one for his client and for Gaylord. But, as it was made without the knowledge or consent of the latter, he was not concluded by it, if it was made to his prejudice.. He was not prejudiced by the compromise, if Chamberlain was his accommodation guarantor. It is now urged on the part of the defendants that such was his relation to Gaylord, and there are some circumstances which tend in that direction. The instrument of guaranty was delivered by Gaylord to Lewis in a transaction between them, whereby it and the Howe bond, with the mortgage, which was a second mortgage on the premises, were taken by him as security for most of the amount secured by the first mortgage, which was transferred by'Lewis to Beardsley at the request of Gaylord. The guaranty ran directly to Lewis. It, however, was not in terms limited to the security of the debt due to him, but went further, and guaranteed the collection of. the Howe bond and mortgage, in the amount of which Gaylord nominally had an interest in excess of the amount due to Lewis. The question whether the guaranty was made for the accommodation of Gaylord was not, as it could not well be, treated at the trial as one of law, upon the evidence, and therefore was not specifically raised there. And the referee found that, in consideration of the guaranty by Chamberlain, a sum of. money was paid to the firm of which he was a member, "and an agreement made for the payment of an additional amount." As it was not deemed advisable to specifically except to such finding, it is unnecessary to refer to the evidence upon which it was made by the referee.
It cannot, in view of the terms of the instrument and the findings of the referee, be held here that the guaranty was intended to-cover the amount only of the debt which Gaylord owed Lewis. And the fact that the promise was to the latter does not necessarily require the conclusion that such relation was intended. It. could be effectually transferred to Gaylord, if it was made upon a consideration to guaranty the collection of the Howe bond and mortgage. Whatever suspicion to the contrary arises out of the appearance of the transaction, and from which it may not be entirely free, the findings of the referee are such as to show that Gaylord was beneficially interested in the execution of the guaranty, and that its ultimate benefit was intended for him. In that view, Chamberlain cannot be treated as his surety. And having placed that instrument and the bond and mortgage with Lewis as security, with the right reserved to pay him the amount of his debt, and take assignment of them, Gaylord was prejudiced by the discharge of the guarantor from liability to pay the amount which represented his interest in the bond and mortgage.
It is contended that, in view of the circumstances by which the compromise was influenced, it was reasonable, and that no damage can be deemed to have been suffered by Gaylord. The fact that it was made without his knowledge or authority, and as Chamberlain was amply able to pay the full amount, and its collection could have been enforced from him. affords no fair opportunity to conclude that Gaylord may not have been deprived of an effectual remedy upon the guaranty, to obtain the amount remaining of the bond and mortgage after satisfying the debt due to Lewis. This seems to have been the value of the guaranty, and its availability to Gaylord to realize such amount. And when Lewis disabled himself from performing his agreement his liability arose to respond in damages to the party entitled to such performance. Woolner v. Hill, 93 N. Y. 576.
The question whether Lewis could, or the defendants can, rescind the contract of compromise, for fraud or deceit on the part of Chamberlain, is not here for consideration. The transaction was rendered apparently effectual as to him by the fact that he furnished something more than his promise as security for the payment of a stipulated sum agreed upon, and he is a necessary party to an action for such relief.
These views lead to the conclusion that the judgment should be affirmed. All concur.