Court Opinion

ID: 5309840
Source: CourtListenerOpinion
Date Created: 2022-01-08 03:45:06.469914+00
Date Added: 2024-06-11T08:29:11.577928
License: Public Domain

Proskauer, J.
(dissenting). This is an appeal from an order denying plaintiff’s motion to strike out as insufficient a separate *328defense interposed in the defendant’s answer. In the complaint it is alleged that one Henry S. Duncan made an agreement in writing with the plaintiff, by which the plaintiff was to sell and Duncan to buy certain equipment for the Bankhead Hotel at Birmingham, Ala., and that Duncan was to pay the price of such merchandise amounting to $150,000, $5,000 in cash and the remainder by promissory notes to be executed by Duncan. The agreement provided that the notes were to be guaranteed by the defendant. Subsequently a guaranty in writing was executed by the defendant, which stipulated “ that in consideration of a pledge to this corporation by Mr. Henry S. Duncan of substantial assets, we hereby guarantee the payment to your company of Mr. Duncan’s notes at their several maturities ” to an amount not exceeding $150,000, “ all in accordance with an agreement between your company and Mr. Duncan, copy of which has been filed with us.” Thereafter, in purported compliance with his obligation, Duncan delivered to the plaintiff a number of promissory notes made not by himself but by the Duncan Bankhead Company, Inc., a corporation, of which he was president. It is further alleged that the purported execution of said notes by the Duncan Bankhead Company, Inc., was a mistake and that the said notes were intended to be the notes of Duncan personally and to be covered by the terms of the guaranty. Judgment is sought against the defendant under its guaranty for these notes made by Duncan Bankhead Company, Inc.
In the separate defense it is alleged that collateral security of the value of $150,000 was deposited by Duncan with the defendant corporation to indemnify it on its guaranty; that in January, 1927, negotiations were in progress between one H. P. Heiss and the defendant, by which Heiss was to be substituted for the defendant as guarantor to the plaintiff and the collateral security turned over to him. It is further set forth that “ the plaintiff, acting through its duly authorized officer and /or agent, Louis Pizitz, with knowledge of the purposes and /or results sought to be obtained, represented that and/or acquiesced in the assumption that the contingent liability of the defendant on any notes held by the plaintiff was limited solely and exclusively to the contingent liability of the defendant on the notes referred to in paragraph ‘ 8 ’ of the answer [i. e., notes payable on or before October 1, 1928] and that the defendant was not liable on the notes described in paragraph ' 10 ’ of the answer [A e., notes payable subsequent to October 1, 1928].” The notes set forth in paragraph 8 of the answer are the individual notes of the defendant Duncan; those set forth in paragraph'10 of the answer are the notes purported to have been executed by the Duncan Bankhead Company, Inc. It is specifically alleged also that this *329representation and acquiescence were made to and in the presence of the defendant and Heiss and that the plaintiff intended that the defendant and Heiss should rely thereon; that in reliance thereon the defendant transferred a large part of the collateral which it held to certain corporations represented by Heiss and assigned all claims which it had against Duncan excepting those in connection with the guaranty of the notes made by Duncan personally and payable before October, 1928; and that in similar reliance it executed to Duncan a release from all liability to the defendant, except those arising out of the guaranty of his personal notes payable before October 1, 1928. The defendant urges that these facts, if established, would constitute an estoppel of the plaintiff’s claim against it on the corporate notes.
Whether we regard these representations as of fact or of law or as promissory representations, the result is the same under the authorities. The surety would be released from liability where the creditor tells the surety that he will look to the principal alone and will not call upon the surety in any event and the surety in reliance thereon changes his position by releasing securities held for his indemnity. (Harris v. Brooks, 21 Pick. 195; Carpenter v. King, 9 Metc. 511; Auchampaugh v. Schmidt, 80 Iowa, 186; 45 N. W. 567; Bank v. Haskell, 51 N. H. 116; Stearns Suretyship [3d ed.], p. 171; Brandt Suretyship [3d ed.], § 268; 21 Corpus Juris, 1142, § 145.) (See, also, Thornburgh v. Madren, 33 Iowa, 380; Bullock v. First Nat. Bank, 196 id. 522; 194 N. W. 930; White v. Walker, 31 Ill. 422; Brooking v. Farmers’ Bank, 83 Ky. 431; Baker v. Briggs, 8 Pick. 122; Wilkins v. Hanson, 119 Minn. 399; 138 N. W. 418; West v. Brison, 99 Mo. 684; 13 S. W. 95; Bank of Neelyville v. Lee, 193 Mo. App. 537; 182 S. W. 1016; 196 Mo. App. 496; 196 S. W. 43; 208 id. 143; National Bank of Commerce v. Gilvin, 152 id. 652.) In Carpenter v. King (9 Metc. 511), Shaw, Ch. J., wrote: “ We consider it well settled by numerous authorities, that when a creditor who knows that one debtor is a surety, gives him notice that the debt is paid by the principal, and such debtor, in consequence, changes his situation, as by surrendering security, or forbearing to obtain security when he might, or otherwise suffers loss by it, he is discharged. And although the debt has not been paid, and such notice was given by mistake, and without any fraudulent design, it is a mistake made at his own peril, and he shall rather bear the loss than throw it upon one who has been misled by it.”
This principle is recognized in Howe Machine Co. v. Farrington (82 N. Y. 121, 130), which held that a mere expression óf opinion that the principal will pay and that the surety will probably not *330be called upon would not release the surety. But Andrews, J., writes: “ This statement at most can be regarded only as the expression * * * of a confident opinion that Davis would pay the debt, and that the defendant would not be subjected to loss. The agent did not assume to discharge the defendant from his liability as guarantor, or agree to look only to Davis for payment, and the case is not brought within the decisions in Harris v. Brooks (21 Pick. 195) and Hogaboom v. Herrick (4 Vt. 131).”
But in the case at bar the allegation in the answer is specific that the representation was that the plaintiff did not and would not assert any claim against the defendant upon those corporate notes as to which the defendant's liability was in dispute. The appellant insists that there can be no estoppel because the respondent did not rely on the representation, but there is a specific allegation of reliance.
Nor is there any inconsistency between the defendant's denial in other portions of its answer of any liability on these corporate notes and its allegation in the separate defense, which is attacked, that there is an estoppel. The defendant had a right to deny liability in the first instance and at the same time assert the position that even if it was wrong in this denial there was an estoppel against the plaintiff.
For these reasons the order appealed from should be affirmed.
Finch, J., concurs.
Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.