Court Opinion

ID: 5333358
Source: CourtListenerOpinion
Date Created: 2022-01-08 05:23:52.064972+00
Date Added: 2024-06-11T08:29:28.315223
License: Public Domain

Merrell, J.
(dissenting). The trial of this case was the final chapter in a long series of litigations between the plaintiffs, constituting the brokerage firm of Newburger, Henderson & Loeb, against Samuel L. Lubell and Abraham P. Lubell. Three Lubell brothers, Jacob, Abraham and Samuel, are involved in this controversy. Jacob Lubell had a brokerage account with the plaintiffs. Abraham also had such an account with said brokers, and executed a guaranty agreement which provided that Abraham would guar*256antee the account of said Jacob J. Lubell, and pledging collateral security of Abraham in the hands of plaintiffs to secure said account of Jacob. The defendant, appellant, also, subsequently to the execution of the guaranty agreement of Abraham Lubell, guaranteed the account of Jacob Lubell, pledging the defendant, appellant’s collateral in the hands of the plaintiffs for such account of Jacob. Jacob’s account was closed out and the plaintiffs attempted to hold Abraham and Samuel upon their guaranty agreements and, under the provisions of the agreements, attempted to compel Abraham and Samuel to arbitrate. Their motion for arbitration was denied at Special Term and the denial was affirmed by this court. (232 App. Div. 745.) Thereupon they brought action against Samuel on his guaranty. Permission was granted to the plaintiffs to appeal to the Court of Appeals concerning the arbitration of Abraham. The Court of Appeals reversed this court and directed arbitration as to Abraham. (257 N. Y. 213.) As the result of such arbitration Abraham was held on his contract of guaranty. A prior motion for summary judgment against Samuel had been made, which was denied. The only question raised was whether the arbitration, which was found to be binding by the Court of Appeals on Abraham, was also binding on Samuel. The contention of Samuel seems to have been that Abraham had been released, Samuel claiming that, by reason of that release of his coguarantor, he had also been released pro tanto or for one-half of the guaranty. It seems to us that the question presented by this appeal is not whether the arbitration is binding upon Samuel, but, rather, whether Samuel is to be deemed to have been discharged of his obligation because of something which occurred to release Abraham from his guaranty. However, the Court of Appeals held that Abraham was not, in any respect, released. If Abraham was hable, then we think Samuel must be held to be hable. We think, therefore, notwithstanding the result of the motion for summary judgment, denial of which was affirmed by this court, that the Trial Term was correct in holding that the defendant Samuel Lubell was to be held by reason of his guaranty. As a practical matter, it does not seem to us that Samuel could be said to suffer by reason of the directed verdict against him, because the defendant Samuel would be subrogated to whatever recovery the plaintiffs secured in the action against Abraham, and so would not sustain any loss. It is very evident from what transpired at the close of the testimony in this case that the court below was of the opinion that, Abraham having been found liable, Samuel’s Lability followed, and, therefore, properly directed the verdict in favor of plaintiffs against Samuel.
The general rule is that if a creditor releases one of several sureties, *257the obligation of the remaining sureties is discharged to the extent to which they might have required the released surety to have reimbursed them after they had paid the debt. (Wanamaker v. Powers, 102 App. Div. 485; affd., 186 N. Y. 562.) At law the extent of the discharge of the remaining sureties’ obligation was in proportion to the number of sureties. In equity it was in proportion to the number of solvent sureties at the time of the release. The equitable rule is the rule generally applied at the present time. Accordingly, as applied to the facts of this case, if Abraham were released, -unquestionably, when the demand for payment is made against Samuel, he may demand, as in mitigation or as a set-off to the demand against him, a credit of fifty per cent of the debt which he could have recouped against Abraham had Abraham not been released.
The opinion of Mr. Justice Glennon proceeds upon the application of this rule. ■ It seems, however, that the mechanical application of the logic of this general rule of suretyship defeats the realities of the situation in this particular case. This was well pointed out by Chief Judge Cardozo while discussing a similar situation in his work entitled, “ The Nature of the Judicial Process,” where he wrote (at p. 152 et seq.) as follows: “ It is a rule of common law that a surety is discharged from liability if the time of payment is extended by contract between the principal debtor and the creditor without the surety’s consent. Even an extension for a single day will be sufficient to bring about that result. Without such an extension, the surety would have the privilege upon the maturity of the debt of making payment to the creditor, and demanding immediate subrogation to the latter’s remedies against the principal. He must, therefore, it is said, be deemed to have suffered prejudice if, by extension of the due date, the right has been postponed. I have no doubt that this rule may justly be applied whenever the surety can show that the extension has resulted in actual damage, as where the principal in the interval has become insolvent, or the value of the security has been impaired, though even in such circumstances the measure of exoneration ought in justice to be determined by the extent of the damage suffered,. Perhaps there might be justice in permitting exoneration whenever the surety had tendered payment of the debt, and demanded subrogation to the remedies against the debtor. Perhaps the burden of disproving prejudice ought to be cast upon the creditor. No such limitations have been recognized. The rule applies to cases where neither tender nor actual damage is established or pretended. The law has shaped its judgments upon the fictitious assumption that a surety, who has probably lain awake at nights for fear that payment may some day be demanded, *258has in truth been smarting upon the repressed desire to force an unwelcome payment on a reluctant or capririous creditor. The extended period has gone by; the surety has made no move, has not even troubled himself to inquire; yet he is held to be released on the theory that were it not for the extension, of which he knew nothing, and by which his conduct could not have been controlled, he would have come forward voluntarily with a tender of the debt. Such rules are survivals of the days when commercial dealings were simpler, when surety companies were unknown, when sureties were commonly generous friends whose confidence had been abused, and when the main effort of the courts seems to have been to find some plausible excuse for letting them out of their engagements. Already I see some signs of a change of spirit in decisions of recent dates. I think we may well ask ourselves whether courts are not under a duty to go farther, and place this branch of the law upon a basis more consistent with the realities of business experience and the moralities of life.” (Italics are the writer’s.)
Acting on the suggestion of this high authority, it seems advisable to decide this case from the point of view of the realities of the situation rather than from a logical deduction, contrary to the reasonable' expectations of business men. It is true that, as Mr. Justice Glennon in his opinion remarks, there was a slight period between the release and the reinstatement of the guaranty during which Samuel might have elected to revoke his guaranty as of the latter part of April or the early part of May and had his liability determined, if he had been informed that Abraham had been released. But, as Judge Cardozo wrote, Samuel was not lying awake nights wondering whether Abraham had been released. These two brothers were working together guaranteeing their third brother’s account and were in a position to know full well what the situation was. They apparently were not in the least worried and Abraham was apparently as ready later to reinstate the guaranty as the creditor had been to release him temporarily. There is not the slightest evidence to show that had the creditor informed Samuel of the temporary release of Abraham, Samuel would have taken steps to force some kind of liquidation or exoneration.
On this state of facts we have to consider as a case of first impression the effect of the restoration of the obligation of a discharged surety to its original force. The opinion of Mr. Justice Glennon is certainly in error to the extent that in this situation Samuel is discharged of fifty per cent of his liability. The reinstatement of Abraham’s guaranty must be treated either as wiping out the original discharge or as bringing in a third surety who would be available to Samuel upon payment of the debt. The rule as above *259phrased is that a remaining surety, when one has been released, is discharged only to the extent to which he upon payment of the debt might have required the released surety to reimburse him. Now, assuming that Abraham’s original promise is to be deemed completely released, the reinstatement of it brings in at least the equivalent of a third contract of guaranty and on payment of the amount of money due plaintiff from the principal debtor the inquiry is most pertinent as to how much of this third contract of guaranty Samuel could recover as against Abraham.
We cannot blind ourselves to the fact that Abraham is under a binding judgment of the court to pay the full amount of the debt. Accordingly, if Abraham paid he would be subrogated to the creditor’s debt and surely could recoup for fifty per cent of his payment against Samuel. There should be a similar result when the creditor sues Samuel.
If we resort to the artifice of saying that, because Abraham has once been released and then reinstated as guarantor, there are the equivalent of three guarantors in this situation one of whom has been released, then, under the equitable rule of subrogation, the obligation should be divided in three and on this suit against Samuel, there should be at least two-thirds of a recovery.
However, such a solution of the problem when two of the contracts of guaranty have been made by the same person would be so artificial as to be an. absurd result. The sensible way to analyze the situation it seems to us is to treat the temporary release of Abraham as a temporary withdrawal of security which the creditor had as against the principal debtor and to hold that the reinstatement of Abraham’s guaranty restored all the security to which the cosurety might ultimately be subrogated, and, therefore, to treat the temporary release, if a damage at all, as damnum absque injuria. (See Arant Suretyship, § 66.)
The question involved in this case is not helped by the doctrine of res judicata. The case cited by Mr. Justice Glenn on (Bath Gas Light Co. v. Rowland, 84 App. Div. 563; affd., 178 N. Y. 631), which involved the doctrine that when one cosurety pleaded ultra vires and a judgment resulted, that judgment was not binding on the other sureties, we think has no application to the facts of this case. That decision goes to the existence of the contract and any surety who was not a party to the original suit of course could plead, when sued, any defenses to the existence of the contract that there might be. That is quite different from holding that a guarantor when sued on a good contract may set up in mitigation or set-off facts amounting to a claim that he has lost his right of subrogation against a coguarantor by the act of the creditor, when, in a collateral *260action, a binding judgment has been taken against that very coguarantor. A result which permits the relitigation of the question of the existence of a binding obligation against Abraham is absurd and should not be followed. We are dealing with a very simple claim, by Samuel that his cosurety is no longer liable on the debt and that, therefore, the judgment against himself as a defendant must be mitigated or set off by the loss which he has suffered. To effect this, he must show a loss. It is impossible for him to show this loss in the face of the existing judgment against Abraham, and to permit him to do so by relitigating the facts which were decided in the arbitration is equivalent to impeaching the arbitration judgment which the Court of Appeals has upheld. Such a result in the law is intolerable.
The appellant relies largely upon the decision of this court affirming the denial of the motion for summary judgment against Samuel. While this court did affirm the order, deeming that, in view of the prolonged litigation in this case, it was better to have an end of it by trying the facts than by attempting to dispose of it on affidavits. Defendant having been given every opportunity to state a defense and having failed to do so, the learned trial justice was warranted in disregarding the verdict as wholly contrary to fact and in directing a verdict on the substantial claim.
In view of the confusion, however, as to the value of the securities, which is one of fact, this judgment should be modified to the extent of directing an assessment of the damages by a jury, and as so modified, it should be affirmed.
Townley, J., concurs.
Judgment so far as appealed from reversed, with costs to the appellant, the special verdict reinstated, and judgment directed dismissing the complaint, with costs; the action severed and a new trial ordered upon the issues raised by the counterclaim of said defendant, appellant, and the denials, and the sixth, seventh and eighth separate and distinct partial defenses in the reply.