Opinion
January 4, 1911.
Albert Hessberg and Murray Downs, for the appellant.
Marcus T. Hun, for the respondent.
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 case 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 the 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 same 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.