Opinion
November, 1897.
Oudin Oakley, for plaintiff.
R.H. Griffin, for defendant.
The defendant and nine other stockholders of the R.M. Bishop Cigar Company, an Ohio corporation, executed an instrument in writing in which, after setting forth the amount of stock held by them respectively, they recited that the company desired to borrow money from the plaintiff, and that the plaintiff had refused to make the loans unless their payment was acceptably guaranteed; whereupon the said stockholders jointly and severally agreed that all drafts, checks, notes and bills which the bank might discount for said corporation, and which remained due and unpaid within one year from December 4, 1891, not exceeding $10,000 in the aggregate, would be paid by them. They further agreed among themselves that they would adjust any losses growing out of said guaranty pro rata, according to the amount of stock held by them respectively. Between December 15, 1891, and February 1, 1892, the plaintiff handled for the company six notes aggregating $10,500, the last of which matured April 25, 1892. On July 15, 1892, at a meeting of the company's stockholders, it was ordered that its business be closed up, and a committee was appointed for that purpose. The company thereupon quit manufacturing, and thereafter from time to time disposed of the stock on hand, and finally sold the remnants of the stock and the fixtures at auction. Up to July 15, 1892, the plaintiff handled notes of the company aggregating $39,500, of which it then held $11,000. After this date the company gave the plaintiff renewed notes for those held by it without getting any fresh advance of money. The plaintiff took the last of these notes from the company November 2, 1892, having up to that time handled forty-two of the company's notes, aggregating $64,000, of which seventeen, aggregating $24,500, were handled by the plaintiff after the company ceased to manufacture. From this it will be seen that the company had an active account with the bank. On December 1, 1892, the plaintiff had seven past-due notes of the company, amounting to $11,000 and drawing eight per cent. interest, the legal rate allowed to national banks in Ohio where the agreement fixes that sum. These were all renewals of prior notes which the plaintiff had discounted. The company paid $500 on these obligations, thereby reducing its indebtedness to $10,500. The defendant urges that the guaranty was not continuing, and was exhausted with the first loan of $10,000. The common law of Ohio bearing on the subject not having been proved (Code, § 942), it will be presumed to be that prevailing in New York, which, therefore, furnishes the rule for decision affecting the true construction of the contract. Monroe v. Douglass, 5 N.Y. 447; Savage v. O'Neil, 44 id. 298; Waldron v. Ritchings, 3 Daly, 288. The guaranty is not confined to one instance, but applies to succeeding discounts during the course of a year, and is clearly a continuing one to the extent of $10,000. Gates v. McKee, 13 N.Y. 232; Rindge v. Judson, 24 id. 64; City Nat. Bank v. Phelps, 16 Hun, 158; Weil v. Hecht, 14 Misc. 230. "If a party means to be surety only for a single dealing, he should take care to say so." Merle v. Wells, 2 Camp. 413; City Nat. Bank v. Phelps, supra, at p. 160. The renewing of the notes under this particular guaranty must be held to have carried with it all the benefits of the discounts which the plaintiff made on the faith of it, for it was by reason of such discounts that the plaintiff became the bona fide holder of enforcible obligations in the form of renewed notes. In short, the result is the same as if the old notes had been paid from the proceeds of the renewed paper if the plaintiff had gone through the form of discounting it for the company. The very purpose of the guaranty, as it recites, was to enable the company to borrow money and to induce the plaintiff to loan to it such sums from time to time as it required. It is unlike the guaranty of a particular note, for the renewal of such an obligation would discharge the surety. 1 Wait's Act. Def. 582; Hubbard v. Gurney, 64 N.Y. 457. Here no time is specified for which the notes are to run, that matter being deemed unimportant to the guarantors so long as the obligations given matured within one year; so that it is apparent that short renewals could not prejudice the guarantors, who as stockholders in the company were helping themselves by helping it. The defendant was not only a stockholder, interested and benefited by what the plaintiff did for the company, but was a director and its vice-president as well, and, therefore, presumably cognizant of the various discounts which the guaranty was given to procure, and of the renewals made. In Schwartz v. Hyman, 107 N.Y. 565, Judge Earl said: "Very little, if any, aid for the construction of this guaranty can be derived from reported cases." This guaranty, like that in the case cited, must be construed in the light of its own peculiarities. The terms used and language employed are to have a reasonable interpretation according to the intention of the parties as disclosed in the instrument, read in connection with the surrounding circumstances, the relations of the parties and the purpose for which the guaranty was entered into. The contract of a surety must be construed fairly and reasonably, according to the intention of the parties, and where the question is as to the meaning of his obligation, there is no difference between it and the contract of any other party. Smith v. Molleson, 148 N.Y. 241. One of the seven notes fell due November 29, 1892, and the other six were payable "on December 1, 1892, fixed." The term "fixed" as here used means without grace (Durnford v. Patterson, 7 Martin, 460; 12 Am. Dec. 514), and this was undoubtedly what the parties intended when they used the expression. The guaranty is dated December 4, 1891, and the words "within one year from the date hereof" include the last day of the specified period (26 Am. Eng. Ency. of Law, 3, 7; 5 Laws. R. R., § 2495); so that by necessary construction the seven notes fell due within the time prescribed by the guaranty. The defendant pleads in defense that the plaintiff renewed the seven notes which it held on December 1, 1892, by taking an omnibus note made by the company for $10,500, the aggregate amount due, and thereby extended the time of payment beyond December 4, 1892, when the year expired, whereby she was no longer chargeable under the guaranty. With respect to this it appears that the company wanted the plaintiff to carry the seven past-due notes until the former became possessed of funds to pay them. The plaintiff declined to do this because the bank examiner might call the bank to account for carrying overdue paper, but agreed not to press its demands if the company gave a live note, enforcible at any time, that would not on its face bear evidence of past maturity; whereupon the company in the latter part of December, 1892, gave the note of $10,500, antedated December 1, 1892, payable "on demand after date," in which it was recited that the seven past-due notes were retained by the bank as collateral security. The note was taken in that form for the reason that the bank refused to extend the time of payment, and did not intend to do so when it accepted the new note, and the next inquiry is as to the legal effect of the transaction. According to the laws of Ohio, as proven at the trial by oral testimony, the acceptance of the $10,500 note, payable "on demand after date," did not extend the time of payment, as it became due on the day of its date without grace. Citing Union Cent. L. Ins. Co. v. Curtis, 35 Ohio St. 357. That case refers to a note payable "on demand," and as to such a note the law is the same in New York. A note payable by its terms on demand may be prosecuted immediately, the suit itself being a sufficient demand. Howland v. Edmonds, 24 N.Y. 307; Bowen v. Newell, 8 id. 190; McMullen v. Rafferty, 89 id. 456; 4 Am. Eng. Ency. of Law (2d ed.), 367. Whether the addition of the words in print, "after date," would ordinarily postpone prosecution of the note until the following day makes no difference, because the note was given long after its date, and the right to prosecute was not suspended for an instant. The $10,500 note was not intended to and did not pay the seven past-due notes, which, by the terms of the omnibus note, were kept alive as subsisting obligations. It did not, by operation of law, extend the time of credit, nor did it suspend or impair any remedies which the creditor had upon the seven notes; so that in case of satisfaction by the guarantors they might have been turned over to them in subrogation of the plaintiff's rights, with an immediate right of action against the principal debtor. Bayl. on S. G. 240; Lowman v. Yates, 37 N.Y. 601; Harlem Bank v. Falconer, 1 City Ct. Rep. 43; Taylor v. Allen, 36 Barb. 294; Dorlon v. Christie, 39 id. at p. 613. The mere indulgence by a creditor of the principal debtor will not discharge the surety. There must be an agreement for an extension made without the consent of the surety, upon a valid consideration, which ties the hands of the creditor and precludes him meanwhile from proceeding to collect the debt against the principal, thereby changing the position of the surety. Powers v. Silberstein, 108 N.Y. 169, 171; McKechnie v. Ward, 58 id. at p. 547; Bank of Utica v. Ives, 17 Wend. 501; Lowman v. Yates, 37 N.Y. 601, 604; Bayl. on S. G. 240; Fallkill Nat. Bank v. Sleight, 1 A.D. 189; Norton on Bills, 289; Doig v. Haverly, 92 Hun, 176, 179; Bank v. Fulton, 1 Week. Notes, Pa., December 8, 1894; Morgan v. Smith, 70 N.Y. 537. The taking by a creditor of a new obligation for a pre-existing debt does not discharge the latter unless it is so agreed; and the intent that a new security shall extinguish the original indebtedness must be proved or else it will be regarded as still subsisting, and the new obligation will be deemed to have been taken as security only. Flower v. Lance, 59 N.Y. at p. 608. All the stockholders have paid, except the defendant and one Bishop, the latter of whom is insolvent, and the defendant with knowledge of all the facts has expressed her willingness to pay her share if not unduly urged for the money, thus recognizing her liability. She also told the witness Parker (who explained to her the situation) that when the amount required was figured up she would send her portion of the money. These are circumstances to be considered. Brandt on S., § 347. The other guarantors paid on account, before suit brought, sufficient to reduce the debt to $3,000, to recover which balance the action was brought. After suit they paid this balance, and prosecuted the action in the name of the plaintiff under section 756 of the Code, as construed in Concord Granite Co. v. French, 3 Civ. Pro. 56; affd., id. 445; 12 Daly, 228. The instant the defendant's coguarantors paid her quota to the plaintiff they became entitled to contribution therefor. They became subrogated to the rights of the plaintiff as a creditor, and succeeded to its remedies against the principal and all others liable for the debt. Bayl. on S. (1st ed.), 317, 356, 358; Bispham's Prin. of Eq. (3d ed.) 335; 3 Pomeroy's Eq. Jur. (1st ed.) 470; Townsend v. Whitney, 75 N.Y. 425; Cuyler v. Ensworth, 6 Paige, 32; Cheesebrough v. Millard, 1 Johns. Ch. 413; 7 Am. Dec. 494; Sheldon on Subrogation, §§ 1, 181, 701. The defendant's coguarantors paid the plaintiff for principal and interest on the guaranty $9,042.63. The defendant's share of this, as between herself and her coguarantors, is one-third (the capital stock of the company being $30,000, of which defendant held $10,000), making her liability $3,014.21, which with interest at six per cent. amounts to $3,476.11. The demand for judgment herein is for $3,000, with interest from December 4, 1892, making $3,585, and, therefore, slightly exceeds the sum due the coguarantors, which is the extent of the defendant's present liability. It follows that there must be judgment in favor of the plaintiff for the aforesaid $3,476.11, with costs.
Judgment for plaintiff, with costs.