Opinion
November, 1913.
Foster Cunningham (Jos. J. Cunningham, of counsel), for appellant.
Loeb, Bernstein Ash (Max Ash, of counsel), for respondents.
The plaintiffs furnished labor and material to the Gingold Realty Company, a corporation, and received in payment a number of promissory notes executed by the Gingold Realty Company as maker, payable to the order of the plaintiffs and indorsed by Abraham J. Goldstein, Moses A. Goldstein and Harry Ginsberg, the appellant. After the maturity of these notes the plaintiff entered into an agreement in writing with the Gingold Realty Company and Abraham J. Goldstein, dated September 27, 1912, which provided that the Gingold Realty Company should execute and deliver to the plaintiffs a participation certificate for $1,000 in a mortgage on New York city real estate in part payment of the amount due upon the notes and contained the further provisions as follows:
" Fourth. It is expressly understood and agreed that the remaining $1,028.47 due to the parties of the first part after the participation of one thousand dollars in the first mortgage, as hereinbefore described and agreed, shall be paid by notes executed by the Gingold Realty Co. and endorsed by Abraham J. Goldstein in the following sums and due at the following time:
"$328.47, three months after the date of execution.
"$300.00, four months after the date of execution.
"$400.00, four and one-half months after the date of execution.
" Fifth. It is expressly understood and agreed that the acceptance of such notes for the indebtedness herein set forth shall nowise be construed to relieve, release or discharge the parties hereto from the indebtedness previously accruing, and the liability shall remain in full force and effect until full payment of the amounts shall be made as herein set forth. That it is understood and agreed that the Gingold Realty Co. and Abraham J. Goldstein shall have renewals of said notes herein mentioned, for reasonable lengths of time upon payment of a small amount on said notes * * *."
The participation certificate and the new notes were accepted by the plaintiffs pursuant to this agreement and the old notes, including the one here in suit, were surrendered to the Gingold Realty Company, the maker and primary debtor. During all this time an action had been pending in the City Court against maker and indorsers of the last of the old notes, which was one for $500 dated November 6, 1911. After the acceptance of the participation certificate and new notes by the plaintiffs as above set forth, and on March 3, 1913, the plaintiffs entered judgment by default against the defendant appellant, Harry Ginsberg, as indorser, for $550.30 which included protest fees, interest and costs. The appellant moved to vacate the judgment on the ground that he had been discharged as indorser by the actions of the plaintiffs before the judgment was entered. This appeal is taken from the order denying his motion.
It is a well established rule of law that an indorser of negotiable paper, like any surety, is entitled to have the engagement of the principal debtor preserved without variation, and any change or extension of time granted by the holder to the maker of a promissory note without the consent of the indorser discharges his liability as indorser unless the right of recourse against the indorser is expressly reserved. Neg. Inst. Law, § 201, subd. 6. Both the object and the effect of the agreement and subsequent transaction above set forth were, undoubtedly, to extend the time of payment of the old notes for the benefit of the maker and, as this defendant Harry Ginsberg was not a party to the agreement and in no way consented to it, his liability as indorser upon the note in suit was discharged (Dorlon v. Christie, 39 Barb. 610; Pomeroy v. Tanner, 70 N.Y. 547; Hubbard v| Gurney, 64 id. 458), and the fact that the extension was granted after the maturity of the note is immaterial.
The plaintiffs attempt to take the case out of the operation of this rule by virtue of the fifth clause of their agreement above set forth, which they claim amounted to a reservation of their rights against the indorser. The agreement merely states, however, that the acceptance of the notes "shall nowise be construed to relieve, release or discharge the parties hereto from the indebtedness previously accruing and the liability shall remain in full force and effect until full payments of the amounts shall be made as herein set forth." Ginsberg was not, however, one of the parties to the agreement and it is difficult to spell any reservation against him out of the language of the agreement. The entire transaction, including the surrender of the notes to the maker, would negative such a construction. Had Ginsberg determined to pay the note in suit after the execution of the above agreement it would have been impossible for him to proceed against the maker in subrogation of the plaintiffs' rights and recover back the money which he had paid (Calvo v. Davies, 73 N.Y. 211) at least during the interval for which the extension was granted. As indorser he is entitled to a strict application of the rule above stated and under it he was undoubtedly discharged. National Park Bank v. Koehler, 204 N.Y. 174.
The order appealed from is reversed, with ten dollars costs and disbursements, and the judgment vacated.
LEHMAN and WHITAKER, JJ., concur.
Order reversed, with ten dollars costs and disbursements, and judgment vacated.