Spier v. McNaught — 121 A.D. 330

Majority

p. 330

Ida M. Spier and Louis M. Brown, as Executors, etc., of William E. Spier, Deceased, Respondents, v. James McNaught, Appellant, Impleaded with Warner Miller, Defendant.

Third Department,

September 11, 1907.

Headnote

Guaranty—contribution — bills and notes extension of payment — failure to charge indorsers —facts for jury—evidence ^-transactions with decedent.

A guarantor of a promissory note who consents that the time of • payment he extended hy the giving of a new nóte cannot resist contribution to his fellow-guarantors by reason of such extension. ' ■ ■ .

When indorsers of a promissory note waive notice of protest, a person who with others guaranteed payment cannot resist contribution on the ground that the indorsers were not charged. Moreover, a failure to charge indorsers is not such . a release of security as will discharge the guarantor.

Whether a guarantor delivered the instrument to a fellow-guarantor with an intent to create liability, and whether a second note given, in extension,of the

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note guaranteed was taken in full payment of the first note are questions .of fact for the jury.

An indorser personally liable on a note and thus liable to guarantors who have been- compelled to pay, can in an action by the representative of a deceased guarantor against the other guarantors to compel contribution, testify as to personal transactions with the decedent. ' He is not an interested party within the meaning of section 829 of the Code of Civil Procedure.

Appeal, by the defendant, James McNaught, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of Warren on the 14th day of November, 1906, upon the verdict of a jury, and also from an order entered .in said clerk’s, office on the 28th day of November, 1906, denying said, defendant’s motion for a new trial made upon the minutes. ' ■

Upon. September 13, 1899,'the plaintiffs’- testator and the defendants McNaught and Miller executed a paper, of which the following is a copy:

' “New York, September 13¿A, 1899.

“Whereas, the Milwaukee Terminal & Western Railroad Company desires to negotiate a loan, for ninety days for twenty-five thousand ($25,000) dollars on a promissory-note which" reads as follows: " ■ .

“ 1 $25,000. Milwaukee, Wis., August 26th, 1899.

“ ‘ Ninety days after date, for value received, the Milwaukee Terminal & Western Railroad Company, a corporation duly organized and existing under the laws of Wisconsin, promises to pay to the order of D. M. Edgerton twenty-five thousand dollars at , New York. - • "

“‘THE MILWAUKEE TERMINAL & WESTERN RAILROAD COMPANY,

“ ‘ By D. M. Edgertoh,

“ ‘ President.

K-e Attest:

“ ‘ Leo Forbe,

“ ‘ Secretary.’"

“ And which said note is indorsed as follows: ‘ D. M. Edgerton, John" W. Wegner and H. B. Munson ; ’ and, ■

“ Whereas, the undersigned are interested in said Company,

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• “ Now, therefore, in consideration of one dollar paid to each of the undersigned, and. other valuable consideration, we hereby guarantee the payment of said note at maturity.

“ JAMES McNAUGHT,

“ WARNER MILLER,

“ wm, :e. spier.”

The money upon this note was furnished by plaintiffs’ testator who thereby became the holder and owner thereof. After the said note became due the same was not duly protested, but an extension of time was granted-thereupon for some weeks, after which a new note was made, by the .Milwaukee Southwestern Railway Company, which was the same corporation which executed the.first note with the name changed. The new note was made directly to the plaintiffs’ testator, .but was indorsed by the same parties who indorsed the first note. At the time of the taking of'the new note the first note was delivered up to the company, although the guaranty was retained- by the plaintiffs’ testator. ■ At the- maturity of the second note it was not paid. Notice of protest was duly served upon the indorsers. This action is brought, against the defendants Miller and McNaught to enforce their liability to contribute their share as joint guarantors with the plaintiffs’ testator. At the trial two questions w-ere submitted to tlie jury: (1) Whether the guaranty was' delivered to Spier with the intent that it should operate as a liability, and.(2) whether the new note was takén in full j>ay■ment of the first note .to which the guaranty was- attached. ' The' jury by their verdict found, the. note- was -delivered as a. substantive liability, and that the new note was not taken in full payment of the -first note, and have rendered a verdict for the plaintiffs as against the two defendants for two-thirds the amount of the notes. From the judgment entered upon this verdict, and from the order denying the defendant’s -motion for a new trial, the defendant McNaught has appealed. The defendant Miller did not appear, in the action. A stipulation, however, was entered that his ■ liability should depend upon the determination of .the liability of the defendant McNaught.

Robert L. Stanton the appellant.

Louis M. Brown [Joseph A. Kellogg of counsel], for the respondents,

The defendant cannot resist liability upon the ground that the time within which tó pay the liability guaranteed lias been extended by the'taking of the new note.. That extension was with the full consent of the sureties, and was in fact negotiated by the defendant McN aught, who is now defending, hi or can the defendant defend by reason of the failure to charge the indorsers at the time that the note became due. The indorsers thereafter waived notice of protest upon that note, and moreover a failure to charge indorsers is not such a release of security as will- discharge a guarantor. (See Deck v. Works, 18 Hun, 266 .) Whether the guaranty was so delivered as to create a liability on the part of the defendant, and whether the second note was taken as full payment of the first note were matters properly submitted to the jury, and their determination thereof is, we think, fully sustained by the evidence.

A more difficult question arises over the ruling of the trial judge excluding the evidence of -the witness Wegner as to conversations had with the plaintiffs’ testator. Those conversations might have been material upon either of the questions submitted to the jury. As they were excluded they are presumed to have been material,, and if they were wrongfully excluded the. defendant .here would seem to be entitled to a new trial of the issues.

' Thé witness Wegner had been an indorser upon this first note, and was also an indorser upon the second note. He had been sued upon the second note by these plaintiffs in the State of Wisconsin. At the time of the trial he had waived the notice of protest upon the first note, and was, therefore, liable thereupon. The objection to his testimony was that he was incompetent to swear to a - personal transaction under section 829 of the Code of Civil Procedure. The question is thus presented whether an indorser who is primarily liable on the note and, therefore, liableto the sureties who were behind him who are compelled to pay the note has such an interest that he cannot swear as to personal transactions with-one of the sureties deceased in an action for contribution between the representatives of that surety and another surety. In our opinion this question has already been determined in' the Court-of Appeals. In Wallace v. Straus ( 113 N. Y. 238 ) one W., plaintiff’s testator, a stockbroker, was carrying certain stock for- S. on a margin. The margin became made

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quate and defendant executed to W. a written guaranty for any loss sustained by reason of the holding, and carrying of said stock. Defendant was afterwards sued Upon that guaranty and S. was-called as a witness by him, and having testified that he gave instruction to W. in Hovember, 1881, with reference to the sale of the stock, was asked to state those .instructions. This was objected to on the ground that the witness being the principal' debtor was interested , in the event of the action and so was incompetent to testify to a personal transaction with W. under section 829 of. the. Code. The objection was sustained in the court below.. It did not appear that S. had. received any notice from the defendant to defend, or had undertaken the defense. This ruling was held error. . It. was held that S. was a, stranger to the action and not interested' within the m'eaning of the Code; that he was not bound by-the-litigation and had no such legal interest in the event of the action as to preclude him from testifying as against the representatives of' tlie stockbroker. This case. is somewhat different from the case of Church v. Howard, relied Upon by the respondents here, reported in 79 New York at page 415. In that case the principal was a party to the action, and had made default. It is more difficult to distinguish the case from the case of Lawton v. Sayles ( 40 Hun, 252 ), but if the case be not distinguishable the case of Lawton v. Sayles must be deemed to have been overruled by this case in the Court of Appeals. In the case at bar the witness Wegner has no legal interest in the personality of his creditor or in the question Whether he must pay the whole amount to the representatives of Spier or in part to McHaught arid Miller. ■ If this judgment should "be collected we assume that McHaught and Miller, will become 'equally interested- with the- plaintiff in his suit in Wisconsin and Would be entitled to become joint plaintiffs-with him. It is argued, that, .the witness Wegner is interested in the result because'he swears that, he has a counterclaim that he proposes to set up in this Wisconsin suit...against the plaintiffs. - But that counterclaim is a counterclaim against .all these guarantors by reason of their joint proimse to construct the road in which'they were all interested. His interest then would seem to be that the plaintiffs should succeed in order that the Wisconsin' action should be made an" action by the guarantors jointly, in which that counterclaitn would without question be

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admissible. [Spofford v. Rowan, 124 N. Y. 108 .). If so, his evidence offered in behalf of McHaught to defeat the plaintiffs’ liability would not be in his own behalf but against his interest, which evidence is not prohibited' by section 829 of the Code. Moreover, there is no proof. that the plaintiff’s estate is insolvent. and is not liable to respond fully to any claim which' the witness might have against the estate. If such be the fact, he would have no legal interest in preventing this contribution by the sureties and the consequent change of'his liability from a single liability from the whole amount thereof to the plaintiff’s estate to a divided liability to the three sureties contributing to pay the note. A judgment herein recovered would in no way be binding upon him, and we are unable to take the case out of the authority of the Wallace case cited. In our judgment, therefore, the trial court erred in rejecting the testimony, of the witness, for which error the judgment and order must be reversed and a new trial granted,, with costs to appellant to abide the event.

All concurred.'

Judgment and order reversed and new trial granted, with costs to appellant to abide event. .

Cases cited

Wallace v. Straus 113 N. Y. 238 N.Y. 1889-04-16 p. 332
Spofford v. Rowan 124 N. Y. 108 N.Y. 1891-01-14 p. 335