Bank of Buffalo v. Danziger

On the 9th day of July, 1897, Elliott C. McDougall held as trustee for the plaintiff and two other banks in the city of Buffalo four promissory notes made by said Marcus L. Schwartz, and aggregating $27,000. One of the said notes was then past due, and the othérs would not mature until March 9, 1898. The payment of said notes was guarantied by David Danziger, the father of the defendants Jennie, Cora, and Hiram Danziger and 'Stella Klopfer, and also by the other defendants in this action. The plaintiff also owned the other promissory notes described in the foregoing agreement, and of which said Marcus L. Schwartz was maker. At the request of the defendants in this action said agreement was entered into, and the four notes of $6,750 each were given pursuant thereto by said Marcus L.- Schwartz, and delivered to said plaintiff, and discounted by it for the benefit of said maker, and the four notes above referred to were delivered up to him. The first of the said series of notes matured September 9, 1897, and was renewed by another note for a like sum by said maker, and upon its maturity it was again re

That the extension of the time of payment of an obligation for a valuable consideration, without the consent of the surety, releases the latter, is elementary. And this follows, though no injury results from such extension, as the surety is entitled to have his agreement construed strictly, and without substantial change in it. Page v. Krekey, 137 N. Y. 307 , 33 N. E. 311 , 21 L. R. A. 409 ; Livingston v. Moore, 15 App. Div. 15 , 44 N. Y. Supp. 125 . It is also well settled that the acceptance of the interest, as in this case, with the renewal note, constitutes a good consideration for such extension. ' Hubbard v. Gurney, 64 N. Y. 457 ; Shipman v. Kelley, 9 App. Div. 316 , 41 N. Y. Supp. 328 . A construction of the agreement with its attendant facts .is essential in ascertaining whether the defendants are compassed by these frequently asserted principles. The many notes which were outstanding against Marcus L. Schwartz, the fact that several were held against him by McDougall as trustee for three banks; and that others were for interest on notes, indicate he was in straitened circumstances at the time the agreement was made. There was an evident purpose on the part of Ms relatives to give him an opportunity to relieve himself from his tangled financial condition. Paper to the amount of $27,000 was already guarantied, and the only increase in the liability of the guarantors on the new paper was in agreeing to pay $2,160, which was interest on this large indebtedness, and for wMch the banks had taken four notes of said principal debtor, the last of which matured March 9, 1898. The benefit to the plaintiff in this transaction was in the two’ provisions that the unguarantied paper, aggregating nearly $10,000, must be paid by -Schwartz before the guarantied paper was paid by Mm or his guarantors, and that no security could be taken by the latter until the unguarantied paper was paid. The benefit to the guarantors was in the extended time assured to their relative, and the right of any single guarantor to limit his liability by paying the specific sum provided in the agreement, and which in no instance amounted to a tMrd of his possible liability. There were two distinct classes of paper affected by this agreement: The guarantied notes, which represented substantially the indebtedness for which these sureties were already liable; and, second, the unguarantied notes, two of which, amounting to over $3,700, fell due witMn 16 days after the making of the agreement, and the last one, of $500, matured November 25th of the same year. It is apparent, therefore, that the guarantors did not expect these unguarantied notes would be paid at maturity. That expectation would be too antagonistic to the previous manner in which Schwartz had conducted his business. There was no restriction on plaintiff’s power to extend these notes, and the right to pay them by the de

“The undersigned do further agree that said Bank of Buffalo can hold any past-due paper guarantied by tin1 undersigned as aforesaid, without notice to them, and without impairing their liability on account of their guaranty as aforesaid.”

If this meant that it should remain as past-due paper, the clause was unnecessary, for the bank did, not lose its right against the sureties by mere indulgence to the debtor. This is especially true in view of the fact that its payment was to be postponed until the payment of the notes correlatively provided for in the agreement. It could not be expected by these guarantors, apparently business people, that the bank would hold this paper overdue, and be subjected to the criticism of the bank examiner, and perhaps be compelled to charge up to profit and loss notes which were collectible. It certainly was not intended they would be collected promptly as they severally matured. If there is one thing patent in this agreement, it is that time was to be given Marcus L. Schwartz to lift himself from the slough in which he had become mired. If the plaintiff had at once insisted that these notes be paid as they severally became due, such conduct would have been considered violative of the fair import of the agreement, and would have ended all probability of collecting the unguarantied notes. It is therefore a fair inference that, when these defendants consented that the bank “can hold any past-due paper guarantied by the undersigned,” it referred to its continuance in the ordinary way as bankable paper. The contract of guaranty was not on the notes themselves. They were not signed by these defendants. Their liability was exclusively in the independent agreement which was turned over to the plaintiff. If the notes were renewed, they would not sign them. The provision permitting the bank to hold the past-due paper provides that it can be done “without notice” to the defendants. Without notice of what? The agreement contained the several dates of the maturity of the notes, and, as the defendants were not indorsers, notice of protest was not essential. Was this to relieve the bank from advising them that these notes were due? Was this carefully drawn document, covering a large indebtedness, containing a distinct independent provision so utterly meaningless? The obvious intention was that as these notes matured they should be carried along in the usual way; that the bank could rely upon its contract of guaranty without advising the guarantors of each renewal. These notes could not be paid until the unguarantied notes were paid, and until that event occurred the renewal of these notes did not alter an iota the relations of these parties. No security could be taken, so there could be no possible loss on that account. The test of the releasing of the surety from liability by the conduct of the creditor is whether there has been an alteration of his agree-

Judgment reversed, and a new trial ordered, with costs to the appellant to abide the event. All concur, except McLENNAN, J., not voting;