Schickle, Harrison & Co. v. Hazard — 35 N.Y. St. Rep. 264

Majority

p. 264

Schickle, Harrison & Co., Resp’t, v. Rowland N. Hazard et al., App’lts.

(Supreme Court, General Term, First Department,

Filed December 29, 1890.)

Headnote

1. Bills and notes—Counterclaim in eavob oe makers not available TO ACCOMMODATION ENDORSES EXCEPT ON PBOOE OE MAKER’S INSOLVENCY.

Plaintiffs were holders before maturity and for value of a note made by O. & L., of which H. was an accommodation endorser. In an action on the note 0. & L. set up counterclaims. H., also, set up the counterclaims of 0. & L. in his answer, and demanded that any amounts due from plain tiffs to C. & L. by reason thereof should be deducted from the amount due on the note; but he offered no proof of the counterclaims. He also alleged that 0. & L. were insolvent, but gave no proof of it. Plaintiffs denied the counterclaims and the insolvency of 0. & L. Held, that H. must fail in his defense.

3. Same.

Where a principal is insolvent a surety may, in equity, avail himself of all existing claims in favor of the principal against the plaintiff, but as this remedy depends upon insolvency, that must be proved.

p. 265

Appeal from judgment entered upon report of referee.

Moses R. Crow, for app’lts; A. Taylor, for resp’t

This action was brought upon a promissory note for $14,542.17, made by the defendants Comegys & Lewis, to their own order, and endorsed by them and the defendant Hazard, and delivered before maturity to the plaintiffs for value.

The defendants Comegys & Lewis denied the allegations of the complaint, but set up two counterclaims, one for the alleged breach of a contract made by the plaintiff to furnish pipe for. waterworks at Nebraska City, and the other for an alleged breach of a contract on behalf of the plaintiffs by which they agreed to furnish pipe for works at Chillicothe.'

The defendant Hazard averred that he was an accommodation endorser, setting forth the fact that the makers of it had a counterclaim against the plaintiffs, and claiming that any and all amounts due from plaintiffs to the defendants Comegys & Lewis arising from the alleged counterclaims should be deducted from the amount due upon said note and that judgment should be rendered against them accordingly. It appears, however, that he offered no evidence to support these allegations. These averments of counterclaim were denied and a settlement of the accounts of Comegys & Lewis set up by the plaintiff in their reply. The learned referee has discussed elaborately the questions arising upon the evidence and the facts which he found had been established.

A careful and elaborate examination of the record has led to the conclusion that his findings of fact cannot be disturbed; that they are all sustained by the evidence and so clearly that it is only necessary to state that result

It would be a work of supererogation to go into details to demonstrate the propriety of his findings. The opinion which was delivered by him upon the rendition of judgment is one which commends itself to our judgment upon due deliberation of the facts and circumstances of the case, and as a disposition of all the questions save one which will be made the subject of separate consideration. The findings of fact and conclusions of law as declared by the referee are, therefore, adopted and affirmed.

It may be said with great propriety that the chief legal proposition urged on behalf of the defendant Hazard is that he occupied the position of a naked surety without consideration for the performance by the defendants Comegys & Lewis of their contract with the plaintiffs, and that, therefore, if by reason of the nonperformance of that contract by the plaintiffs any damages resulted to the defendants Comegys & Lewis they were applicable to the satisfaction of the note in suit in whole or in part; and that he had the right to insist that they should be so applied.

Indeed the proposition is carried so far that it is insisted that if the defendants by their dealings and arrangements with the plaintiffs waived or relinquished their right to have such damages, the defendant Hazard was deprived of a substantial right and was,

p. 266

therefore, discharged from all liability upon the note. And this legal attitude is founded upon the assumption that a surety may avail himself of all existing claims in favor of his principal against the plaintiff where the principal is insolvent, citing the cases of Gillespie v. Torrance, 25 N. Y., 306 , and Coffin v. McLean, 80 id., 560.

Admitting for the sake of argument that the counterclaim herein was established and that the defendant Hazard is entitled to all the advantages springing therefrom, nevertheless there is no proof of the insolvency of the defendants Comegys & Lewis.

It is true that insolvency is averred by the defendant Hazard in his answer, and that it is not denied in express terms by the plaintiff; but there is a denial of each and every allegation of the defendant’s answer in so far as it sets up a counterclaim in this action. And this is regarded as, a sufficient denial inasmuch as insolvency is a necessary element to make the counterclaim available to the surety.

It is supposed that the denial is limited to the counterclaim alleged and that the allegation of insolvency is not denied either generally or specifically, but this is an erroneous view of the condition of the pleadings for the reasons above stated.

The adjudications mentioned upon which the defendant Hazard relies declare that in equity a counterclaim may be pleaded as contemplated where the principal is insolvent, and this makes insolvency a constituent part of such a defense. There was no proof' of it and, therefore, the alleged counterclaim is of no avail.

No case has been cited which goes so far as to hold that under circumstanées kindred to those which marked the relations between the plaintiff and the defendants, Comegys & Lewis, they might waive either a counterclaim or a set off which might otherwise have existed.

In this case, the doctrine invoked on behalf of the plaintiff was one of waiver, which rests, however, upon ddctrines of equity, and for that reason are further from the grasp of the surety than they otherwise would be. '

For these reasons, in addition to those contained in the opinion of the referee, the judgment should be affirmed.

Van Brunt, P. J., and Daniels, J., concur.