Oswell C. Phillips, Respondent, v. Charles N. Lindley, Appellant

Oswell C. Phillips, Respondent, v. Charles N. Lindley, Appellant. Second Department, April 20, 1906. Guaranty of collection of note — waiver of demand that guarantor make collection — due diligence of holder in proceedings against makers — when costs paid to holder’s attorney should not he deducted from sum due from guarantor — Statute of Limitations — defendant without the State when cause of action arose. "When a dealer in negotiable paper agrees with the purchaser of a note in consideration of the purchase “to collect said note without cost of expense” to the purchaser, it'is a guaranty of collection, not of payment, and in an action, by the holder on such guaranty it is incumbent upon the plaintiff to show due diligence in proceeding, against the principal debtors before he can hold the guarantor, and the insolvency of the principal debtors is no excuse for failure to pursue them. The right of the defendant to a demand that he collect the note is waived when he tells the plaintiff to “rest easy,” and goes off to Europe, and thereafter tells the plaintiff to resort to the makers first, which the plaintiff did by action. So, too, said acts of the defendant are a waiver of any defense lie may have had by reason of an extension of the note by the plaintiff. Moreover, a judgment against the makers, obtained while the defendant was in Europe, shows under the circumstances that the defendant was not prejudiced by any extension made by the plaintiff. Due diligence by the plaintiff in pursuing the makers is shown prima facie by a ■judgment entered against them and execution thereon returned unsatisfied, and warrants the court in finding that the makers were insolv'ent, and that the plaintiff used due diligence. Although the attorney for the plaintiff in such prior action against the makers, who also represented other creditors holding larger claims, was allowed one-fourth of the total recovery as his fees, said allowance should not be deducted from the defendant’s liability, especially as his guaranty relieved the plaintiff from all costs of collection. When such defendant in his guaranty and by other writings describes himself as residing in another State, such papers are competent evidence against him when he claims to have resided in this State and to be entitled to the protec-" tion of the Statute of Limitations, especially when in addition he has given no .evidence of his residence here. Under such circumstances a finding that he was without the State when the cause of action arose is warranted. Appeal by the defendant, Charles S". Lindley, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of "Westchester on the 7th day of March,. 1905, upon the decision of the court rendered after a'trial at the Westchester Trial Term; a jury having been waived. A corporation and nine persons made a joint and several cognovit promissory note for .$5',000 at six months, payable to plaintiff at tile office of -defendant’s firm in Ohillieothe, O. Plaintiff purchased the note through the defendant, a dealer in commercial paper. When it fell due, March 23, 1894, $2,500 was paid upon it, and on that date defendant executed and delivered to plaintiff . this paper: “ $2500.00. Boston, Moh. 231894. ’ “ This agreement: witnesseth: “ That whereas, Ó. G. Phillips, of Boston, Mass., has purchased a note of $2500.00 of. the Nat’l Cotton Seed Oil and Huller Co. of even date herewith, dtie in six months’ time. In consideration of said purchase, O. N. Bindley, of Ohillieothe, Ohio, hereby agrees' to collect said note without cost of expense to said Phillips. ' “ C. N. BINDLEY.” This action upon that undertaking was bdgun on August 7,1903. A jury was waived,'and the court found the following additional facts : Tlie-makers-of the note,, other than the corporat'io'n, were directors and stockholders, of the corporation. On or about September 15, 1894, and. .before" the maturity of the $2,500 note, at the request of the defendant, .the, plaintiff extended the time of payment "for ninety days, receiving $50 as interest therefor. On or about November 9, 1894, the property of 'the -said corporation was destroyed by «fire, and thereupon and -thereafter the corporation .became and has remained insolvent and without property from which the plaintiff could have collected the note. Plaintiff thereafter presented his note for payment, which was refused. Thereupon plaintiff recovered judgment against all the makers in the Boss County Common Pleas Court in Ohio in November, 1894, and issued execution to, the sheriffs of the counties of Boss, Pike and Scioto in said State, in which counties, ás he had been advised by defendant; the makers had property and also resided.' The executions were returned unsatisfied, and it was subsequently discovered that real estate of the makers had been eonveyéd by deeds made prior to the date of judgment. In June, 1895, an action was brought in the United States Circuit Court for the eastern division of the southern district of Ohio by the Thompson .National Bank of Connecticut, the holder of a judgment upon another note of the said corporation, and the other makers against Corwine, one of the makers, and others, joining this plaintiff as a party defendant, to set aside certain deeds of the real estate of said Corwine. The plaintiff appeared and filed a cross bill, uniting in the prayer of the complaint. That action went to a final decree in June, 1902, in and by which the total amount recovered was directed to be paid to the attorneys for the various parties as their attorney fees and costs. As a result, this plaintiff received no' part of his note, and the note is unpaid. At the time of the recovery of the judgment in the plaintiff’s own action in the Ross County Common Pleas, and thereafter, all the -makers, of the note were insolvent. The plaintiff acted with due diligence in attempting to enforce payment of the said note and of the said judgment. After maturity of the note the plaintiff demanded that defendant collect the same and defendant refused to do so, and no part has been paid. The defendant resided at Chillicothe, 0., at Cincinnati, O., and in Campbell county, Ey., and was without this State from 1892 until 1897 and thereafter. The court concluded that the defendant was liable, and that the Statute of Limitations interposed was not a defense. It gave judgment in the amount of the note, with interest from the date of its maturity. William H. Harris, for the appellant. John Ewen, for the respondent. [MAJORITY — Jenks, J.:] Jenks, J.: In Cumpston v. McNair (1 Wend. 457) the words were: “I guarantee the collection of this note to George Leitch,” and the court held that the very terms implied “ that measures to collect it from the principals were first to be used, and the defendant’s contract or guaranty was, that those measures should be successful; if not, that he would pay the note and costs.” (See, too, Craig v. Parkis, 40 N. Y. 181; Jackson v. Decker, 14 App. Div. 415.) I think that as the guaranty was one of collection, not payment, it was incumbent on the plaintiff to show due diligence against the principal debtors before he could hold the defendant, and that the insolvency of the principal debtors Was no excuse for failure to pursue them. (Salt Springs Nat. Bank v. Sloan, 135 N. Y. 371, and authorities cited.) The appellant contends that plaintiff has failed to show a breach of the contract, in that if plaintiff desired his services he should have sent the note to him and demanded such services, and that only a refusal thereupon could establish the breach. The plaintiff testifies that he had several interviews with the defendant after the note became due; that after the fire of 1894 he a.sked defendant “ about the payment of this note ” and that the defendant told him to “ rest easy, * * * there is enough insurance to take care of it and not only that but several others; and he said, they will all be looked after, and lie was then going to Europe,” and thereupon the defendant went to Europe for several months.' The plaintiff then proceeded to put his cognovit note in judgment. The plaintiff testifies that during the course of the United States court litigation,, in several conversations with the defendant the plaintiff referred to the guaranty, saying that he was tired of waiting for his money." and that he did not wish to go through with the suit because “ he had guaranteed me thé payment of that note,” and defendant told him to resort to the makers of the note first, and afterwards if' he did not get it, defendant “ would take care of me.” 'If up to that time the plaintiff had omitted the formal demand for action by the defendant, I think that this testimony is sufficient to establish a waiver by the defendant. (See Sigourney v. Wetherell, 6 Metc. 553; Mead v. Parker, 111 N. Y. 259; Ege v. Barnitz, 8 Penn. St. 304.) In Sigourney v. Wetherell (supra) the court say (p. 563): “ A new promise or unequivocal act of recognition of his cbntinued liability, made with full knowledge of the laches of the holder of the note guaranteed, will continue the liability of. the guarantor.” It is also urged that the defendant had extended the note so that it could not be enforced until December, 1894, and that if so, it was the duty of the plaintiff to make the demand upon the defendant when it became due, whereas plaintiff had proceeded to collect it himself before it became 'due under the extension. But the conversation last narrated, wherein defendant told plaintiff to resort to the makers first, and if he failed the defendant “ would take care of me” took place long after the note fell due, even by the extension. The evidence’is sufficient to hold the defendant to his guaranty despite the extension, for he wrote the following letter to the plaintiff, which, if we may not assume tó have been the moving cause of such extension, at least, in the absence of evidence contra, indicates acquiescence and consent: “Dear Sir.— The note, $2,500 National Cotton Seed Oil and Huller Company, which you hold, matures on the 23rd insf. The Company are now in the midst of their crushing season, and could use the funds for 90 days longer. Will of course get you %% inst. payable in advance. Advise me.” Even if after his first conversation after the fire with the defendant as to the .payment of thq note, the plaintiff took steps to protect himself by entry of judgment on the cognovit note, while the defendant was absent in Europe, it is hard to see how the defendant was .prejudiced as to his guaranty. Despite the extension plaintiff obtained judgment, which apparently stands in full force and effect. Even if no formal demand was made at the -time the extension expired, and the plaintiff had taken the matter in his own hands, he was but pursuing the course required of him before he could proceed against the defendant, and the defendant fails to suggest in what way he was thereby prejudiced in any steps that defendant could have taken to collect the note. In any event the doctrine of waiver Would apply, for the reasons heretofore stated. The appellant also -contends that there was failure of proof of due diligence. The note was primarily a corporate note, payable at Chillicothe, O., and the individual makers were evidently upon the paper for the reason that they were directors and stockholders of that corporation. When the note fell due (I exclude the extension in this discussion) the plaintiff entered judgment thereon in the Boss County Common Pleas Court. We will take judicial notice that Chillicothe, O., is a city, and the county seat of Ross county, O. (1 Rice Ev. 26.) It appears that executions issued in that county and two other counties, against all the defendants, were'returned unsatisfied. This proceeding was “at least prima facie a compliance with the contract.” (Backus v. Shipherd, 11 Wend. 629.) And in Camden v. Doremus (3 How. [U. S.] 515) at page 533, the court say: “ The diligent and honest prosecution of a suit to judgment, with a return of nulla tona, has always been regarded as one of the extremO/tests of due diligence.” “ If beyond this, there is negligence, or more than what was done might reasonably have been done to collect the debt, and a loss ensues,..it lies On the defendant to show the loss, and. that it was occasioned by such negligence or omission;” (Backus v. Shipherd, supra, 636.) The appellant points out that the Corporation received a large sum for insurance, and complains that the plaintiff did not realize from that, but the evidence shows that the defendant alone testifies to the fact that he “ saw a good deal of insurance money paid,” about $100,000, which was paid “ to them, or their creditors.” It does not appear that he ever informed the plaintiff in response to his inquiries how plaintiff Would realize, and he does not suggest now any legal way then known to the plaintiff by which he could have laid hand upon any- part of this money, or that any part was available to discharge the note. The court 'has found upon, sufficient evidence that .after the fire of November 9, 1894, the corporation became and- has remained insolvent, and that at the time of the recovery of the judgment on November 28,1.894, and thereafter, all of the makers'were insolvent. I think that so far as the liability of the defendant is concerned, the plaintiff is entitled to the finding that lie'pursued due diligence. In White v. Case (13 Wend. 543) the Court, per Nelson, J., say: “So in the common case, where by the guaranty the party is obliged to pay after due course ofla/w, the contract reasonably and fairly implies an undertaking on the part of the guarantor, that the principal will be in a situation.to be sued, or, in other words, within the jurisdiction of the State, so that he may be sued, when the demand becomes due.” So far as the suit in the United States court is concerned, the plaintiff did Hot institute it; he was. made a party defendant. It does not appear that his delay in appearance therein in any way prejudiced the defendant. The further point is made that as it appears that the attorney for the plaintiff, in that suit was paid $l,500i out of the total recovery therein of $6,000, therefore the defendant in any event should have been credited with that sum ás a recovery on the note as against his liability in this action. The defendant concludes" that' as $1,500 was paid to the attorney who appeared for the plaintiff when a defendant jn the United States court suit,, therefore the client received $1,500 as his part, of tlie recovery of $6,000. He is not entitled to that conclusion because it appears that the said attorney was also one of the attorneys for the Thompson bank, the plaintiff in that action. Hence this sum presumably'was paid to him also as attorney for the plaintiff. How can 'we determine, when the record, is silent, what was. his quotient as an attorney for the plaintiff and as attorney for the defendant uniting with the plaintiff ? Generally as an attorney for the plaintiff he .would naturally tender more services and so be entitled to greater consideration. As between his two clients, his client, the plaintiff, in the action was a creditor in double the sum owed to liis client, this plaintiff. There " is a further consideration. The scheme of the order was tó divide the $6,000 equally between four attorneys, one representing both the plaintiff in that action and this plaintiff as a defendant. This plaintiff, as such defendant, sued on a judgment of $2,500. The judgments of the various creditors represented in that suit amounted to nearly $50,000. They were all anterior to that of this plaintiff.' What, then, justifies the conclusion that this plaintiff, with a claim of one-twentieth, received an allowance of one-fourth % Of the other attorneys representing defendants and receiving $1,500 each, Douglas represented defendants with judgments of $15,000 and Jewett $10,000. AH that we can logically conclude is that whatever dividend the plaintiff received in that suit was, under the order of the court, entered on consent, paid to the plaintiff’s attorney for his seiwices therein. The terms of the guaranty expressly absolved the plaintiff from all costs of collection. There is evidence that the defendant knew of these legal proceedings and approved of them. Moreover, the plaintiff was entitled to charge up his tiosts in pursuing the principal debtor. (Mosher v. Hotchkiss, 2 Keyes, 589 ; 1 Brandt Surety. & Guar. [3d ed.] § 111.) Finally, it does not appear that this point was raised by pleading or at the trial. The defendant pleads that he resides in the city, county and-State of Hew York, and that any cause of action by reason of the facts . alleged in the complaint did not accrue within six years before this action was begun. The cause of action arose outside ‘of this State. Under section 390a of the Code of Civil Procedure the Statute of Limitations of the State where the cause of action arose would apply, unless the cause of action originally accrued in favor of a resident of this State. The plaintiff testified that he resided in this State at the time this action was begin. We .can only consider this plea of our Statute of Limitations On the theory that the cauke- of action originally accrued to a resident of this State. The defendant \ x contends that as the note fell due in 1894 and this action was begun August 7, 1903, the Hew York statute is a bar. The court found that defendant resided at Chillieothe, O., and Cincinnati, O., and in Campbell county, Ky., and was without the State from 1892 to October s, 1897, and thereafter. The defendant, in. the guaranty executed in March, 1894, described himself as of Chillieothe, O. He testifies that in September or Hovember, 1894, he was. in his office at Chillieothe, O., and that he was a law student engaged in the business of selling commercial paper; that he maintained :an office there for several years after that, and also one in Cincinnati. In a deposition read in evidence, taken January 12,1897, in answer to a question of his residence, he testifies: “ I live in Campbell County, Kentucky.” He also testifies that he resided, he thought, at Chillieothe in the years 1892, 1893 and 1894. In a. deposition taken February 17, 1899, read in evidence,, he testifies that lie .resided in Campbell county, Ky. The plaintiff testifies .that the defendant' resided at Cincinnati, 01, on February 10, 1897. These answers of the defendant in such proceedings were competent as admissions. (Chase’s Stephen’s Dig. Ev. [2d ed.] 58, note, and authorities cited, 74, note 2, and authorities cited; 1 Greenl. Ev. [15th ed.] § 193.) No testimony was offered by the defendant as to his residence in this State. Thus, there was evidence to establish that when the cause of action accrued the defendant was without the State; the burden of showing the time of his residence in the State was upon him, (See Code Civ, Proc. §. 401; Mayer v. Friedman, 7 Hun, 218 ; affd., 69 N. Y. 608 ; Palmer v. Bennett, 83 Hun, 220 ; affd., 152 N. Y. 621.) The appellant contends that the court regarded the writing sued on as a guaranty of payment;, that it. was pot, and, therefore, the judgment in any event, should-not stand. Although the court did make a remark at ,the close of the trial which may indicate that such was its view, the complaint,.. the proof and the findings are 'sufficient to sustain tlie judgment upon the' agreement pleaded, even though we construe it as a guaranty of collection. The judgment is affirmed, with costs. Hooker, Gaynor, Rich and Miller, JJ., concurred. Judgment affirmed, with costs.