Louis Pizitz Dry Goods Co. v. New York Hamilton Co.

McAvoy, J. The action is on a guaranty executed by the defendant of the payment of certain notes of one Henry S. Duncan. The guaranty recites that it is executed in consideration of a pledge to defendant by Mr. Henry S. Duncan of “ substantial assets.” The guaranty by its terms is “ in accordance with an agreement between your company [plaintiff] and Mr. Duncan, copy of which has been filed with us ” (defendant). The contract between the plaintiff and Duncan is for the sale and purchase of certain hotel equipment for which Duncan was to pay partly in cash and partly by a series of promissory notes to be made by Duncan personally and guaranteed by the defendant. The plaintiff seeks to impose liability upon the defendant under [326] its guaranty, not by reason of the non-payment of any notes executed by Duncan personally, but by reason of the non-payment of four promissory notes executed by Duncan Bankhead Company, Inc. The plaintiff’s theory seems to be that the corporate notes were inadvertently and by mistake given instead of personal notes of Duncan and that defendant was a party to the transaction and agreed that this might be done. The answer consists of a general denial and an affirmative defense. It is alleged that on June 4, 1926, Duncan gave to plaintiff a series of twenty-one promissory notes made by him personally, maturing monthly until August 1, 1928; that on June 30, 1926, Henry S. Duncan, in order to indemnify defendant on its guaranty, delivered to it his promissory note for $150,000 and deposited with it securities and property of an estimated value of $1,500,000; that on November 30> 1926, Duncan Bankhead Company, Inc., delivered to plaintiff its four corporate notes set forth in the complaint, maturing October, November and December, 1928, and January, 1929, respectively. ¡i. It is further alleged that in January, 1927, negotiations were carried on between the plaintiff, the defendant and one H. P. Heiss, looking towards protecting the defendant from any loss under its guaranty and imposing the financial obligation to meet the notes on the said Heiss and /or his principals in the place of the defendant and transferring to Heiss the collateral security held by defendant. These negotiations took place at a time when many of the notes executed by Duncan personally as well as the corporate notes were unmatured. During the course of these negotiations, it is alleged, the plaintiff, with knowledge of the purposes of the negotiations, represented that, and/or acquiesced in the assumption that, the contingent liability of the defendant, under its guaranty, on any notes held by the plaintiff, was limited solely and exclusively to the notes made and executed by Duncan personally, and that defendant was not liable on the corporate notes now in suit. This occurred in the presence of defendant and of Heiss, and the plaintiff intended that they should rely thereon. The answer then avers that in rebanee upon this representation and/or acquiescence of the plaintiff, the defendant entered into a contract with the Continental Properties Corporation, one of the principals represented by said Heiss, whereby defendant assigned to said corporation a large part of the securities held by it as collateral for Duncan’s obligation to indemnify it on the guaranty. In addition, defendant assigned to said corporation any and all claims which it had against Duncan except its right to reimburse [327] ment for any payments made by it under its guaranty of Duncan’s personal notes held by plaintiff, thereby divesting itself of any right to reimbursement against Duncan if it should pay the notes of the Duncan Bankhead Company, Inc. It is asserted that these facts are sufficient to constitute an estoppel in pais, to wit, a representation by the plaintiff, intending defendant to rely thereon, and substantial change of position by defendant in reliance on such representation. But we think the matters pleaded do not constitute an estoppel. The defendant pleads a legal conclusion, that is, that it relied upon plaintiff’s representation that the defendant is not liable on the notes in suit. It is established that to constitute an estoppel, the representation relied upon must be one of fact and not of law. Paragraph “Ninth” of the complaint sets forth that the defendant procured from Henry S. Duncan and delivered to the plaintiff the four promissory notes in question, signed by “ Duncan Bankhead Company, Inc., Henry S. Duncan, President,” and indorsed “ Henry S. Duncan.” Paragraph “ 2 ” of defendant’s answer “ denies each and every allegation set forth in the paragraph of the complaint marked and designated ‘ Ninth.’ ” Thus, the defendant could not have done or parted with anything as a consequence of any representation by the plaintiff, because from the very inception of the transactions between the parties it insisted that it never became liable on the notes in controversy. According to defendant’s own theory, there were not at any time any negotiations or representations regarding these notes. Such negotiations as were had did not have any relation to these notes in suit, because the defendant affirmatively avers that its guaranty never covered or had relation to these notes. The defendant had no basis for relying upon any representation which the plaintiff might have made. The theory of estoppel is predicated upon fraud. Here the defendant acted all along as if it was not liable on the notes in suit, that they were not Duncan’s notes, and that the guaranty covered only Duncan’s notes; hence, that the defendant at no time had any connection or concern with the notes in suit. The order appealed from should be reversed, with ten dollars costs and disbursements. The plaintiff’s motion should be granted and the alleged separate defense stricken out, with ten dollars costs. Dowling, P. J., and Merrell, J. concur; Finch and Proskauer, JJ., dissent.