Newburger v. Lubell

Glennon, J. This appeal is by Samuel L. Lubell from a judgment entered against him upon a general verdict directed by the court in plaintiffs’ favor, notwithstanding a special verdict by the jury for appellant on a question of fact submitted to it. In 1929 Jacob J. Lubell had a brokerage account with plaintiffs’ firm. Abraham Lubell and Samuel Lubell, on October 25, 1929, and November 13, 1929, respectively, guaranteed the account of their brother Jacob by separate instruments. Concededly, on the latter date Abraham and Samuel became cosureties of Jacob’s account. In 1930 a deficit arose, and Jacob’s account was eventually liquidated. The present action is brought against both Abraham and Samuel to recover the amount of the deficit in Jacob’s account. The status of Samuel and Abraham with plaintiffs’ firm was different. Abra — 251 — ham had a regular trading account, which was closed out, by reason of plaintiffs’ claim against Jacob. Abraham had agreed to arbitrate any controversy relating to his account. The question then arose as to whether or not the guaranty agreement was covered by the arbitration clause. Samuel, on the other hand, had no trading account with plaintiffs. He merely deposited collateral in addition to his guaranty agreement. When Jacob’s account was closed, plaintiffs moved at Special Term to compel Samuel and Abraham to submit to joint arbitration the question of liability on their guaranties of Jacob’s account. The application was denied and plaintiffs appealed to this court, which affirmed without opinion (232 App. Div. 745). Plaintiffs thereafter obtained leave to appeal to the Court of Appeals from so much of the order as denied their application to compel arbitration between them and Abraham. They did not appeal from the order in so far as it concerned Samuel. Judge Lehman, writing for the unanimous court which reversed the order in part (257 N. Y. 213), held: “ The clear intent of the agreement between the parties was that any ■ controversy concerning the manner in which the plaintiffs dealt with the securities in their customer’s account should be determined by arbitration, and it is immaterial how that controversy arises. * * * The controversy concerning the account of the guarantor is confined to the authority of the plaintiffs to dispose of the securities or contracts in his account, and that controversy should be determined by arbitration.” Plaintiffs conceded on that appeal that Abraham could not be compelled to arbitrate the amount owing on the guaranteed account. Plaintiffs and Abraham then proceeded to arbitrate. The principal question presented for determination was whether or not Abraham’s guaranty was in effect at the time the deficit in Jacob’s account arose. Abraham contended that he had been released from his guaranty, and that it had never been reinstated. Plaintiffs countered with a claim that there had been an oral reinstatement ten days after the release had been given. The arbitrators finally determined that Abraham’s guaranty had been reinstated and that it was in full force and effect in December, 1930, when the deficit arose. While the arbitration proceeding was pending, plaintiffs commenced this action against Samuel, founded upon his guaranty of Jacob’s account. Samuel counterclaimed for affirmative relief. Plaintiffs thereupon moved for summary judgment against Samuel. The motion was opposed upon the ground that, since plaintiffs had released Abraham of his guaranty, Samuel, the cosurety, was released to the extent of one-half of his surety obliga — 252 — tion and that he had already paid his share of the loss. The motion was denied at Special Term. After the arbitrators had determined the questions submitted to them against Abraham, plaintiffs moved, in this action, to join him as a party defendant. The application was granted, and the order was affirmed by this court (234 App. Div. 849). A supplemental complaint was served. It consisted of one cause of action against both Samuel and Abraham based upon their respective guaranties and the arbitration award. Samuel thereupon moved to compel the plaintiffs to separately state and number their causes of action, and the court at Special Term granted the motion. Plaintiffs then served a further complaint. Whereupon Samuel moved to have stricken from the cause of action against him all reference to the arbitration proceedings. The motion was granted and the complaint, which is presently before the court, was served. The first cause of action in the present complaint is against Abraham. It contains allegations concerning the guaranty, the loss in the account, the history of the arbitration between plaintiffs and Abraham, and the rendition of judgment thereon, in which it was held that Abraham’s guaranty was in full force and effect. The balance of this cause of action relates to the amount of the deficit in Jacob’s account. The second cause of action, which is directed against Samuel, is identical with the first, except for the omission of any reference to the arbitration proceedings between plaintiffs and Abraham. This omission had been compelled by the order of Special Term, to which reference has already been made. Before proceeding further, mention might be made of the fact that plaintiffs moved for summary judgment against Abraham on the first cause of action. Judgment had already been entered against Jacob, in a separate action against him, for the amount of the deficit in his account. Plaintiff’s motion was founded upon that judgment, as well as upon the award of the arbitrators. The application was granted and judgment was entered in the sum of $14,307.97 against Abraham. The judgment was affirmed on appeal (236 App. Div. 788). The facts thus far enumerated present the history of this litigation since its inception. We may now concern ourselves with the principal issues arising between plaintiffs and Samuel. These are to be found in the answer of Samuel and in plaintiffs’ reply. It is alleged in Samuel’s answer and counterclaim that he guaranteed Jacob’s account with the plaintiffs; that in connection with his guaranty he deposited certain collateral security; that Jacob’s account bad also been guaranteed by Abraham, thus making him — 253 — and Abraham cosureties; that on April 25, 1930, plaintiffs, without Samuel’s knowledge or consent, released Abraham from his guaranty, and, as a result thereof, released Samuel pro tanto; that plaintiffs used and applied the proceeds and avails of the collateral deposited by Samuel in reduction of the deficit in Jacob’s account; that the value of the collateral so used and applied was in excess by $4,328.62 of Samuel’s liability under his guaranty, as reduced by the release of Abraham. Samuel demanded affirmative judgment in this sum against the plaintiffs. In their reply the plaintiffs denied the release of Abraham on April 25, 1930.. As a first defense, it is alleged that Abraham’s release had been reinstated with Abraham’s consent. In the second defense, plaintiffs alleged the arbitration proceedings between plaintiffs and Abraham, and pleaded that, by reason of the judgment confirming the arbitrator’s award, Abraham was estopped from questioning his liability under the guaranty, and that, therefore, Samuel lost no right of contribution, as cosurety, against Abraham. In the fourth defense it is set forth that Abraham served a counterclaim against Samuel in this action claiming the' right to contribution from Samuel by reason of Abraham’s guaranty of Jacob’s account. From this the plaintiffs conclude that Abraham was estopped from questioning Samuel’s right to contribution, and thus Samuel sustained no damage by virtue of the release of Abraham’s guaranty. The fifth defense was based upon the fact that plaintiffs recovered summary judgment against Abraham, and that, because of this judgment, Abraham was estopped from questioning liability under his guaranty, and, as a result, Samuel’s right of contribution was not in anywise affected. There are other partial defenses to which it is unnecessary to refer. There was a further amendment of the reply upon the trial. On these pleadings, as well as on affidavits, plaintiffs moved for summary judgment against Samuel. This motion was denied, and the order denying it was affirmed by this court (236 App. Div. 788). Samuel now argues that this court, on the appeal from the order denying summary judgment, determined all of the legal questions then involved in his favor. However, this court simply decided in effect that there were questions of fact presented, which could not be determined upon pleadings and affidavits. The important issue which had to be decided was whether or not Abraham’s guaranty had been reinstated. Upon the trial of this action there was received in evidence, over the objection and exception of Samuel’s counsel, (1) the judgment obtained by plaintiffs against Abraham on the arbitration award; (2) the order granting plaintiffs’ motion in this action for summary — 254 — judgment against Abraham; and (3) the judgment entered thereon against Abraham in this action in plaintiffs’ favor for $14,307.97. We are of the opinion that the admission in evidence of these documents constitutes reversible error. The result of the arbitration proceeding to which Samuel was not a party is not binding upon him. (Gillmore v. Equitable Surety Co., 228 App. Div. 188.) The same ruling must be applied to plaintiffs’ order and judgment against Abraham, since plaintiffs’ right to recover, as distinguished from the amount of their recovery, was founded chiefly upon the arbitration award. It follows, therefore, as a natural consequence, that Samuel was free to litigate in this action the question of Abraham’s release and the so-called reinstatement. (Bath Gas Light Co. v. Rowland, 84 App. Div. 563; affd., 178 N. Y. 631.) At the conclusion of the testimony the motions made by the plaintiffs for the dismissal of the counterclaims were granted. The following question was then submitted to the jury: “ Did Abraham P. Lubell on May 5th, 1930, orally reinstate the written guarantee contained in Plaintiffs’ Exhibit 3 which had been cancelled on April 25th, 1930, by Defendants’ Exhibit C?” No exceptions were taken by plaintiffs’ attorney to the submission of that particular question, nor to the court’s charge in regard to it. The answer of the jury was, “ No.” Counsel for plaintiffs thereupon moved to set aside the verdict as contrary to the weight of evidence and renewed his motions for a direction of a general verdict on all of the questions involved. The court thereupon directed a verdict in favor of the plaintiffs against the defendant Samuel L. Lubell for the sum of $16,209.41; in favor of the plaintiffs against the defendant Abraham P. Lubell for the sum of $118.20, and in favor of the plaintiffs on the counterclaim of Samuel L. Lubell. In so far as Samuel L. Lubell was concerned, the court, in so doing, fell into error. The jury found that Abraham’s guaranty had not been reinstated. Its verdict has ample support in the evidence. While the arbitrators reached a different conclusion as to Abraham, still Samuel was in nowise bound by their determination. It is indisputable that since both Samuel and Abraham unconditionally guaranteed Jacob’s account, as between themselves, each was liable for one-half of any amount required to be paid by the other under his guaranty. (People v. Metropolitan Surety Co., 175 App. Div. 43; Armitage v. Pulver, 37 N. Y. 494.) Furthermore, the authorities are uniform in holding that the release of one cosurety releases the other pro tanto. (Wanamaker v. Powers, 102 App. Div. 485; affd., 186 N. Y. 562; Benedict v. Rea, 35 Hun, 34; Waggoner v. Walrath, 24 id. 443; affd., 92 N. Y. 639.) — 255 — This brings up for consideration the problem of whether or not the claimed reinstatement of Abraham’s account — assuming for the moment that there was a reinstatement — had the effect of reimposing upon Samuel full and unconditional liability on his guaranty for any loss in Jacob’s account. We think not. When the release was given to Abraham on April 25, 1930, the claim by the plaintiffs against Samuel was discharged to the extent of one-half of the surety obligation. Since this is true, the original liability of Samuel was not reinstated by any new agreement, which might have been entered into later, without his knowledge and consent. The testimony offered by the plaintiffs indicated, quite clearly, that Abraham was possessed of considerable means on April 25, 1930, and that his financial position was sound even as late as the month of June. If Samuel had been informed that Abraham had been given a release by the plaintiffs at the time it was delivered, he could have notified them that he elected to revoke his guaranty as of the latter part of April or the early part of May, and have his liability determined at that time. (Emery v. Baltz, 94 N. Y. 408; Reilly v. Dodge, 131 id. 153; Arnold Suretyship & Guarantee, § 91; Hunt v. Roberts, 45 N. Y. 691.) It is idle to urge, therefore, that Samuel’s position was not changed to his detriment by reason of the acts and conduct of the plaintiffs. While Samuel claims that he is entitled to a direction of a verdict on his counterclaim on this appeal, he overlooks the point that the question as to value of the securities is one of fact, which must be disposed of by a jury. It is well nigh impossible on this record to accurately determine this issue. The judgment so far as appealed from should be reversed, with costs; the special verdict reinstated, and judgment entered dismissing the complaint, with costs; the action is severed and a new trial ordered upon the issues raised by the counterclaim of Samuel L. Lubell and the denials, and the sixth, seventh and eighth separate and distinct partial defenses in the reply. Finch, P. J., concurs; Untermyer, J., concurs in result; Merrell and Townley, JJ., dissent and vote for modification.