Katz v. Leblang

Merrell, J. Plaintiff’s assignor, Fulton Improvement Company, as landlord, entered into a lease with Acme Theatre Company, as -tenant. The respondent’s testator, Joseph Leblang, together with one Gus Schlesinger and one Morris Schlesinger, executed their respective guaranties for the performance of the lease between Fulton Improvement Company, as landlord, and Acme Theatre Company, as tenant. The tenant defaulted in payment of rent and taxes, and the present action is brought by plaintiff, as assignee of the landlord, against the estate of Joseph Leblang, one of the guarantors, to recover for defaults of the said tenant. In the complaint plaintiff claimed the following defaults in the payment of rent and taxes had been made: 1. Non-payment of rent amounting to $13,666.66 for the period from September 1, 1931, to August 31, 1932. [422] 2. Non-payment of rent in the sum of $23,000 for the period from September 1, 1932, to August 1, 1933. 3. Non-payment of the second half of taxes for the year 1932 amounting to $5,719. 4. Non-payment of taxes for the first half of the year 1933 amounting to $5,518.40 and interest of $40. Plaintiff has abandoned his claims in respect to the first and third of the above items, and now stands upon items 2 and 4 above. By-written stipulation entered into by the attorneys for the parties, it was stipulated and agreed that the agreement modifying the original lease was entered into by the landlord and tenant without the knowledge or acquiescence of the guarantor (the defendant’s testator) or his legal representative. It is upon this modification agreement that the defendant relies for the discharge of her testator and his estate from liability under the guaranty which the testator had executed. Under the ternas of the original lease the entire rental due annually from the tenant to the landlord was $28,000, in addition to the payment of taxes. By the agreement entered into on May 6, 1932, the Fulton Improvement Company modified the lease with the Acme Theatre Company so as to provide that the rent, commencing September 1, 1931, and' terminating August 31, 1933, should be, annually, the sum of $23,000. The original lease provided that the taxes for the second half of 1931 should be paid when they became due and payable. Under the modified agreement taxes were to be paid immediately. For the first half of 1932, under the original lease, the taxes were to be paid when they became due and payable. Under the modification agreement the taxes for that period were to be paid not later than December 1, 1932. The original lease provided that the taxes for the second half of 1932 were to be paid when they became due and payable, and by the modified agreement said taxes were to be paid not later than March 1, 1933. The defendant, respondent, held, and was sustained by the court, that any binding modification between creditor and principal, without the knowledge or consent of the guarantor, discharged the latter, regardless of the effect of such modification. The law in this State seems to support the defendant’s contention. The Court of Appeals, in 1879, in Paine v. Jones (76 N. Y. 274) wrote (at p. 278): “ The respondent’s counsel, however, contends with much earnestness that the alteration made by the creditor and principal debtor is not material, and therefore does not injuriously affect the surety. That it changes the contract is very plain, and it does not seem necessary to inquire what mischief the alteration might produce or how it might be prejudicial to the surety. The [423] law requires that if there is any agreement between the principals with reference to a contract to the performance of which another is bound as surety, he ought to be consulted in regard to any proposed alteration, and if he is not or does not consent to the alteration he will be no longer bound, and the court will not inquire whether it is or not to his injury. (Grant v. Smith, 46 N. Y. 93; Bangs v. Strong, 7 Hill, 250; Calvo v. Davies, 8 Hun, 222; affd. in Ct. of App., 73 N. Y. p. 211.) ” The Court of Appeals, later, in Page v. Krekey (137 N. Y. 307), held that the defendant’s obligation as guarantor was strictissimi juris, and that any alteration in the contract discharged the guarantor. In this respect the Court of Appeals wrote: “ But the answer to that is that the defendant’s obligation is strictissimi juris, and he is discharged by any alteration of the contract, to which his guaranty applied, whether material or not, and the courts will not inquire whether it is or is not to his injury.” (Cases cited.) To the same effect was the decision of the Court of Appeals in the more recent case of Antisdel v. Williamson (165 N. Y. 372), where the Court of Appeals stated (at p. 375): “ It is settled law that the obligation of a surety ‘ is strictissimi juris, and he is discharged by any alteration of the contract, to which his guaranty applied, whether material or not, and the courts will not inquire whether it is or is not to his injury.’ ” The rule in England and in Massachusetts seems to be quite the contrary, in which jurisdictions it has been held that if the alteration or modification of the contract was for the benefit of the person whose performance is guaranteed, or is not against the interests of the guarantor, the modification would not destroy the guaranty. In this State, the rule, under Paine v. Jones, Page v. Krekey, and Antisdel v. Williamson (supra), seems to be as above provided. Not only was the rent for the year commencing September 1, 1932, reduced from $28,000 to $23,000, but the manner of payment of the rent in installments was modified by the subsequent agreement of the parties. The appellant contends that the effect of the modification agreement was to reduce the rent from $28,000 to $23,000, payable in eight equal successive monthly installments, commencing October 1, 1932. In this respect the appellant urges that “ In effect, the only resulting difference between the terms of the instruments is a complete waiver of the entire installment due on September 1, 1932, and a waiver of $236 on each of the succeeding eight installments.” Undoubtedly the appellant’s argument is to overcome the difficulty arising from the fact that under the original lease rent was payable in nine equal monthly installments. The modification agreement required the rent to be paid [424] in eight installments. The appellant attempts to overcome the difficulty by claiming that the first installment fell due on September 1, 1932, and was entirely waived. The appellant’s analysis is based upon the assumption that the modification agreement required the reduced rental to be paid in eight equal monthly installments commencing October 1, 1932, and monthly thereafter. However, the modification agreement contains no such provision. All that the modification agreement states is that the rent for the period beginning September 1, 1932, and terminating August 31, 1933, was to be paid in eight equal installments, beginning on October 1, 1932. There is no provision requiring rent' to be paid in successive monthly installments. Under the terms of the modified agreement the tenant could pay the first installment on October 1, 1932, and the remaining seven installments whenever it chose during the balance of the year. This certainly was a material modification of the terms of the original contract, which required that the rental was to be paid in eight equal successive monthly installments, commencing on October 1, 1932. Notwithstanding the fact that the reduction of the rental may be for the benefit of the tenant, and that the obligation of the guarantor may be lessened thereby, such reduction is a material modification of the lease, and operates to discharge the surety. Under our law, any modification, whether material or not, discharges the surety. In the case at bar there was a material variation in the terms of the original lease by the modification agreement. The order and judgment were right, and should be affirmed, with costs to defendant, respondent, against plaintiff, appellant. Martin, P. J., O’Malley and Glennon, JJ., concur; Untermyer, J., dissents and votes for reversal.