19 N.E.2d 997 | NY | 1939
The plaintiff has brought this action to foreclose a mortgage upon real property in Nassau county. Payment of the principal and interest of the bond, secured by the mortgage, was guaranteed in October, 1923, by John A. Kolle. Asking a deficiency judgment against the executors of the last will and testament of John A. *148 Kolle, deceased, the plaintiff made them parties to the foreclosure action. The complaint against them has been dismissed on the ground that the mortgagor and mortgagee modified the terms of the mortgage agreement without the knowledge or consent of the guarantor, and by force of such modification the guarantor was released.
The bond and mortgage were executed on or about June 1, 1923. The mortgagor bound himself to pay the sum of $10,000 on or before June 1, 1926, with interest thereon to be computed from the 1st day of June, 1923, at the rate of six per cent per annum and to be paid on the first day of December next ensuing the date thereof, and semi-annually thereafter. The bond was not paid at maturity. No agreement to extend the time of payment was made. Interest was paid, as stipulated in the bond, every six months until December, 1932. In January, 1933, the mortgagee agreed that the mortgagor would be permitted to meet the installment of interest which had become due on December 1, 1932, by monthly payments of $50 each and that similar monthly payments might be made upon subsequent installments after they became due semi-annually. In 1935 the mortgagee informed the mortgagor that when past due interest was paid up to June 1, 1934, she "is willing to charge you and accept 4%, but only on condition that you clean up the back taxes, and that interest rate to be effective for only one year, namely June, 1935." Though the mortgagor did not comply with the stipulated condition, the mortgagee accepted, for more than two years, monthly checks for interest at the rate of four per cent. It is said that through the leniency thus shown to the mortgagor, the mortgagee has released the surety.
A contractual obligation may not be altered without the consent of the person who has assumed the obligation The obligation of a surety or guarantor of due performance of a contract cannot be extended, without the surety's consent, to cover performance of a different contract. Alteration of the contractual obligation of the principal releases the surety, for the principal is no longer bound to perform the *149
obligation guaranteed by the surety and the surety cannot be held responsible for the failure of the principal to perform any other obligation. The rule is based upon fundamental principles of contract which have not been seriously challenged in any jurisdiction, though there is difference of opinion in regard to the proper application of the rule. In this State the rule has been applied stringently. This court has said that the "defendant's [surety'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." (Page v.Krekey,
By "alteration" in the obligation of the principal, the principal is discharged from performance of the obligation in its original form and, in effect, a new obligation is substituted for the old. In those cases where we have held that alteration of any kind in the obligation of the principal discharges the surety, there has been a change in the nature of the obligation which might be required of the principal; performance of the old obligation might be more onerous *150 but relief from the burden of the old was accompanied by the creation of rights and duties different from those which arose out of the original agreement. We have in such cases refused to balance the advantage of relief from the old burden against possible disadvantage imposed by the new. We have held that the surety is discharged by any modification of the contract of the principal which requires of him performance in any respect different from the performance guaranteed by the surety. We have not held that an act of leniency towards the principal by the assured through remission of a part of an obligation or waiver of full performance constitutes an alteration of the obligation of the principal which will discharge the surety completely. Reduction in the rate of interest is a remission of part of the obligation. Remission or waiver of part of the performance which might be exacted by the assured from the principal does not release the principal from performance of the part of the original obligation which remains unchanged and in full force; and if the principal fails in such performance the surety may be held for the default in accordance with the surety's agreement. Neither principal nor surety is held in such case for a new or altered obligation; both are held to performance of an obligation assumed in the original agreement.
Nothing said or decided by this court conflicts with the general rule that "A surety is none the less discharged by a change in the terms of the principal's contract, for the performance of which the surety has bound himself, when the change might not be thought disadvantageous to him. But an agreement merely to remit part of the performance due from the principal without changing its character, as by lessening the amount of rent to be paid under a guaranteed lease, or by providing for a lower rate of interest on a debt than the contract provides for, or by waiving a portion of the performance of a contract, will not discharge the surety." (4 Williston on The Law of Contracts [Rev. ed.], § 1240.) It follows that remission of a part of the interest even if such remission had been made by valid contract would not *151
discharge the surety. (Cambridge Sav. Bank v. Hyde,
The effect of the agreement to accept, in monthly installments, interest which under the terms of the bond was payable every six months, presents a similar question though in different form. It is said that such agreement followed by acceptance of monthly check extended the time for the payment of the principal sum. The doctrine that extension of time for payment of the principal debt even for a few days discharges the surety, has been established by a long line of decisions. (National Park Bank v. Koehler,
This court in New York Life Ins. Co. v. Casey (
In this case the surety claims that unqualified benefit bestowed upon the principal debtor and leniency and consideration shown to the principal debtor discharges the surety. That is not the law of this State. The surety guaranteed the performance of the obligation of the principal debtor. The creditor's agreement to forego part of his rights does not discharge the surety from responsibility for failure of performance by the principal debtor of that part of the original obligation which still remains andwhich remains untouched and unaffected by the creditor'sremission of the remainder of the obligation. The surety is held to no obligation which he did not assume and if the surety meets that obligation he will be subrogated to the creditor's cause of action against the principal debtor, in accordance with the terms of the original contract.
The judgments should be reversed and judgment granted for the plaintiff, with costs in all courts.
CRANE, Ch. J., O'BRIEN, HUBBS, LOUGHRAN, FINCH and RIPPEY, JJ., concur.
Judgment accordingly. *153