Bier Pension Plan Trust v. Estate of Schneierson
| Decision Date | 19 October 1989 |
| Parties | , 545 N.E.2d 1212 BIER PENSION PLAN TRUST, Appellant, v. ESTATE OF Joel SCHNEIERSON, Respondent. |
| Court | New York Court of Appeals Court of Appeals |
Paula J. Warmuth and Joseph D. Stim, Huntington, for appellant.
Sandra Gale Behrle and James M. Latimer, New York City, for respondent.
Plaintiff brought this action against defendant, the estate of the surety of one Lieberman, to recover on a guarantee of Lieberman's debt. The estate's answer raised several defenses but on this appeal we are concerned only with the contention that it has been released from its undertaking because plaintiff altered the original contract with Lieberman.
Plaintiff alleges in its complaint that on November 1, 1983 it loaned Marvin Lieberman $280,000 for three months at 12% interest and that Joel Schneierson, defendant's testator, guaranteed payment. * Lieberman failed to pay the debt at maturity despite repeated requests that he do so. On May 28, 1985 he confessed judgment and, on July 11, 1986, plaintiff entered judgment on the confession for $344,500. Plaintiff then demanded defendant satisfy the judgment and commenced this action when it failed to do so. Plaintiff acknowledges that it did not proceed against Lieberman immediately and that Lieberman paid interest after maturity. However, it asserts in its motion papers that: "Plaintiff's accommodation to the principal obligor to permit him additional time to make the payment did not prejudice or effect [sic] the defendant or its guarantee in any manner."
Defendant contends that the "accommodation" was a new agreement between plaintiff and Lieberman, extending the loan and that plaintiff received payments of interest at 12% after the original debt had matured. It asserts that this extension, supported by consideration in the form of a 12% interest obligation rather than the legal rate due after default (i.e., 9%; see, CPLR 5004), changed the original three-month contract to one continuing the loan for a reasonable time and discharged it from its undertaking on the original note. Based on these facts, the parties made cross motions for summary judgment. Special Term denied both motions. Only defendant appealed to the Appellate Division, 143 A.D.2d 326, 532 N.Y.S.2d 313, which reversed the order insofar as appealed from, and granted summary judgment to defendant. We granted leave to appeal and now reverse.
Under general contract rules, an obligation may not be altered without the consent of the party who assumed the obligation. Suretyship is a contractual relation and thus the rule is stated that the creditor and the principal debtor may not alter the surety's undertaking to cover a different obligation without the surety's consent. If they do so the surety is discharged because the parties have substituted a new contract, to which it never agreed, for the original (Becker v. Faber, 280 N.Y. 146, 148-149, 19 N.E.2d 997; see generally, 10 Williston, Contracts § 1211 et seq. [3d ed. 1967]. If the surety is to remain liable on its undertaking, its right to make payment of the debt upon maturity of the indebtedness and, by subrogation to the creditor's rights, to proceed against the principal debtor to obtain repayment may not be affected without its consent.
An obligation is altered when the debtor is discharged from the original contract and a new contract is substituted in its place. The test is whether there is a new contract which will be enforced by the courts (Becker v. Faber, 280 N.Y. 146, 151, 19 N.E.2d 997, supra; 10 Williston, Contracts §§ 1221, 1239 [3d ed. 1967]; Simpson, Suretyship, at 355). Obviously, if the debtor can assert a new contract in defense to an action on the original contract the surety may do so also and, since it did not guarantee performance of the new agreement, it cannot be held answerable for the principal debtor's default (see, 10 Williston, Contracts § 1239 [3d ed. 1967]. Conversely, if the principal debtor is bound by the original contract (because the new agreement is unenforceable for lack of consideration or fraudulently induced, for example) the original debt remains undischarged, the surety is answerable for the principal debtor's default and the surety's right of subrogation against the debtor in accordance with the terms of the original contract is preserved.
If the creditor and principal debtor agree to extend maturity, then under the general rule the surety is discharged even if the term is extended only a few days (National Park Bank v. Koehler, 204 N.Y. 174, 97 N.E. 468; 10 Williston, Contracts § 1222 [3d ed. 1967]. Indulgence or leniency in enforcing a debt when due is not an alteration of the contract, however. An unenforceable agreement to give time is merely revocable permission to defer performance. If the creditor retains the right to demand payment of the debt according to its original terms the surety is not discharged (Becker v. Faber, supra; Powers v. Silberstein, 108 N.Y. 169, 170, 15 N.E. 185).
Applying these rules to the present case, we conclude there are questions of fact whether plaintiff and Lieberman made an enforceable agreement to extend the terms of the debt. Some authorities have held that the payment of interest after maturity, standing alone, constitutes consideration and from that act a new contract to extend the loan for a reasonable time will be implied (see, e.g., Fanning v. Murphy, 126 Wis. 538, 105 N.W. 1056, 1063 [Dodge, J., concurring]; Strong v. Sunset Copper Co., 9 Wash.2d 214, 114 P.2d 526; Hackin v. First Natl. Bank, 101 Ariz. 350, 419 P.2d 529; see also, Restatement [Second] of Contracts § 73, illustration 8). Our decisions, however, have consistently held otherwise (Becker v. Faber, supra; Olmstead v. Latimer, 158 N.Y. 313, 53 N.E. 5; Kellogg v. Olmsted, 25 N.Y. 189; see also, New York Life Ins. Co. v. Casey, 178 N.Y. 381, 70 N.E. 916).
Defendant contends that the present case is distinguishable from earlier New York decisions because here plaintiff benefited from payment of an...
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