Nissenberg v. Felleman

Decision Date09 November 1959
Citation162 N.E.2d 304,339 Mass. 717
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court
PartiesSamuel NISSENBERG et al. v. Jules FELLEMAN et al.

Harry Zarrow, Worcester, for plaintiffs.

Richard A. Kaye, Boston, for defendants.

Before WILKINS, C. J., and RONAN, COUNIHAN, WHITTEMORE, and CUTTER, JJ. CUTTER, Justice.

The plaintiffs and the defendants, all residents of Massachusetts, were stockholders, officers, and directors of Furniture & Toy Company, Inc. (Furniture), a Massachusetts corporation, which had made with Whitehall Mercantile Corporation (the factor), a New York corporation, an agreement (the agreement) dated June 19, 1956, to provide for securing certain loans. A written guaranty agreement (the guaranty), also dated June 19, 1956, was executed by each plaintiff and each defendant. By this instrument, the signers jointly and severally guaranteed 'the due payment and performance by' Furniture 'of all moneys to be paid * * * pursuant to * * * [the] agreement.' Each instrument provided that the law of New York was to be applicable to it. 1

The foregoing facts were alleged, or incorporated by reference, in the plaintiffs' bill in equity to which were attached copies of the agreement and the guaranty. The bill also states (a) that the factor had brought suit against the plaintiffs in a Massachusetts court, the factor in that action alleging that Furniture had failed to pay the factor $8,968.29 and 'that the plaintiffs therefore owe * * * [that] sum to * * * [the factor] together with reasonable attorneys' fees'; (b) that the plaintiffs' property has been attached; (c) that the defendants as coguarantors with the plaintiffs 'owe a duty of contribution to the plaintiffs'; (d) that if 'the plaintiffs are required to pay the obligation before enforcing any right of contribution * * * it will cause [them] hardship and financial distriess'; and (e) that in equity the defendants should 'make contribution of their share of the obligation before payment thereof by the plaintiffs.' The bill seeks (1) a decree that the defendants 'are jointly and severally liable for one half of the obligation which the plaintiffs * * * may be required to pay' and (2) an order that the defendants pay to the factor one half of any judgment which the factor may recover against the plaintiffs. There is a prayer for general relief.

The defendants demurred on the ground that no basis for relief had been stated in the bill and that there was an adequate remedy at law. The demurrer was sustained with leave to the plaintiffs to amend their bill. A final decree dismissing the bill was entered. The plaintiffs have appealed.

1. The agreement (executed on the same day as the guaranty) provided that it was not to 'become effective until accepted by * * * [the factor] at its office in New York.' New York thus appears to have been the place (see Milliken v. Pratt, 125 Mass. 374, 376; see also Clark v. State Street Trust Co., 270 Mass. 140, 150, 169 N.E. 897) where both instruments were made. In any event, since New York is the place where, as the agreement states, 'the transactions hereunder will take place,' effect should be given, in determining the substantive rights created by the instruments, to the reasonable stipulations of the parties (see footnote 1, supra) that New York law is to be applicable. See Mittenthal v. Mascagni, 183 Mass. 19, 21-22, 66 N.E. 425, 60 L.R.A. 812; Clark v. State St. Trust Co., 270 Mass. 140, 150, 169 N.E. 897; Maxwell Shapiro Woolen Co., Inc. v. Amerotron Corp., 339 Mass. ----, 158 N.E.2d 875. See also Samincorp South American Minerals & Merchandise Corp. v. Lewis, 337 Mass. 298, 301, 149 N.E.2d 385; 2 Rabel, Conflict of Laws, 357-429; 3 ibid., 344-368.

Any claim to contribution among the coguarantors is not based directly upon on the instrument by which the coguarantors are bound to the creditor, but rests upon an implied obligation, equitable in character, growing out of the relationship of cosurety or coguarantor. See Weeks v. Parsons, 176 Mass. 570, 575-577, 58 N.E. 157; Quintin v. Magnant, 285 Mass. 450, 451-452, 189 N.E. 209; Aspinwall v. Sacchi, 57 N.Y. 331, 335-336; Wells v. Miller, 66 N.Y. 255, 258; Deering v. Earl of Winchelsea, 2 B. & P. 270, 273; Restatement: Restitution, § 81, and Seavey and Scott notes. See also Moriarty v. King, 317 Mass. 210, 216-217, 57 N.E.2d 633. The execution and delivery of the guaranty gave rise to such a coguaranty relationship. That circumstance leads us to determine the extent of the equitable obligation in accordance with the law which governs the guaranty, at least in a case where the parties have stipulated the applicable law in the guaranty itself in such broad language. 2

2. New York applies the general rule (Restatement: Security, § 149; see § 82, comment g) that a surety or guarantor who discharges more than his proportionate share of the principal's obligation is entitled to contribution from a cosurety. Aspinwall v. Sacchi, 57 N.Y. 331, 335-338. See Wells v. Miller, 66 N.Y. 255, 258. The right to contribution from coguarantors arises in New York when a coguarantor who is 'legally liable upon his guaranty' has 'paid the claim' of the creditor. 'Then, and not until such payment, has he the right to exact contributions.' Hard v. Mingle, 206 N.Y. 179, 184, 99 N.E. 542, 544, 42 L.R.A.,N.S., 1131, relying largely upon Wood v. Leland, 1 Met. 387, 388-389, and citing Seabury v. Sibley, 183 Mass. 105, 107, 66 N.E. 603. See Quintin v. Magnant, 285 Mass. 450, 451-452, 189 N.E. 209; Restatement: Restitution, § 82; Pomeroy, Equity Jurisprudence (5th Ed.) §§ 411, 1417-1418. In Empire Trust Co. v. Bartley & Co., Inc., 258 App.Div. 249, 251-252, 16 N.Y.S.2d 248, where comparable statements were made, it was pointed out that, if contribution were to be required from one cosurety in favor of another before the latter had paid more than his proportionate share of the debt, the creditor might still be able to recover the whole debt from the contributing cosurety except as by payment to the creditor the principal debt had been reduced. Contribution was not enforced before payment by the cosurety seeking contribution. No New York case has come to our attention in which a surety or guarantor, in advance of payment of more than his share of the principal obligation, has been granted equitable relief by way of exoneration against a cosurety or coguarantor in the form of an order that the latter pay his share of the obligation to the creditor.

In Restatement: Security, § 156, it is said that '[w]here sureties are under a duty of immediate performance to a creditor, a surety has a right of exoneration against the cosureties who have consentenced to his becoming a surety, to the same extent that upon performance he would be entitled to contribution.' With § 156 must also be read Restatement: Security, §§ 112, 144-147, 149-150; Restitution, §§ 76, 81, 82. The rule set out in § 156 of the Restatement has frequently been stated. See e.g. Brandt, Suretyship and Guaranty (3d Ed.) § 301; Williston, Contracts (Rev.Ed.) § 1275 (but see § 1278); Corbin, Contracts, § 931, notes 76-77, § 1150; Simpson, Suretyship, §§ 46, 49; Arant, Suretyship and Guaranty, §§ 74, 75; Stearns, Suretyship (5th Ed.) §§ 11.18, 11.25-11.31 esp. 11.26, where it said, 'Although it is the general rule that a surety must first make payment of the principal's debt before he can call upon his co-sureties for contribution, in certain situations equity gives a surety the right to call upon his co-sureties for exoneration before any payment is made. For example, if one of several co-obligors is called upon to pay the entire debt, a compliance with this demand might cause financial disaster to him, which his right of contribution after payment would not prevent.' See also Chafee and Simpson, Cases on Equity, 326n; Ames, Cases on Suretyship, 597, 598nn; 50 Am.Jur., Suretyship, § 301. The principal decision cited by most of the authors (see Restatement: Security, Tentative Draft No. 4, April 4, 1940, § 148, and notes, pp. 229-230) is Wolmershausen v. Gullick, [1893] 2 Ch. 514, 528-529. There a plaintiff, a surety's executrix, was given declaratory relief as to her right to enforce contribution from a cosurety, and conditional relief by which 'upon the [p]laintiff paying her own share, the [d]efendant * * * [was] to indemnify her against further payment or liability, and * * * [was] by payment to her or to the principal creditor or otherwise, to exonerate the [p]laintiff from liability beyond the extent of her own share.' The court intimated that, if the creditor had been made a party, the cosurety would have been directed to make immediate payment to the creditor of the cosurety's share. The amount of the claim had been established against the surety's estate of which the then plaintiff was executrix.

In effect, under the fair and sensible rule of the Wolmershausen case, (a) a court may decree specific performance of a matured joint principal obligation simultaneously by all the cosureties, who are bound equally to that joint obligation, and (b) that specific performance may be fairly conditioned upon performance by the plaintiff of his share of the joint obligation. The plaintiff thus is not put to the expense and risk of paying the whole joint obligation and seeking reimbursement, possibly at some hardship in financing the payment and because of the costs, inconvenience, and hazards of litigation. Instead, a court of equity enables him to pay, when it is due, no more than his own share of the joint principal obligation and the attendant expenses, at the same time forcing the others equally liable to pay their fair share, which eventually they could be required, at law or in equity, to reimburse to the plaintiff (once he has paid more than his share) by way of equitable contribution.

The Wolmershausen case was approved in Malone v. Stewart, 235 Pa. 99, 103, 83 A. 607,...

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