
    Friedrich Nachod and Others, Appellants, v. Charles T. Hindley, Respondent.
    First Department,
    April 5, 1907.
    Guaranty—contract construed—failure of obligee to exhaust remedy on assignments made by principal—judgment overruling demurrer based upon order—permission to withdraw demurrer.
    The plaintiffs had entered into an agreement with a corporation of which the defendant was secretary whereby they were to- make advances to the corporation and. all sales of its goods were to be made through the plaintiffs, all accounts being payable to them. In case of failure of customers to pay, the loss was to he shared equally between the plaintiffs and the corporation. Thereafter the defendant secretary personally guaranteed to hold the plaintiffs harmless from any loss arising out of business transactions with the corporation. In an action against the defendant personally upon his guaranty,
    
      Held, that it was a good defense to allege that the plaintiffs as assignees of the collectible claims of the corporation had neglected to collect the same, failed to bring actions against the debtors and had not exhausted their remedies against them or the corporation;
    That the complaint was defective in that it did not show that the plaintiffs had been and will be unable to realize from the assigned accounts the advances made by them to the corporation;
    That an order overruling a demurrer and directing an interlocutory judgment is a decision and effective as the basis of the interlocutory judgment;
    That a j udgment overruling a demurrer is erroneous in so far as it does not permit the withdrawal of the demurrer.
    Appeal by the jfiaintiffs, Friedrich Yachod and- others, from an interlocutory judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Yew York on the 28th day of December, 1906, upon the decision of the court, rendered after a trial at the Yew York Special Term, overruling the plaintiffs’ demurrer to the separate defense contained in the amended answer.
    
      George T. Hogg, for the appellants.
    
      Wilfrid W. O'Weil, for the respondent.
   McLaughlin, J.:

In January, 1904, plaintiffs’ firm, as then composed, entered into an agreement with the English-Greene Company, a domestic corporation, of which the defendant was secretary, under which they were to make certain advances to the Greene Company and all sales of its goods were to be made through them ; they were to send out all goods sold and all accounts were payable to them, the balance over advances and commissions being remitted by them from time to time to the Greene Company ; they were to have a twenty per cent margin at all times of - all outstanding accounts and, in case of the failure of any of the customers to pay their bills, the loss was to be shared equally between the plaintiffs and the Greene Cdmpany. In February, 1904, the defendant entered into an agreement with the plaintiffs, of which the following is a copy:

“Hew York, February'4d,h, 1904.
“ Messrs. ICnaxjth, Haohod & Kuhne,
“ 13 William Street, Oity:
“Gentlemen.— Referring to the memorandum of agreement which the English-Greene Company, Inc., signed with you oh January 25th, 1904, I hereby confirm to you that I, as an officer in the said company, guarantee hereby to personally hold you harmless for any losses which may arise to you out of any business transactions which you have had or may have with the English-Greene Company, Inc., in consideration of your continuing advancing money to the said corporation..
“Yours truly,
“CHARLES T. HIHDLEY.”

In May, 1906, the plaintiffs brought this action predicating their right to recover upon the agreement-just quoted. The complaint sets out the agreement, also the agreement with the English-Greene Company, and alleges that the plaintiffs made large advances to such company pursuant to the agreement; that some $6,000 thereof remains unpaid; and tliah the company is insolvent and has been adjudicated a bankrupt.

As a separate defense the answer alleges that all of the accounts for goods sold and delivered by the Greené Company were assigned from time to time to the plaintiffs, who, under the agreement, were to collect the same and reimburse themselves for the advances made, bearing" one-half of the loss if any proved uncollectible; that the. plaintiffs still hold various accounts, the number and amount being ■unknown to defendant, all or most of which are collectible, and could have been collected with due diligence, but plaintiffs have failed and neglected to collect the same; that they have brought no "actions against the parties owing the accounts, nor taken the proper- and necessary steps to. collect the same; and have not exhausted their remedies .either against the parties owing the accounts or against the Greene Company.

The plaintiffs demurred to this defense upon the ground that it was insufficient in-law upon the face thereof. The demurrer was overruled and leave given to the plaintiffs, upon payment of costs, to serve an amended complaint. An interlocutory judgment was entered to this effect, from which plaintiffs appeal.

I am of the opinion, that the demurrer was properly overruled. The obligation assumed by the defendant was that of a guarantor. His agreement, of course, must be read in connection with the plaintiffs agreement with the Greene Company, to which it expressly refers. His guaranty, it seems to me, binds him to repay to the plaintiffsi all losses sustained by them arising under that agreement. All accounts for goods sold by the Greene Company were sent out in the name of the plaintiffs, and all payments for such goods were made to them, and after deducting their advances (which it was provided should not be more than eighty per cent of the amount of such bills), they were to remit the balance to the company, and no loss can be said to have occurred within the meaning of the agreement until the accounts collected failed to realize the amounts advanced by the plaintiffs upon them. The agreement clearly contemplated, as it seems to me, that the bills were to be collected by the plaintiffs. They delivered the goods to the customers of the Greene Company; all bills were sent to such customers in their name, and the customers paid the bills to them. The title to these claims was in the plaintiffs, and they were obligated, by reason of the arrangement between them and the Greene Company, to collect the bills in so far as they reasonably could.

The complaint is defective in that it does not show that the plaintiffs have been and will be unable to realize from the accounts the advances made to the Greene Company, and for which a recovery is sought in this action. If the plaintiffs still have in their hands accounts from which they can realize the amounts sought to be recovered, then they cannot maintain the action, and for that reason the defense pleaded is a complete and not a partial defense. This seems to have been the view of the court at Special Term, inasmuch as leave was given to the plaintiffs to serve an amended complaint.

Appellants also contend that the judgment is erroneous, in that it is not based upon a decision, but the order overruling the demurrer and directing an interlocutory judgment is, in effect, a decision and is the basis of the judgment. (Rankin v. Bush, 102 App. Div. 510; affd., 182 N. Y, 524; Garrett v. Wood, 57 App. Div. 242; Morse v. Press Pub. Co., 49 id. 375.)

The judgment, however, is erroneous, in so far as it does not permit the plaintiffs' to withdraw the demurrer. (National Contracting Co. v. Hudson River Water Power Co., 110 App. Div. 133.) Before the plaintiffs can serve an amended complaint they must withdraw their demurrer.

The judgment appealed from, therefore, should be modified by permitting the plaintiffs to withdraw their demurrer, and as thus modified affirmed, without costs to either party on this appeal.

Patterson, P. J., Houghton, Scott and Lambert, JJ., concurred.

Judgment modified as directed in opinion, and as modified affirmed, .without costs. Settle order on notice.  