On November 23, 2021, the First Department issued a decision in Harry Spring Consulting LLC v. Esterson, 2021 NY Slip Op. 06543, holding that when a guarantor buys the debt it guaranteed, an action to collect from the co-guarantors is one for contribution, not enforcement of the guaranty, explaining:
Spring, as a co-guarantor, may recover against the co-obligor partners only by means of a cause of action for contribution. As a result, Spring will be able to recover from the co-obligor partners only to the extent he can show he paid in excess of his proportionate share of the debt. Spring acknowledges having used his personal funds to purchase the Citibank debt; accordingly, his creation of HSC as a vehicle by which to effectuate the purchase does not affect our determination. Moreover, although the guarantees were binding on and inured to the benefit of not only the parties but their assigns, the guarantees also contain a provision stating that they are governed by New York law; New York law, in turn, includes the rule regarding contribution as articulated in Panish and Mediclaim.
Neither the bankruptcy court’s authorization of the assignment from Citibank to HSC nor the co-obligor partners’ failure to object to the assignment changes the result in this case; the bankruptcy court and co-obligor partners may have endorsed the fact of the assignment, but they were silent as to its effect. Nor does the bankruptcy court’s authorization of the assignment have res judicata effect, as the court did not rule on the nature of the relationship between HSC/Spring, on the one hand, and the co-obligor partners, on the other — the relationship at the core of this action.
(Internal citations omitted).