Putnam v. Schuyler — 11 N.Y. Sup. Ct. 166

Majority

p. 166

JOHN R. PUTNAM, Executor, Respondent, v. LUCINDA W. SCHUYLER, Appellant.

Headnote

Guarantor—may prove fraud in principal as a defense to his liability—rule otherwise as to incompetency of principal to contract.

The defendant guaranteed the payment of notes given to the plaintiff’s testator by a person to whom the testator was accustomed to give advice, and over whom he had considerable influence. The defendant offered evidence to show that the notes were obtained by fraud, and that they were without consideration, which evidence was excluded. Held, that the evidence should have been received, and that proof that the notes had been obtained by fraud would have been a defense to the guarantor.

A party who assigns a note or bond for value, and guarantees its payment, cannot offer as a defense to its payment proof of its invalidity. The guarantor is also liable in cases in which the debt is justly owing, although from some defect or incapacity the principal is not liable on the instrument of which the payment is guaranteed.

Appeal from a judgment entered on the decision of the court. The action was brought to recover upon two promissory notes made by Katherine S. Henri ques and guaranteed by the defendant.

Matthew Hale, for the appellant.

Where such confidential rela

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tions exist, as were offered to be proved in this case to have existed between the plaintiff’s testator and Mrs. Henriques, the rule is well established, in this State, as well as in England, that the presumption is against the fairness of the transaction, and the burden of proof to repel the presumption is on the party holding the position of confidence. (Brock v. Barnes, 40 Barb., 521 ; Evans v. Ellis, 5 Denio, 640 ; Sears v. Shafer, 2 Seld., 268; Howell v. Ransom, 11 Paige, 538; Savery v. King, 39 Eng. L. and Eq., 569; Whelan v. Whelan, 3 Cow., 572 ; Gibson v. Jeyes, 6 Ves., 278; Brand v. Brand, 39 How. Pr., 193 .) Although this rule has more frequently been applied to the relation of attorney and client it is equally applicable where the relation is that of physician and patient. (Gridley, J., in Sears v. Shafer, 2 Seld., 272; Romilly, M. R., in Cooke v. Lamont, 13 Beav., 234; Kerr on Fraud, 192; Billage v. Southee, 9 Hare, 534; see, also, Dent v. Bennett, 4 Myl. & Cr. [18 Eng. Ch.], 269; Gibson v. Russell, 2 Y. & Coll. [21 Eng. Ch.], 104; see, also, the opinion of Lord Sugden in Aherne v. Hogan, Drury, 311, cited in note to Gibson v. Russell, 21 Eng. Ch., 120, 122.) This contract was not, in the strict sense of the word, a guarantee. (Leonard v. Vredenburgh, 8 Johns., 29 , 40.) A guarantee is a promise to answer for the payment of some debt in case of the failure of the person first liable for such payment. (Bouvier’s Dict.) Here the note was long past due; the person first liable .had failed to pay the debt, and was dead. The contract, if it had any validity, was to pay to Dr. Allen the debt due him from Mrs. Henriques on the notes. To this extent the defendant bound herself and no further, and to this extent and no further the answer admits her liability. (Thomas v. Williams, 10 B. & C., 664, 669.) A surety may set up duress of his principal as a defense. (Osborn v. Robbins, 36 N. Y., 365 , 372; Strong v. Grannis, 26 Barb., 122 , 127.) And may plead usury. (9 Paige, 197.) It is also settled that forbearance is a valid consideration for a promise to pay the debt of another, only to the extent of the right of the party forbearing. (Jones v. Ashburnham, 4 East, 435; Thomas v. Williams, 10 B. & C., 664, 669.)

John R. Putnam, respondent, in person.

If this action was against the personal representatives of Mrs. Henriques, such a

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defense might he available; but it is insisted that the defendant, as guarantor of the notes in suit, and in an action on her special contract of guarantee, has no right to set up such a defense. She cannot show any fraud, illegality, error or mistake in the inception of the notes. (Mann v. Eckford's Executors, 15 Wend., 502 ; Remsen v. Graves, 41 N. Y., 475 ; Lewis v. McMillen, 41 Barb., 420 , 431, 432 ; Gillespie v. Torrance, 25 N. Y., 306 ; Sterns v. Marks, 35 Barb., 565 ; McLaughlin v. McGovern, 34 id., 208, 211; Erwin v. Downs, 15 N. Y., 576 .) That the notes in suit were obtained by fraud, was a personal defense to Mrs. Henriques or her personal representatives. (Willard’s Eq. Jur., 607; 14 Johns., 407 ; 2 Cow., 195 , 238; 2 Johns. Ch., 252 .) The defendant was not a party to the notes ; she was a guarantor of their payment, and the action was on the guarantees; and the guarantees were special contracts separate from the notes. (4 Seld., 215; 20 N. Y., 337 ; 6 Barb., 285 ; 22 id., 516.) By the contract, defendant, for a valuable consideration, agreed that the notes should be paid. The words “ value received ” admit a good consideration for the guarantee. ( 22 Barb., 516 ; 24 Wend., 35 ; 23 N. Y., 495 ; 19 Wend., 557 .) Hence, by the terms of the written contract, entered into by the defendant for a valuable consideration, she became liable to pay the notes, and to allow her to show that the notes were invalid in whole or in part, as a defense in an action on her guarantees, would violate the terms of the written contract.

Mrs. Henriques, in her lifetime, made two notes to Dr. Allen, the plaintiff’s testator. After her death the defendant guarantied them, by writing under each, as follows:

“For value received I hereby guarantee the payment of the above note.

“L. W. SCHUYLER.”

On the trial the defendant offered to prove that Dr. Allen was the medical attendant of Mrs. Henriques; was in the habit of advising her as to financial and other matters; that sh% reposed ¿onfidence in him in relation to her affairs; together with certain other matters tending to show that the notes were obtained by fraud, and that they were without consideration. The evidence

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was objected to on the ground that, by executing the guaranty, the defendant had admitted the notes, and was estopped; that the defense of fraud was personal to Mrs. Henriques and her representatives; that the defendant could not impeach the settlement between maker and payee. The evidence was excluded, and the defendant excepted.

I assume, from the manner in which the case is presented, that it was not really claimed on the trial that these matters would not have been competent in behalf of the representatives of Mrs. Henriques. Their exclusion was on the ground that they were not competent in behalf of the guarantor. On this subject, of the right of a guarantor to set up defenses which would undoubtedly be valid in favor of the principal, there is an apparent conflict. But a little discrimination will show that the conflict is only apparent.

First. There is a class of cases in which the owner of a note or bond has assigned it, with a guaranty. In these, it has been held that the guarantor could not show that the instrument was invalid. It would be unjust to permit him to assign an invalid instrument; to guaranty its payment or collection; to receive the value, and then, when sued on his guaranty, to assert that the original instrument was invalid. He is estopped.^[11] The case of Mann v. Eckford’s Executors,^[12] is of this character. The Life and Fire Company, of which Eckford was president, assigned to the Western Insurance Company a bond and mortgage. Eckford guarantied the bond and mortgage, and the money paid for it, expressing the amount. The defendants, his executors, were not allowed to set up usury in the bond and mortgage, against the plaintiff, the receiver of the Insurance Company.

Second. The guarantor is held liable in those cases in which the debt is justly owing, although, from some defect or incapacity, the principal is not liable in an action. Thus, where the makers of a note were married women, incapable (then), of making a note, the accommodation indorser was still held hable,^[6] The guarantor of

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a lease is liable, although only one of the two lessees executed the lease.^[11] In that case, Judge Baooít speaks of this' class of cases, mentioning,- among others, the guaranty of goods sold to an infant. So the guarantor of a note purporting to be made by two, where the signature of one is unauthorized, is liable.^[12] In all these cases the debt is justly owing to the plaintiff; and through no fault of his, he is unable to recover against the principal, or one of the principals.

Third. A guarantor cannot set up, by way' of set-off, a claim distinct from that on which he is sued. The right of set-off (that is, as distinguished from a defense arising upon the claim itself) belongs only to the principal debtor, and can. be used only at his option. Such is the doctrine of Gillespie v. Torrance,^[6] and this ' is all which that case decides on this point. By indirection, however', it implies that a defense to thé claim (as distinguished from a set-off), is available to the guarantor. To the same effect is Lewis v. McMillen.^[7]

Fourth. But there are still other cases which are not embraced within either of these three preceding classes: cases where the plaintiff is the original party to the contract, and therefore has not received it by assignment from the guarantor; where the proposed defense is not the in competency of the principal to contract; and where it arises out of the contract itself, and not by way of set-off. In these the guarantor has been permitted to make, the defense.

He has thus, as to the original contract, been allowed to set up usury;^[8] duress of his principal;^[9] partial failure of consideration.^[10] And I find no case which intimates that when a person has obtained an obligation from a principal by fraud, he can wipe out the fraud by obtaining a surety to the obligation. Assuming that, in justice and equity, the obligee, by reason of fraudulent acts on his part, has either no claim, or a less claim, against the principal, I see no reason why he should stand in a better position against the guarantor.

‡ ‡ 25 N. Y., 306 .

§ § 41 Barb., 420 .

|| || Morse v. Hovey, 9 Paige, 197; Parshall v. Lamoureaux, 37 Barb., 189 .

¶ ¶ Osborn v. Robbins, 36 N. Y., 365 ; Strong v. Grannis, 26 Barb., 122 .

** * Sawyer v. Chambers, 43 Barb., 622 .

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The distinction which has been pointed out, viz., that inability on the part of the principal to contract is no defense to the guarantor, while-fraud in the contract is, may be found in the civil law. This says that personal defenses do not pass to others, but that defenses, inherent in the thing, such as, among others, fraud and duress, are available to sureties.^[11] “ If, in the principal obligation, there is any essential vice which may annul it, as if it has been contracted by force, if it is contrary to law, or to good manners, if it be founded only on a fraud, or on some error which may suffice to annul it; in all these cases the obligation of the surety is likewise annulled.”^[12]

The defendant offered to prove acts of the plaintiff’s testator, tending to show that he obtained the notes improperly from the maker; that he took advantage of her confidence in him, and that she did not owe him. If these facts be true, he ought neither to recover of her representatives on the notes, nor of the defendant on her guaranties.

The judgment should be reversed, and a new trial ordered, costs to abide the event.

Present — Learned, P. J., Boardman and James, JJ.

Judgment reversed, and new trial'ordered, costs to abide event.

* Dig., 44,1, de exeeptionibus, c. 7, § 1 ; Cod. 3, 24 (23) de fdejuss, 2.

† † Strahan's Domat, bk. 3, tit. 4, § 5, art. 2; id., bk. 3, tit. 4, § 1, art. 10.

Footnotes

* Remsen v. Graves, 41 N. Y., 475 ; Zabriskie v. C., C. and C. R. R. Co., 23 How. (U. S.), 399.
† † 15 Wend., 503 .
‡ ‡ Erwin v. Downs, 15 N. Y., 576 ; see Kimball v. Newell, 7 Hill, 116 .
* McLaughlin v. McGovern, 34 Barb., 208 .
† † Sterns v. Marks, 35 Barb., 565 .