Hyperlawhypertext legal database McWilliams v. Mason 24 N.Y. Super. Ct. 576

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McWilliams v. Mason

24 N.Y. Super. Ct. 576 1 Rob. 576 Court N.Y. Super. Ct. Decision date 1863-11-28 English

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p. 576
John H. McWilliams, plaintiff and respondent, vs. John M. Mason, defendant and appellant.

Headnote

1. Although a surety or guarantor who agrees to become hound for a certain sum to he loaned in cash to his principal for particular purposes, is relieved from liability if the lender, knowing of such agreement, advances the amount merely by transferring securities for a part and adjusting the residue by discharging an old debt; yet where the agreement of the lender to make such an advance upon the guaranty is first made, and the guaranty having been afterwards obtained, the lender faithfully performs his agreement, the surety or guarantor is not absolved from liability because the principal debtor induced him to become bound by a concealment or misrepresentation as to the nature of- the agreement, unknown to the lender.
2. The previous decision in this case in 6 Duer, 276 , distinguished and approved.
(Before Bosworth, Ch. J. and White and Monell, JJ.)
Heard November 9, 1863;
decided November 28, 1863.
This was an appeal from an order denying the defendant’s motion for a new trial after verdict, arid from a judgment entered against Mm on the verdict.
The action was upon the defendant’s guaranty of payment of the bond of Thomas Carlile for $1500. The bond and guaranty were given to Townsend, the plaintiff’s assignor. The defense waé that the defendant had been induced to sign the guaranty, upon the representations of Carlile, that he wanted the money to go into business with in OMo,. and that Townsend would advance the money.
The defendant, in his answer, averred that Townsend knew of this representation, and that instead of advancing the $1500, in money, he canceled a prior indebtedness' of Carlile to Mm, for part of the amount, and transferred for the balance a mortgage made by one Little, on property in Brooklyn, upon which was due, at the time of the transfer, the sum of $1293.55.
On the trial, which was had before Chief Justice Boswobth and a jury, on the 10th day of June, 1862, the defendant proved by Carlile, that the first acquaintance of the latter with Townsend, was when Townsend made Mm a loan of $150; that previous to such loan Townsend had called on him for
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payment of an old note of the witness then long, past due, which he, Townsend, held; that shortly after the $15.0. loan, the witness applied to Townsend for .a further loan of $1500, and proposed to give him his bond guarantied by the defendant ; that Townsend took the matter into consideration ; that the witness obtained the defendant’s consent to guaranty his bond for such a loan; that he informed Townsend of such consent ; Townsend then said he had not the money, but he had a mortgage for $1200, with some accumulated interest upon it; the witness agreed to take the mortgage and the note which Townsend held, amounting to $197 or $198, which had been protested for some time.
The $1500 was made up of the mortgage by Little' and interest, and the old note of Carlile, all of which was transferred by Townsend to Carlile on the execution and delivery of the bond and guaranty. Carlile negotiated the mortgage, and received upon it $1075, in cash.
The .defendant testified that Carlile applied tó him to give him his guaranty, saying he had an opportunity of entering into business in Ohio, provided he could obtain $1500; that he could procure it of Townsend, if I would guaranty his bond. He further testified that he signed the guaranty in Townsend’s presence, and that Townsend did not disclose to him what he was going to let Carlile have for the bond and guaranty.
Townsend, who was examined as a witness by the plaintiff, gave a somewhat different relation of the transaction from that testified to by Carlile. He said Carlile knew he had the Little mortgage and wanted to let him have it; and made a proposition to give him his bond and the guaranty for the mortgage and note; that he offered the guaranty of the defendant; that after inquiring into the responsibility of the defendant, he consented to exchange the Little mortgage and note for the bond and guaranty. This witness testified that he declined peremptorily loaning Carlile any money, and that he never entertained any such proposition whatever* The witness further contradicted- Carlile in several important par
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ticulars. And he testified-to a conversation with the defendant before the guaranty was signed, in which he informed the defendant of the entire transaction • told him what he was going to give Carlile, namely, the mortgage and Carlile’s note, and that the defendant signified his assent and approved of it. The defendant denied that any such statement was made to him.
• The defendant’s counsel requested the court to charge, that if the defendant entered into the guaranty for the purpose of raising $1500 in money, to assist Carlile to go into business, and' Townsend, instead of advancing that amount, or any thing in money, gave Carlile only the Little mortgage and the $197 note, and did not communicate to the defendant the fact that he was advancing the mortgage and the note, the plaintiff can not recover any thing. Also,
That if there was an intention between Townsend and the defendant prior to the consummation of the transaction between Carlile and Townsend, and Townsend then omitted to inform the defendant what he had agreed to give Carlile on the bond and guaranty, the plaintiff could not recover.
The judge refused so to charge, and the defendant excepted.
The court, among other matters, substantially charged the jury, that if Townsend believed that the nature of the transaction was known to the defendant • and he had no reato suppose that any misrepresentation had been made by Carlile to the defendant, then the plaintiff was entitled to recover, at all events the $1075 actuallyreceived in money. And further, if the jury believed the mortgage was intrinsically worth the sum secured by it, or that Townsend so regarded it, then the plaintiff was entitled to recover the sum secured by the mortgage, with interest from the time of its maturing to this date. But that he would not he entitled to recover the amount of the note, which was surrendered, because, upon the evidence, it was worthless.
To this part of the charge the defendant excepted.
The jury found a verdict for the amount of principal and interest of the mortgage.
p. 579
Judgment was entered upon the verdict.
A motion was made at special term, for a new trial, which was denied.
The defendant appealed from the judgment and order.
John W. Edmonds, for the defendant, appellant.
It was distinctly held by the general term of this court, on a former appeal in this case, ( 6 Duer, 276 ,) that the manner in which Townsend paid the consideration of the $1500 bond, exempted the defendant, as guarantor of the bond, from any liability. The true question, therefore, to be presented to the jury was, whether Townsend had advanced only the Little mortgage and the notes. If he had, the case was brought within the rules laid down by the general term, and the judge, at trial term, had no right to depart from that rule. The defendant went to trial upon the principle so laid down at the general term, and brought his case within that principle. If the court, at trial term, had submitted the case to the jury on that principle, there would have been no room for the jury to have found a verdict otherwise than for the defendant. But the jury were permitted to find that though Townsend had paid for the guaranty by the mortgage and the old notes, yet the guarantor was liable for the amount actually received by the borrower, and was not exempted from liability, as the general term had held.
I. The question presented was, whether the guarantor was entirely discharged from liability. The general term held that under a certain state of facts he was; the trial term held that under that state of facts, he was not so, but was still liable for the amount actually received by the borrower. Upon this decision of the general term, on which the defendant went to trial, he has a right now to a new trial.
■ 1. The ruling of the general term was right, and the defendant was in law entirely discharged by the facts which the jury found, and the judge assumed to have been proved.
II. The lender, without the knowledge or consent of the guarantor, but by collusion With the borrower, diverted the
p. 580
guaranty from the purpose for which it was given, and thus varying- the contract, the guarantor was discharged. (Phillips v. Astlins, 2 Taunt. 206. Evans v. White, 5 Bing. 485. Bacon v. Chesney, 1 Stark. 192. Glyn v. Hertel, 8 Taunt. 208. Bonser v. Cox, 4 Beav. 380. Bonar v. McDonald, 1 Eng. L. and Eq. 1. Owen v. Hornan, 3 McN. & G. 378. United States v. Liffler, 11 Pet. 86 . 1 Parsons on Cont. 497, note rr. Bigelow v. Benton, 14 Barb. 128 . Ludlow v. Simond, 2 Cai. Ca. 1. Leeds v. Dunn, 10 N. Y. Rep. 469 .)
III. The discharge of the surety in such case is . not merely pro tanto, but is. in toto.
1. The bond and guaranty were for $1500. The jury have found by their verdict that the sum of $1500 was never advanced to Carlile by Townsend, but only the amount of the Little mortgage and the accrued interest, viz. $1293.55. This arrangement between the principal and the creditor being different from that to which the surety had agreed, he is not bound by it at all for any sum.
The principle strictiisimi juris governs the case, and the surety has a right to say: “ I did not enter into that agreement, and I am not bound by it,”
2. Such is the whole current of authority in England and in this country, and the idea that the surety can be held for any part performance is utterly repudiated in all the cases. ( Walrath v. Thompson, 2 N. Y. Rep. 185 . S. C. 6 Hill, 540 . Hunt v. Smith, 17 Wend. 179 . Miller v. Stewart, 9 Wheat. 703 . Wright v. Johnson, 8 Wend. 512 . Rathbone v. Warren, 10 John. 595 . Whitchen v. Hall, 5 B. and Cr. 269. Pidcock v. Bishop, 3 id. 605 . Stone v. Compton, 5 Bing. N. C. Rep. 142. Theobald. on Surety, 147. Glen v. Hertell, 8 Taunt. 208. Pitman, on P. and Surety, 217. Burge on Surety, 255. Nixon v. Palmer, 13 N. Y. Rep. 398 .)
A. R. Dyett, for the plaintiff, respondent. '
He argued that the right of the plaintiff to recover was governed by the same principle as that which governs the rights of bona fide holders of promissory notes and biffs of
p. 581
exchange, purchasers of goods and mortgages, who are always protected against the secret frauds of others, ( 23 N. Y. Rep. 252 ; 6 Hill, 56 ; 21 N. Y. Rep. 531 ; 16 id. 125; 4 Kern. 623; 5 Bing. N. C. Rep. 142;) which is a totally different principle from that which charges a chose in action in the hands' of an assignee with the defense and equities of the original parties. He declared that Carlile was the agent of the defendant in delivering the guaranty. Whether he had power to deliver it for the consideration actually received was not the question. The question was whether Townsend had a right to believe such a power existed. He certainly had, and the defendant is bound by Carlile’s act. ( 21 N. Y. Rep. 531 . 4 Kern. 623.)

The learned Chief Justice, before whom this cause was tried, presented it for the consideration of the jury, in three respects :

First. If the jury should find that the defendant was applied to, to guaranty the bond, on a representation that Carlile wished the money for the purpose stated, and on a representation that Townsend would advance the money on bond and guaranty; and if the jury also believed that Carlile informed Townsend that he had made this application to the defendant, who had agreed to.guaranty the bond, and that afterwards, without any communication whatever with the defendant, Townsend arranged with Carlile, instead of loaning $1500, to give him the mortgage and note, then the defendant was not liable. This was the theory of the defendant’s defense, and the learned justice followed the decision of this court, when the Case was before them on appeal from a former judgment. ( 6 Duer, 276 .) The view of the law thus presented, was most favorable to the defendant, and he took no exception. The jury were left to determine, upon the evidence, whether in this view of the ease the defendant was entitled to their verdict.

The second aspect in which the case was presented, involved the determination by the jury,-between the conflicting evidence

p. 582
of Townsend and the defendant, as to an alleged interview between them prior to the defendant’s giving the guaranty. And the jury were instructed, that if they believed that in that interview, Townsend communicated to the defendant that ■ he was to give Carlile the mortgage and note for the bond and guaranty, and that the defendant assented to it, the defendant was liable.

The third aspect was, that if the jury should find that Townsend believed that the transaction, as agreed to between him and Carlile, was known to the defendant; and had no reason to suppose any misrepresentation had been made by Carlile to the defendant, then the plaintiff was entitled to recover the $1075 actually received in money. And if they should further find, that the mortgage was intrinsically worth the sum secured by it, the plaintiff should have a verdict for the whole principal secured by the mortgage) with interest from the time of its maturity.

To this part of the charge the defendant excepted.

Each of these three propositions, it will be seen, involved the consideration by the jury, of the evidence pertinent to .each, and they haying found a general verdict for the plaintiff, we must assume that the facts have been found against the defendant. Hothing was withheld which could be legitimately considered by the jury, and their finding must be conclusive, upon the facts.

As the case is presented to us, I do not see any necessity for examining the part of the charge excepted to. Each of the three propositions contained in the charge was distinct, and applied the law to a different state of facts. They were wholly independent of each other, and even capable of separate examination. It is impossible to say, upon which the jury found their verdict, or whether they found it upon all. If they found it upon the second, then the defendant was not prejudiced by the legal proposition contained in the third; for no one can doubt that if Townsend communicated the arrangement to thé defendant, and he assented to it, he would be liable upon his guaranty.

p. 583
Assuming, however, that the jury founded their verdict upon the propositions contained in the part of the charge excepted to, either wholly, or in connection with the other parts of the charge, let us see whether» the exception was well taken.

When this case was before this court upon the former ap-. peal, the facts in the case were materially different. Neither Townsend nor the defendant had been examined as witnesses; and the referee found as a, fact, that Townsend had notice of the representation of Oarlile to the defendant, that he, Townsend, would loan him $1500, upon his bond, guarantied by the defendant. Upon this state of facts, the very able opinion of the general term was pronounced; and they properly decided, that the defendant having agreed to become bound for $1500, to be advanced in cash to his principal tor business purposes, was relieved from liability, if the lender, knowing of such agreement, advanced but the equivalent of $1000, and adjusted the residue by discharging an old debt against the principal.

The court did not decide, nor did they intend to decide, that any misrepresentation made by the principal to procure the guaranty, wholly unknown to the lender, would vitiate the obligation. None of the cases cited by the learned judge sustain any such doctrine. They are cases where the creditor has agreed to advance a certain sum, and then without apprising the guarantor; has advanced a less sum; or, as in Evans v. Wagle, (5 Bing. 485,) where the defendant guarantied the plaintiff to the extent of £50, for any gold he might supply Evans, for the purpose of working in his business, and the plaintiff discounted the bills of Evans, and paid him partly in money and partly in gold. • In all these cases, the consideration for the guaranty was the agreement to do a certain thing, which after-wards was departed from, without the knowledge or consent of the guarantor. But I have been unable to find any case where the agreement between the creditor and principal debtor has been kept, that the surety or guarantor has been absolved from liability, for the reason that the principal debtor has concealed or misrepresented to the guarantor the true nature

p. 584
of the-agreement. And upon principle, as well as upon sound morals,-he should not he ; for by becoming security he has induced" the creditor to part with his money, upon an agreement, formed before the guaranty was made, which was the ■basis of the guaranty, and which he has faithfully kept. But there is authority for this.

In Van Duzer v. Howe, ( 21 N. Y. Rep. 531 ,) the defendants wrote their acceptance" on the bill and entrusted it to Webb, while it was in blank" as to the amount, relying upon Ms promise, that he would not fill the blank for more than $1000. He violated his promise by inserting $1200, and causing it .to be negotiated for that amount.

" The"'plaintiff discounted it without any knowledge of the fraud and paid the whole proceeds to Webb, and the" question was, which party was to suffer on account of the misplaced confidence reposed" in Webb. And the court say, it was the defendants, who, by entrusting their blank acceptance to the disposition of Webb, enabled Mm to commit the fraud.

- At most, in the "case at bar, the fraud consisted in a misrepresentation made by Oarlile to the defendant. Townsend was not a: party to the fraud. Th'e defendant entrusted his guaranty to Oarlile, reposing confidence in his representation, and Townsend parted with his money upon the Security of the guaranty, without departing from his agreement. Upon the authority of the case last cited, the defendant and not. Townsend must suffer for the misplaced confidence.

The appellant’s counsel substantially admits this to be the correct view; for Ms second point is, “ that the lender, without the knowledge or consent of the guarantor, but by collusion- with the borrower, diverted the guaranty from the purpose' "for"which it was given.”' Unfortunately for him, however, the jury did not so find; On the contrary, they found there was ho collusion with the borrower.

There was a conflict of evidence, as to whether Townsend was ■acting-in good faith, and whether Oarlile had made misrepresentations to; or had practiced a fraud upon the defendant." All these questions were fairly presented to the jury;

p. 585
and the jury having found that Townsend's connection with the transaction was not mala fides; and that if any fraud was practiced by Carlile upon the defendant, Townsend was not, even by indirection, a party to it, I can discover no reason why the defendant should not be liable.

In my judgment, there was no error, in the portion of the charge excepted to by the defendant.

If the views which I have here expressed are correct, then it follows that there was no error in refusing to charge as requested by the defendant. Had Townsend deviated from his agreement with Carlile, made before the guaranty was signed, he would have been bound to have communicated it to the defendant. Whether there was any such deviation was a question upon the evidence, for the jury, and was properly left to them.

The restriction of the recovery to the amount secured by the mortgage was most favorable to the defendant. But as Carlile’s liability on the bond was only to the extent of the value received by him, so the defendant could not be charged for any greater sum.

I think the judgment and order appealed from should be affirmed.

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