Lowman v. Yates, administrator

*Lowman v. Yates, administrator. Discharge of surety. A surety is not discharged, hy an agreement to give time to the principal debtor, which was procured by fraud ; the fraud vitiates the contract and renders it utterly void. A valid agreement to give time as to a portion of the debt, and taking notes for such part thereof, will not discharge a surety as to tíre residue; at most, it only operates as a payment pro tanto. Appeal from the general term of the Supreme Court, in the sixth district, where judgment had been entered upon a verdict in favor of the plaintiff. This was an action by George Lowman against William P. Yates and another, administrators of John Parmenter, deceased, upon a bond, dated the 13th June 1854, given to him by Anson C. Ely, as principal, and the said John Parmenter, as surety, conditioned that the said Anson C. Ely should, on or before the 1st July 1855, pay, take up, and deliver to the plaintiff, two mortgages, executed by him, amounting to $10,000, with interest from 1st January 1854. The defence was, that the plaintiff, without Parmenter’s consent, on the 8th July 1859, took from Ely four negotiable promissory notes, to be applied upon the bond, for the payment, in the aggregate, of $6956.69 of principal, in three, three and one-half, four and five years after date, and indorsed the same upon the bond, and thereby extended the time of payment, and discharged the defendant as such surety. It appeared on the trial before Parker, J., that when the plaintiff took the notes indorsed upon the bond, Ely represented himself to be worth $75,000, which representation was believed by the plaintiff, and which induced him to take the notes. Ely also represented at the same time, that he had paid plaintiff’s account, or overdraft, at the Elmira Bank, $1958.45, which was part of an indorsement of $2926, made at the time when the notes were indorsed; but he had not and never did *Pay ^ ^he evidence showed, that Ely was not worth the sum of $75,000, but that he was insolvent, and knew it. Ely never paid the mortgages, and what he did pay was indorsed upon the bond. The plaintiff first became acquainted with Ely’s circumstances, after his death, which took place in the spring of 1861. Letters of administration were issued to his widow, on the 7th October 1861, and this suit was brought on the 29th, against the administrators of Parmenter, who died on the 19th July 1858. The notes were tendered to the administratrix of Ely, before the suit was commenced, and were produced and offered to the defendant, upon the trial. One of the administrators of Parmenter having died, an order was entered that the action proceed against the survivor. The defendant took several exceptions to the admission of evidence, which, so far as material, are stated in the opinion. The judge, among other things, charged the jury, that, if the plaintiff took these notes, to be applied as payment upon the bond, when paid, he did, in fact, extend the time of payment, so far as the notes were concerned; but, in reference to the residue of the bond, it would not discharge the surety, but it would discharge his liability upon the bond, to the amount of the notes. The defendant excepted to this part^of the charge. The judge also charged: “ This obligation, in order to discharge the surety, must be one that may be enforced against the principal; and if he was induced to enter into it, by the fraud of the principal, he may take advantage of the fraud, and it would not operate to discharge so much as the notes represented. You have, therefore, to inquire, -whether those notes were imposed upon the plaintiff, by the fraud of Ely. Did Ely represent to Lowman, that he wras good for the amount of those notes; that he was worth $75,000; and was it then true, that he was not good ? You must find, from the evidence, that he knew that he was not good.” He also charged: “ If you find that the notes were not imposed upon Lowman, through any fraud on Ely’s part, then, to the amount of these notes, the bond has been paid, as against the defendant. It operates to discharge Parmenter from so much of *the indebtedness, in consequence of the effect of the notes to extend the payment upon the bond. The bond was due when the notes were given; the notes had the effect to extend the bond three, four and five years. The balance only could have been collected at that time. If, however, these notes were imposed upon the plaintiff, by such fraud as I have explained to you, they do not operate to discharge the defendant upon the bond, and the plaintiff is entitled to recover the amount which has not been paid upon the bond, deducting the undisputed payments, amounting, if plaintiff’s overdrafts on the bank were not paid by Ely, to $15,662.28, as sworn to by King. “ In order that the plaintiff may avail himself of the fraud of Ely, it is further necessary for you to find, that he returned the notes, or offered to return them, promptly, on ascertaining that Ely had defrauded him.I further charge, and submit to you, as necessary in order that the plaintiff may avail himself of the fraud, if there was any, that he must have returned them to Ely, or, if he was dead at the time of the discovery of the fraud, to his representatives. You may say, whether, if he offered to return them, he did so in a reasonable time. If you find that it was not done within such reasonable time, after ascertaining that he was defrauded, he cannot avail himself of the fraud.” The defendant’s counsel excepted to the instruction to the jury, that they might say whether, if the plaintiff offered to return the notes he took of Ely, he did it in a reasonable time. He also excepted to the instruction to the jury, that they might find that the plaintiff returned, or offered to return them, in a reasonable time; or that they might find, from the evidence, that the notes were returned, or offered to be returned, in such time or manner that plaintiff might avail himself of Ely’s fraud. Also, to the portion of the charge, that if the plaintiff was induced to enter into the obligation (take the notes) by the fraud of the principal, he might take advantage of the fraud, and' that it would not operate to discharge so much as the notes represented. He also excepted to each and every instruction tlmt ^ was fraud in procuring *or inducing the plaintiff to take the notes, the sureties were not, to any extent, discharged by the taking of the notes; to the statement in the charge, that “ you have, therefore, to inquire whether these notes were imposed upon the plaintiff by the fraud of Ely and to the instruction, that it was material to inquire whether Ely made false representations, or whether he knew them to be false. He also excepted to that part of the charge in which the judge instructed the jury, that if the notes were not imposed upon Lowman by any fraud on Ely’s part, the balance of the amount of the bond, over and above the notes, was due, and could have been enforced against the surety, before the notes became due; and to the instruction that the balance could have been collected at that time. The jury rendered a verdict in favor of the plaintiff, for $15,662.28, and the exceptions were directed to be heard, in the first instance, at general term, where a motion for a new trial was denied, and judgment entered upon the verdict; whereupon, the defendant appealed to this court. Benn, for the appellant. King, for the respondent. Also reported in 5 Trans. App. 320. [MAJORITY — Miller, J.] Miller, J. The principle is well settled, that where a creditor, by a valid and binding agreement between himself ‘and the principal debtor,' without the consent of the surety, extends the time of payment, and thus ties up the hands of the creditor, the surety is thereby discharged. (Gahn v. Niemcewicz, 11 Wend. 312; Colemard v. Lamb, 15 Id. 329; Miller v. McCan, 7 Paige 457; Bangs v. Strong, 7 Hill 250; Dorlon v. Christie, 39 Barb. 610; Fox v. Parker, 44 Id. 541; Smith v. Townsend, 25 N. Y. 479; Billington v. Wagner, 33 Id. 32.) The agreement must be one which can be enforced, and of such a character as will prevent the collection of the original demand, to secure which a new obligation was taken. It must also have a sufficient consideration, *so as to prevent the prosecution of the debt, by the owner, and to prevent the surety from compelling him to enforce it. In the case at bar, it was claimed, upon the trial, and evidence was introduced to prove, that the plaintiff was induced to enter into the agreement, and to take notes extending the time of payment, by the fraudulent representations made by the principal debtor as to his pecuniary circumstances and responsibility. Fraud vitiates all contracts, and if the notes indorsed upon the bond in suit, and now in question, were received by the plaintiff, by means of the false representations alleged, then there was no valid agreement to extend the time for the payment of the bond, which was binding upon the parties. The fraud which characterized and infected the transaction entirely vitiated the contract, and rendered it utterly illegal and void. The indorsements upon the bond, of the receipt of the notes as payments, were fruitless and unavailing, and the instrument remained in full force and effect, the same as if they never had been made. The plaintiff could prosecute the bond, the same as if the notes had never been given, and it would be no defence, under the circumstances, that the. principal had, by fraudulent means, obtained an extension of the time of payment. The principal exceptions taken upon the trial relate to the charge of the judge, and his refusal to charge as requested, and' I will examine those which are now pressed upon our attention. ' The judge very properly, I think, left it for the jury, to determine whether the notes were imposed upon the plaintiff by the fraud of Ely, and whether the agreement to take the notes and to extend .the time of payment was procured fraudulently. It cannot be denied, that there was considerable evidence in the case which tended to establish that Ely had falsely represented the situation of his property, and the jury were required to find that these representations were false, and that Ely knew them to be so, Clearly, there was no error in thus presenting the main issue involved in the case to the jury. The charge of the judge that the extension of the time of payment would not discharge the surety as to the residue *o'f the bond, beyond the amount . J of the notes, and all his remarks as to that branch of the case were, I think, correct and unobjectionable. The taking of the notes for a less amount than the sum due upon the bond, could, at most, but operate as a discharge of the surety to the amount of the notes, and left him unaffected as to the remainder. They were taken only as a conditional payment upon the bond, and to that extent only could they be effective. If there had been an actual payment of the bond by Ely to the amount of these notes, it would not have affected the right of action of the plaintiff against the surety for the remainder of the bond, and the receipt of the notes could have no greater effect than the payment of money. The theory upon which sureties are discharged is, a suspension of their remedy over—their right to demand that the creditor should sue the principal. (Myers v. Wells, 5 Hill 465.) The remedy here could not have been suspended, beyond the amount of the notes, and hence, there is no good reason why the surety should be discharged beyond that sum, even if a valid agreement had been made. If any alteration was made in the contract, it was merely to the extent of a payment pro tanto, and there would appear to be no valid and satisfactory reason, why the defendant has a right to claim any benefit beyond that. As the jury found adversely to the defendant upon the question of fraud, I do not see how he could have been injured by this portion of the charge. Nor does any question arise at this time whether two actions could be maintained upon the bond, the only question to be now determined being as to sustaining the present action. It was also proper to submit to the jury, to determine whether, if the plaintiff offered to return the notes, he did so in reasonable time. The plaintiff was not aware of Ely’s insolvency, until after his decease, and when this occurred, there was no one to whom the plaintiff could tender the notes, until an administrator was appointed. They were tendered to the administrator, soon after he was appointed, and this action was commenced, shortly after the tender was made. *It was probably enough, that the tender was made upon the trial. (Nichols v. Michael, 23 N. Y. 264, 267.) The evidence offered to prove the publication by the administrators of Parmenter, the surety, in 1859, of a notice to creditors to present their claims against the estate, was properly excluded, as it was not material to the issue upon trial, and could have no legitimate bearing upon the case. It was not offered for the purpose of procuring a certificate according to the provisions of 2 R. S., § 41 (p. 90); and, so far as any question of costs is concerned, it would more properly arise upon a motion. As the evidence was excluded, the request to charge as to the effect of such notice was properly refused. None of the exceptions to .the charge of the judge or to his refusal to charge can be sustained, and his rulings in regard to evidence were entirely correct. The judgment of the court below should be affirmed. Judgment affirmed.