McWILLIAMS against MASON.
New York Superior Court; General Term,
November, 1863.
• Cause of Action.—Pbinoipal and Sdbety.
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 tho 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 afterward obtained the lender faithfully performs his agreement, the surety or guarantor is not absolved from liability because tho principal debtor induced him to become bound by a concealment or misrepresentation as to the nature of the agreement, unknown to the lender.
Tho previous decision in this case in 6 Duer, 276, distinguished and approved.
Appeal from an order denying defendant’s motion for a new trial after verdict, and from judgment entered against him on the verdict.
The action was brought by James H. McWilliams against John M. Mason, upon the defendant’s guaranty of payment of the bond of Thomas Carlile, for fifteen hundred dollars. The bond and guaranty were given to Townsend, the plaintiff’s assignor.
The defence was 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 Ohio, 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 fifteen hundred dollars in money, lie *212cancelled a prior indebtedness of Carlile to him 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. one thousand two hundred and ninety-three dollars and fifty-five cents.
On the trial, which was had before Chief-Justice Bosworth and a jury, on the 10th of June, 1862, the defendant proved by Carlile that the first acquaintance of the latter with Townsend was' when Townsend made him a loan of one hundred and fifty dollars; that previous to such loan, Townsend had called on him for the payment of an old note of the witness then long past due, which he, Townsend, held; that shortly after the one hundred and fifty dollar loan, the witness applied to Townsend for a further loan of fifteen hundred dollars, and proposed to give him his bond, guaranteed by the defendant; that Townsend took the matter into consideration; that the witness obtained the defendant’s consent to guarantee 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 twelve hundred dollars, with some accumulated interest upon it; the witness agreed to take the mortgage and the note which Townsend held, amounting to one hundred and ninety-seven or one hundred and ninety-eight dollars, which had been protested for some time.
The fifteen hundred dollars was made up of the mortgage by Little, and interest, and the old note of Carlile, all of which were transferred by Townsend to Carlile on the execution and delivery of the bond and guaranty. Carlile negotiated the mortgage, and received upon it one thousand and seventy-five dollars in cash.
The defendant testified that Carlile applied to him to give him his guaranty, saying he had an opportunity of entering into business in Ohio, provided he could obtain fifteen hundred dollars ; that he could procure it of Townsend if he (defendant) would guarantee 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 *213testified to by Carlile. He said Carlile knew he had the Little mortgage, and wanted him 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 the 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 particulars. 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, viz: 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 guaraantee for the purpose of raising fifteen hundred dollars 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 cannot recover any thing: also
That if there was an interview 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 cannot'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 po reason to suppose that any misrepresentation had been made by Carlile to the defendant, then the plaintiff was entitled to recover, at all events the $1075 actually received 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 *214not be 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 defendants excepriecl.
The jury found a verdict for the amount of principal and interest of the mortgage.
Judgment was entered upon the verdict. Amotion was made at special term for a new trial, which was denied.
The defendant appealed from the judgment and order.
John W. Edmonds, for defendant, appellant
I. It was distinctly held by the general term of this court, on the former occasion (6 Duer, 276) that the manner in which Townsend had paid the consideration of the $1,500 bond exempted the defendant, as guarantor of the bond, from any liability. 1. The true question, therefore, to be presented to the jury was that contained in the first request of the defendant, viz': whether Townsend had advanced only the' Little mortgage and the notes. • 2. Eor if he had, then the cáse was brought within the rule laid down by the general term, that the guarantor was thereby discharged from liability. 3. And the judge, at trial term, has no right to depart from the rule laid down by the general term. 4. Besides, the defendant went into the trial upon the principle laid down at the general term, arid brought his case within that principle, and he has a right to complain that his case was tried on a principle entirely different. 5. If the court, at trial term, had submitted the case to the jury on the principle ruled at the general term, there would have been "no room for the jury to have found a verdict otherwise than for the defendant. 6. But the jury were permitted to find that though Townsend had paid for the guaranty by the rnort.gage 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. 7. 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 terra held that under that state of facts,- he was not entirely discharged, but was still liable for the amount actually received by the borrower. 8. Upon this decision of the general term, on which the de* *215fendant went down to trial, he has a right now to have a new trial.
II. The ruling of the general term was right, and the deendant was in law entirely discharged by the facts which the jury found, and the judge assumed to have been proved. 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, and thus varying the contract, the guarantor was discharged (Philips v. Austlins, 2. Taunt., 206; Evans v. White, 5 Bing., 485; Bacon v. Chesney, 1 Stark., 192; Glyn v. Hertell, 8 Taunt., 208; Bonser, v. Cox, 4 Beav., 380; Bonar v. McDonald, 1 Eng. L. and E., 1; Owen v. Hornan, 3 McN. & G., 378; U. S. v. Liffler, 11 Pet. 86; 1 Parsons on Cont., 497, note rr. Bigelow v. Benton, 14 Barb., 128; Ludlow v. Simonds, 2 Cai. Ca., 1; 1 Leeds v. Dunn, 10 N. Y., 469).
III. The discharge of the surety in such case is not merely pro tanto, but is intoto. 1. The bond and guaranty were for $1,500. The jury have found by their verdict that the sum ot $1,500 was never advanced to Carlile by Townsend, but only the amount of the Little mortgage, and the accrued interest, viz. $1,293.55. This arrangement between the principal mid the creditor being different from that to which the surety had agreed,-he is not bound by it at all for any sum. 2. Principle striotissimi 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.” 3. 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 cáses. (Walrath v. Thompson, 2 N. Y., 185; S. C., 6 Hill, 540; Hunt v. Smith, 7 Wend., 179; Miller v. Stewart, 9 Wheat., 703; Wright v. Johnson; 8 Wend., 512; Rathbone v. Warren, 10 Johns., 595; Witchen v. Hall, 5 B. and Cr., 269; Pidcock v. Bishop, 3 B. and Cr., 605; Stone v. Compton, 5 Bing. N. C., Thobald on Surety, 147).
A. R. Myett, for plaintiff, respondent,
cited 23 N. Y, 252; 6 Hill, 56; 21 N. Y, 531; 16 N. Y, 125; 4 Kern., 623; 5 Bing., N. C., 142, and argued that' the right of the *216plaintiff to recover in this case as governed by no other or different principle than that which governs the rights of bona fide holders of promissory notes and bills of exchange, purchasers of goods .and mortgages, who are always protected against the secret frauds of others (oases cited supra)—a totally different principle from that which charges a chose in action in the lands of an assignee with the. defence and equities of the original parties : that Carlile was the agent of the defendant in delivering the guarantee, and whether he had power to deliver it for the consideration actually received, is not the question. The question is, whether Townsend had a right to believe such a power existed—and he certainly had, and the defendant is bound by Carlile’s act. (21 N. Y. Rep., 581; 4 Kern., 623).
By the Court.—Monell, J.
J.—The learned Chief Justice before whom, this cause was tried, presented it for the consideration of the jury in three aspects :
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 the 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 $1,500, to give him the mortgage and note, then the defendant was not liable. This was the theory of the defendant’s defence, 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, on this view of the case, 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 of Townsend and the defendant, as to an alleged interview between them prior to the defendant’s giving the guaranty. And *217the 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 $1,075 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 having found a general verdict for the plaintiff, we must assume that the facts have been found against the defendant. Nothing was withheld which could be legitimately considered by the jury, and their finding must be conclusive on the facts.
As the case is presented to us, I do not see any necessity for examining the part of thé 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 were capable of separate examination. It is impossible to say upon which the jury found their verdict, or whether they found it at all. If they found it upon the second, then the defendant was not prejudiced by the legal propositions contained in the third ; for no one can doubt that if Townsend communicated the arrangement to the defendant, and he assented to it, he would be liable upon his guaranty.
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 other parts of the charge, let us see whether the exception was well taken.
When this case was before this court upon the former appeal, the facts in the case were materially different. Neither Townsend nor the defendant had been examined as witnesses ; and *218 the referee found, as- a fact, that Townsend had notice of the representation of Carlile to the defendant, that he, Townsend, would loan him fifteen .hundred dollars upon his bond, guaranteed 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 fifteen hundred dollars, to be advanced in cash to Ms principal for business purposes, was relieved from liability if the lender, knowing of such agreement, advanced but the equivalent of a thousand dollars, 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. Rone of the cases cited by the learned judge sanction any such doctrine. They are cases where the creditor has agreed to advance a certain sum, and then, without applying the guarantee, advanced á less sum; or, as in Evans v. Wagle, 5 Bing, 485, where the defendant guaranteed 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 hills 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 afterwards was departed from without the knowledge or consent of the guarantor. But I have been unable to find any case- valiere 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 of the agreement. And upon principle, as well as upon sound morals, lie should not be; for by becoming security he has induced the creditor to part with his money upon an agreement, formed before the guarantee 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. Howes, 21 N. Y., 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 his promise that he would not fill the blank for more than one thousand *219dollars. He violated his promise by inserting twelve hundred dollars, and causing it to be negotiated for that amount. The plaintiff discounted it without any knowledge oi tne fraud, and paid the whole proceeds to Webb. And the question was which party was to suffer oh account of the misplaced confil dence reposed in Webb. And the eom't say it was the defendants, who, by entrusting their blank acceptance to the disposition of Webb, enabled him to commit the fraud.
At most, in the' case at bar, the fraud consisted in a misrepresentation made by Carlile to the defendant. Townsend was not a party to the fraud. The defendant entrusted his guaranty to Carlile, reposing confidence in his representation, and Townsend parted with his unduly upon the security of the guaranty, without departing from his agreement. Hpon 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 his 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 no collusion with the borrower.
There was a conflict of evidence as to whether Townsend was acting in good faith, and whether Carlile had -made misrepresentations to, or had practiced a fraud upon the defendant. All these questions were fairly presented to the jury, 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 implication, 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 de*220fendant. • Whether there was any such direction 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.