Case ID: ny-sup-ct_56/html/0007-01.html
Source: Caselaw Access Project
Author: {"author": "Haight,' J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

THE FARMERS’ NATIONAL BANK OF FRANKLINVILLE, Plaintiff, v. EZRA T. VAN SLYKE and EDWIN C. SNYDER, Defendants.
    
      Fraudulent concealment which will avoid a contract of suretyship.
    
    In an action, brought to recover the amount of two promissory notes made by the defendant Van Slyke and indorsed by the defendant Snyder, it appeared that the plaintiff had been the holder of four notes made by the defendant Van Slyke, upon each of which there was the name of an indorser which turned out to be forged; that the officers of the plaintiff’s bank, after learning this fact, investigated the financial condition of the defendant Van Slyke and found him to be insolvent, and thereupon plaintiff’s cashier, in company with Van Slyke, went to see the defendant Snyder, to whom Van Slyke stated that one Adams, a director of the bank, had been his indorser; that his notes had become due and he wanted to renew them, and that he had had some little difficulty with Adams in reference to a store account, and did not like to ask him to again indorse for him; in fact Adams had not indorsed for him and the notes at the bank were not due. Nothing was said about the notes having been forged, and that fact was unknown to the defendant Snyder.
    The plaintiff’s cashier, who had not been present when the foregoing statements were made by Van Slyke to Snyder, thereafter met with them; drew the two notes in suit which were signed by Van Slyke and indorsed by Snyder, and took them to the bank. On the same evening, however, he saw Snyder and stated to him that it was rumored that the notes in the bank were forgeries, but said that it was not so and that they were all right.
    The court held that there was no question of fact in the case for the jury, and refused to submit to them the question whether the plaintiff was guilty of a fraudulent concealment of facts, and directed a verdict for the plaintiff for the amount due upon the notes.
    
      Held, that there was a withholding of facts by the cashier of the plaintiff from the defendant Snyder, which the plaintiff was in duty bound to have made known to Snyder before accepting him as an indorser upon the notes.
    Where a person taking a security knows certain facts and is present, having an opportunity to inform the proposed surety thereof, and having reason to believe that the proposed surety does not know such facts and is being deceived and defrauded into becoming such surety, it is the duty of such person to inform the surety of such facts, and the acceptance by him of the surety under such circumstances, without enlightening him as to the facts, constitutes a fraud which will avoid the contract of suretyship.
    Motion for new trial by the defendant Snyder, on exceptions ordered to be heard at the General Term in the first instance after a trial at the Cattaraugus Circuit.
    
      
      Alfred Spring, for tbe plaintiff.
    
      A. D. Scott, for tbe defendants.
   Haight,' J.:

Tbis action was brought to recover tbe amount of two promissory notes, made by tbe defendant Yan Slyke and indorsed by tbe defendant Snyder. Tbe evidence taken upon tbe trial tends to show that tbe plaintiff was tbe bolder of four notes made by tbe defendant Yan Slyke, amounting to tbe sum of $664. That upon each note there was tbe name of an indorser, which turned out to be forged. That tbe officers of the plaintiff’s bank, after learning of tbe fact that tbe names of tbe indorsers were forged, investigated tbe financial condition of tbe defendant Yan Slyke and found him to be insolvent. Tbe plantiff’s cashier, "Weed, then called upon him and told him he must furnish additional security. Thereupon they went to neighbors of Yan Slyke, who refused to indorse for him. Thereupon tbe defendant Yan Slyke suggested that tbe defendant Snyder, who lived at Yorkshire Centre, some miles distant, might indorse for him. Thereupon be, in company with "Weed, tbe plaintiff’s cashier, took tbe train and went to Yorkshire Centre. Tbe defendant Snyder being at work in tbe woods, "Weed remained at the hotel while Yan Slyke went for him and brought him to the hotel where "Weed was. That at tbe interview between Yan Slyke and Snyder in tbe woods and' on their way to tbe hotel, Yan Slyke stated that one Mr. Adams, a director of tbe bank, bad been his indorser; that bis notes bad become due and be wanted to renew them at tbe bank; that be bad bad some little difficulty with Adams in reference to a store account and did not like to ask him to again indorse for him; whereas, in truth and in fact, Adams had not indorsed for him, and tbe notes at tbe bank were not due. On arriving at tbe hotel tbe subject was talked over, but just what was said in "Weed’s presence Snyder was unable to remember, but did recollect that it was talked about tbe notes being given in renewal. Nothing was said about tbe notes having been forged, and that fact was unknown to the defendant Snyder. Weed drew tbe two notes in suit. They were signed by Yan Slyke and indorsed by Snyder, and "Weed took them and returned to tbe bank. He was there questioned by Adams, tbe director, as to whether be informed Snyder of tbe forgeries, and stated tbat be did not. Tbat Adams thereupon directed bim to return to Snyder’s and inform bim of tbat fact. Tbat on tbe same evening Weed returned to Yorkshire and there told Snyder tbat it was rumored tbat tbe notes in tbe bank were forgeries, but said tbat it was not so, tbat they were all right. Immediately thereafter tbe defendant Snyder made inquiry, and after finding tbat tbe indorser’s name upon tbe notes bad been forged, be went to tbe bank on tbe following Monday and notified tbe cashier of tbat fact, and stated to bim tbat be should not consider himself bolden on tbe notes; tbat “ it was a snap game to get bim to indorse tbe notes.” Tbe bank retained tbe new notes as well as the old notes upon wbicb tbe name of tbe indorser bad been forged.

At tbe conclusion of tbe evidence, tbe defendant requested tbe ■court to submit to the jury tbe following questions: First. Tbat tbe plaintiff was guilty of a fraud in procuring the indorsement of tbe defendant Snyder to tbe notes in suit. Second. Tbat tbe plaintiff was guilty of a fraudulent concealment of facts wbicb were unknown to tbe defendant Snyder at tbe time be indorsed tbe notes as would render tbe indorsement void in tbe bands of tbe plaintiff. Third. Tbat there was no consideration for tbe indorsement, and tbe plaintiff was not a bona fide bolder of tbe notes in 'suit, under tbe circumstances disclosed by tbe evidence, so far as •the defendant Snyder was concerned. Tbe court declined to submit id tbe jury any of tbe propositions so requested, but held tbat there was no question of fact in tbe case for the jury, and directed ■a verdict for tbe plaintiff for tbe amount due and unpaid upon tbe notes; to wbicb ruling and direction tbe defendant excepted.

Tbe serious question presented is, whether there was not a withholding of facts by tbe cashier of tbe plaintiff, wbicb be was in •duty bound to make known to Snyder, before accepting bim as an indorser upon tbe notes. Tbe rule upon this question is variously stated by different authors, and the authorities upon tbe subject are not all in strict harmony. In Story’s Equity Jurisprudence, at section 215, it is stated tbat If a party taking a guaranty from a surety conceals from bim facts wbicb go to increase bis risk and suffers bim to enter into tbe contract under false impressions as to. the real state of tbe facts, such a concealment will amount to a fraud because the party is bound to make the disclosure; and the omission to make it, under such circumstances, is equivalent to an affirmation that the facts do not exist. So, if a party knowing himself to be cheated by his clerk, and concealing the .fact applies for security in such a manner and under such circumstances as holds the clerk out to others as one whom he considers as a trustworthy person,' and another person becomes his security, acting under the impression that the clerk is so considered by his employer, the contract of suretyship will be void.”

Morgan, in his American Notes, in De Colyar on Guaranties, page 369, says: A person cannot be considered as guilty of a fraud by omitting to make known facts of an important character affecting the risk of the surety when it does not appear that he had an opportunity to do so. But if he does know such facts and has reason to believe that they are not known to the proposed surety, if information be sought from him, or if he have a suitable opportunity and the facts are of such a character that they are not found in the reasonable or usual course of that kind of business, and are such as to materially increase the risk, it is his duty to make them known.” * * * And again at page 370: “To receive a surety known to be acting upon the belief that there are no unusual circumstances by which his risk will be materially increased, well knowing that there are such circumstances, and having reasonable opportunity to make them known, is a legal fraud, for which the surety will be relieved from the contract.”

Daniel in his work on Negotiable Instruments, at section 1309, says: “ The contract of suretyship is a contract ubérrima} fidei / therefore, where one is induced to become surety for another as-drawer of a bill, or indorser of a note for accommodation, or otherwise, and there is any misrepresentation or fraudulent concealment of a material, fact, which if known would have induced the drawer or indorser or other surety not to enter into the contract, his contract is void from the beginning as between the surety and all parties privy to such misrepresentation or concealment.”

In the case of Stewart v. Small (2 Barb., 559), it was held that. where a person’s signature to a note as surety for another is. obtained by fraud and false pretenses, that circumstance avoids the note in the hands of a holder who has received the same without paying any consideration therefor; it cannot be said that a person has parted with value for a note when be has only given credit for the amount of it upon a paper wbicb be knew to be of no value.”'

In tbe case of Farrington v. The Frankfort Bank (24 Barb., 554), it was beld that where the plaintiff was induced, by the false and fraudulent representations of the drawer of bills of exchange to-indorse the same for his accommodation, and the bills were thereupon delivered to the cashier of a bank which then held protested drafts drawn by the same drawer upon the same drawees, there; being no agreement between the drawer and the cashier that the new drafts should be received by the bank in payment of the protested drafts, but the same were procured by the drawer and dehvered to the cashier, with the intention that they should be held as additional and collateral security to the protested bills, and the new drafts were subsequently passed to the credit of the drawer on the books of the bank, and he was charged with the protested bills-which still remained in its possession, the indorsement was deemed void, and the bank was not entitled to protection as a Iona fide holder. It was also held that the plaintiff might maintain an action against the bank before the maturity of the bills, to have theindorsement declared void in its hands, and to restrain the collection of the bills and have the indorsement erased therefrom.

In the case of Bostwick v. Van Voorhis (91 N. Y., 353-360), Earl, J., in delivering the opinion of the court in that case, says: “ Bartow was teller of the bank before he was appointed cashier thereof, and it is claimed that the directors, before his appointment as cashier, were aware of certain misconduct of his as teller, which they concealed from the sureties and which they were bound, acting in good faith, to have made known to them. It is undoubtedly true that if the directors had knowledge that Bartow had been dishonest and unfaithful in his office as teller, they were bound to apprise-the sureties of that fact, otherwise they could not hold them.” (See, also, Franklin Bank v. Cooper, 36 Me., 179-195; Atlas Bank v. Brownell, 9 R. I., 168-175; Evans v. Keeland, 9 Ala. [N. S.], 42-48 Owen v. Homan, 4 House of Lords Cases, 1852 to 1854, p. 1033-1035.) It will be observed that from what has been held and written upon the question, that it is not clear or always easy to determine just what facts or circumstances make a case in which' it is the duty of a person taking security from another to make known to the proposed surety tbe facts of tlie case, and thus warn him of his danger. But it appears to us that where a person taking security knows the facts and is personally present, haying an opportunity to inform the proposed surety and having reason to believe that the proposed surety does not know the facts and is being deceived and defrauded into becoming such, it is his duty to post him, and the acceptance of him as surety or indorser under such circumstances would be a fraud which would avoid the contract. In the case under consideration, Weed, the cashier, knew of the forgeries. Nothing was said about the forgeries in the presence of Snyder. All questions as to inferences to be drawn from the facts were for the jury, and it appears to us that the evidence was sufficient to raise a question for •the determination of the jury as to whether Weed did not have reason to believe and understand that Snyder was being defrauded •and deceived into indorsing the notes in suit to renew the notes at the bank, believing them to be good and valid notes then due, given in the ordinary course of business by a man in good standing at the bank

The motion for a new trial should be granted, costs to abide event.

Bradley and Dwight, JJ., concurred.

Motion for new trial granted, costs to abide event.