Court Opinion

ID: 6566258
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:20:04.386866+00
Date Added: 2024-06-11T15:56:44.592525
License: Public Domain

Gabbert, C. J.,
delivered the opinion of the court.
The parties stipulated that the judgment in the bankruptcy proceedings should be received in evidence. They also stipulated that facts agreed upon could be explained or extended in their effect by other testimony not contradictory to those stipulated, consequently évidence falling within this stipulation was admissible. The evident purpose of introducing the judgment was to prove that the chattel mortgage had been declared invalid. Under the stipulation, testimony which would establish what facts and issues were determined in the proceedings in which that judgment was rendered, was therefore, admissible, for the reason that, it would explain the effect of such judgment. For this purpose the findings of fact, statement of the case ana the opinión of the court were competent. Russell v. Place, 94 U. S, 606, 24 L. Ed. 214 ; 1st Freeman on Judgments, sec. 273 ; 23 Cyc., page 1538; Washington Gas Co. v. District of Columbia, 161 U. S. 316, 40 L. Ed. 712, 16 Sup. Ct. 564; Hood v. Hood, 110 Mass. 463. In other words, it having been stipulated that the judgment in question should be received *459in evidence, and that testimony which did not contradict that agreed upon, but extended or explained it could be introduced, it was competent to show in the manner indicated what facts were thereby determined, and by so doing the situation is the same as though the judgment, introduced by stipulation of parties, had recited the precise ground upon which it was based, and to this extent it was proof of such facts.
From the facts there can be no question but that the purpose of the bank in loaning Nelson the $9,000, and taking the securities it did, was to obtain security for the unsecured indebtedness of James & Company and Nelson. Nelson was then insolvent, and known to the bank to be in that financial condition, and the purpose of the bank was to obtain a preference over other creditors of Nelson for an unsecured indebtedness. This the Bankruptcy Act inhibits. It is not claimed that Clark knew Nelson was insolvent, or that an illegal preference was the object of the transaction, and in the absence of testimony to the contrary, its nature was such that it will be presumed he did not have such knowledge. The agreement of a surety is not binding where the transaction between the primary parties, out of which the agreement of . the surety arises, is contaminated by positive illegalities of which he is ignorant. Denison v. Gibson, 24 Mich. 187.
Counsel for the bank urge that Clark knew the chattel mortgage was not to be recorded, and hence had knowledge of its invalidity as against general creditors. It is also urged that even if it had been recorded, it would' have been fraudulent as to such creditors, and therefore Clark was not deprived of any security to which he could have resorted had he discharged his obligation. This does not furnish the test by which to determine whether Clark was released. It was the illegality of the transáetion between Nelson and the bank that released Clark.
*460In the circumstances of this case any other rule would be unjust. In signing the note it must be presumed that Clark acted on the belief that the transaction between the bank and Nelson was one occurring in the usual course of business of that description, which only subjected him to the ordinary risk attending it. The bank must be presumed to have known that such was his understanding, and that he acted on that belief, unless he was informed there were extraordinary circumstances which increased his risk. When Clark signed the note, Nelson was insolvent. The bank knew this to be the fact. The object of the bank in making the additional loan was to secure an illegal preference by obtaining security for unsecured indebtedness. So that the transaction between Nelson and the bank was not one occurring in the usual course of business, in that for an ulterior and illegal object, the bank made a loan to an insolvent debtor, whom it knew was in that financial condition. Clark was ignorant of these conditions. The transaction, upon its face, appeared to be the usual one of a bank making a loan, and by becoming surety on the note he would naturally believe he only assumed the ordinary risk attending that character of transaction between the principal parties. It was not of the character he supposed, and hence, in the circumstances of this case, his risk was materially increased above what he would expect it to be, consequently the failure of the bank to advise him of the facts relating to the transaction was a legal fraud, which released him from his contract, because he was thereby misled regarding the risk he assumed by signing the note.
It, is also certain that had Clark been .advised of the nature of the transaction he would not have signed as surety, and the failure of the bank to acquaint him with the facts relating to it was a fraud which released him from his obligation on the note. 1st Brandt on Suretyship (3rd Ed.), Sec. 474 ; Pidcock v. Bishop, 10 E. C. L. 276 ; Franklin Bank v. Cooper, 36 Maine 179 ; Fassnacht v. Emsing Gagen Co., *46118 Ind. App. 80, 46 N. E. 45, 47 N. E. 480, 63 Am. St. Rep. 322, 18 Ind. App. 80 ; Doughty v. Savage, 28 Conn. 146 ; Powers Dry Goods Co. v. Harlin, 68 Minn. 193, 71 N. W. 16, 64 Am. St. 460, 32 Cyc. 62.
The judgment of the County Court is affirmed.

Judgment affirmed.

Hill J., and Scott, J., concur.