Stewart v. Small

By the Court, Cady, P. J. The note in controversy, for the purposes of this suit, must be regarded as made by the plaintiff [564] as surety for William L. Reynolds, to the defendants. It was in fact made to one of the firm. The ground upon which the plaintiff asks for relief, is that his signature to the note was obtained by fraud or false pretences made to him by William L. Reynolds, who made the note'as principal? The plaintiff alleges in his b,ill that when W. L. Reynolds applied to him to sign the note he represented that the capital on which he and Mr. Yoorhies were doing business was all his, and that he was the owner of the real estate then in his possession and that it was free from incumbrances; that he owed the defendants only pbout $4000, and that he owed nothing besides, except a few small debts which he had the means of paying. The note bears date on the 26th of December, 1842, and it was proved by Helen Canfield that cm the 28th of November, 1842, W. L. Reynolds applied to the plaintiff to sign a note for $4000, and then made representations in substance like those alleged in the bill. Yery shortly after Reynolds made that application to the plaintiff he conveyed all his real and personal estate to the defendants, or one of them, and remained indebted to them in the sum of $8000 or $9000. This was proved by Reynolds. And the conveyance of the rea} estate, and the assignment of the personal estate, was also proved by the declaration of Isaac Small, one of the defendants, made to Alexander Yoorhies, in March, 1843. And it is thus proved that when the plaintiff’s signature to the note in question was procured, Reynolds knew that he was utterly insolvent; and he must have asked the plaintiff to sign the note, with the intent to defraud him for the benefit of the defendants. The declarations of Isaac Small, one of the defendants, made to Alexander Yoqrhies in March, 1843, show that he knew at the time the note tvas received by the defendants, that Reynolds was insolvent. He claimed that the assignment made by Reynolds to the defendants was so general that he, Reynolds, had not reserved “the shirt to his back.” It is insisted on the part of the defendants that (he plaintiff has failed to show that the representations alleged in the bill to have been made by Reynolds at the time the plaim tiff signed the note were then made with a view to induce the [565] plaintiff to sign the note in question, and if made at all were made a month before the plaintiff signed the note, and to induce him to sign a larger note. A decree of this court must always be founded on the allegations in the pleadings, and the proofs in the cause. (James v. McKernon, 6 John. Rep. 359.) It is an invariable and universal rule of the court of chancery to found its decrees on some matter put in issue between the parties by bjll and answer. It is true that at the time Reynolds applied to the plaintiff to sign the note in question, he did not make all the representations alleged in the bill, but he did then make a material and substantial part of them. He did then say “ that he would protect the note; that he had the means, and that those means consisted of what was in the store. What was in the store was included in the representations alleged in the bill; and according to W. L. Reynolds' own testimony he did, in order to induce the plaintiff to sign the note, represent that he had the means to pay the note, and that those means consisted in what was in the store.” This was a false pretence. He had before assigned to the defendants all his interest in whatever was in the store. And this false pretence as effectually vitiated the note as any number of false pretences would have done. That the plaintiff’s signature was obtained by fraud is therefore sufficiently proved; and the only question in the cause is, does that avoid the note in the hands of the defendants'? The defendants gave no consideration for the note; they only gave credit for its amount on a draft made by Reynolds, whom they knew to be utterly insolvent, and from whom they had shortly before obtained an assignment of all he had, but left him in possession; which enabled him to deceive and defraud the plaintiff. And if the plaintiff is discharged from the note, the defendants can hold it as against Reynolds; and it" will be as valuable as the draft on which they allege they gave credit for the note. The case of the Bank of Rutland v. Bush, (5 Wend. 67,) is not like the present. There was no fraud in obtaining the signature of the defendant in tliat case as endorser to the note, and upon that ground the court held the endorser liable:- In the case of the Bank of Sal [566] ina v. Babcock and others, (21 Wend. 499,) the bank cancel-led notes on which were responsible endorsers ; and the court held that that was parting with value. The defendants in this case knew they parted with no value when they gave Reynolds credit on a draft which they knew to be worthless. In the case of the Bank of St. Albans v. Gilliland, (23 Wend. 311,) the note was received in full satisfaction of the indebtedness of the persons who passed the note, and their indebtedness was cancelled. But there was not evidence, as in this case, that the persons who passed the note were worth nothing. Although they had failed, it does not follow that a demand against them was worthless. It is idle to say that a party has parted with value for a note, when he has only given credit on a paper which he knew to be of no value. In the case of the Bank of Sandusky v. Scoville, (24 Wend. 115,) the debt of a solvent party had been in part discharged. So in the case of The Mohawk Bank v. Corey, (1 Hill, 513,) notes against a solvent endorser were given up. None of these cases referred to by the defendants’ counsel, meet this case. The defendants have not parted with any thing of the least value. The decree of the vice chancellor must be reversed with costs, and the defendants be perpetually enjoined from suing the plaintiff on the note.