Smith v. Moberly
| Decision Date | 14 June 1850 |
| Citation | 49 Ky. 266 |
| Parties | Smith v. Moberly, & c. |
| Court | Kentucky Court of Appeals |
Sureties. Fraud. Promissory Notes.
ERROR TO THE MERCER CIRCUIT.
J & W. L. Harlan for plaintiff.
B & A. Monroe, Daviess, and Taylor for defendant.
Case stated.
IN the year 1844, Scales applied to Mock to borrow from him the sum of one thousand dollars, and proposed to give Smith as his surety on the note for the payment of the money. Mock stated that he was not well acquainted with Smith, but knew Moberly well, and would consider him as sufficient security with or without Smith.
Shortly afterwards Scales presented to Smith, for his signature, a note for one thousand dollars payable to Mock, two years after its date, which note he had signed as principal; and it was signed by Smith, with the express agreement between Scales and Smith, that it was not to be obligatory on the latter unless Moberly also executed it as security.
Scales seems never to have applied to Moberly to execute the note according to his agreement with Smith, having previously understood that Moberly would not become bound as his surety. The money he expected to obtain from Mock he intended to pay to Moberly in satisfaction of some debts against him, the collection of which Moberly had the control of, and for part of which he was bound as the surety of Scales, who was then in embarrassed circumstances, and desirous to remove from this State to Ohio. His proposed removal he was apprehensive could not be accomplished, unless these debts in the hands of Moberly were paid or in some way arranged, and he was therefore, anxious to procure the money in order that he might apply it to their payment.
After Smith's signature to the note had been obtained by Scales, the latter received a message from Mock informing him that he could not loan him the money in consequence of his having been called upon by a sonin-law to aid him in paying for some land that he had purchased. This fact Scales communicated to Moberly, informing him at the same time that he had a note for one thousand dollars executed by himself and Smith as his surety, payable to Mock, which he Moberly might have, if he could make an arrangement with Mock to assign it over to him, and he would receive it in payment of the aforesaid debts. Moberly being anxious to secure the debts on Scales agreed to take the note for one thousand dollars in payment instead of the money, provided Mock would assign it to him. Mock, after some persuasion, agreed to and did assign the note to Moberly without any recourse upon him as assignor. The arrangement was effected by Moberly transferring to Mock the demands on Scales, and by Mock surrendering these demands to Scales for the note for one thousand dollars on himself and Smith, and transferring the note thus acquired to Moberly for the debts on Scales.
Neither Mock nor Moberly, at the time of this arrangement, had any knowledge of the agreement between Scales and Smith that the note was not to be obligatory on Smith unless it was also executed by Moberly. Nor does Moberly appear to have known that Mock had required any security besides Smith, or had objected to him as surety on any ground.
Moberly having obtained against Smith a judgment at law upon the note, the latter exhibited a bill in Chancery to be relieved against the judgment. The Circuit Court refused the relief asked for and dismissed the bill. The question for this Court to determine is, whether upon the foregoing facts, and the additional one of the insolvency of Scales at and ever since the time that Moberly acquired the note in the manner detailed, Smith is entitled to any relief against the judgment at law.
The first position assumed in favor of the relief sought for by Smith, is, that the note is not obligatory on him, inasmuch as it was not executed by Moberly; and it was only to be binding upon Smith according to the agreement between him and Scales, in the event that Moberly also signed it as the surety of Scales; and its delivery to Mock was a violation of this agreement and a fraud upon Smith.
Had Mock or Moberly known that such was the agreement between Scales and Smith, and had, notwithstanding this knowledge taken the note from Scales, there would be an evident propriety in the application of the doctrine contended for. But to permit a secret agreement of that kind between a principal and surety, to have the effect of destroying the validity of the note as to the surety, after it had been used by the principal and belonged to the person to whom it was made payable or his assignee, would be to encourage the perpetration of fraud upon innocent individuals. As the surety placed it in the power of the principal to commit a fraud, the naked question is, shall he be the sufferer by the fraud, or shall the loss fall upon others, who had no notice of the condition upon which he signed the writing. There would seem to be no difficulty in the solution of this question....
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