Whittemore v. Obear

• Decision Date: 31 October 1874
• Citation: 58 Mo. 280
• Parties: EDWARD A. WHITTEMORE, et al., Respondents, v. EPHRIAM G. OBEAR, et al., Appellants.
• Court: Missouri Supreme Court

58 Mo. 280

EDWARD A. WHITTEMORE, et al., Respondents,

v.EPHRIAM G. OBEAR, et al., Appellants.

Supreme Court of Missouri.

October Term, 1874.

Appeal from St. Louis Circuit Court.

M. L. Gray with John M. Holmes, for Appellants.

I. The contract was joint, and all creditors are affected by the frauds of the others. The receipt of a cash bonus by some of the creditors was a fraud which avoided the whole agreement. (Doughty vs. Savage, 28 Conn., 146; 42 Mo. 403; 1 Sto. Eq., 10 Ed., 324, 378, 379.) Although plaintiffs themselves received no bonus, still the fraudulent conduct of other creditors in so doing, gave plaintiffs the power to rescind the whole agreement; a fortiori if plaintiffs could the indorser could. (Pendlebury vs. Walker, 4 Younge & Collin, 440; Sullivan vs. Collier White Lead Co., 42 Mo., 397.) The refusal of some of the creditors having claims of over two hundred dollars to sign said agreement, was such a breach thereof as avoided it in toto. (Forsyth Comp., p. 61 and following; Spooner vs. Whiston, 8 B. Mon., 580; Johnson vs. Baker, 4 B. & Ald., 440; Enderby vs. Corder, 2 C. & P., 203; Doughty vs. Savage, 28 Conn., 146.) The validity of the indorsement depends on the validity of the agreement, and that being void, the indorsement is void.

II. Defendants complain of the instruction No. 2, given by the court, for two reasons: 1st. The court erred in inserting the clause requiring defendants to prove that plaintiffs were apprised, at or before the time they signed the agreement, that defendants had agreed to indorse the twelve months notes, and of the information or statements given the defendants at the time they agreed to indorse; because it was entirely immaterial whether plaintiffs were aware of what representations were made to defendants--defendants not claiming that any representations were made to them other than those embraced in the agreement of compromise signed by plaintiffs. (Johnson vs. Baker, 4 B. & Ald., 440.) 2d. Defendants complain of that clause contained in said instruction No. 2, given by the court, which requires defendants to prove that “the fact that all creditors having claims over two hundred dollars did not sign said agreement, was unknown to defendants.” The law is, as presented in defendant's instruction No. 7, if any creditor having a claim over two hundred dollars refused to sign, unknown to defendants, that fact avoided the agreement. (Doughty vs. Savage, 28 Conn., 146.)

J. Wickham, for Respondents.

I. The fact that some of the creditors of Beardslee & Co., whose claims exceeded $200, failed to sign the compromise agreement, does not affect the validity of the note sued on, provided that fact was known to appellants, or either of them, at the time of indorsing the notes, notwithstanding which knowledge they elected to indorse and deliver the notes; for by so doing, they waived that objection to the validity of the notes, and assumed the liability of indorsers, notwithstanding the fact that the terms of the compromise agreement had not been fully complied with. (Doughty vs. Clark, 28 Conn., 152; Kintzing's Assignee vs. Bartholow, 1 Dill., 157.)

II. The fact that a portion of the assets embraced in the statement of Beardslee Bros. & Co., was used by them for the purpose of paying bonuses to some of their creditor to induce them to sign the compromise agreement, is no defense to this action, unless it is proven to the satisfaction of the jury, that such payments were concealed from and unknown to appellants at the time they indorsed the compromise notes, or unless it is proven that respondents received a bonus for their signature, or consented that bonuses should be paid to other creditors. The mere fact that a fraud is practiced by a principal debtor upon his surety in obtaining the signature of the surety, does not discharge the surety unless such fraud was practiced with the knowledge and consent of the obligee. (Berge Suretyship, p. 218; Graves vs. Tucker, 10 Sm. & Mar., p. 923 Burks vs. Wonterline, 6 Ky., (Bush.) p. 23; Bank State of Mo. vs. Phillips, 17 Mo., 29.) The notes cannot be affected in the hands of plaintiffs by any false statements or representations made to appellants by Beardslee Bros. & Co., without the knowledge or consent of respondents. (Spelter vs. James, 32 Ind., 209; Quinn vs. Hard, 43 Vt., 377-8.)

III. Whatever effect this court might be disposed to give to said facts, that all the creditors whose claims exceeded $200 did not sign, and that bonuses were paid to other creditors to induce them to sign the compromise agreement, as between the parties to said agreement themselves, still those facts can have no effect to release appellants, unless their indorsements were procured by a fraud participated in by both parties to the agreement.

IV. It is a well established principle of law, that when one of two innocent parties must suffer by the fraud of a third, he who trusted such third party and enabled him to commit the fraud shall bear the loss. Obear & Co., by indorsing and delivering the compromise notes, put it in the power of Beardslee Bros. & Co. to commit the fraud complained of; and cannot now ask to be released from the consequences of their indorsement, on the ground that the conditions of the compromise agreement had not been performed.

NAPTON, Judge, delivered the opinion of the court.

This is an action by Whittemore & Co. upon a negotiable note signed by Chas. Beardslee Bros. & Co., and dated June 10, 1870, for $888.34, payable twelve months after date, at the National Park Bank, New York, indorsed by Chas. Beardslee Bros. & Co., and E. G. Obear & Co., and protested for non-payment.

The defense against the note, by the defendants, Obear & Co., is substantially this: In the spring of 1870, the firm of Chas. Beardslee Bros. & Co. was in a tottering condition, and negotiation was set on foot with their creditors, to bring about a composition, and avoid bankruptcy. The New York creditors sent a committee to Chicago to confer with Chas. Beardslee Bros. & Co., and the result was that the creditors agreed to take fifty cents on the dollar on their claims, to be paid by notes at six, nine and twelve months, provided Chas. Beardslee Bros. & Co. would get an indorser for the notes at twelve months. This agreement was to be signed by all the creditors who had demands over $200. The plaintiffs signed the agreement, took the notes of Chas. Beardslee Bros. & Co., and on the note at twelve months accepted the indorsement of the defendants, Obear & Co.

The defendants now say in defense against their liability, that all the creditors over two hundred dollars did not sign, and that to procure the signatures of some who did sign, one of the firm of Chas. Beardslee Bros. & Co. expended considerable sums of money, amounting altogether to $27,000.00, in getting certain creditors, not the plaintiffs, to agree to this composition.

It is obvious from the statement, that the main questions of fact on which the liability of the defendants depended, are first, whether their indorsements were obtained on fraudulent and false misrepresentations, or whether, at the time of their indorsements they were apprized of the facts on which the supposed misrepresentations were based. And, second, supposing the defendants were imposed upon, the question remains whether they are not still liable, if the plaintiffs took the note in good faith and without any knowledge of such imposition.

The instruction on which the case was tried, is as follows: “If the jury believe from the evidence in this case, that in the spring of 1870, the firm of Chas. Beardslee Bros. & Co., being then insolvent, delivered to the defendants for their inspection and examination the printed statement of their assets and liabilities, read in evidence, and informed the defendants that they had made a proposition to their creditors to effect a compromise of their indebtedness, and an extension of time for the payment thereof; and if the jury further believe that the proposition so communicated to the defendants contained the same provisions and agreements as the paper referred to by the witness as the compromise agreement, and read in evidence in this case, and that the defendants, thereupon believing and relying upon such information, agreed with said firm to become the indorsers of the twelve months notes mentioned in said proposition, in the event of said proposition being accepted by the creditors embraced in it; and if the jury further believe that thereafter the said firm represented to the defendants that the proposition so communicated to the defendants had been accepted by the said creditors, and that the defendants thereupon, and for the accommodation of said firm, and without any consideration paid them therefor, indorsed and delivered to said firm the notes referred to by the witnesses, having been indorsed by defendants for said firm, and that among them was the note here sued on, and that it was delivered to the plaintiffs by said firm, and that the plaintiffs did sign said...