Outhwite v. Porter

| Mich. | Oct 31, 1865

Christiancy J.:

This was a bill to restrain the collection of three promissory notes and a mortgage made by complainant, to the defendant Porter, upon two of which notes judgment had been obtained:

Cantine, one > of the defendants, (who was not served with process, but against whom the bill was taken as confessed upon publication,) had been a partner of complainant from the spring of 1860 down to the fall of 1861. He had had the whole management of the business, keeping the books himself — the complainant being engaged personally, most of his time, in other business, and being ignorant of book-keeping, and unable to judge of the condition of the firm from the books, and knowing little of its real condition.

In the fall of 1861, Cantine sold to complainant his interest in the firm, making his own statements of its condition, the accounts and the debts of the firm, etc., upon the correctness of -which complainant relied in. making the purchase.

All the purchase price was paid, except a sum equal to the amount of three promissory notes of Cantine, held by Porter, which were not yet due. These, Cantine proposed that complainant should take up by substituting his own paper, and this would pay the balance of the purchase money on the purchase of his partnership interest. This complainant was willing to do, if satisfactory to Porter. The parties called upon Porter, stating their object, who, after making certain inquiries as to the property and responsibility of complainant, agreed to take his three promissory notes and his mortgage, in lieu of Cantine’s notes, and to surrender the latter. Complainant’s notes and mortgage were, in ¡pursuance of this agreement, completed and delivered to Porter a few days after, and Porter gave up to Cantine his notes. About a month after this arrangement was completed, complainant discovered that Cantine had defrauded him in the sale of his interest in the firm, by false representations of the condition of the firm; that it was owing much more than he had represented; that he had kept false accounts, had used money of the firm not accounted for, and had not paid in the amount he had represented; and complainant thereupon notified Porter of the .fraud, and that he should not pay the notes. This was prior to the maturity of his notes, and before those of Cantine would have become due. The bill charges Porter with 'full knowledge of, and complicity in, the fraud of Cantine, by which complainant was induced to give the notes and mortgage.

Cantine’s fraud is clearly established by the proof; and if the notes had been given to him, the complain-, ant would, as against him, be clearly entitled to the relief he asks.

But there is no satisfactory evidence that Porter, at the time of the arrangement, or the giving up of Can-tine’s notes, had any knowledge or intimation of the fraud by which Cantine had procured the notes to be given, though he was informed that the notes were given as a part of the purchase price of Cantine’s interest in the firm. But he knew nothing, so far as the evidence shows, of the actual condition of the firm, or of Cantine’s representations.

But it is insisted by. complainant’s counsel that, though Porter was innocent of all fraud in the transaction, he did not take the notes in the ordinary course of business, nor give value for them; that the debt of Cantine was not extinguished by giving up his notes, and that Porter might still sue Cantine on the original debt for which his notes had been given, and, therefore, that complainant’s notes in Porter’s' hands were subject to the equities existing between complainant and Cantine; and the New York cases are cited to the effect that a person taking negotiable paper for a precedent debt is not a holder for value, and that such paper in his hands is subject to the equities existing between antecedent parties.

But the rule established by these cases was directly repudiated in this State more than twenty years ago, in Bostwick v. Dodge, 1 Doug. (Mich.) R., 413, which established directly the contrary doctrine. This case has been uniformly recognized as law by this Court, and we are entirely satisfied with the correctness of the principle upon which it rests. The case now before the Court does not present precisely this question, though we think it rests substantially upon the same principle. .

This is a case of novation, or the substitution of one debtor for another by the assent of the three parties. Porter, at the request of both complainant and Cantine, gave up the notes and extinguished the debt of the latter, in consideration of receiving complainant’s notes and mortgage in their place. Cantine gave up and extinguished his claim against complainant, in consideration of complainant’s substituting his paper for that of Cantine to Porter. This, therefore, constituted a direct and original contract between complainant and Porter, founded upon a new consideration moving from Porter, the extinguishment of Cantine’s debt to him; and porter cannot be considered as taking upon himself the risk' of the sufficiency of the original consideration between complainant and Cantine. That was a question between complainant and Cantine only. Porter had a right to suppose that consideration sufficient, when complainant , was satisfied with it.

The decree of the Court below, making the injunction perpetual as to one of the notes, was erroneous. A personal decree was made against defendant Cantine for the payment of fourteen hundred dollars; but as he never was served with process, and never appeared in the canse, the Court below never acquired jurisdiction to affiect him by such a decree. And though he has not appealed, yet the decree, being merely void as to him, should be set aside.

Ihe decree as to both defendants must, therefore,, be set aside, and the bill dismissed, with costs in both Courts to the appellant.

The other Justices concurred.