Smith v. First National Bank

| Ky. Ct. App. | Nov 17, 1899

JUDGE PAYNTER

DELIVERED the opinion op the court.

The appellee, First National Bank of London, held a note of J. H. Marlow for the sum of $620, upon which H. C. Eversole was surety, and, to indemnify him against loss by reason of his suretyship, Marlow gave him a mortgage upon a house and lot in London. Before the maturity of the note, Jackson, cashier of the appellee bank, discovered what he supposed to be fraudulent conduct upon the part of Marlow in disposing of part of his stock of goods. The bank held several notes of Marlow, aggregating something over thirteen hundred dollars, upon which, there were different indorsers. Vincent A. Boreing had a claim against him of $700. which seems to have been in Jackson’s hands for collection. Upon the night off the discovery which Jackson made with reference to the disposition by Marlow of part of his stock of goods, Marlow, Eversole, Jackson and Ewell met at the office of Judge Brown, and all recognized that there was a crisis in the business affairs of Marlow, who was informed that an attachment would be sued out against his property. In the course of the conversation Marlow proposed to execute a note, with good security, for $620, to the appellee, and thus pay the note for like amount upon which Eversole was surety, but it does not appear that any name was suggested as surety on the note. Jackson, representing the bank, agreed to accept such a note, and Marlow at once approached Smith, and procured his signature to a note for $620, which was delivered to Jackson as cashier, who surrendered the note for $620 upon which Eversole was surety, and for which Mar-low’s homestead was liable by reason of the mortgage which he had executed to Eversole to indemnify him against loss. Immediately suits were filed, and' Marlow’s property was attached, but it was insufficient to pay his debts.

It'is contended that Jackson knew of Marlow’s financial condition; that his property was to be immediately seized under attachment to pay his debts; that he conspired with Marlow to procure Smith’s signature to the note as surety, and thus enable him to release his homestead from the payment of the debt which he owed the bank; that he was thereby guilty of actual fraud; that, in view of the fact that the relationship of a creditor and surety is fiduciary in character,'Jackson acted in bad faith with him, and the obligation is void; that he concealed from Smith the financial condition of Marlow, thus inducing him to sign the note, when, if he had advised him of the real condition of Marlow’s financial affairs, he would not have signed it.

Jackson and Smith were ■ brothers-in-law, and it is difficult to understand why Jackson, under the circumstances, accepted the nóte which Smith signed; still the liability of Smith must be determined from the law.' Jackson did not know, at the time Marlow started to procure surety on the note which Jackson agreed to accept, that his intention was to have Smith sign it. Jackson was not present when Smith signed the note; neither was Smith present when Marlow délivered it to Jackson. So they had no conversation in regard to the matter at the time the note was signed by Smith, or when it was delivered to Jackson. The contract of suretyship imports good1 faith and confidence between' the parties in regard to the transaction.1 Concealment of material facts, or expressed or implied misrepresentations of such facts, will furnish sufficient grounds to invalidate a contract. Jackson did not procure Smith’s signature to the note, and, as we have said, was not present when he signed it; therefore it can not be said that he was guilty of either misrepresentation or concealment.

In Burks v. Wonterline, 6 Bush, 24, the court said: “To maintain the general allegation of concealment or fraud, it was necessary to allege that the obligee either procured the surety’s signature, or was present when, it was made, and then misrepresented or concealed the essential facts which she ought to have disclosed truly.”

The court in Magee, et al., v. Manhattan Life Insurance Co., 92 United States, 93, had under consideration the question of the sufficiency of a pleading, and in stating what were sufficient averments stated the rule substantially as announced in Burks v. Wonterline, using the following language, to-wit: “To render the general allegation of concealment sufficient, in a pleading, it is necessary also to aver that the creditor either procured the surety’s signature, or was- present when the instrument was executed, and then misrepresented or concealed essential facts which should have been disclosed; otherwise, the allegation of fraud is- only the pleader’s deduction.”

The fact that Marlow used the note which Smith signed for the purpose of releasing the claim against his homestead does not affect Smith’s liability on the note. If there was no such concealment or misrepresentation as would render invalid the note, then the uses to which the proceeds of the note were applied does not, nor could it, affect the question of Smith’s liability.

The judgment is affirmed.