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The New York Exchange Co. v. De Wolf.
creditor in question is to receive some benefit for his acquiescence in the compromise not shared in by the others, is applicable to this case. In such a case even the party who is to receive the benefit cannot enforce it against the debtor, because it is a fraud on the surety or the other creditors. (Cecil v. Plaistow, Anst., 202; Weed & Weed v. Bentley, 6 Hill, 56.) The principle has been applied to a case very analogous to the present, (Stewart v. Trustees of Hamilton College, in error, 2 Denio, 403,) in which the Trustees sued Stewart upon a subscription made by him and others to raise a fund for the college. None of the subscriptions were to be binding unless the aggregate of all amounted, by a certain day, to $50,000; previous to that day certain individuals entered into an agreement to make good any deficiency that might appear in the amount of the subscriptions on the last day before that in which the aggregate was to be completed, and it was contended by the Trustees that this agreement, with the subscriptions already obtained, was a fulfillment of the condition upon which the subscriptions were to become binding; but it appeared on the trial, that when that agreement was signed the Trustees passed a resolution by which they pledged themselves to continue to raise subscriptions and contributions after the day stipulated for the completion of the aggregate amount aforesaid, to save harmless those persons who might pledge themselves to make good the deficiency. The Trustees obtained judgment, but the Court of Errors reversed the judgment on the very ground that this undertaking to indemnify those who had guaranteed against a deficiency was a fraud on the other subscribers. “The essence of every agreement of this kind," said the Chancellor who gave the opinion of the Court, “is that there should be perfect equality among the subscribers as to the nature and extent of their respective liabilities, for the several sums subscribed by them respectively."
Every subscriber is entitled to insist that every other subscription shall be as bona fide and as binding as his own. Did any
of the evidence ruled out in this case tend to establish a fraud of this description ? and first as to the resolution of 30th October.
That resolution was to the effect that if the members of the Finance Committee or their friends sbould make themselves
The New York Exchange Co. v. De Wolf.
personally liable in paying or arranging for funds to pay the pressing liabilities of the Company, and to sustain the institution till other means could be provided, such liabilities should be treated and considered as confidential, in any event equal in all respects to the amount of $10,000 already subscribed by the friends of the Company for its relief.
I think the obvious meaning of this resolution is to place the members of that committee and their friends who might, through their influence, be instrumental in raising funds for the relief of the Company on some footing of confidential preference which the subscribers to the $40,000 fund already enjoyed. What mode of raising funds was contemplated, is not so obvious, but I think it is fairly to be inferred from the phraseology of the resolution, that it was by means of subscriptions. It would perhaps be forcing the construction of the resolution, to say that it had reference to the subscriptions for $400,000 which were subsequently authorized by the resolution of November 8, but that is not of vital importance. It is enough that the resolution recognizes the $40,000 subscription as already a confidential one, and that can have no other meaning than that some arrangement had been made in favor of that class of subscribers, which was in some event or under some contingency to give them an indem. nity for their subscriptions, or some peculiar preference in respect to reimbursement out of the assets of the Company. In what respect does this differ in principle from the resolution of indemnity in the case of Stewart v. Trustees of Hamilton College, above cited ?
In any aspect in which I can view it, it was some evidence to go to the jury in respect to some beneficial arrangement between the Company and a very important class of the subscribers, having respect to their liability as subscribers, which was not shared in by the others, certainly not by the defendant.
Without this $40,000 the $300,000 of subscriptions could not manifestly be made up, and if the subscribers to that fund were entitled to any benefit in respect to their liability, by virtue of an arrangement with the Company, entered into before the other subscriptions were solicited, and not communicated to and assented to, or shared in by the others, it was a fraud upon them. .
The New York Exchange Co. v. De Wolf.
If it be said that by reason of the absence of the missing book it cannot certainly be said that the whole $300,000 may not have been made up without the aid of this particular amount, the answer is, that the whole evidence is opposed to such an idea; and if it were not, this amount could not be separated from the rest; it would still remain true that some portion of the subscribers, whose aggregate constituted the $300,000, had a private beneficial arrangement with the Company, which the others did not, if this testimony could establish it. If it tended to establish it, it should have gone to the jury.
The resolution of 30th October was contained in the book of minutes of the Board of Directors. No objection was made to the competency of the proof, nor that the book was not identified, and there is nothing to raise a presumption that it was not a regular official act.
In respect to the questions above quoted and overruled, and the offer of testimony also overruled, it may be observed that all of them, in a greater or less degree, tend to prove some secret arrangement between the Company and some of the subscribers, by which they were to be favored, in respect to their subscriptions, in some manner not common to all. The question put to Mr. Ogden, Vice-President of the International Insurance Company, in respect to his subscription, was a competent and proper question is the object was to call out the existence of such an arrangement, and there could have been no other; but it was ruled out on the ground that it tended to vary, by parol, the terms of the subscription.
The question to same witness, whether the notes of that Company had been given in pursuance of the subscription, was immaterial and improper, except in connection with the other object, and as bearing on that may have been pertinent.
The question to the witness Bainbridge, one of the subscribers, as to whether any and what inducements had been offered to him to make his subscription, was accompanied with an avowal that the counsel proposed to prove that there was a parol arrangement amounting in effect to an agreement that he need not give his notes for his subscription; yet it was ruled out.
The question to Whipple, the agent of the Philadelphia Insurance Company, was directly to the point, whether any parti
The New York Exchange Co. v. De Wolf. cular arrangement existed between him and the Atlas Insurance Company in reference to his subscription, and if so, what; but it was objected and ruled out, on the same ground as the others, that it sought to vary the terms of subscription by proof of a parol arrangement.
The question to the same witness, whether the Atlas Insurance Company was indebted to the Philadelphia Insurance Company, was perhaps properly ruled out-certainly it had no significance, as the previous question had been overruled, and yet, as bearing on the main question of fraud, might have been a very pertinent inquiry if that question had been allowed.
The question put to Arrowsmith, a subscriber, whether bis subscription was one substituted in the place of the subscription of another party, was made with the avowed object of showing that some of the sums were subscribed by the Trustees themselves, with a parol privilege reserved of procuring other subscribers subsequently in their place, and that the witness's subscription was one which was so substituted. Such an arrangement would give the parties with whom it was made an opportunity of relieving themselves wholly from their subscriptions, if they could procure others in their place. The substituted ones may have been less responsible; at all events it was an advantage which they had which the others did not possess.
It is said, however, that this evidence is all inadmissible, as it tends to contradict the terms of the subscription, which is a written contract.
This objection does not apply to the resolution of 30th Octo ber, but if it did my opinion would still be the same. The subscription was not under seal, and parol evidence is always admissible, on the part of the injured party, to show that such an instrument was procured through fraud, where the controversy is between the original parties or those affected by their equities. Even in the case of a deed a parol trust or agreement inconsistent with the face of it, may be proved by a creditor assailing the deed for fraud. Even the parol declarations of a party in possession of land, showing that the deed he holds under is void for fraud, are admissible in an action of ejectment by him against his tenant A surety in a bond may show he signed it on condition that others should sign it also, and that they did not. (11 Peters, 86.)
The New York Exchange Co. v. De Wolf.
It is, in my opinion, no answer to say that the parties who were to be benefited by the secret agreement could not themselves set it up to defeat their own contract, and that therefore it is a mere nugatory agreement. Such a proposition is not universally true.
A party to a note may allege in his defense that it was given to the plaintiff in fraud of a surety, who had become responsible for him on another note given as a compromise of his debts, and which the surety was induced to indorse on the supposition that it was to be in full of the plaintiff's claim against his principal. This was held a perfect defense in Weed, v. Bentley (6 Hill, 56,) even in favor of the debtor who was a party to the fraud.
The arrangement by which the note sued upon was given, in addition to the note indorsed by the surety, (and contrary to the assurances made to him that the note he indorsed was to be in full of the debt,) must have been proved by parol.
The cases on this whole subject are very numerous. (Cow. & Hill's Notes, n. 967–969; 1 Phil. Ev., 551; 1 Greenl. Ev., $ 284; Chitty Con., 113; 16 Mass., 278; 11 Wend., 533.)
The position that a party to a written contract (executory and not under seal) cannot set up a secret agreement between some other parties to it and the party to whom the obligation is given, and which operates as a fraud on his rights, unless the agreement be also in writing, I do not assent to. Such a rule would always exclude parol evidence of a fraud in such cases.
In Cecil v. Plaistow, (1 Anst., 202,) cited by the Chancellor in Stewart v. Trustees Hamilton College, at page 419, (2 Denio,) the point of the decision was not that the creditor had got an additional bond, (in fraud of the other creditors,) which he could sue upon, but that there was a secret understanding with his debtor that he should retain the whole original claim, provided he would sign the composition deed for one-half, and thereby induce the other creditors to do the same; and hence the Chancellor says, "Any private agreement or understanding" between the debtor and any particular creditor in a composition deed, &c., shall be void as a fraud on the other creditors. Such secret understand. ing can only be proved by parol.
The point of the fraud in such cases consists not in the fact that a particular creditor has secretly got another security which he may enforce, but that the complaining creditor has been Bosw.–Vol. V.