Riddle & Co. v. Mandeville & Jamesson — 9 U.S. 322

Majority

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RIDDLE & CO. v. MANDEVILLE AND JAMESSON.

Syllabus

ürhe endorsee ry ;!ote™ín Virginia, may remount from t remote endorthough not 4at law. mSethat ^r' immTdia^ liable who is bie’tttiaw. Im" The remote tbe°same de! fence in equity against there-as against his «lorseeiate e-n" The defendant ba» a right to other tbeo()o!son be made parties.

ERROR to the circuit court for the district of Columbia, sitting at Alexandria, in a suit in chancery, brought by Riddle & Co. against Mandeyille- and Jamesson, remote end.orsors of a promissory noté, dated March 2,1798, at sixty days, for 1,500 dollars, drawn hy Vincent Gray, payable tb the defendants or order, and by them endorsed’ in blank, Upon its ^ace h was declared to be negotiable in the bank of Alexandria, The note so drawn and endorsed was by Gray put' into the hands of a broker who passed h,*0 D* Wi Scott for -flour, which he sold for 1,200 dollars in cash, and pdid the money to Gray. Scott passed it, without his own endorsement, to M'-Clenachan in the purchase of flour, and M‘Clenachan en-horsed jt t0 Riddle & Co. the complainants» in-payment of ,a precedent debt} Gray tailed to. pay the note’ an<^ was discharged under the insolvent act of Virginia, upon an execution issued upon a judgment jn favour of the complainants upon jth’e same note, The complainants then brought a suit at law against the defendants upon their endorsement, and obtained, judgment in the court below, which was reversed in this court, upon the principle that' an endorsee cannot maintain a suit at law against a remote endbrsor of a promissory note. I Cranck, 2SQ. Whereupon the complainants brought the present bill in equity, which was decreed to be dismissed in the court below ; that court being of' opinion that there was. no equity ini the bill. - .From that decree the complainants appealed to this court.

.The only facts stated in the bill were, that Gray made the note payable tb the order of Mandeville' and Jamesson, who put it in circulation. ' That it was afterwards delivered- and transferred, for a valuable consideration, to M‘Clenachan, who, for a

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valuable consideration, endorsed and transferred it to the complainants. That Gray failed to jJay it, and was discharged, from execution under the insolvent act, whereby the complainants were unable to recover from him any part thereof; in consequence of which the defendants became liable in equity to pay the same, but have refused, so. to do.

Among the interrogatories contained in the bill, it 'is asked “ with'what view was the note made and endorsed and whether one of the defendants did not, upon inquiry, declare that the note was good, and would be punctually paid?

The defendants pleaded .the judgment at law in their favour in. a suit brought .upun the same noté, in bar of the relief in equity.

To this plea the complainants demurred, and the ' court sustained the demurrer, and ruled the defendants to answer.

The answer states, that the note was endorsed by them for the purpose of being discounted at bank for the use of .the collector’s office, in which Gray was . the chief clerk or deputy, and had the whole management of the business. That the defendants refused to endorse it until Gray promised to deliver to the defendants, as security, their bond to the United States, given for duties, to the, amount of 1,168 dollars, which he never did, and they had to pay it. That they never received any value from any person for their endorsement; that they never gave circulation to the note, otherwise than by endorsing it and delivering it to Gray to be discounted at bank, for which purpose only they endorsed it. They deny that they ever made any contract with any person touching the note, and say they have no recollection of any. conversation with any person respecting the note before-it became due.

The deposition of D. W. Scott stated, that he gave 200 barrels of flour for the note, but before he

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concluded the bargain, he asked Jamesson, one of the defendants, if the note wás good, and whether there was any objection to it, and informed him it was,offered to him for flotír. Jamesson told him it was a good note, and observed that whenever he saw the name of .Mandeville.and Jamesson von any paper he might be sure it was good. That Scott sold the note to MlClenachan for 207" barrels of flour, but did not endorse it, and it was expressly agreed that he should not be answerable for it in any event.

The deposition of M‘Clenachan stated,. that before he would take the note of Scott, he informed Jamesson that he intended to deal for it, and inquired whether it was an accommodation note, or a note, given upon a real transaction. Jamesson told him it was a real transaction note, and. not an accommodation nóte, and that it would be punctually paid. The deponent further stated, that the complainants had released to him all claim on account ■ of the note, and .'of the debt intended to be paid by. the note ; and that be had also been discharged under the bankrupt act.

These witnesses were objected to by the defendants as interested.

E. J, Lee, for the plaintiffs in error.

%. The court below did right in overruling the plea in bar.

Where, by the principles of law,. a party has a right, but the forms. of law do not give a remedy, a court of equity will grant relief. Mitf. 103. And in some cases it has a concurrent jurisdiction with the courts of law. Mitf 108, 109. 3 Atk. 215. 1 Fonb. 204.

2. The court below erred in dismissing the bill.

The plaintiffs are entitled tp recover in equity dgairist the defendants. It was the. intention of the

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defendants to make themselves responsible to any person who should be the holder of the paper. They intended ib to be a negotiable instrument. This appears from the note itself, which is expressly made negotiable in the bank of Alexandria, ‘and from the answer of the defendants, who state that they endorsed it for the purpose of being discounted at the bank. Their endorsement was intended to give credit to the note. If they did not intend to become responsible, they were guilty of a fráud. The complainants, upon the credit of the note, granted indulgence to M‘Clenachan. The defendants ’were undoubtedly answerable at law to M'Clenachan. That liability was a chose in action which he had a right in equity to assign, although this' court has decided that it was not assignable at law. 1 Atk. 124. 1 Fonb. 201. 204. 1 Term Rep. 622. In the case of Violet v. Patton, at this term, this court has decided that a person who endorses merely to give credit to the note, is liable at law to his immediate endorsee. If the complainants had brought a suit in the name of M‘Clenachan for their use against the defendants, a. court of law would have protected the equity of the complainants. 2 Skin. 6, 7. 1 Term Rep. 622. Winch v. Keely. 4 Term Rep. 341. And if in such a suit the defendants had a set-off against the complainants, Riddle & Co., a court of law would have allowed it. 2 H. Bla. 1271. Bottomly v. Brooke. 1 Term Rep. 621. If a court of law will recognise and protect an equitable assignment, a fortiori will, a court of equity. In the case of Harris v. Johnston, (ante, vol. 3 p. 319.) this court said that “ the holder of a.note may incontestably sue a remote endorsor in chancery, and compel payment of it.”

Toungs, contra, contended,

1. That the plea in bar ought to have been sustained. A judgment at law against a party in an equitable action of assumpsit, when all thé facts are susceptible of proof at law, is conclusive against the jurisdiction of a court of chancery, if it ever had any. If a court of chancery and a court of law,

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have a concurrent jurisdiction, an election to proceed in one concludes the party from going into the other. • If a person is under no legal obligation to •pay money., a court of chancery cannot compel him-It can only enforce' the performance of legal contracts, and where there is no contract at law, a Court of chancery cannot make one. As no privity exists at law between the holder and a remote .endorsor, that privity cannot be created by a court of equity.

2. That the court below was correct in dismissing the bill.

The contract was usurious. A note for 1,500 dollars having only sixty days-to run was sold for 1,200 dollars worth of flour.

There was no valuable consideration flowing to the defendants; and such a consideration alone can make an endorsor liable even to his immediate endor see.

The liability of the endorsor is not. a complete chose, in action. A chose inaction is a right of action. No right of action exists against- an endorsor of a promissory note, in Virginia, until it is ascertained that the money cannot be recovered from the maker. Until that time it is a mere possibility, which is not the subject of assignment even in equity. The liability of the endorsor is not assignable undeV the statute, and cannot be made so by a court of equity,

In,the case of a joint obligation by principal -and surety, if the surety be discharged at law, he can never be made- liable in equity., for his equity is equal to that of the obligee. 2 Wash. 136 . Harrison v. Field.

The note was endorsed by the- defendants to be discounted at bank. Gray committed vi breach of good faith, an act oi fraud, in sending it into the market.

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The complainants can only claim as creditors of M‘CIenachan, But they are no longer his creditors, having released him from the debt, according to his own deposition which they have produced.

If it should be compared to a letter of credit, it is a letter of credit to a particular person for a particular purpose. It is not like, a general letter of credit.

Swann and C. Lee, on the same side.

The suit at law was decided against the complainants on account of a defect of right, not for want of a remedy at law.

The money in the hands of Gray was like any other property, in his hands. If it had been .a horse which. Mandeville and Jamesson had transferred to Id‘Clenachan, with warranty, and M‘Clenachan had sold the horse to the complainants, he could not have transferred to them the wa 'ranty of Mandeville and Jamesson. No case can be found in which a suit ih chancery has been maintained against a remote warrantor of personal property.

The complainants demand the whole amount of the «ote ; but in equity they can claim only what they paid for it; and how much that was does not appear. The endorsors must sue each ether in succession. No case can be found where a holder has recovered in equity against a remote endorsor.

C. Simms, in reply,.

In. the case of Violet t and Patton, this court has placed the liability of an endorsor upon a much more correct principle than that of privity of contract. It was there decided, that an endorsement was equivalent to a general letter of credit; if so, it enables any one to recover upon it whadras parted with, his property upon the faith, of it.— Ií A. gives a letter .

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of credit to C. and B. afterwards also gives a letter of credit to C., A. is not discharged from his liability , o . • 1 1- LI * w because B* is also liable.

What was said by the chief justice in the case of Harris v. Johnston, cannot be considered as a mere dictum, but must be taken to be the deliberate opinion of the court, for it is the only answer giyett to a strong argument urged by the counsel for Johnston to show th.at the outstanding note, was no bar to a recovery upon the open account, viz. that the defendant, being a remote endorsor, could never be ' compelled, to pay the note.. The answer of' the court was, “ It is supposed that the holder of a.note may incontestably sue a remote endorsor in chancery, andcompelpaymentof .it.”. And during the ar-. gument of that case, when this idea was suggested by Mr. Jones, the chief justice said, “ True; we shall consider that point. I have always been of opinion that' in such cases a suit in chancery can be. supported; though I do not recollect any case in which the point has been decided.” When, therefore, the chief justice afterwards, in delivering the. opinion of the court, repeats the same idea in stronger terms, it must be supposed that the. point- had been well considered, and that he. spoke the opinion of the whole court]

March 13.

delivered the opinion of the court.as follows:

This suit is brought by the holder of a promissory note to recover its amount from- a remote endorsor. In a suit between the same parties, this court had previously, determined that the plaintiff was without remedy at law; . It is now to be decided whether he is entitled t'o the aid of a có.urt of equity.

■. 3Lf, as vas stated by. the counsel' for. the defendants, the question, is, whether a court of cbaiicery

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Would create contracts into which individuals had never entered, and decree the payment of money from person's who had never undertaken to pay it, the time of this court has been very much misap- ’ plied indeed in attending to the laborious discussion of this cause. The court would, at once, have disclaimed such a power, and have terminated-so extraordinary a controversy.

But the real, questions in the case ate understood to be, whether the plaintiffs, as endorsees of a promissory note* have a right, under the laws of Virginia, to receive its amount from the endorsor on the insolvency of the maker; whether the defendants, as the original endorsors of the note, are ultimately responsible for it; and whether equity will decree the payment to be immediately made, by the person ultimately responsible, to the person who'is actually entitled to receive the money.

This note came to the hands of M‘Clenachan, endorsed in blank by Mandeville and Jamesson. M‘Clenachan had a right to fill up the endorsement, to himself, and he has done so.' fhe law, as understood in Virginia, immediately implied an assumpsit fróm Mandeville and Jamesson to M‘Clenachan to pay him the amount of the note, if he should use due diligence, and should be unable to obtain payment from the maker. M‘Clenachan endorsed this note to -the plaintiffs, and, by so doing, became liable to them in like manner as Mandeville and Jambsson were liable to him.

The maker having proved insolvent, , the plaintiffs have.a legal right to claim payment from M‘Clenachan, and, on making that payment, M'Clenachan would be reinvested with all his original, rights in the note, and would be entitled to demand-payment from Mandeville and Jamesson.

If there were twenty successive endorsors of a note, this circuitous course might be pursued, and,

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by the time the ultimate endorsor was reached, the value of the note woüld be expended in the pursuit. This circumstance alone would .afford a strong reason for enabling .the holder to bring all the endorsors into that court which -could, in a single decree, put an end to litigation. No principle adverse to such a proceeding is perceived. Its analogy to the familiar cáse pf a suit in chancery by a creditor against the legatees of his debtor is not very remote. If an executor shall have distributed the estate of his testator, the creditor ha • an action at law against him, and he has his reme - dy against ,the. legatees. 1'he creditor has po ac - tion at law against the legatees; Yet it has never been understood that the creditor is . compelled to resort to his legal remedy. He may bring-the executor and legatees both before a court of chancery, which court will decree immediate payment from those who are ultimately bound. If the executor and his'securities should be insolvent, só that a suit at law must be unproductive, the. creditor would have no other remedy than in equity, and his right to the aid of that court could not he questioned.

If doubts of his right to sue in chancery could be entertained while the executor was solvent, none can exist after he had become insolvent. Yet the' creditor would have no legal claim on the legatees, and- could maintain no action at law against them. • The right of the executor, however, may, in a court of equity, be asserted by the-creditor, and,. Ss the legatees would be ultimately responsible for his debt, equity will make them immediately responsible.

In the present case, as in that which has' been stated, the insolvency of M‘Clenachan furnishes strong additional motives for coming into a court . of chaPcery. Mandeville and Jamesson are ultimately bound for this money, but the remedy, at law is defeated, by the bankruptcy of an- intermediate endorsor. It is only a court of equity which' can afford á remedy.

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This subject may and ought to be contemplated in still anothér point of view. It has been repeatedly observed that the action against the endprsor is not given by statute. The contract on which the suit is maintained is not expressed, but is implied from the endorsement itself, unexplained and unaccompanied by any additional testimony.. Such a contract must, of necessity, conform to the general understanding of the transaction, peneral opinion certainly attaches credit to a note, the maker of which is doubtful, in proportion to the credit of the endorsors, and two or more good endorsors are deemed superior io one. But if the last endorsor alone can be made responsible to the holder, theh the preceding names are of no importance, and would add nothing to the credit of the note. But this general opinion is founded, on the general understanding of the nature of thé contract. The endorsor is understood to pass to the endorsee' every right founded on the note which he himself possesses. Among these is his right’ against the prior endorsor. This right is founded on an implied contract, which is not,' bylaw, assignable. Yet if it is capable of being transferred in equity, it vests, as an equitable interest, in the holder of the note. No reason is perceived why such an interest should not, as well, as an interest in any other chose in action, be transferible in .equity. And if it be so transferable, equity will of course afford a remedy. The defendant sustains no injury, for he may defend himself in equity against the holder as effectually as he could defend himself against his immediate assignee in a suit at law.

The case put, of the sale and delivery of a per-' sonal thing, is not thought to be analogous to this. The purchaser of a personal thing does not, at the time of the contract, look beyond the vendor. He does not trace the title. It passes by. delivery. But-suppose the vendor held it by á bill of salé containing a warranty of tide, and should assign that bill to his vendee; is it clear that, on. loss of the property for delect of title, no recourse could

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not prepared' to answer this question in the affirmative..

It is contended that the endorsee of the nóte holds it subject to every equity to which it was liable-in the hands of the endorsor.

If this'be ■ admitted, it is not perceived that the admission, would,, in any mánner, affect this case;

It is also contended that the plaintiff can only recover what he actually paid.

•Without indicating any opinion on this point, the couft considers it as very clear that the ¡endorsement •fe prima facie evidence of having endorsed for full value, and it is incumbent on the defendant to show the real consideration, if it was an inadequate one.

Usury has been stated in the argument, but it is neither alleged in the pleadings, nór, proved by the testimony.

It is urged that Mandeville and Jamesson are securities who have received no actual value, and that ' equity will not charge a security who is discharged at law. In support of this argument the case of a joint obligation is cited.

It is~true,' that, in- the case of a joint obligation, the court has refused to set up the bond against the, representatives of, a security. But,' in that case, the law had absolutely discharged them. . In this case, Mandeville and Jamessbn are not discharged. -They are not released from the implied contract created by the endorsement. • It is the legal remedy which is obstructed; the right is unimpaired, i'and the original obligation is in full force.

It is, then,, the opinion of this court that, without referring to the.depositions .to which exceptions have been taken, a right exists in the holder of a pío-.

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missory note, at least where he canriót obtain payment at law, to sue a remote endorsor in equity.

Cértainly, in súch a case, the defendant has a right to insist on the othér endorsors being made parties, but he has not done so; and, in this case, the court does not perceive that IVFClenachan is a party so material in the cause, that a. decree may not properly be made without him.

The decree is reversed, and. the defendants directed to pay the amount of the note to the plaintiffs.

The decree of the court was as follows:

This causé came on to be heard on the transcript of. the record of the circuit court for the county of Alexandria, arid was argued by counsel. On consideration whereof, the court is of opinión, that the decree of "the said circuit court,1 dismissing the bill of the plaintiffs, is erroneous, and ought to be reversed; and this court doth reverse the same; and this court, proceeding to give such decree as the said circuit court ought to have given, doth decree and order, that the defendants pay to the. plaintiffs the sum of l,áOO dollars, that being the amount of the note in the bill mentioned, together with interest thereon from the time vthe same becaine due.'