A note was discounted at the Office of Discount and Deposit of
the Bank of the United States in the City of Washington for the
accommodation of the drawer, endorsed by Magruder and by McDonald,
neither of the endorsers receiving any value for his endorsement,
but endorsing the note at the request of the drawer, without any
communication with each other. The note was renewed from time to
time under the same circumstances, and was at length protested for
nonpayment, and separate suits having been brought by the bank
against the endorsers, the drawer being insolvent, judgments in
favor of the bank were obtained against both the endorsers. The
bank issued an execution against Magruder, the first endorser, and
he, having paid the whole debt and costs, instituted this suit
against McDonald, the second endorser, for a contribution, claiming
one-half of the sum so paid by him in satisfaction of the judgment
obtained by the bank.
Held that he was not entitled to
recover.
That a prior endorser is, in the regular course of business,
liable to his endorsee although that endorsee may have afterwards
endorsed the note is unquestionable. When he takes up the note, he
becomes the holder as entirely as if he had never parted with it,
and may sue the endorser for the amount. The first endorser
undertakes that the maker shall pay the note, or that he, if due
diligence be used, will pay it for him. This undertaking makes him
responsible to every holder and to every person whose name is on
the note subsequent to his own and who has been compelled to pay
its amount.
The endorser of a promissory note who receives no value for his
endorsement from a subsequent endorser or from the drawer cannot
set up the want of consideration received by himself; he is not
permitted to say that the promise is made without consideration,
because money paid by the promisee to another is as valid a
consideration as if paid to the promisor himself.
Co-sureties are bound to contribute equally to the debt they
have jointly undertaken to pay, but the undertaking must be joint,
not separate and successive.
This was an action of assumpsit instituted in the circuit court
by the defendant in error against the plaintiff in this Court. The
matters in controversy were submitted to the jury by a case agreed
which stated that the plaintiff produced in evidence a promissory
note drawn by Samuel Turner, Jr., in favor of George B. Magruder or
order at sixty days for $900, payable at the Office of Discount and
Deposit at Washington for value received, which note was signed
by
Page 28 U. S. 471
Samuel Turner and endorsed by George B. Magruder and by John G.
McDonald.
The note was so drawn and endorsed with the understanding of all
the parties thereto that it should be discounted in the Office of
Discount and Deposit for the sole use and accommodation of the
maker, Samuel Turner, no value being received by either of the
endorsers. It was so discounted, and the proceeds thereof applied
to the credit of Turner, in the office. Long before the making of
the note,
viz., in the year 1819, Turner had two notes
discounted for his use and accommodation in the office,
viz., one for $270, endorsed by George B. Magruder and by
G. McDonald, and one for $710, endorsed by George B. Magruder and
one Samuel Hambleton, which last mentioned note was continued, by
renewal, with the endorsement of Magruder and Hambleton, until
September, 1820, when, in consequence of Hambleton's absence, it
was protested, after which the office permitted the accommodation
to be renewed upon condition that Turner would get another good
endorser in the place of Hambleton. Whereupon John G. McDonald,
upon the solicitation of Turner, endorsed a note for the sum of
$710, which was brought to him, already endorsed by George B.
Magruder. That in March, 1821, a small part of the money having
been paid, the two notes were consolidated and renewed by one note
for $950, drawn by Turner and endorsed by Magruder and by McDonald,
which was from time to time renewed by notes similarly drawn and
endorsed, the last of which is this note, so produced in evidence
by the plaintiff. Neither at the time of endorsing the notes
respectively nor at any other time was there any communication
between Magruder and McDonald upon the subject of such endorsement.
Both of them, however, knew at the time of endorsement the notes
were intended to be discounted for the accommodation of Turner, and
in every instance Magruder was the first endorser. The note, so
produced in evidence by the plaintiff, not having been paid when
due, was duly protested, and the payment thereof having been duly
demanded, and due notice given of such demand, and of nonpayment
having been
Page 28 U. S. 472
given to the endorsers, judgments at law were recovered against
both, by the Bank of the United States, and the whole amount having
been paid by Magruder, he brought this suit to recover from
McDonald one-half of the amount so paid by him.
By consent of the parties, a verdict was rendered for the
plaintiff for one-half of the amount so paid by the said Magruder,
in satisfaction of the judgment against him; subject to the opinion
of the court upon the case agreed.
Upon the case stated, the court below gave judgment for the
plaintiff, and the defendant sued out this writ of error.
Page 28 U. S. 474
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the
Court.
This is a writ of error to a judgment rendered by the Circuit
Court of the United States for the County of Washington in the
District of Columbia, in an action of
indebitatus
assumpsit, brought by the first endorser of a promissory note
against the second endorser, to recover half its amount. The note
was made by Samuel Turner, Jr., and endorsed George B. Magruder,
John G. McDonald. At the trial of the cause, a case was agreed by
the parties and the judgment of the circuit court was rendered in
favor of the plaintiff on a verdict given by the jury, subject to
the opinion of the court.
That a prior endorser is, in the regular course of business,
liable to his endorsee although that endorsee may have afterwards
endorsed the same note is unquestionable. When he takes up the
note, he becomes the holder as entirely as if he had never parted
with it, and may sue the endorser for the amount. The first
endorser undertakes that the maker shall pay the note or that he,
if due diligence be used, will pay it for him. This undertaking
makes him responsible to every holder and to every person whose
name is on the note subsequent to his own and who has been
compelled to pay its amount.
Page 28 U. S. 475
This is the regular course of business where notes are endorsed
for value, but it is contended that where less than the amount is
received, the endorser is responsible to his immediate endorsee
only for the sum actually paid; consequently, if nothing is paid,
the mere endorsement does not bind the endorser to pay his
immediate endorsee anything. If B. endorses to C. the note of A.
without value, and A. fails to take it up, it is as between B. and
C. a contract without consideration, on which no action arises.
This is undoubtedly true if C. retains the note in his own
possession, and may be equally true if he endorses it for value.
When he repays the money he has received, he is replaced in the
situation in which he would have been had he never parted with the
note. If he puts it into circulation on his own account, new
relations may be created between himself and his immediate endorsee
which may be affected by circumstances. In the case under
consideration, the note took the direction intended by all the
parties. It was endorsed by Magruder for the purpose of enabling
Turner to discount it at the bank. To insure this object, Turner
applied to McDonald, who placed his name also on the paper. No
intercourse took place between the endorsers. No contract, express
or implied, existed between them other than is created by their
respective liabilities produced by the act of endorsement. What are
these liabilities? The first endorser gave his name to the maker of
the note for the purpose of using it in order to raise the money
mentioned on its face. He made himself responsible for the whole
sum upon the sole credit of the maker. His undertaking is
undivided. He does not understand that any person is to share this
responsibility with him.
But either the bank is unwilling to discount the note on the
credit of the maker and his single endorser or the maker supposes
his object will be insured by the additional credit given by
another name. He presents the note therefore to McDonald, and asks
his name also. McDonald accedes to his request and puts his name on
the instrument. If the maker passes the note for value, the
liability of McDonald to the holder is the same as if that value
had been received
Page 28 U. S. 476
by McDonald himself. Why is this? No consideration is received
by McDonald, and this fact is known to the holder and discounter of
the note. But a consideration is paid by the holder to the maker,
and paid on the credit of McDonald's name. He cannot set up the
want of a consideration received by himself; he is not permitted to
say that the promise is made without consideration; because money
paid by the promisee to another is as valid a consideration as if
paid to the promisor himself.
In what does the claim of the second on the first endorser
differ from that of the holder on the second endorser? Neither has
paid value to his immediate endorser, but the holder has paid value
to the maker on the credit of all the names to the instrument. The
second endorser, if he takes up the note, has paid value to the
holder in virtue of the liability created by his endorsement. If
this liability was founded equally on the credit of the maker and
of the first endorser if his undertaking on the credit of both
subjects him to the loss consequent on the payment of the note, how
can the contract between him and his immediate endorser be said to
be without consideration?
If it be true, as we think it is, that Magruder, when he
endorsed the note and returned it to the maker to be discounted,
made himself responsible for its amount on the failure of the
maker, if this responsibility was then complete, how can it be
diminished by the circumstance that McDonald became a subsequent
endorser? How can the legal liability of a first endorser to the
second, who has been compelled to take up the note, be changed
otherwise than by an express or implied contract between the
parties?
This question has arisen and been decided in the courts of
several states.
Wood v. Repold, 3 Harris & Johns. 125,
was a bill drawn by A. Brown, Jr., at Baltimore, on Messrs. Goold
& Son of New York in favor of G. Wood & Co., and endorsed
by G. Wood & Co. and afterwards by Repold, the plaintiff. The
bill was drawn and endorsed for the purpose of raising money for
the drawer, and was discounted at the Bank of Baltimore. On being
protested for nonpayment, it was taken up by Repold and this suit
brought against the
Page 28 U. S. 477
first endorser. Payment was resisted because the endorsement
was, without consideration, for the accommodation of the drawer,
but the court sustained the action. The same question arose in
Brown v. Mott, 7 Johns. 361, on a promissory note, and was
decided in the same manner. In that case, the court said that if he
had taken it up at a reduced price, it would seem that he could
only recover the amount paid. Undoubtedly if McDonald had been
compelled to pay a moiety of this note, he could have recovered
only that moiety from Magruder.
The case of
Douglass v. Waddle, 1 Hammond 413, was
determined differently. This case was undoubtedly decided on
general principles, but the custom of the country and a statute of
the state are referred to by the court as entitled to considerable
influence. The weight of authority as well as of usage is, we
think, in favor of the liability of the first endorser.
The claim of Magruder has also been maintained on the principle
that they are co-sureties, and that he who has paid the whole note
may demand contribution from the other.
The principle is unquestionably sound if the case can be brought
within it. Co-sureties are bound to contribute equally to the debt
they have jointly undertaken to pay; but the undertaking must be
joint, not separate and successive. Magruder and McDonald might
have become joint endorsers. Their promise might have been a joint
promise. In that event each would have been liable to the other for
a moiety. But their promise is not joint. They have endorsed
separately and successively in the usual mode. No contract, no
communication, has taken place between them which might vary the
legal liabilities these endorsements are known to create. Those
legal liabilities therefore remain in full force.
Upon this question of contribution the counsel for the
defendants in error rely on two cases, reported in 2 Bos. &
Pull. 268 and 270. The first,
Cowell v. Edwards, was a
suit by one surety on a bond against his co-surety for
Page 28 U. S. 478
contribution. It was intimated by the court that each surety was
liable for his aliquot part, but not liable at law to any
contribution on account of the insolvency of some of the sureties.
The party who had paid more than his just proportion of the debt
could obtain relief in equity only.
The second case,
Sir Edward Deering v. Earl of Winchelsea,
Sir John Rous, and the Attorney General, was a suit in
chancery in the Exchequer. Thomas Deering had been appointed
receiver of fines, &c., and had given three bonds conditioned
for faithful accounting, &c. In one of these the plaintiff was
surety, in another Lord Winchelsea, and in the third Sir John Rous.
Judgment was obtained on the bond in which the plaintiff was
surety, and this suit was brought against the sureties to the two
other bonds for contribution. It was resisted on the ground that
there was no contract between the parties, they having entered into
special obligations. The Lord Chief Baron was disposed to consider
the right to contribution as founded rather on the equity of the
parties than on contract, and the court decreed contribution.
In this case, the parties were equally bound, were equally
sureties for the same purpose, and were equally liable for the same
debt. Neither had any claim upon the other superior to what that
other had on him. The parties stood in the same relation not only
to the Crown, to whom they were all responsible, and to the person
for whom they were sureties, but to each other. Under these
circumstances, contribution may well be decreed
ex equali
jure. But in the case at bar, the parties do not stand in the
same relation to each other. The second endorser gives his name on
the faith of the first endorser as well as of the maker. The first
endorser gives his name on the faith of the maker only.
Unquestionably these liabilities may be changed by contract, but no
contract existing between these parties, it is not a case to which
the principle of contribution applies.
No notice has been taken of the form of the action. It is
admitted that Magruder, having paid the whole note,
Page 28 U. S. 479
may recover a moiety from McDonald, if their undertaking is to
be considered as joint, if he, as first endorser, is not
responsible to McDonald for any part of it which McDonald may have
paid.
The judgment is to be reversed and the cause remanded with
directions to set aside the verdict and enter judgment as on a
nonsuit.
