The endorser of a promissory note given for the accommodation of
the maker is entitled to strict notice of its nonpayment.
If the drawer of a bill of exchange, at the time of drawing, has
a right to expect that his bill will be honored, although he has no
funds in the hands of the drawer, he is entitled to strict
notice.
In reason, it would seem that the necessity of notice of
nonacceptance or nonpayment of a bill of exchange ought to be
dispensed with only in those cases where notice must be unnecessary
or immaterial.
Where the money raised upon the note is received by the
endorser, so that the note is discounted in truth for his
accommodation, not for that of the maker, he is unquestionably
without funds in the hands of the acceptor, must expect to pay the
note himself, and "cannot require notice of its nonpayment by the
drawer."
This was an action of assumpsit upon the promissory note of W.
M. Duncanson, payable to George French or order and by him endorsed
to the plaintiffs for $1,400 at 60 days, date October 10, 1798, and
due December 9-12.
On the trial at law in the court below, the plaintiff in error
took a bill of exceptions which stated the following
Page 8 U. S. 142
facts: that the banking house of the plaintiffs was situated in
Georgetown, in the District of Columbia, at the time the note
became payable, in which town the defendant's testator also
resided. That Duncanson, the maker of the note, lived in the City
of Washington, four miles distant from the Bank of Columbia. That
the last day of grace upon the note expired on 12 December, 1798.
That the defendant's testator was very ill and confined to his bed,
from 9 to 14 December, 1798, on which last mentioned day he died;
that the defendant proved his will and took out letters
testamentary on the 28th of the same month. That on 15 December, a
notary public called at the house of Duncanson, the maker of the
note, to demand payment, but was informed that he had gone into
Georgetown, whereupon the note was protested; that one Weems, an
agent of the defendant, had notice of the dishonor of the note in
January, 1799, and conversed with and endeavored to make
arrangements with the plaintiffs for the same.
That the note was endorsed by the defendant's testator without
any valuable consideration passing from him to any person for the
same, merely to accommodate Duncanson, the maker of the note and to
give him a credit with the plaintiffs for the amount thereof, and
that the plaintiffs received the same with a knowledge of its being
so drawn and endorsed; that the defendant's testator in his
lifetime, and the defendant since his death, have suffered no loss
or injury from the circumstance of the note's not having been
demanded of the maker before 15 December, 1798, or of the want of
notice to the defendant's testator, or to the defendant, other than
as aforesaid, and that the court at the plaintiffs' request
thereupon instructed the jury that such laches and neglect of the
plaintiffs as to a demand on the maker and in not giving other
notice than as above stated to the endorser does not debar and take
away the plaintiff's right to recover upon that note in this action
against the defendant.
The defendant below took another bill of exceptions to the
refusal of the court to instruct the jury that the neglect of the
plaintiffs to demand payment and to give
Page 8 U. S. 143
notice, as before stated, discharged the defendant's testator
from all liability upon the note if the jury should be satisfied by
the evidence that Duncanson received the money from the plaintiffs
with the assent of the defendant's testator after his endorsement,
and that at the time of the drawing and endorsing of the note, it
was the understanding of all parties that the money should be so
paid, and that such payment and assent were a sufficient
consideration passing from French to Duncanson.
The judgment below being for the plaintiffs, the defendant
brought her writ of error.
Page 8 U. S. 153
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the
Court.
The material question in this case is whether a person who
endorses a promissory note for the accommodation of the drawer be
discharged from the responsibility which the endorsement creates by
the failure of the holder to demand payment of the maker in the
usual time and to give notice to the endorser that the note is not
paid.
That by the general rule of law the omission to demand payment
from the maker when the note becomes payable and to give notice to
the endorser that payment has been refused discharges the endorser
is admitted,
Page 8 U. S. 154
but from this general rule of law exceptions exist, and the
counsel for the defendants in error contend that the case stated is
comprehended in one of these exceptions.
It is laid down as an exception to the general rule in its
application to bills of exchange that if the drawer has no effects
in the hands of the drawee, notice of the dishonor of the bill may
be dispensed with, and the case of an endorser of a promissory note
for the accommodation of the maker is said to come within the same
reason and the same law.
The correctness of this position will be best tested by
considering the reason of the rule and the reason or the
exception.
Why is it that notice must immediately be given to the drawer
that his bill is dishonored by the drawee? It is because he is
presumed to have effects in the hands of the drawee, in consequence
of which the drawee ought to pay the bill, and that he may sustain
an injury by acting on the presumption that the bill is actually
paid. The law requires this notice not merely as an indemnity
against actual injury, but as a security against a possible injury
which may result from the laches of the holder of the bill. To this
security, then, it would seem, the drawer ought to remain entitled
unless his case be such as to take him out of the reason of the
rule.
A drawer who has no effects in the hands of the drawee is said
to be without the reason of the rule, and therefore to form an
exception to it.
This has been laid down in the books as a positive qualification
of the rule, but has seldom been so laid down except in cases where
in point of fact the drawer had no right to expect that his bill
would be honored, and could sustain no injury by the neglect of the
holder to give notice of its being dishonored. In reason it would
seem that in such cases only can the exception be admitted, and
that the necessity of notice ought to be dispensed with only in
those cases where
Page 8 U. S. 155
notice must be unnecessary or immaterial to the drawer.
The reasoning of the judges in most of the cases which have been
cited would seem to warrant this restriction of the exception.
The case of
Bikerdike v. Bollman was a bill drawn by a
debtor on his creditor, without a single accompanying circumstances
which could raise an expectation that the bill would be accepted or
paid. Notice in this case was declared to be unnecessary. Justice
Ashhurst gives as a reason for this opinion that the drawing was in
itself a fraud. This reason must be considered as additional to the
general ground on which the case was placed in the argument, which
was that the want of notice could not possibly affect the drawer.
The particular reason given by Justice Ashhurst for his opinion is
clearly inapplicable to any case in which the drawer was justified
in drawing.
Into the opinion of Justice Buller some general reasoning is
introduced from which it is fairly deductible that he considered
the drawer as having no right to expect that the bill would be paid
and as being liable to no injury from the want of notice, and that
these were the true grounds of the exception.
He says
"If it be proved on the part of the plaintiff that from the time
the bill was drawn till the time it became due, the drawee never
had any effects of the drawer in his hands, I think notice to the
drawer is not necessary, for he must know whether he had effects in
the hands of the drawee or not, and if he had none, he had no right
to draw upon him and to expect payment from him; nor can he be
injured by the nonpayment of the bill, or the want of notice that
it has been dishonored."
These observations were in fact applicable to the case, for the
drawer was the debtor of the drawee, and had no right to draw the
bill nor reason to expect that it would be accepted.
Page 8 U. S. 156
This principle was recognized in
Goodall v. Dolly, in
which the same idea, so far as respects the impossibility of injury
to the drawer, was repeated.
This point came on again to be considered in the case of
Rogers v. Stephens, 2 T.R. 713, in which, as between the
drawer and drawee, there was no pretext of a right to draw. It was
said that a third person had stated himself to have funds in the
hands of the drawee; that the bill was really drawn on the credit
of those funds, and that loss had been actually sustained from the
want of notice. But these facts formed no part of the case. If they
had, it is apparent that, in the opinions of Lord Kenyon and
Justice Grose, they would have been decisive in favor of the
necessity of notice, unless that necessity had been dispensed with
by the subsequent conduct of the drawer. Lord Kenyon states the
reason why notice need not be given to the person who draws without
funds in the hands of the drawee to be "because the drawer must
know that he had no right to draw on the drawee." The opinions of
Lord Kenyon and Justice Grose in this respect, though not assented
to, were not controverted by Justice Ashhurst.
The decision in
Rogers v. Stephens was made on the
authority of
Bikerdike v. Bollman.
It would seem to be the fair construction of these cases that a
person having a right to draw in consequence of engagements between
himself and the drawee, or in consequence of consignments made to
the drawee, or from any other cause ought to be considered as
drawing upon funds in the hands of the drawee, and therefore as not
coming within the exception to the general rule.
The transaction cannot be denominated a fraud, for in such case
it is a fair commercial transaction.
Neither can it be truly said that he had no right to expect his
bill would be paid, for a person authorized to draw must expect his
draft will be honored.
Page 8 U. S. 157
Neither can it be said that he has virtual notice of the
protest, and that actual notice is useless and the want of it can
do him no injury, for this is only true when, at the time of
drawing, the drawer has no reason to expect that his bill will be
paid.
A person having a right to draw and a fair right to expect that
his bill will be honored would not come within the reason of the
exception, and therefore, it may well be contended, ought not to be
brought within the exception itself.
This doctrine appears to be contradicted in the case of
Walwyn v. St. Quintin.
In that case, the bill was drawn to accommodate the endorser,
who had previously placed securities on which he wished to raise
money in the hands of the acceptor, but the drawer had no effects
in his hands. It was determined that in this case notice to the
drawer was unnecessary.
If this determination should be considered without examining the
reasoning on which it was founded, the reader would conclude that
the single circumstance of drawing without funds in the hands of
the drawee belonging to the drawer subjected him without notice to
the payment of his bill, if dishonored, at any period of time when
not barred by the act of limitations, and that no demonstration of
his perfect right to draw or of the loss to which the want of
notice had exposed him could relieve him from the claim of the
holder of the bill. For in this case, the drawee having accepted on
funds, the drawer had a right to expect that the bill would be
paid, could not be chargeable with fraud in drawing nor required to
prepare other funds to prevent the disgrace and injury of his
bill's being dishonored or to take measures to secure himself
against the acceptor or endorser. He does not appear to have come
within any one reason assigned in the cases of
Bikerdike v.
Bollman or of
Rogers v. Stephens, for the exception
stated in those cases to the general rule.
Page 8 U. S. 158
This induces the necessity of examining with particular
attention the reasons given by the judge, which must be considered
as explanatory of the decision.
In delivering the opinion of the court, Lord Chief Justice Eyre
said,
"The true fact is that this was the acceptor's bill, and not the
drawer's. . . . The transaction in this case was a mode by which
the acceptor advanced a sum of money to the payee, and the drawer
was a mere instrument of the acceptor. . . . It seems clear that
notice can be of no use to him, his situation being this that if
the acceptor do not pay, he must, and may then, and not till then,
resort to the acceptor to be reimbursed. Notice therefore can
amount to nothing, for his situation cannot be changed."
It is observable that the principle supposed to be laid down in
the cases previously adjudged as constituting the reason for the
exception is here expressly recognized, and forms the great and
operative motive for the judgment of the court. It is that notice
could be of no use; that the drawer could not avail himself of i;
that he could take no step which would in any manner change his
situation; that he could have no recourse against the acceptor
until he paid the bill.
In no case is the reason of the exception more explicitly given,
and the only difficulty is to apply the reasoning to the facts as
reported.
The court seems to have supposed that since the drawer could not
maintain an action against the acceptor until he had taken up the
bill, it was perfectly useless to enable him, by proper notice, to
employ those other various means which he might have taken to
secure himself. Such is not the reasoning of the judges in the
cases previously decided, and this reasoning certainly would not be
permitted to apply to an endorser who had given value for the bill,
not knowing that it was drawn without funds in the hands of the
drawee. Yet he would be unable to recover from the drawer until he
had taken up the bill.
Page 8 U. S. 159
If an action could not have been maintained, might not the
drawer have effects of the drawee in his hands which he might
retain, or might not various other means of saving himself be
neglected in consequence of the opinion that the bill would be
paid? If this might be, how can it be true that notice can be of no
use to him?
If the fact even be that the drawer could only sue the acceptor
in such a case as this after having himself discharged the bill,
still he ought to have notice that he might immediately take it up
for the purpose of proceeding against the acceptor.
The reasoning of Lord Chief Justice Eyre, to be perfectly
consistent with itself and with the principles laid down in
previous decisions, would seem to be predicated on an understanding
on the part of the drawer when the bill was drawn, that it was not
to be paid by the acceptor, or on the idea that a bill drawn
without funds is not a commercial transaction, and not subject to
commercial rules.
The presumptions are rendered the stronger from the cases
afterwards stated, in which a drawer without funds in the hands of
his drawee would still be entitled to notice. These are
"acceptances on the faith of consignments from the drawer not come
to hand" and "acceptances on the ground of fair mercantile
agreement," to which, he says, may possibly be added many
others.
If the exception admits of these exceptions and of many others,
it would be difficult to apply it to any case of a fair
transaction, where the drawer had really a right to draw, unless it
be supposed not to be governed by the law merchant.
The judge next proceeds to describe the case in which notice is
not requisite.
He says
"Where the drawer has no effects and has no fair pretense for
drawing, or where he draws without effects intended to be applied
in payment, and only
Page 8 U. S. 160
for the purpose of raising money by discount for himself, and
a fortiori for the acceptor, it is fairly deducible from
the cases that notice need not be given."
It is not only necessary that the drawer should have no effects,
but also that he should have no fair pretense for drawing. Now he
may have a fair pretense, as in the case of a "fair mercantile
agreement," without having any funds in the hands of the drawee
which notice of nonacceptance of the bill might enable him to
withdraw, and yet in such case it would appear from the language of
the court that notice could not be dispensed with.
"Where he draws only for the purpose of raising money by
discount for himself, and
a fortiori for the acceptor,"
notice need not be given.
Where he draws solely for the purpose of raising money by
discount for himself, he expects to pay the bill, and there is no
person to whom he can resort for repayment. There is no person on
whom he can have a legal or an equitable demand in consequence of
the nonpayment of the bill. But how can the same reasoning be said
to apply
a fortiori to the case of the bill being drawn
for the use of the acceptor? In such case, the relative situation
of the parties must be substantially the same as if the money
raised on the bill for the acceptor were funds of the drawer in his
hands, on which the bill was drawn. Every motive for requiring
notice of nonpayment in the case of a bill drawn upon funds, except
that which results from a right to claim those funds by a suit,
would apply to a bill drawn to raise money for the acceptor unless
it was understood at the time that the acceptor was not to pay the
bill.
The case of
Walwyn v. St. Quintin, then, can only be
supported on the idea of an understanding that the drawee was not
to pay the bill, or that a bill, drawn, not in the usual course of
business, is a transaction to which commercial rules do not
apply.
Page 8 U. S. 161
In the case of
Whitfield v. Savage, 2 Bos. & Pul.
277, the drawer had funds in the hands of the acceptor, and the
decision turned upon that point.
The reasoning on the cases of protested bills has been gone into
the more at large, because it has been considered as applicable to
promissory notes endorsed under the statute of Anne, which is
admitted to be in force in Maryland.
The endorser has been considered as the drawer and the maker of
the note as the acceptor, and in all cases of an endorsement for
accommodation, the endorser is likened to a drawer without funds in
the hands of the acceptor.
Where the money raised upon the note is received by the
endorser, so that the note is discounted in truth for his
accommodation, not for that of the maker, he is unquestionably
without funds in the hands of the acceptor, must expect to pay the
note himself, and cannot require notice of its nonpayment by the
maker. But the same reasons do not appear to exist where the note
has been discounted for the maker. In that case, the funds which
represent the note are in the hands of the maker, or, to use the
language applicable to bills, in the hands of the acceptor before
the draft becomes payable; the drawer had a right to draw and had a
right to expect that his bill would be paid. Upon principles of
reason and of justice, then, it would seem that notice of
nonpayment could as little be dispensed with in this case as if he
had himself paid the money to the maker of the note and then
received it from the bank, or as if the note had been given him for
a previous debt and had been discounted for his own use.
Notice of nonpayment by the maker is necessary because the
undertaking of the endorser is conditional, and wherever in fact
the transaction is such that the maker of the note ought in justice
to pay it and is bound ultimately to make it good, it would seem
reasonable that payment should be demanded from him and that
reasonable notice of nonpayment should be given to the
endorser.
Page 8 U. S. 162
If, however, the course of decisions be otherwise, the endorser
of a note for the accommodation of the maker must come within the
exception which dispenses with notice in his case.
The cases which have been adjudged in England an promissory
notes are anterior in point of time to the cases of
Walwyn v.
St. Quintin and of
Whitfield v. Savage.
The first which has been cited is
De Berdt v. Atkinson.
This note was endorsed for the accommodation of the maker, the
endorser well knowing at the time that the maker was insolvent.
Four judges who tried the cause were unanimously of opinion that
want of notice did not discharge the endorser. The opinion of the
Chief Justice was founded on the known insolvency of the maker, and
the consequent impossibility that loss could be sustained by the
endorser from want of notice. The opinion of Justice Buller was
founded on the circumstance that the note was endorsed for the
accommodation of the drawer. He states explicitly that the general
rule is only applicable to fair transactions, and by fair
transactions he means "bills or notes given for value in the
ordinary course of trade."
Justices Heath and Rooke accorded in the decision, but whether
for the reasons assigned by the Chief Justice or for those assigned
by Justice Buller, or for both, does not appear.
The same point came on to be considered in the case of Nicholson
v. Gouthit.
This was a strong case because the endorsement was made in
consequence of a previous engagement on the part of the endorser to
guarantee the payment of a debt due from the maker of the note, who
appears from the transaction to have been in bad circumstances at
the time, and who became insolvent before the note was payable.
From his connection with the maker and from other circumstances,
the endorser must have known that the maker would not pay the note,
and it was the
Page 8 U. S. 163
understanding of all parties that it should be paid by the
endorser.
The justice of the case was said to be clearly in favor of the
plaintiff, and under an impression that the want of notice in this
case could not injure the plaintiff, the Lord Chief Justice had at
the trial instructed the jury that it was unnecessary, and indeed
that it might be considered as received by anticipation.
In this case the note was not made merely to raise money, but
was made to pay a debt. The endorser, however, gave no value for
it, and if likened to the drawer of a bill of exchange, he had
drawn without funds in the hands of the acceptor, and with a
knowledge that the acceptor would not pay the bill.
But in the argument in favor of a new trial the counsel
contended that the law upon a promissory note was different in this
respect from the law on a bill of exchange, and though notice of
the dishonor of a bill drawn without funds in the hands of the
drawee need not be given, yet the rule in the case of promissory
notes is totally different, and notice must in all cases be given
to the endorser.
In delivering the opinion of the court, Lord Chief Justice Eyre
assented to this distinction and admitted the rule with respect to
notice to the endorser to be as stated. He therefore reversed his
own decision at Nisi Prius and granted a new trial upon the strict
law, contrary to his ideas of the justice of the case.
Heath and Rooke concurred in this opinion. Buller was not
present, and reasoning from his opinion in the case of
De Berdt
v. Atkinson, it is probable he would not have concurred in the
decision of this case.
However, then, the law may be with regard to the drawer of a
bill of exchange who from other circumstances may fairly draw, but
who has no effects in the hands of the drawer, it seems settled in
England by the case of
Nicholson v. Gouthit that the law
with regard to a promissory note is different, and that if in
Page 8 U. S. 164
any case where the notice is made for the benefit of the maker,
notice to the endorser can be dispensed with, it is only in the
case of an insolvency known at the time of endorsement.
In point of reason, justice, and the nature of the undertaking,
there is no case in which the endorser is better entitled to demand
strict notice than in the case of an endorsement for accommodation,
the maker having received the value.
This Court is of opinion that the circuit court erred in
directing the jury that the laches of the plaintiffs in failing to
demand payment of the maker of the note and to give notice of
nonpayment to the endorser did not deprive the plaintiffs of their
remedy against the endorser, and therefore the judgment rendered in
this case is reversed and the cause remanded for further trial. A
new trial, with instructions, &c.
Judgment reversed.