The endorsee of a promissory note in Virginia may recover the
amount from a remote endorser in equity, though not at law.
Equity will make that party immediately liable who is ultimately
liable at law.
The remote endorser has the same defense in equity against the
remote endorsee as against his immediate endorsee.
The defendant has a right to insist that the other endorsers 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 Mandeville and Jamesson, remote endorsers of a promissory
note, dated March 2, 1798, at sixty days, for $1,500, drawn by
Vincent Gray payable to the defendants or order, and by them
endorsed in blank. Upon its face it 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 it to D. W. Scott
for flour, which he sold for $1,200 in cash, and paid the money to
Gray. Scott passed it, without his own endorsement, to McClenachan
in the purchase of flour, and McClenachan endorsed it to Riddle
& Co. the complainants, in payment of a precedent debt; Gray
failed to pay the note, and was discharged under the insolvent act
of Virginia upon an execution issued upon a judgment in favor of
the complainants upon the 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 endorser of a promissory note.
5
U. S. 1 Cranch 290. 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 in 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 to the order of Mandeville and Jamesson, who put it in
circulation. That it was afterwards delivered and transferred, for
a valuable consideration, to McClenachan, who, for a
Page 9 U. S. 323
valuable consideration, endorsed and transferred it to the
complainants. That Gray failed to pay 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 favor in a
suit brought upon the same note 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, 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
Page 9 U. S. 324
concluded the bargain, he asked Jamesson, one of the defendants,
if the note was good and whether there was any objection to it, and
informed him it was offered to him for flour. Jamesson told him it
was a good note, and observed that whenever he saw the name of
Mandeville and Jamesson on any paper he might be sure it was good.
That Scott sold the note to McClenachan 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 McClenachan 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 note, 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 he had
also been discharged under the bankrupt act.
These witnesses were objected to by the defendants as
interested.
Page 9 U. S. 328
MR. CHIEF JUSTICE MARSHALL 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 endorser. 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 to the aid of a court of equity.
If, as was stated by the counsel for the defendants, the
question is whether a court of chancery
Page 9 U. S. 329
would create contracts into which individuals had never entered
and decree the payment of money from persons who had never
undertaken to pay it, the time of this Court has been very much
misapplied 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 are 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 endorser
on the insolvency of the maker; whether the defendants, as the
original endorsers 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 McClenachan, endorsed in blank by
Mandeville and Jamesson. McClenachan had a right to fill up the
endorsement to himself, and he has done so. The law, as understood
in Virginia, immediately implied an assumpsit from Mandeville and
Jamesson to McClenachan to pay him the amount of the note, if he
should use due diligence, and should be unable to obtain payment
from the maker. McClenachan endorsed this note to the plaintiffs,
and by so doing became liable to them in like manner as Mandeville
and Jamesson were liable to him.
The maker having proved insolvent, the plaintiffs have a legal
right to claim payment from McClenachan, and, on making that
payment, McClenachan 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 endorsers of a note, this
circuitous course might be pursued, and
Page 9 U. S. 330
by the time the ultimate endorser was reached, the value of the
note would be expended in the pursuit. This circumstance alone
would afford a strong reason for enabling the holder to bring all
the endorsers 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 case of 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 has an action at law against him, and he has
his remedy against the legatees. The creditor has no action 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, so
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 be 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 as 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 McClenachan furnishes strong additional motives for
coming into a court of chancery. Mandeville and Jamesson are
ultimately bound for this money, but the remedy at law is defeated
by the bankruptcy of an intermediate endorser. It is only a court
of equity which can afford a remedy.
Page 9 U. S. 331
This subject may and ought to be contemplated in still another
point of view. It has been repeatedly observed that the action
against the endorser 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. General opinion certainly
attaches credit to a note, the maker of which is doubtful, in
proportion to the credit of the endorsers, and two or more good
endorsers are deemed superior to one. But if the last endorser
alone can be made responsible to the holder, then 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 the contract. The endorser 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 endorser. This right is founded on an implied contract, which
is not, by law, 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
transferable 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 personal 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 a bill of sale containing a warranty of title,
and should assign that bill to his vendee; is it clear that, on
loss of the property for defect of title, no recourse could
Page 9 U. S. 332
be had to the warrantor of that title? The Court is not prepared
to answer this question in the affirmative.
It is contended that the endorsee of the note holds it subject
to every equity to which it was liable in the hands of the
endorser.
If this be admitted, it is not perceived that the admission
would in any manner 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 Court
considers it is very clear that the endorsement is
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 nor 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 Jamesson 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, 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 promissory
Page 9 U. S. 333
note, at least where he cannot obtain payment at law, to sue a
remote endorser in equity.
Certainly in such a case the defendant has a right to insist on
the other endorsers being made parties, but he has not done so, and
in this case the Court does not perceive that McClenachan 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 cause came on to be heard on the transcript of the record
of the Circuit Court for the County of Alexandria and was argued by
counsel, on consideration whereof the Court is of opinion that the
decree of the said circuit court 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
$1,500, that being the amount of the note in the bill mentioned,
together with interest thereon from the time the same became
due.
