The construction of a letter of credit or of guarantee must be
the same in a court of equity as in a court of law, and any facts
which might be introduced into one court to explain the transaction
may be introduced into the other.
On the question of fraud also, the remedy at law is
complete.
Where the only ground of equitable jurisdiction is the discovery
of facts solely within the knowledge of the defendant, and the
defendant by his answer discloses no such facts, and the plaintiff
supports his claim by evidence in his own possession, unaided by
the confessions of the defendant, the plaintiff should be dismissed
from the court of chancery and permitted to assert his rights in a
court of law.
To charge one person with the debt of another, the undertaking
must be clear and explicit.
It is the duty of him who gives credit to another upon the
responsibility or undertaking of a third person immediately to give
notice to the latter of the extent of his engagement.
A fraudulent recommendation will subject the person giving it to
the damages sustained by the person trusting to it.
An answer responsive to the bill is evidence in favor of the
defendant.
A misrepresentation of the solidity of a mercantile house, made
under a mistake of the fact, without any interest or fraudulent
intention, will not sustain an action although the plaintiff may
have suffered damage by reason of such misrepresentation.
A merchant who endorses the bills of another upon the guarantee
of a third cannot, upon the insolvency of the principal debtor and
of the guarantee, resort to a trust fund created by the principal
debtor for the indemnity of the guarantee for the amount which the
guarantee should pay. But the person for whose benefit a trust is
created, who is to be the ultimate receiver of money, may sustain a
suit in equity to have it paid directly to himself.
When the guarantee is insolvent, a court of equity will not
decree the money raised for his indemnity to be paid to him without
security that the debt to the principal creditor should be
satisfied.
This Court will not make a final decree upon the merits of the
case unless all persons who are essentially interested are made
parties to the suit, although some of those persons are not within
the jurisdiction of the court.
Error to the Circuit Court for the District of Rhode Island in a
suit in equity brought by Russell against Clark in his lifetime as
surviving partner of the firm of Clark & Nightingale to recover
from him the amount of sundry bills of exchange drawn by one
Jonathan Russell for the use of Robert Murray & Co, whose agent
he was, upon James B. Murray, in London, and endorsed by the
complainant, Nathaniel Russell upon the faith of two letters
written to him by Clark & Nightingale in the following
words:
"Providence, 20 January, 1796"
"Nathaniel Russell, Esq."
"DEAR SIR,"
"Our friends, Messrs. Robert Murray & Co. merchants in New
York, having determined to enter largely into the purchase of rice
and other articles of your produce in Charleston but being entire
strangers there, they have applied to us for letters of
introduction to our friend. In consequence of which we do ourselves
the pleasure of introducing them to your correspondence as a house
on whose integrity and punctuality the utmost dependence may be
placed; they will write you the nature of their intentions, and you
may be assured of their complying fully with any contract or
engagements they may enter into with you."
"The friendship we have for these gentlemen induces us to wish
you will render them every service in your power; at the same time,
we flatter ourselves the correspondence will prove a mutual
benefit."
"We are, with sentiments of esteem, Dear Sir,"
"Your most obedient servants,"
"CLARK & NIGHTINGALE "
Page 11 U. S. 70
"Providence, 21 January, 1796"
"Nathaniel Russell, Esq."
"DEAR SIR,"
"We wrote you yesterday, a letter of recommendation in favor of
Messrs. Robert Murray & Co. We have now to request that you
will render them every assistance in your power. Also that you
will, immediately on the receipt of this, vest the whole of what
funds you have of ours in your hands in rice on the best terms you
can. If you are not in cash for the sales of the China and Nankins,
perhaps you may be able to raise the money from the bank until due,
or purchase the rice upon a credit till such time as you are to be
in cash for them; the truth is, we expect rice will rise, and we
want to improve the amount of what property we can muster in
Charleston vested in that article at the current price; our Mr.
Nightingale is now at Newport, where it is probable he will write
you on the subject."
"We are, dear sir,"
"Your most obedient servants,"
"CLARK & NIGHTINGALE"
The bill stated that in February, 1796, Jonathan Russell arrived
in Charleston from New York, bringing a letter of credit from the
house of Joseph & William Russell of Providence, with whom the
complainant had only a slight acquaintance, but believed them to be
in good credit.
That Jonathan Russell informed the complainant, that when he
left New York, he was authorized by R. M. & Co. to say that
they would forward to him at Charleston, letters of guarantee from
their friends, Clark & Nightingale, of Providence, addressed to
the complainant, and that he expected soon to receive them.
That he soon afterwards presented to the complainant, the
before-mentioned letters of Clark & Nightingale, of 20 and 21
January, 1796, and that confiding in the responsibility and
integrity of C. & N. and in the purity and simplicity of their
views, he endorsed
Page 11 U. S. 71
the bills in question, amounting in the whole to �3,886 10s 8d
sterling.
That Clark & Nightingale, knew that the house of R. M. &
C. began business without capital, under their patronage, and were
supported by their credit, and that in the year 1795 it was found
requisite in New York and Boston, where the house of R. M. &
Co. chiefly did business, that their bills of exchange, in order to
their being negotiated in those places, should have the endorsement
of C. & N., and even then it was necessary they should be drawn
for very small sums.
That the advances and responsibilities of the house of C. &
N. for that of R. M. and Co. were originally predicated chiefly
upon their personal honor and integrity, and afterwards continued
upon the assurances of R. M. & Co. that in case of disastrous
events, they should be secured by a priority of indemnity. And that
upon like assurances C. & N. agreed to aid R. M. & Co. with
funds and credit to enable them to carry on the Charleston
speculation which had been concerted between them, and had agreed
to give them a letter of credit and guarantee to the complainant,
and if the letters sent, did not in legal construction, amount to
such (which the complainant does not admit), it must have arisen
either from the defendant, Clark, accidentally penning the letters
in terms that did not quite come up to the idea intended by himself
(in which case it would be contrary to equity and good conscience
that he should be permitted to avail himself of such accident to
the injury of the complainant), or from the terms being artfully
and fraudulently contrived by the defendants, Clark, to give to the
complainant the impression he intended, and yet by secret
reservation to leave a door open for his own escape.
That the deceased partner of the defendant (Nightingale), in his
lifetime, confessed that the house of C. & N. was bound by
their letters to indemnify the complainant, and that Clark has
offered to compromise.
The bill further states that the recommendations of the house of
R. M. & Co. given by C. & N. were fallacious
Page 11 U. S. 72
and unwarranted, covenous, and deceitful, and were made in
consequence of a concerted plan, to put R. M. & Co. into
possession of large property, upon credit, to give the chance in
the first instance of great profits to that house, in case the
speculation should be successful, and finally, whether successful
or not, to bring to the hands of C. & N. large reimbursements
from the proceeds of property so to be acquired, and that
accordingly, shortly after, it was known in America, that the house
of R. M. & Co. must fall, the defendant, Clark, availed himself
of the private stipulations before alluded to, by obtaining from
that house, the greater part of their property, including the
proceeds of the rice purchased upon the credit of the complainant's
endorsements.
That J. B. Murray, who was named a trustee, being a citizen of
New York, could not be compelled to appear in the circuit court, at
Rhode Island, and therefore, is not made a party.
The complainant exhibited copies of five deeds from R. M. &
Co. assigning their property to the defendant, Clark --
viz., one dated 23 March, 1798 -- one 24 March, 1798 --
two dated 22 March, 1799 -- and one 31 May, 1800, and called for
the originals.
The bill avers that the house of R. M. & Co. has been duly
declared bankrupt, and discharged -- that the assignees under the
commission, are resident in New York and could not be made parties
to this bill, and that in fact there was nothing left to assign to
them -- the previous assignments to the defendant, having
transferred the whole.
That Joseph & William Russell assigned away all their
property, so that the complainant cannot enforce against them the
judgment at law which he had obtained upon their letter of
credit.
That in the deed of 24 March, 1798, among the uses to which the
assigned property is to be applied is the following --
viz.,
"Also for the sum or sums which the said Clark & Nightingale
have paid or are liable to pay on a suit commenced against them by
Nathaniel Russell of Charleston, South Carolina, for
Page 11 U. S. 73
amount of certain bills of exchange, there drawn in his favor by
Jonathan Russell of New York, for the amount of �3,998 7s. 2p.
sterling or thereabouts."
And in a subsequent part of the same deed, another use declared
is
"to retain and pay to Joseph & William Russell the amount
that shall be recovered and paid from them to Nathaniel Russell of
Charleston, in South Carolina, upon account of a letter of credit
to him given by the said Joseph & William Russell in favor of
Jonathan Russell,"
&c.
The complainant further states that although he is unable to
compel the payment from Joseph & William Russell by reason of
their having assigned away all their effects, yet William, who has
survived Joseph, refuses to assent or afford any aid in converting
those funds to the relief of the complainant, and the defendant has
the use of the property for an indefinite time, and refuses to
account therefor to the complainant.
He further charges that C. & N. were dormant co-partners
with R. M. & Co. in the Charleston speculation -- that R. M.
& Co. were, at the time of the recommendation from the
complainant, deeply involved in debts, which they had not the means
of discharging; that their credit was fictitious, and the fiction
created and kept up by C. & N., who were privy to their
transactions and who knew that the representation they made was
false and fraudulent.
The bill seeks a discovery of the funds of R. M. & Co. in
the hands of the defendant Clark and of the trusts upon which he
holds them, and the manner in which he has applied them or any part
of them, and prays that the intention of the parties as to the
guarantee may be enforced -- that the proceeds of the rice
purchased by means of the complainants endorsements may be applied
to his relief -- that the defendant Clark may be compelled to
execute the trust reposed in him and to apply to his
indemnification the funds set apart for the indemnification of
Clark & Nightingale and of Joseph & William Russell, and
that he may have such other relief as his case may require and be
entitled to.
Page 11 U. S. 74
The deed of assignment of 23 March, 1798, transferred all the
property and effects of the firm of R. M. & Co. in the United
States to the defendant Clark and J. B. Murray to pay the balances
due them and to such other creditors as R. M. & Co. should
nominate within twelve months, reserving to them also the power to
appoint new trustees instead of Clark and J. B. Murray, if they
should think proper. This assignment was made expressly subject to
certain prior liens on certain parts of the property, which are
particularly set forth, one of which was an assignment to Loomis
& Tillinghast of a policy on certain goods laden on board the
ship
Jefferson, and a policy on goods on board the ship
Butler -- and four promissory notes of Mott & Lawrence
amounting to $6,460, the proceeds of which were to be applied first
to indemnify and secure Loomis & Tillinghast, for a debt due to
them and for responsibilities they had, or were about to incur --
and out of the surplus to pay to Joseph & William Russell of
Providence all such monies as they should be liable to pay as
guarantee to the defendant. This assignment was afterwards
transferred by Loomis & Tillinghast to Clark in consideration
of $60,000, of R. M. & Co.'s notes, endorsed by L. & T.
given up to them by Clark.
The deed of 24 March, 1798, contained an express power in R. M.
& Co. to revoke or alter the directions and appointments
therein contained, and to make other appointments and give other
directions, within twelve months from that date. In pursuance of
which power they did, by an indenture tripartite dated 21 March,
1799, between R. M. and Co. of the first part -- the defendant
Clark, and J. B. Murray of the second part, and the defendant and
J. B. Murray and other creditors, of the third part -- revoke and
annul the deed of 24 March, 1798, and substituted no other trust
for the indemnification of the defendant Clark against his
liability to the complainant.
The deed of 22 March, 1799, which declared the new trusts under
which the defendant, Clark and J. B. Murray should hold the
assigned property, directs them to pay
"to William Russell as surviving
Page 11 U. S. 75
partner of the firm of Joseph & William Russell the amount
that shall be paid by them on a judgment recovered against them by
Nathaniel Russell of Charleston, in South Carolina, for the amount
of �3,998 7s 2d sterling in bills of exchange guaranteed by him by
the said Joseph & William Russel in favor of the drawer
Jonathan Russell. And the said parties of the first part do hereby
order and direct the said parties of the second part to allow and
pay, in manner before mentioned, to the parties of the third part,
in addition to the claims hereinbefore admitted, all charges of
suit and other expenses paid upon the said several claims together
with interest due thereon, payable in like manner with the claims
as hereinbefore recited."
This deed also contained a power of revocation and of making new
appointments of trust.
On 31 May, 1800 (the day before the bankrupt law of the United
States was to go into operation), R. M. & Co. made their final
declaration of trust, under the power reserved in their former
deeds, and expressing an intention to alter and add to the trusts
formerly declared, but without expressing any intention of revoking
any of them, they designate five successive classes of creditors to
be paid in the order in which they are named; but neither of those
classes included an indemnity to the defendant Clark or to William
Russell against their liability to the complainant.
The defendant Clark, in his answer, admits his letters of 20 and
21 January, 1796, to the complainant, but does not admit that the
complainant at that time considered them as letters of credit, or
guarantee, that he endorsed the bills upon the faith of those
letters. He avers that they were intended only as letters of
introduction and recommendation, and not as letters of credit or of
guarantee, and that the house of R. M. & Co. was then in good
credit. He denies that the house of C. & N. had any interest in
the purchases made in Charleston by Jonathan Russell. He does not
admit that any bills of R. M. & Co. with the endorsement of C.
& N. were negotiated in New York. He denies that he had any
reason to suspect that the credit of the
Page 11 U. S. 76
house of R. M. & Co. was fictitious and not real -- he
denies that C. & N. attempted to give them a false credit to
deceive the public or any person. He avers that he as well as the
house of C. & N. had full faith and confidence in the
responsibility and solvency, the honor and integrity of the house
of R. M. & Co., and had no agreement or understanding with them
for their indemnity or security in case of any disastrous event, of
which he had no apprehension. He denies that C. & N. ever made
any agreement to aid R. M. & Co. in raising funds for the
speculation in Carolina produce -- and that they ever asked from C.
& N. any letter of guarantee to go or be sent to Charleston --
he denies that they ever promised such letter of guarantee, or gave
R. M. & Co. any authority to instruct their agent to assure any
person that such letter of guarantee should be furnished by them.
He denies that the letters of 20 and 21 January were designed or
written in artful and ambiguous terms with intent to deceive. He
does not admit that his partner, Nightingale, acknowledged that
they were letters of guarantee or that the house of C. & N.
were bound thereby to indemnify the complainants.
He avers that C. & N. never asked, and R. M. & Co. never
offered, any security for their responsibilities until after the
failure of R. M. & Co. was publicly known in the United States.
He admits the deeds and assignments to himself and J. B. Murray as
set forth in the complainants bill, and admits the receipt of large
sums of money, a part of which has been applied and part remains to
be applied to the objects of the trust. He states that since the
execution of the deeds of assignment to him and J. B. Murray,
Robert Murray has been discharged as a bankrupt under the law of
the United States, and the assignees under that commission have
brought suit in equity in New York against this defendant and J. B.
Murray and R. M. & Co., claiming an account of the assigned
property and praying that it may be transferred to them; which suit
is still pending.
He declares his belief that the assigned property will be
sufficient to discharge all the appropriations made by the deeds of
trust and also the whole claim due to the complainant, but denies
that it is liable in his hands therefor.
Page 11 U. S. 77
William Russell, in his answer, admits the guarantee and
judgment and the insolvency of the house of Joseph & William
Russell. He states that he has no knowledge that R. M. & Co.
ever conveyed any property to the defendant, Clark, and J. B.
Murray in trust to indemnify him, but if there be any such
conveyance, he is willing that the complainant should have the
benefit thereof.
There was evidence that bills of exchange for �l5,500 sterling,
drawn in eighteen sets by R. M. & Co. and endorsed by Clark
& Nightingale, were sold in Boston in December, 1795, and
January, 1796, and derived credit chiefly from their
endorsement.
There was also evidence to prove that the house of R. M. &
Co. were in good credit until after January, 1796.
The decree in the court below was rendered by consent against
the complainant who brought his writ of error.
Page 11 U. S. 89
MR. CHIEF JUSTICE MARSHALL delivered the following opinion.
This is a suit in chancery instituted for the purpose of
obtaining from the defendants, payment of certain bills of exchange
drawn by Jonathan Russell an agent of Robert Murray & Co. and
endorsed by Nathaniel Russell, which bills were protested for
nonpayment and have since been taken up by the endorser. The
plaintiff contends that the house of Clark & Nightingale had
rendered itself responsible for these bills by two letters
addressed to him, one of 20 and the other of 21 January, 1796, on
the faith of which his endorsements, as he says, were made.
The letters are in these words: [
See the preceding
statement of the case].
The bill alleges that these letters bind Clark & Nightingale
to pay to Nathaniel Russel any sum for which he might credit Robert
Murray & Co. either because,
1st. They do in law amount to a guarantee, or that
2d. They were written with a fraudulent intent to be understood
as a guarantee, or that
3d. They contain a misrepresentation of the solidity and
character of the house of Robert Murray & Co.
Soon after the protest of these bills for nonpayment, Robert
Murray & Co. failed and became bankrupts.
Page 11 U. S. 90
Previous to their bankruptcy, they assigned a great proportion
of their effects, including the cargoes for the purchase of which
these bills were drawn, to John J. Clark and John B. Murray in
trust for Clark & Nightingale and for sundry other creditors
and purposes mentioned in several trust deeds which are recited in
the bill, and which appear in the record. The plaintiff claims to
be paid his debt out of this fund.
The answer of John J. Clark was filed, and a certain William
Russell, a partner of the house of Joseph & William Russell,
who gave a letter of credit and guarantee to the drawer of the
bills endorsed by the plaintiff, Nathaniel Russell, was made a
party defendant. Against Joseph & William Russell a judgment
had been obtained by Nathaniel Russell for the amount of the bills
endorsed by him, but they had become insolvent and no part of this
judgment had been discharged.
Many depositions having been taken and sundry exhibits filed, a
decree of dismission without argument and
pro forma was
rendered in the Circuit Court for the District of Rhode Island, and
the cause comes into this Court by appeal from that decree.
It is contended by the defendants that the letters which have
been recited create no liability on the part of Clark &
Nightingale, but are to be considered merely as letters of
introduction. Whatever may be the construction of the letters, they
insist that the plaintiff, if entitled to recover, has complete
remedy at law, and that a court of chancery can take no
jurisdiction of the cause.
It is believed to be unquestionable that a suit in chancery
could not be sustained on these letters against Clark &
Nightingale unless some additional circumstance rendered an
application to this Court necessary.
The plaintiff contends that such application is necessary
because there are a great variety of facts belonging to the
transaction which could not be introduced into a court of law, or
which would not avail him in that court, but which are proper for
the consideration of a court of equity.
Page 11 U. S. 91
Because some of these facts rest within the knowledge of the
defendants, and
Because he cannot, at law, subject the trust fund to his
claim.
So far as respects the question whether these letters constitute
a contract of guarantee, there can be no doubt but that the
construction in a court of law or a court of equity must be
precisely the same, and that any explanatory fact which could be
admitted in the one court would be received in the other.
On the question of fraud, the remedy at law is also complete,
and no case is recollected where a court of equity has afforded
relief for in injury sustained by the fraud of a person who is no
party to a contract induced by that fraud.
It is true that if certain facts, essential to the merits of a
claim purely legal, be exclusively within the knowledge of the
party against whom that claim is asserted, he may be required in a
court of chancery to disclose those facts, and the court, being
thus rightly in possession of the cause, will proceed to determine
the whole matter in controversy. But this rule cannot be abused by
being employed as a mere pretext for bringing causes proper for a
court of law into a court of equity. If the answer of the defendant
discloses nothing, and the plaintiff supports his claim by evidence
in his own possession unaided by the confessions of the defendant,
the established rules limiting the jurisdiction of courts require
that he should be dismissed from the court of chancery and
permitted to assert his rights in a court of law.
It is also true that if a claim is to be satisfied out of a fund
which is accessible only by the aid of a court of chancery,
application may be made in the first instance to that court which
will not require that the claim should be first established in a
court of law.
In the case under consideration, the answer confesses nothing.
So far from furnishing any evidence in support of the plaintiff's
claim, it denies in the most full and explicit terms the whole
equity of the bill.
Page 11 U. S. 92
This ground of jurisdiction, therefore, is totally withdrawn
from the case.
It remains to inquire whether the plaintiff can be let in to
claim on any part of the trust fund, and this depends principally
on his claim's being within any one of the trusts declared.
The first trust deed, which was executed by Robert Murray &
Co. on 23 March, 1798, is declared to be in trust to apply the
monies arising from the trust property
"in payment and satisfaction of the debts and balances which
shall appear to be found to be due and owing from the said parties
of the first part [Robert Murray & Co.] to them the said John
J. Clark and John B. Murray [the trustees] and to such other of the
creditors"
of the said Robert Murray & Co. as they should, by any
instrument of writing, within twelve months, appoint.
It may be doubted whether this declaration of trust would be
applicable to a collateral undertaking not at the time carried into
judgment.
In the second deed, one of the trusts declared is to repay Clark
& Nightingale for any sums they may pay or be liable to pay
under a suit at the time depending against them. That suit was
dismissed.
Without deciding whether Russell could avail himself of this
trust, having failed in the particular action then depending, the
Court will proceed to inquire how far Clark & Nightingale were
liable to the plaintiff for the debt due to him from Robert Murray
& Co.
The law will subject a man, having no interest in the
transaction, to pay the debt of another only when his undertaking
manifests a clear intention to bind himself for that debt. Words of
doubtful import ought not, it is conceived, to receive that
construction. It is the duty of the individual who contracts with
one man on the credit of another not to trust to ambiguous phrases
and strained constructions, but to require an explicit and plain
declaration of the obligation he is about to assume. In their
letter of the 20th, Clark & Nightingale indicate
Page 11 U. S. 93
no intention to take any responsibility on themselves, but say
that Mr. Russell may be assured Robert Murray & Co. will comply
fully with their engagements. In their letter of the 21st, they
speak of the letter of the preceding day as a letter of
recommendation, and add "we have now to request that you will
endeavor to render them every assistance in your power."
How far ought this request to have influenced the plaintiff?
Ought he to have considered it as a request that he would advance
credit or funds for Robert Murray & Co. on the responsibility
of Clark & Nightingale, or simply as a strong manifestation of
the friendship of Clark & Nightingale for Murray & Co., and
of their solicitude that N. Russell should aid their operations as
far as his own view of his interests would induce him to embark in
the commercial transactions of a house of high character,
possessing the particular good wishes of Clark &
Nightingale?
It is certain that merchants are in the habit of recommending
correspondents to each other without meaning to become sureties for
the person recommended, and that, generally speaking, such acts are
deemed advantageous to the person to whom the party is introduced,
as well as to him who obtains the recommendation.
These letters are strong, but they contain no intimation of any
intention of Clark & Nightingale to become answerable for
Robert Murray & Co., and they are not destitute of expressions
alluding to that reciprocity of benefit which results from the
intercourse of merchants with each other. "The friendship," say
they in their letter of the 20th,
"we have for these gentlemen induces us to wish you will render
them every service in your power; at the same time we flatter
ourselves this correspondence will prove a mutual benefit."
Mr. Russell appears to have contemplated the transaction as one
from which a fair advantage was to be derived. He received a
commission on his endorsements.
The court cannot consider these letters as constituting a
contract by which Clark & Nightingale undertook
Page 11 U. S. 94
to render themselves liable for the engagements of Robert Murray
& Co. to Nathaniel Russell. Had it been such a contract, it
would certainly have been the duty of the plaintiff to have given
immediate notice to the defendants of the extent of his
engagements.
It remains to inquire whether these letters contain such a
misrepresentation of the circumstances and character of the house
of Robert Murray & Co as to render them accountable to the
plaintiff for the injury he has sustained by trusting that
company.
The question how far merchants are responsible for the character
they give each other is one of much delicacy and of great
importance to the commercial world.
That a fraudulent recommendation (and a recommendation known at
the time to be untrue would be deemed fraudulent) would subject the
person giving it to damages sustained by the person trusting to it
seems now to be generally admitted. The case of
Pasley v.
Freeman, reported in 3 Durnford & East, recognizes and
establishes this principle. Indeed, if an act in itself immoral, in
its consequences injurious to another, performed for the purpose of
effecting that injury, be not cognizable and punishable by our
laws, our system of jurisprudence is more defective than has
hitherto been supposed.
But this does not appear to the Court to be the case described.
It is proved incontestably that when the letters on which this suit
depends were written, Robert Murray and Co. were in high credit and
were carrying on business to a great extent which was generally
deemed profitable. The bill charges particular knowledge in Clark
and Nightingale that this apparent prosperity was not real. But
this as well as every other allegation of fraud is explicitly
denied by the answer, and the answer, being responsive to the bill,
is evidence. Had the plaintiff been able to exhibit proofs which
would have rendered this fact doubtful, it might have been proper
to have directed an issue for the purpose of trying it; but he has
exhibited no such proofs.
In writing the letters, then, recited in the bill, Clark
Page 11 U. S. 95
and Nightingale stand acquitted of the imputation of fraud.
But it is contended by the plaintiff that the representation
they made of the circumstances of Robert Murray and Co. was at the
time untrue, and that this misrepresentation, whether made
ignorantly or knowingly, was equally injurious to Nathaniel Russell
and equally charges them with the loss he has sustained by trusting
to their assurances.
The fact that Robert Murray & Co. were not, in January,
1796, in solvent circumstances is not clearly made out; but the
cause does not rest entirely on this fact. The principle that a
mistake in such a fact as the real internal solidity of a
mercantile house whose external appearance is unsuspicious shall
subject the person representing their solidity to another to the
loss sustained by that other in trusting to this representation is
not admitted.
Merchants know the circumstances under which recommendations of
this description must be given. They know that when one commercial
man speaks of another in extensive business, he must be presumed to
speak from that knowledge only which is given by reputation. He is
not supposed to have inspected all the books and transactions of
his friend with the critical eye which is employed in a case of
bankruptcy. He must therefore be supposed to speak of the credit,
not of the actual known funds of the person he recommends; of his
apparent, not of his real, solidity. In such a case it is certainly
incautious and indiscreet to use terms which imply absolute and
positive knowledge. It may perhaps be admitted that in such a case
fraud may be presumed on slighter evidence than would be required
in a case where a letter was written with more circumspection. Yet,
even in such a case, where the communication is honestly made and
the party making it has no interest in the transaction, he has
never been declared to be responsible for its actual verity. The
reason of the rule is that merchants generally possess, and are
therefore presumed in their correspondence to speak from that
knowledge only of the circumstances of other merchants which may be
acquired by observing
Page 11 U. S. 96
their course of business, their punctuality, and their general
credit.
This principle appears to have been fully considered in the case
of
Haycraft v. Creasey, reported in 2 East, in which case
all the authorities were reviewed. It does not appear that a single
decision has been ever made asserting the liability of the writer
of such a letter. The case of
Haycraft v. Creasey denies
his liability, and that case appears to this Court to have been
decided in conformity with all previous adjudications.
It is therefore the opinion of the Court that Clark &
Nightingale, having believed and had reason to believe, so far as
is shown by the evidence in this cause, that the representation
they made to the plaintiff of the character and circumstances of
Robert Murray and Co. was true, are not liable to the plaintiff in
consequence of that representation for the credit he gave to that
company.
A claim is also set up the funds in the hands of Clark &
Nightingale founded on the circumstance that they consist, in part,
of the rice purchased with the bills endorsed by the plaintiff. But
as no specific lien is alleged to have existed, and as the
particular fraud alleged to have been committed to acquire those
funds is not proved, this claim is unsustainable.
The plaintiff, then, cannot be considered as a trust creditor in
consequence of any claim he can assert against Clark &
Nightingale.
The second deed, which is dated 24 March, 1798, is also in
trust
"to pay to Joseph & William Russell the amount that shall be
recovered and paid from them to Nathaniel Russell . . . upon
account of a letter of credit, . . . and for which the said
Nathaniel Russell hath recovered a judgment against the said Joseph
& William Russell."
No part of this judgment has ever been paid, and Joseph &
William Russell are insolvent. The state of things, then, has
perhaps not yet occurred in which Joseph & William Russell
could demand the execution
Page 11 U. S. 97
of the trust; and the Court, though with some hesitation, feels
constrained to decide that under the terms of this trust, Nathaniel
Russell, claiming through Joseph & William Russell, cannot
demand its execution directly to himself.
It also appears that in September, 1796, Robert Murray and Co.
assigned to Loomis & Tillinghast certain personalties in trust.
This assignment was surrendered to Clark & Nightingale in
consideration of notes to a large amount, in which Loomis &
Tillinghast were bound for Robert Murray and Co. It appears that
Clark & Nightingale are otherwise secured with respect to these
notes; at least there is reason to believe that they are
secure.
Clark & Nightingale, having taken this assignment with
notice of the trust, take it clothed with the trust. They are
trustees for the same uses and to the same extent with Loomis &
Tillinghast.
A paper appears in the cause which purports to be the assignment
to Loomis & Tillinghast. The assignment is in trust first to
repay themselves any sums which they may pay on account of certain
undertakings made by them for Robert Murray and Co., and secondly
in trust "to pay the Joseph & William Russell all such monies
as they shall be liable to pay as guarantee as aforesaid to
Nathaniel Russell upon bills," &c., reciting the bills for
which this suit is instituted.
It is settled in this Court that the person for whose benefit a
trust is created, who is to be the ultimate receiver of money, may
sustain a suit in equity to have it paid directly to himself.
This trust being to pay Joseph & William Russell a sum they
are liable to pay to Nathaniel Russell and, being created in such
terms that the money is certainly payable to them, the purposes of
equity will be best effected by decreeing it, in a case like the
present, to be paid directly to Nathaniel Russell. Indeed, a court
ought not to decree a payment to Joseph & William Russell
without security that the debt to Nathaniel Russell should be
satisfied.
Page 11 U. S. 98
But it is not shown by any legal evidence that this paper is the
assignment which was made in trust to Loomis & Tillinghast and
transferred by them to Clark & Nightingale. Its verity is not
admitted by the defendants nor proved by the plaintiff.
Nor are the circumstances under which the transfer was made, nor
the present circumstances of the trust, sufficiently before the
Court to enable it to decide with certainty whether the prior trust
to Loomis & Tillinghast is satisfied or otherwise so secured
that the trust fund may now be applied to the debt of Joseph &
William Russell.
Could these defects be supplied, the Court would still be unable
to decree in favor of the plaintiff, for want of proper
parties.
The incapacity imposed on the circuit courts to proceed against
any person residing within the United States but not within the
district for which the court may be holden would certainly justify
them in dispensing with parties merely formal. Perhaps in cases
where the real merits of the cause may be determined without
essentially affecting the interest of absent persons it may be the
duty of the court to decree, as between the parties before them.
But in this case, the assignees of Robert Murray & Co. are so
essential to the merits of the question, and may be so much
affected by the decree, that the Court cannot proceed to a final
decision of the cause till they are parties. They may contest the
validity of all the deeds under which, both parties claim, and
assert in themselves, for the benefit of the creditors generally, a
right to the whole fund. Certainly this Court ought not, on light
grounds and without due precaution, to change the hands in which
this fund is placed until any claim of the assignees to it may be
decided.
Should this difficulty be obviated suspending the effect of the
decree till the validity of the trust deeds should be decided or by
directing security to be given, another presents itself which
cannot be removed. The assignees have a right to contest the claim
of Nathaniel Russell, and may either deny its original validity
or
Page 11 U. S. 99
show that it has been paid. They are, then, essential parties,
and the Court ought not to decree in favor of the plaintiff without
them. It is possible that they may consent to make themselves
parties in this cause, and, as a court may, instead of dismissing a
bill brought to a hearing without proper parties, give leave to
make new parties, the Court will, in this case,
Set aside the decree of the circuit court dismissing this
bill and remand the cause to the circuit court with leave to make
new parties.
