Opinion
December Term, 1823.
Indorsers on accommodation paper for the benefit of a third person, where there is no special agreement between such indorsers, and where neither is benefited, are to be considered cosureties; and, therefore, where A. and B. became at several times indorsers on a note made for the benefit of C., on which C. by discounting at a bank received the money, it was Held, that B., against whom the bank recovered, and who was the last indorser, was entitled to call upon A. for one-half only of the sum recovered by the bank; and that every indorsement is but prima facie evidence of the purchase of a note, and the contrary may be shown.
THE complaint as set forth in the bill was that the complainant had indorsed for the accommodation of one Lucas a promissory note, negotiable and payable at the office of the Bank of the United States, in Fayetteville, for about the sum of $900; that after such indorsement he redelivered the paper to Lucas, who applied to the defendant to indorse the same, as the rules of the bank required two indorsers before discounting any paper. The bill stated that McRae indorsed at the request and instance of Lucas alone, and not of the complainant, and the paper was discounted at bank for the sole benefit of Lucas. The note, when it came to maturity, was protested for nonpayment, and was paid and satisfied by McRae, who then commenced suit upon it against the complainant, contending that, as last indorser, he had a remedy against complainant as a prior indorser for the full mount of the note. The complainant being willing to do what he believed equity required, paid to the agent of McRae one-half of the principal and interest then due on the note, and it was agreed between the attorneys of the parties respectively that the suit should proceed to try the question of complainant's liability for more than one-half of the amount of the note, and, further, that to avoid unnecessary expense, the (591) suit should abide the determination of one then pending in the Supreme Court, which was said to be similar in its nature; that afterwards, however, and notwithstanding this agreement, a judgment was rendered in the suit against the complainant for the full amount of the note at a time when neither of the attorneys who had entered into the agreement before stated were in court; that on this judgment (of the existence of which complainant was ignorant until after the adjournment of the court in which it was rendered) an execution had issued. The complainant further stated in his bill that he had procured an assignment of a part of the property of Lucas to secure himself in his indorsement that he doubted his title thereto, that he was ignorant of the value thereof, and that he always had been and was yet willing to give the defendant a full share of the benefit of such assignment. The bill prayed an injunction and relief generally.
The answer affirmed that defendant indorsed the note upon the faith of the responsibility of the complainant's prior indorsement, and positively denied any understanding or agreement between himself and the complainant that they should become bound as cosureties for Lucas on the note. It admitted that judgment was obtained against the complainant by defendant for the full amount of the note, and stated that since the judgment the execution had been credited by the amount of one-half of the note, which complainant had paid. It denied that any undue advantage was taken of complainant in obtaining the judgment, and also that any agreement was ever made, as set forth, that the suit should abide the decision of the Supreme Court on a similar question.
It was further insisted that the complainant had complete remedy at law.
Ruffin for complainant.
Seawell contra. (600)
Curia advisari vult.
The facts in this case are but few. The question is whether Daniel is bound to pay the full amount which the note given by Lucas to him calls for or only a moiety of that sum. I think the same principles should govern the case as if it was decided in a court of law, because the reason why this court assumes jurisdiction is that Daniel, owing to particular circumstances, did not make a defense at law.
When the note was given to Daniel there was no obligation on Lucas to pay it, because it was given on no consideration; the same remark may be made when it was indorsed by Daniel to McRae. McRae could not have effected a recovery against Daniel, because he had given nothing for it; nor was there any liability upon any person, after the indorsement, for accommodation made by McRae, until it was accepted by the bank, and by them discounted. At that time Lucas became absolutely bound to pay it, and both McRae and Daniel became securities for him. Lucas became bound because he received the money from the bank; McRae and Daniel became bound as his securities because he received it by their means and at their request. When McRae paid the debt to the bank he paid it as the security of Lucas. Had he purchased the note from Daniel for value, and then indorsed it to the bank for value, and had either he or Lucas, by his consent, received the money raised upon it, and then Lucas had failed, and he had (601) been obliged to pay the money due to the bank, there could be no doubt but he could recover the full amount against Daniel. There would be the same result if he had paid for the note to Lucas, by the consent of Daniel. In either of these cases he would have had a remedy upon Daniel's indorsement for full indemnity, and this remedy would be authorized by the well known rules of law established in the mercantile world, with regard to bills of exchange and negotiable papers. I admit that the form of the note and the indorsements on it, without going further, would lead to the same remedy. Every indorsement is a prima facie evidence of a purchase of the note; but the contrary may be shown. In the present case it appears that McRae gave nothing for the note, and when he indorsed it he stood in the same situation with Daniel; it never had belonged to either of them when the bank discounted it and paid the money to Lucas; it was, in their hands, evidence of a debt both against the maker and the indorsers, and they had their remedy accordingly. If either indorser paid it, he had a remedy against Lucas for the full amount, but against the other indorser for a moiety only, and that upon a principle of justice and equity that, as they both stood in the same situation as cosureties, there could be no reason why one should be compelled to bear a greater burden than the other; their indorsements were both gratuitous, and on that account when made, a prius or posterius, gave no rule of liability.
It may be further observed that had not McRae or some other person indorsed the note Daniel's liability would have never happened, for the bank would not receive it without another indorser.
It is said that in a case similar to the present the court, in giving judgment for the plaintiff, relied upon the cases of Smith v. Knox, 3 Esp., 46, and Charles v. Marsden, 1 Taunt., 224. I allude to Brown v. Mott, 7 Johnson, 361. In both those cases the plaintiffs, the indorsees, were purchasers of the bill for valuable consideration; that was not the case here. McRae paid nothing for the note until he paid the debt due the bank as security in consequence of his indorsement for the accommodation of Lucas.
There can be no doubt but that the transaction may be looked at as it really happened. 15 East, 222; Wright v. Latham, 7 N.C. 298.
This bill presents the question, Is McRae the cosurety of Daniel for Lucas or supplemental only? If he is the former Daniel is entitled to relief; if the latter he is not. Cosureties are those who have assumed the same obligation, equal in all their liabilities; supplemental sureties are those who come in aid of the former. We are not precluded by the nature of the indorsement from examining the transaction as it really is, it affording only prima facie evidence of the nature and order of the liabilities of the different persons whose names appear upon the note; to prove this, authorities need not be cited. The discussions which daily arise in our courts of justice upon accommodation notes and bills prove sufficiently that the mercantile order of liability is only prima facie evidence, and, in fact, may be even inverted, as was declared in 15 East, 216, where a subsequent indorsee was held liable to a prior indorser (not indeed on the bill), it being shown that it was discounted for his benefit, which fact never could have appeared to the Court if the note and indorsements were conclusive upon the parties. I am at a loss to discover how it could ever have been doubted, for the admission of such evidence contradicts no express written agreement, but repels an implication only. The note in the hands of Daniel created no liability in Lucas, for Daniel had given nothing for it. The same may be said when it was in the hands of McRae, to whom it was delivered by Lucas, the maker, which is evidence that (603) it was made for Lucas's accommodation, and was not an evidence of a debt from Lucas to Daniel; for if so why was it left in the hands of Lucas, the maker? By this fact McRae was informed that the note was made for Lucas's accommodation. To enable him to raise money, he put his name there at Lucas's request and for Lucas's benefit. These are the facts of the case, and from them we will endeavor to ascertain the nature and extent of McRae's engagement. Every indorsement of a note is drawing a bill of exchange. It directs the maker of the note to pay its amount to the indorsee, and if the maker gives value for it, it imposes upon the indorser the obligation, and he, the indorser, should be duly notified thereof. It imposes no obligation on the indorsee to apply to a prior indorser before he calls on a subsequent one, but he may do so if he thinks proper; for each indorser may be considered by him as drawing the bill in his favor, and he is substituted to all their rights; but he is called on to make proof of his endeavors to procure payment from the maker of the note, or acceptor of the bill of exchange only, and due notice thereof to such indorsee as he may think proper to call before the Court. Whether he has applied or given notice to any other indorser is entirely unimportant in that trial. The bank therefore recovered of McRae, regardless of what steps they might have taken against Daniel. Their obligation was to use due diligence as regarded Lucas. The obligations of Daniel and McRae were precisely the same, equal in every respect to each other. They are therefore cosureties, and the one not supplemental to the other. It is true that an indorsee for value, when he indorses the note or bill over, has all his prior indorsers for his indemnity; and had McRae discounted this note by paying Lucas the money (for it is not necessary that the money should be paid to his indorser; it is sufficient that (604) it is paid to any one at his request) when he afterwards paid the money, and took up the bill from the bank, he would have been remitted to his former situation, and might then have looked to Daniel for an indemnity. The money which McRae paid to the bank was in satisfaction of his promise that he would pay if Lucas did not, and not as a purchaser of the note. That cosureties may be, by different instruments executed at different times, and without communication or mutual understanding to that effect is shown by Deering v. Earl of Wilchelsea, 2 Bos. Pul., 270, and Craythorn v. Sir John Swinburn, 14 Vesey. In the latter case Lord Eldon refused relief, not because the parties were bound by different instruments, but because one surety was supplemental to the other. In which case, also, it is admitted that contribution arises, not upon contract, but upon the principle of equity that equality is equity; that is, that it was originally so, however it may be at present, since adjudications have been made upon the subject because men are presumed to act in reference to the law as expounded.
I think these principles are plainly deducible from the English authorities, although I can find none of them analogous to the present case. Brown v. Maffey, 15 East, 216, may on first view seem to be analogous. But I think it essentially differs. In that case a note was given to the payee to raise money to fulfill some obligation or promise which he was under or then undertook to the maker. The note was then delivered to the payee, and by him indorsed to the plaintiff without consideration, and by the plaintiff indorsed at the request and for the accommodation of the payee. The plaintiff was afterwards compelled to take it up, and he brought an action against the maker. the note, in that case was in possession of the person to whom it was payable, and this by the consent of the maker. The payee was thereby enabled to gain credit and cause others to incur liabilities for him upon the (605) faith of the note; and this by the consent of the defendant, who thereby gave evidence to the world that the payee had its amount in his hands, and that he would pay the same to his indorsee. Not so in the present case. For Lucas, the maker, retained the note even after Daniel's indorsement, which was the most satisfactory evidence that it was made for his accommodation, and was not evidence of a real debt due from him to Daniel. All the circumstances when taken together speak the truth. There was no danger of imposition. Besides, it appears that the note in the case above referred to was a note for the sole benefit and accommodation of the payee. Another observation might be made on the case. The defendant succeeded in his defense on other grounds, and it was a matter of not much moment how he did so. I admit that Brown v. Mott, 7 Johns., 361, is an authority in point against the complainant. I have examined that case with respect and attention, which is due to everything that comes from that court, and I do not think that the authorities on which it is professedly bottomed support it.
TAYLOR, C. J., dissented.
PER CURIAM. Judgment accordingly.
Cited: Hatcher v. McMorine, 14 N.C. 229; Richards v. Simms, 18 N.C. 49, 50, 51; Dawson v. Pettway, 20 N.C. 533; Southerland v. Fremont, 107 N.C. 569; Atwater v. Farthing, 118 N.C. 388; Smith v. Carr, 128 N.C. 152; Shuford v. Cook, 164 N.C. 50.