Opinion
(June Term, 1845.)
1. When the drawer of a bill dates a note at a particular place, as, for instance, "Danville," notice to him of the dishonor of the bill, directed to him at that place, may be sufficient.
2. But it is otherwise as to the indorsee, who does not designate in his indorsement his place of residence, either generally or specially.
3. The general rule is that notice of the dishonor of a bill of exchange or promissory note indorsed, where the parties live in different places, must be sent by the next post, directed to the place of the party's residence; but if the holders of the bill or note are exempted in law, by any particular circumstances, from the operation of this rule, such circumstances must be shown by the holder.
4. Although at the time of the indorsement of a note the indorsers had reason to believe, and did believe, that the note would not be paid by the maker, this circumstance does not dispense with the necessity of a due notice.
5. A drawer of a bill who has no funds in the hands of the drawee is liable without notice, on the ground of fraud.
6. But if a bill be drawn for the accommodation of the acceptor, or a note indorsed for that of the maker, then the drawer of the bill or indorser of the note is entitled to notice, though the acceptor or maker be insolvent.
7. So if a note is made for the accommodation of the payee, and he receives the money for it, he is not entitled to notice.
8. So if a maker of a note places effects in the hands of the indorser to meet the note, the latter is not entitled to notice.
9. In every case in which notice is dispensed with there either must have been a fraud on the world in making the security or it would be a fraud on the party who, according to the form of the instrument, is legally bound, before him, who insists on notice, but where, in reality, and according to their actual liabilities, as between themselves, the relation of the parties is reversed, and he who appeared to be primarily liable was so only secondarily, and the other party was the real debtor.
10. When the maker of a note has secured all his property, for the indemnity of his indorser, it is not an implication of law from that circumstance that the indorser has agreed to take up the note, and, therefore, dispensed with the legal notice.
11. And this is more especially the case where the creditor is, by means of a trustee, a party to the deed of indemnity, and has a right to enforce it for the payment of his debt, and the indorser has not the absolute control over it for his own interest.
12. The acceptance by an indorser of an assignment to a third person, whether the maker be solvent or insolvent, or the assignment be partial or total, as an indemnity against existing or future indorsements of notes given in renewal as the maker may require in order to keep his paper from being dishonored, affords no presumption in law that the indorser is under an obligation to take up the note when the maker shall fail to offer renewals and pay discounts; and such an obligation is the true test of the indorser's being entitled or not entitled to notice.
APPEAL from ROCKINGHAM, Spring Term, 1845; Caldwell, J.
Kerr and Morehead for plaintiff.
Badger and Waddell for defendant.
Assumpsit against the endorser of a promissory note, upon (610) which, according to the statement of the presiding judge, the facts appeared to be as follows:
In 1837 Rawlins and Coleman, a mercantile firm in Danville in Virginia, were very heavily indebted to the Bank of Virginia and the Farmers Bank of Virginia, at their offices at that place, upon bills of exchange and promissory notes, drawn and made by Rawlins and Coleman, and endorsed by various persons, and discounted by the banks for the accommodation of Rawlins and Coleman. Being much embarrassed by those debts and others, to a very large amount, they, Rawlins and Coleman, on 6 May, 1837, executed a conveyance to the presidents of the branch banks for very large estates, real and personal, in trust to secure and satisfy those debts in the order therein specified. Among those debts were several due to the Bank of Virginia on notes of Rawlins and Coleman, endorsed by the defendant, Luke Palmer, for their accommodation. On the deed aforesaid the endorsers on the several bills and notes thereby provided for, including Palmer, on 8 May, 1837, executed an agreement or memorandum in writing as follows: "We, the endorsers for the within named Rawlins and Coleman, do hereby give and declare our full assent to the provisions of the within deed, so far as we are concerned as endorsers aforesaid, and hereby fully acknowledge our several liabilities for the within enumerated negotiable notes, drafts, and acceptances, upon which we appear as endorsers, as they shall respectively come to maturity, without the formality of a protest." The debts, as (612) they fell due, laid over, and the principal debtors and the trustees, as funds were realized, made payments upon the several debts as prescribed in the deed; and, after applying their due share of such funds to the debts on notes endorsed by Palmer, there still remained, in the Spring of 1842, four such notes held by the Bank of Virginia and unpaid; That is to say, one for $3,500; a second for the same sum of $3,500; a third for $2,700, and a fourth for $2,000, making in the whole, the sum of $11,700. The defendant, Palmer, being dissatisfied with the delay in disposing of the trust property, and with having his security in common with so many other persons, proposed, and it was finally agreed by the bank, Rawlins and Coleman, the trustees, and Palmer, that the trustees should reconvey to Rawlins and Coleman certain real estates in Danville, Richmond, and Greenbrier County, in Virginia, estimated as of the value of $8,180, that Rawlins and Coleman should give new notes endorsed by Palmer, for the said debts (which had been suspended about five years), pay off the arrears of interest, and thereafter keep active the new notes by paying the discount regularly every 60 days, and from time to time pay installments until the debts should be fully paid; and that Rawlins and Coleman should convey the said estates and others to one William Lynn, of Danville, in trust to indemnify the said Palmer as endorser, and to secure the payment of the said notes, so to be given, and any others, that might be given in renewal of them, as hereinafter particularly mentioned. Accordingly the trustees in the deed of 6 May, 1837, reconveyed to Rawlins and Coleman the said several parcels of lands and town lots and houses by three deeds, bearing date 9 April, 1842. And by indenture bearing date 12 April, 1842, made by and between Rawlins and Coleman, of the one part, said William Lynn of the second part, and Luke Palmer of the third part, reciting the said four notes, then renewed, and that they were to be renewed as they should fall due from time to time, and that Rawlins and Coleman were desirous to save Palmer harmless, on account of his liability as endorser upon the said notes or any that should be given in renewal from time to (613) time for the said debts, they, Rawlins and Coleman, conveyed to Lynn the said estates, namely, a house and lot containing half an acre in Danville, another house and lot containing one-fourth of an acre in Danville, a house and lot in the city of Richmond, and a tract of land in Greenbrier, containing 1500 acres and also the following other effects, to wit, 1280 acres of land in Texas, 365 acres of land in Franklin County in Tennessee, a negro man slave, named Lernon, and two blooded mares and four colts, and also assigned to said Lynn certain debts due by notes and open accounts to the amount of $4,077.34, then delivered to said Lynn, upon trust, however, that Rawlins and Coleman should be allowed to retain possession of the houses and lots, lands, slaves, and horses, until it should become necessary or expedient to close the trust, which was to be at the discretion of Palmer or Lynn, after the lapse of nine months from the day of the date; that should Rawlins and Coleman then have failed to pay the said debts, the trustee might sell at public or private sale, for cash or on credit, such parts of the said estates as should be needful for the payment of the debts, and after the payment to convey the parts unsold to the grantors.
A gentleman, who was then the president of the Bank of Virginia, and one of the trustees in the first deed, was examined as a witness and stated that when the above arrangement was proposed by Palmer, many persons (among whom, the witness thought, was Palmer) knew that Rawlins and Coleman would not be able to sustain their credit but a short time; and that, under those circumstances, the directors of the bank assented to the proposition, relying upon the credit of Palmer and the funds to be hypothecated by the makers as a security for the said notes. The foregoing arrangement having been made, notes were given for the several debts from time to time and the discount on all of them paid by Rawlins and Coleman, from April, 1842, to 28 October, 1843; when the two notes for $3,500 each, and that for $2,700, fell due, and not being paid, they were (614) protested. The other note for $2,000 was paid in part before, and the residue afterwards, by Lynn, with funds by him collected from the debts assigned to him. The residue of those debts are uncollected, and the slaves and all the real estate and the mares and colts are still unsold.
Afterwards Rawlins and Coleman failed and made a final surrender of all their effects, to other trustees, for other creditors, not providing further for Palmer or for these debts.
By the law of Virginia, notes, negotiable at banks, are placed upon the footing of foreign bills of exchange in the law merchant, as to the demand of payment, protest, and notice to endorsers.
When Palmer began to endorse accommodation notes for Rawlins and Coleman, out of which the present notes grew, he resided in Caswell County in this State about five or six miles from Danville, and the postoffice at Danville was that at which he usually received his letters. But in 1833 or '34, he removed to the County of Rockingham, and his residence was about 22 miles from Danville, on the main road from that place to Greensboro, and within three miles of a postoffice called Reidsville, situated further south on the same road, along which a mail coach passes from Danville to Greensboro, three times a week; and during his residence there, Reidsville had been his postoffice.
An accountant of the bank stated that he knew where the defendant resided and had been at his house several times in 1842 and 1843, before the present notes were protested, but that he did not know that his postoffice was at Reidsville.
Coleman, one of the makers of the notes, was postmaster at Danville, and knew the residence of Palmer and that Reidsville was his postoffice, and stated that those facts were notorious in Danville; that Palmer had a daughter married and living in that village, and that one of the directors of the bank was the editor of a newspaper printed in Danville, to which Palmer was a subscriber, and which was sent to him every week by mail, directed to Reidsville.
The notes were protested by a notary public, who was also teller in the bank, and he gave a notice in writing directed to the defendant at Danville, and put it into the postoffice at that place. He stated that previously the notes, of which the present were (615) renewals, had been sometimes protested and that he had never given Palmer notice, but had given the notice to Rawlins and Coleman, who attended to the renewals, and who therefore were as he considered the agents of Palmer for that purpose. He stated that the reason he put the notice in the postoffice at Danville was that he did not know where Palmer lived, and that he thought Coleman was his agent and would get it, and that Palmer had never attended to the reinstating of the notes, when protested from time to time; but that he made no inquiry as to Palmer's residence or postoffice, though he had heard that he had changed his residence.
On 12 December, 1843, this witness was sent by the bank to the defendant to get him to reinstate the notes or assume the payment of them; and he states that, upon mentioning the subject to the defendant, he said Coleman had sent him word that the notes were protested because the makers were unable at that time to pay the discount as heretofore; that he had been prevented by sickness from going to Danville, but that he would go down in a day or two and arrange the whole matter; that he had understood that Lynn had collected some money and he wished him to pay it on one of the notes, and Lynn did so on the note for $2,000. The witness stated further that Palmer told him that he had left with Lynn blanks with his endorsement on them, to be used, as needed, to renew the notes of Rawlins and Coleman, and that Coleman could have got them from Lynn. That the witness then suggested that he would tell Coleman to apply for them, but the defendant, after expressing his assent, at first, said, "never mind; I will be down in a day or two and arrange the matter."
A witness for the defendant states that he was present at the above mentioned interview between the last witness and Palmer, and that the former used many persuasions to the latter to renew the notes and endeavored to convince him that it was his interest to do so, as the bank would indulge him and allow him an opportunity (615) [(616)] of selling the property conveyed in trust, in which case he would not lose much; and that to all these applications, which were often repeated, Palmer always replied in substance, that he "did not want to pay anything."
Lynn, who was examined for the defendant, stated, and so did Coleman, that Coleman was not the agent for Palmer in any respect; nor was Lynn, except that he was trustee in the deed, and also that Palmer had left in his possession his blank endorsements, for the purpose of enabling Rawlins and Coleman to renew the notes from time to time; and that those blanks were left with Lynn in order that they might be filled up for larger sums than those for which he, Palmer, was already bound. Palmer lived in Rockingham, but generally signed a number of blanks, when he came to Danville, and left them with the witness, that the notes of Rawlins and Coleman might be written on the other side, upon their paying the discount and renewing. He states that he was a director of the bank, and that two or three months after the notes were protested an officer of the bank applied to him for Palmer's blank endorsements, in order to have the notes reinstated, proposing, if he would let Rawlins and Coleman have them, that the costs of protest, back interest and discount should be charged to Rawlins and Coleman; but that he, the witness, declined doing so, as he thought it his duty not to do it until Palmer could be consulted, as so much time had elapsed since the protest; and the notes were renewed no more, and this suit was then brought on the three notes.
Upon this evidence, and non assumpsit pleaded, the court instructed the jury that the mere fact of the insolvency of the makers of the notes, and the further fact that the defendant had taken the deed of trust of their property as an indemnity, did not dispense with notice to the defendant of the default of the makers, in order to charge him as endorser; and that such notice ought to have been sent by the next post, after the default, to the postoffice where the defendant was in the habit of getting his letters and papers, or to one from (617) which he would get it as soon. But, if the jury believed that, from the defendant's intercourse with Danville, he would receive notice as early there as at Reidsville, the notice put into the postoffice at Danville, directed to him there, was sufficient to charge him. And the court further instructed the jury that, if they found that Coleman was the agent of the defendant to receive notice of the dishonor of the notes, and to renew them, then the notice to Coleman was sufficient. And the court further instructed the jury that if the defendant, with a full knowledge of the laches of the holders of the notes in not sending notice to him by the post, promised to pay the debts or give new notes, it would be a waiver of notice, and the plaintiff would have a right to recover.
Counsel for the plaintiff then moved the court further to instruct the jury that, if there was an understanding between the parties that the defendant should take on himself the responsibility of renewing and paying the notes, in consideration of the trust fund, and he did so attend to it, either in person or by agent, notice was not necessary; and the court gave the instruction as prayed.
Counsel for the plaintiff moved the court further to charge, that, if the jury found, that by the deed of 12 April, 1842, Rawlins and Coleman conveyed to Lynn, as trustee, all their property as an indemnity to the defendant for his endorsements, a waiver of notice to the defendant was implied by law. This instruction the court refused to give.
Counsel for the plaintiff moved the court further to instruct the jury that, if they found that the defendant had reasonable grounds to believe that the makers would not renew the notes at maturity, notice was not necessary. This instruction the court also refused.
Counsel for the plaintiff moved the court further to instruct the jury that, if the defendant left the notes at Danville, and the whole transaction took place at Danville, the jury might infer that the defendant had received notice. This instruction the court also refused.
A verdict was given for the defendant, and from the judgment the plaintiff appealed. (618)
We think his Honor went much further than the occasion authorized, in leaving it to the jury to find that the defendant might have received notice directed to him at Danville and put into the postoffice there, as soon as if it had been directed to him at Reidsville; or that Coleman was the agent of the defendant to renew the notes and receive notice of their dishonor; or that the defendant had a full knowledge of the laches of the bank, in not duly giving him notice, and with such knowledge assumed to pay or renew the notes. For there was no evidence on which the jury could have found either of the facts thus left to them. It is true that Danville had once been the defendant's postoffice, but he had changed his residence eight or ten years before these occurrences, and, during that period, Reidsville had been his postoffice, from which he received letters three times a week, and it does not appear that he had received a single letter that was addressed to him at Danville, or that one had been thus addressed to him, except the notices of protest by the notary public, who protested these notes; or that the defendant was in Danville, except to make the arrangements with the bank and Rawlins and Coleman, in April, 1842, and when he gave blank endorsements to Lynn to be filled up from sixty days to sixty days for renewals. There was nothing, therefore, to make Danville his postoffice or take the case out of the common rule, that notice must be sent to the endorser, addressed to the postoffice nearest to him, or that through which he usually conducts his correspondence, unless he designate some other. We say there was no evidence upon that point, because the statement of the notary public that he was ignorant of the defendant's new residence and that Reidsville was his postoffice, and that he thought Coleman was the defendant's agent to receive notice of protest, and attend to the renewals for the defendant, prove nothing, (619) except that person's ignorance of facts which were notorious, even to several of the directors and other officers of the bank, and persons generally, and which he ought to have known or inquired about, and except, further, that he was grossly mistaken in supposing that Coleman was in fact the defendant's agent, and in supposing that he had any ground for thinking him the agent, in the circumstance that he attended to the renewal of notes of which he, Coleman, was one of the makers, and which were endorsed by the defendant for the accommodation of the makers. A maker is the last person that ought to be presumed to be the agent of the indorser. Indeed, it is impossible to believe that the board of directors should not have known the residence of a planter in the county, twenty-two miles from Danville, for so long a period as eight or ten years, to whose means they looked chiefly as securing so large a debt as one of $11,700, or could have thought, without express directions from the endorser, that the maker was the endorser's agent to receive notice of the maker's own default. There was as little evidence that the defendant was informed by this witness, at the interview of 12 December, 1843, that he had neglected, as notary public, to send him notice to Reidsville (which was the laches in the case), and that with that knowledge the defendant assumed the debt. The witness did not state that he gave the defendant that information, and, on the contrary it is clear that he did not, inasmuch as he says that he did not know that Reidsville was the defendant's postoffice; and therefore he would not have thought himself more bound to tell the defendant that he had not sent the notice to Reidsville than he had felt bound in the first instance to send it there. Neither was there anything said by the defendant that could be fairly construed into a promise to assume the debts — and a very explicit one should be required in such a case — for, although the defendant yielded for a moment to the insinuations of the witness that upon his return to Danville he might tell Lynn and Coleman to use the signatures of the defendant to blanks left with Lynn, for the purpose of reinstating the notes, he said (620) in the same conversation that he would not allow it, but that he would go down in a short time and personally arrange the business. It is true, he added that Lynn might apply the money which he had collected, as trustee, towards the payment of one of the notes; but that does not imply an assumpsit by the defendant, since that money was, as a fund provided by the principal debtors for the payment of these notes, applicable to them, in equity, at all events, whether the defendant remained liable for them or had become exonerated; and the defendant was therefore only expressing an assent to what he could not prevent.
Of the opinions given on the foregoing points, therefore, the plaintiff could have no cause to complain. But whether they were correct or not makes but little difference to the parties now; for the jury by their verdict have affirmed that Danville was not the postoffice of the defendant, and that he would not get notice as soon from that office as from Reidsville, and that Coleman was not the defendant's agent, and that the defendant did not, with a knowledge of the plaintiff's laches, assume the debt. So those points are not in the case that is to be decided by this Court, which can only review errors of law by the judge against the plaintiff, and not errors of the jury.
But it is said that the court erred in refusing the specific instruction prayed for, that, if the defendant left the notes in Danville, and the whole transaction took place at Danville, the jury might infer that the defendant received the notice, for that was but a reasonable presumption of fact. We are at a loss to discover any ground for such presumption. It is not understood clearly by us, what is meant by the expression, that "the whole transaction took place at Danville." Taking it in connection with the evidence and the argument at the bar, we presume it was intended to say, as the defendant left his name in Danville with Lynn in blank, and as Rawlins and Coleman wrote on the papers their notes, dated at Danville, and payable at the bank at Danville, to the defendant, who was thereby made the endorser of the notes thus expressed, that therefore notice was to be given to the defendant of the dishonor at that place, and (621) that notice through the postoffice there was sufficient, as he had no place of business or agent there. But the Court thinks that position untenable. The only case cited in support of it is Mann v. Moore, at nisi prius, 1 Ry. Moody, 249, in which it was held, that, where a bill of exchange was dated "Manchester," it was sufficient to direct a notice of its dishonor to the drawer at "Manchester." without designating more particularly his street and number. That, we think, was clearly right, as the drawer had not given his address in the bill more specially, but by the general term, "Manchester"; for it is sufficient to follow the direction of the drawer himself, as to his residence. But that has no application to a case of endorsement to which no place is annexed in the bill. The note being dated in Danville is no evidence that the payee lives there; nor is the endorsement by the payee in Danville any evidence thereof. If the note in its face had been expressed to be payable to L. Palmer, "of Danville," or if the endorsement had been rendered local by adding "Danville" to the defendant's name, and the residence of the defendant had not been known to the holder, then notice to him at Danville, through the postoffice, would have been sufficient. But the endorsement here was in blank, and therefore the notice ought to have been given at the proper office of the defendant. The difference between such an endorsement at large, and the drawing of a bill dated at a particular place, was held by Chief Justice Abbott, himself, who decided Mann v. Moors. For not a year before he held, in Walter v. Hayney, 1 Ry. and Moody, 149, that notice to an endorser of a bill, directed to him at "Bristol," was too general, as, in such a large place, his residence might not be known, or there might be others of the same name, and the endorser did not designate in his endorsement the place where it was made, or where he lived, as was done by the drawer of the bill in the other case.
It was further urged by the plaintiff's counsel that the court erred in laying it down peremptorily and without qualification, that (622) notice must be sent by the next post, whereas there are many cases in which the holder may be excused from such strict diligence: as his other indispensable engagements, or that he is making inquiries concerning the endorser's place of abode and postoffice, or that the first post goes out so early after the default that notice could not with convenience be sent by it. But, certainly, "the general rule" is that, with regard to such persons as live at different places, notice should be sent by the next post. If there be any of the excuses that are above supposed, then the holder may have till a second post; but it is for him to show the matter of excuse. So the rule is expressed by Mr. Justice Lawrence, in Darbishire v. Parker, 6 East, 3, and we believe it is perfectly correct. Therefore, in reference to the case before the Court, in which no excuse was given, and in which, indeed, no notice was ever sent to the proper office, the rule was properly stated to the jury without qualification.
But the stress of the argument was that the court erred in refusing the instructions that if the defendant had reasonable grounds to believe that the makers would not renew these notes at maturity, or if the makers had conveyed to Lynn all their property as an indemnity to the defendant, notice was not necessary; and in giving the instructions that the insolvency of the makers and the fact that the defendant had taken a deed of trust for property of the makers, as an indemnity, did not dispense with notice.
It may be observed, however, that counsel for the plaintiff took, in the argument here, a preliminary objection to requiring notice, which was not raised in the Superior Court; which is that the memorandum, signed by the defendant on the deed of 8 May, 1837, expressly dispenses with demand, protest and notice. It would be sufficient to say in answer, that the point was not taken on the trial. But that agreement is confined to "the notes within enumerated, and on which we appear as endorsers,"which were secured by that deed. But those notes were not of that character; for these debts were taken out of that deed, and placed on a new footing of "activity," by (623) giving new notes, upon which the discount and curtailments were to be paid every 60 days. They were no longer subject to the agreement in question; but were to be regulated by the new agreement and the second deed of trust. It remains, therefore, to consider the other general errors alleged.
Although it was once held, in De Berdt v. Atkinson, 2 H. Bl. 336, that the known insolvency of the maker of a bill or note would prevent a person who lent his name to give credit to the paper from insisting on a demand and notice, yet the point was very soon ruled otherwise by three of the four judges who had decided it, in the case of Nicholson v. Gouthit, 2 H. Bl., 609, in which the endorser had guaranteed the payment of the debt for which the note was given, and the maker was in bad circumstances at the time and became insolvent before the note fell due, and it was the understanding of all parties that the maker could not pay the note and that the endorser should. Yet in that case, strong as the apparent justice of it was on the side of the holder, it was held that the note must be duly presented, in order to charge the endorser. And in many cases since, in which De Berdt v. Atkinson was cited, it has been disregarded, and a contrary principle established. As in Smith v. Beckett, 13 East., 187; Esdaile v. Sowerby, 11 East., 114; Whitfield v. Savage, 2 Bos. Pul., 279. And the same doctrine has been held in this country. French v. Bank, 4 Cranch., 141; Smith v. McLean, 4 N.C. 509. For although the maker be insolvent there may be many other means by which the endorser might possibly, through the maker's friends, get security, if the holder had afforded him the opportunity. Therefore, although the makers were insolvent and the defendant had ground to believe, nay, all parties understood, that, by reason of the maker's insolvency, the defendant would have to pay the debts, Nicholson v. Gouthit and Esdaile v. Sowerby are conclusive authorities, that those circumstances are not equivalent to demand due notice of dishonor.
But it was said further that the court ought to have left it (624) to the jury to find that the conveyance to Lynn was of all the property the makers had, and to have directed them that, if such was the fact, the defendant was not entitled to notice. The proposition presents a very important question, which, assuming the fact to be as supposed, is novel to us, and does not appear, as far as we have been able to extend our researches, to have been decided by any court. No English adjudication has been cited in support of the position. It is supposed to be analogous to the rule of Bickerdike v. Bollman, 1 Term, 405, and certain cases decided upon what was deemed within the same principle, that the drawer of a bill who had no funds in the hands of the drawee was bound for the amount of the bill without notice of its dishonor. The judges who decided that cause founded their opinions on the ground that it was a fraud to draw the bill, and that the drawer was the real debtor, and "could not be prejudiced by the want of notice." This does not mean that, in every case, evidence may be gone into that a drawer or endorser was not in fact injured by the want of notice as the acceptor or maker was insolvent, for that would leave no rule as the law of the case and make every case one for the jury on its particular circumstances. But it means that, when it appears that a party to a bill has committed a fraud, as by drawing without funds or authority, he shall not call for notice; for, if he had it, by no possibility could it change his liability or give him recourse on another. But if he could have recourse over, as upon a bill drawn for the accommodation of the acceptor, or a note endorsed for the accommodation of the maker, then he is entitled to notice, althoughe [although] the acceptor or maker be insolvent. Corey v. Scott, 3 Barn. Ald., 619; Ex parte Heath, 2 Bos. Bea., 240; Norton v. Pickering, 8 B. C., 610; Esdaile v. Sowerby, French v. Bank. Again, if a note is made for the accommodation of the payee, and he has it discounted and receives the money on it, he is not entitled to notice, because he is the real debtor, and, therefore, primarily liable, and could have no recourse on the maker. 4 Cranch, 64; 2 Chitty's Pl., 133; Brown v. Maffey, (625) 15 East., 216; Legge v. Thorpe, 12 East., 171. So, it is held, upon a plain ground of justice, that if a maker of a note places effects in the hands of the endorser to meet the note, the latter is not entitled to notice, because it would be a fraud in him to allow the maker to be called on for the payment when he had the amount in his hands, and, therefore, had become the real debtor. Corney v. Da Costa, 1 Esp., 303. In every case in which notice is dispensed with there either was a fraud on the world in making the security, or it would be a fraud on the party, who, according to the form of the instrument, is legally bound before him, who insists on notice, but where in reality, and according to their actual liabilities, as between themselves, the relation of the parties is reversed, and he, who appeared to be primarily liable, was so only secondarily, and the other party was the real debtor. The principle governing those cases is an intelligible and just one. But does it embrace the present case? We think not, but that there is an evident distinction between them.
In the first place, it has been seen to be clearly settled that, as an endorser of an accommodation note, the defendant was guilty of no fraud on anybody, and was therefore entitled to notice. More especially was that the case here, as the nature of the paper was fully understood by the bank, upon a communication with the makers and the endorsers. Therefore, by taking the note in this form, instead of holding the defendant bound as a surety, simply by becoming a joint maker of the note, the bank must have intended, and perhaps was obliged by charter, to obtain a security liable, as was observed in Nicholson v. Gouthit, to all the legal consequences of an endorsement — among which is notice to the endorser in order to charge him.
In the next place, the defendant was not under any engagement to Rawlins and Coleman, or to the bank, in consideration of the trust fund or for any other fund, to take the debts on himself. The jury have so expressly found, as must be taken by their returning a verdict for the defendant under the instruction that, if there was an understanding between the parties that the defendant should, (626) on that consideration, pay the debt, notice was not necessary. There being, then, no contract, express or implied, of that nature, what else is there on which it can be held that the defendant has deprived himself of the right to notice that is incident to the contract of endorsement ordinarily? It is said that the taking an assignment to Lynn, as his trustee, of all the property of the makers as an indemnity to the defendant, is in law a waiver of notice by the defendant. For this, Bond v. Farnham, 5 Mass. 170, the leading case on the subject, is relied on. There notes were given in the ordinary course of business, as far as appears; at any rate, they were not to be renewed from time to time, as securities for a permanent loan from the holder to the makers, but were negotiated in the market and lodged in bank for collection at maturity. Before the particular note fell due, the maker became insolvent, and conveyed to the defendant, the endorser, for his security, all his property, which was not sufficient to pay all his liabilities for the maker. It was held that the endorser waived a demand and notice thereby. Chief Justice Parsons gives as the reason, "That the endorser knew a demand would be fruitless, as he secured all the property the maker had; and, as he secured it for the express purpose of meeting his endorsements, he must be considered as having waived the condition of his liability, and as having engaged with the maker, on receiving all his property, to take up his notes." There are other cases to the same effect. Bank v. Griswold, 7 Wend., 165, is one. The declaration contained two counts: the first, that, before the note fell due, the makers assigned to the defendant (the endorser) and another person effects to a greater value than the amount of all the debts mentioned in the deed, in trust to pay this note and others specified; the second, after stating the making and endorsing of the note and the assignment to the defendant and another, as before, averred that the effects assigned constituted all the property the makers had; each concluding in the usual form, that the defendant had not sustained any damage (627) by reason of no demand and notice. Upon demurrer to both counts, the plaintiff had judgment. Mr. Justice Nelson, after citing several of the cases already noticed, and relying particularly on Bond v. Farnham as the strongest, adds that, although insolvency is rather a reason for requiring than for dispensing with demand and notice, in order that an endorser may have an opportunity to save something out of the wreck of the estate, yet, "having anticipated that event and taken into his possession the whole of the estate, expressly to meet his responsibilities, the endorser has effectually secured every object which the law presumes would be the consequence of notice." It is obvious that the reasons given for the two judgments do not accord. In the latter case notice is dispensed with, because it is supposed to be of no use; that the endorser could not possibly be prejudiced, as he had already "secured every object, for which the law entitles him to notice," inasmuch as the maker has no more property. But it will occur to every mind that precisely the same argument is applicable to every case of total insolvency or bankruptcy. Yet in those cases the law requires notice, as, peradventure, some one else may be willing to engage for the debtor. We presume, however, that it was not intended in that case to go beyond the doctrine of Bond v. Farnham, especially as far as the language used might seem at first to carry it. Now, the case of Bond v. Farnham puts the doctrine explicitly upon a supposed engagement, to be inferred from the circumstance that the endorser took to himself a conveyance of all the debtor's property to meet the notes, and that he, the endorser, would take up his notes. Whether that inference of fact was right or wrong, is not very material to our present purpose. It shows, that the judge thought such an engagement necessary to the conclusion arrived at, and the case came on there upon a verdict subject to the opinion of the court on a case agreed, so that the court was at liberty to draw reasonable inferences of fact. But here the jury has expressly found that the defendant did not undertake to pay these notes, and there is no reason for this Court to (628) make any such inference. But, supposing that point open, the two cases cited differ from the present in several essential particulars. Those were cases of the conveyance of all the debtor's property, as admitted in the case agreed by the demurrer. In the present, it not only does not appear that the deed to Lynn conveyed all the property the debtor had, but it appears that it did not. In the first place, the deed of May, 1837, conveyed an immense amount of property to secure, it is true, very large debts. But it is not stated that at the time of the deed of April, 1842, the value of the property mentioned in that of 1837, remaining unsold, did not exceed the amount of the debt with which it was incumbered; and, of course, the resulting trust in that fund was a property in Rawlins and Coleman. Again, the gentleman who gave evidence as to the negotiation and agreement out of which the deed grew stated explicitly that, although it was at the time generally expected that Rawlins and Coleman would fail in a short time, yet they had not failed then. He says, they failed soon afterward, and then "made a final surrender of all their effects to other trustees and for other creditors." But, above all, it does explicitly appear that, so far from the defendant agreeing to assume the debts, because he had the funds and all the funds the maker owned, the agreement was that Rawlins and Coleman should retain the possession of all the estates conveyed to their own use for nine months at least, and until a necessity for a sale after their default, and that among the property were two houses in Danville and one in Richmond, and a negro man; and, furthermore, that out of the profits of those estates, or other resources, they, the makers, actually paid in part of their debts, after the execution of the deed to Lynn, about $1,100, being the discounts upon the sixty days renewals for about twenty months on this large debt. This fact puts a negative at once upon the implication of an engagement of Palmer to pay Rawlins' and Coleman's notes, and that he had stripped them of all their property and left them no resources. His Honor was, therefore, right in refusing the second special instruction prayed for the plaintiff, because it assumed, as a fact, what was not true, namely, that Rawlins and Coleman conveyed all their property in trust for the (629) defendant; and, moreover, because it is not an implication of law, if the conveyance had been of all the property, that the defendant had agreed to take up the notes, when, upon the prayer of counsel of the plaintiff, it was submitted to the jury whether there was any such engagement or understanding between the parties, and the jury found that in point of fact there was not. We do not question that an engagement by an endorser, upon any adequate consideration, though not a full one, to make the debts his own, will bind him, as in Corney v. Da Costa, and in Brown v. Maffey. So in Bond v. Farnham, the rule is right, if the inference of fact of the agreement by the endorser to take up the notes can be sustained, and we do not see that a jury might not draw that inference under the circumstances or upon a case agreed, that the court might not do it. But we cannot agree that the law will adjudge on a demurrer, that, if an endorser, in order to save himself as far as he can, take from an insolvent maker of a note a conveyance, by way of security, of property, even though it be all he have, the endorser thereby engages to make the debts his own, and that it is an act of bad faith to require the holder to make a demand and see if he cannot get something more. But here the conveyance was but for part of the maker's property, and the maker engaged with the creditors, and also with the endorser, not only to make the conveyance, but "to keep the notes active"; that is, regularly renewed every sixty days, and to pay the discounts; and they actually paid under that engagement about $1,100, to the exoneration of the defendant. This was a most important relief to the defendant; for who does not see that by thus keeping down the interest for ten years, for example, it would be equal to paying down half the debt, and in the meanwhile, the value of the assigned estates might increase? The inference sought to be drawn by the plaintiff from the deeds is absolutely opposed to the admitted fact.
But it strikes us that there exists yet another distinction (630) between this case and those cited, equally important in repelling the inference that the endorser had undertaken to pay the notes. In all the cases we have considered the funds were put into the hands of the endorser, or the conveyance made to the endorser, himself, except in Bank v. Griswold, supra, and there it was to the endorser and another person. Here the assignment is to a third person, as a trustee, not for the endorser, merely, but for both the makers and the endorser, and the conveyance to him was upon an arrangement to which the bank, as the creditor, was a party, so as clearly to entitle the bank also to the benefit of the assignment, and, like other cestuis que trust, to interpose and call for the execution of the trust, or control the trustee. The difference is essential. Where funds are supplied to the endorser, or property conveyed to him, he has the absolute control in the matter, and can sell when and how he pleases. He may be supposed, therefore, to assume the debt immediately and absolutely. But in the other case, in the absence of direct evidence of an assumpsit, the inference is the other way. Can it be supposed the endorser meant to take up the notes at the end of the first sixty days, as his own, if the makers should fail then to renew them, while they must be allowed by the trustee to retain possession of the property for nine months, and might be allowed by him longer? When a third person is interposed as trustee he must attend impartially to the interest of all parties. Hunt v. Bass, 17 N.C. 292; Dowes v. Graysbrook, 3 Meri., 208. And the very fact of interposing such third person, to the exclusion of the endorser himself, shows that the debtor and, in this case, the creditor also, required such a trustee as a protection against the haste, the imprudence, or irresponsibility of the defendant himself. Would this trustee be at liberty to sell this trust property at half price, in order to save Palmer from the sale of his at an undervalue at execution sale? Besides, the same gentleman, to whose important statement reference has been so often made, says that when Palmer and Rawlins and Coleman proposed to the bank that their trustees should reconvey some parts of the property to Rawlins and Coleman, it was a part of the (631) proposition that Rawlins and Coleman, should convey those estates and others to Lynn, in trust to save Palmer harmless as endorser, and "to secure the payment of the debt aforesaid, for which Palmer stood bound"; and that in execution of that agreement the first trustees conveyed, and then Rawlins and Palmer conveyed and assigned to Lynn, not only the same estates, but also several other large tracts of land, a slave, debts to the amount of $4,077.34, and other things, from which debts alone considerably over $2,000 have been realized already. It is, therefore, clear that the bank had an interest in this conveyance, as well as the defendant; and it cannot be doubted that such interest, in the form of additional property, may have materially induced the bank to assent to the new arrangement. Indeed, that witness deposes "that the directors assented to the proposal, relying upon the credit of Palmer and the funds to be hypothecated by the makers as security for the said notes." As the creditor, the bank is to all intents a cestui que trust, as well as Palmer is; and so are Rawlins and Coleman. All three would have a right to make representations to the trustee of their wishes and interest, and he would be bound, not merely to protect Palmer from harm, but also to secure the debt and take care of the interest of the debtors according to the best of his judgment. It is not easy to perceive, in such a case, a reason why the endorser should be supposed to have become paymaster, as between him and the maker, more than that the bank agreed to look to the security of the property, and not to the persons. For, if the latter inference is repelled by the fact that the endorser's name is required on notes in renewal, as recognized in the deed, so, likewise, the former is repelled by the fact that the maker continues to give new notes, as maker, as the deed requires. In fine, we think that the acceptance by an endorser of an assignment to a third person, whether the maker be solvent or insolvent, or the assignment be partial or total, as an indemnity against existing and future endorsements of notes, given in (632) renewal, as the maker may require, in order to keep his paper from being dishonored, affords no presumption in law that the endorser is under an obligation to take up the notes when the maker shall fail to offer renewals and pay discounts; and such an obligation we conceive to be the true test of the endorser's being entitled or not entitled to notice. Therefore the judgment must be affirmed.
PER CURIAM. No error.
Cited: Runyon v. Montfort, 44 N.C. 373; Long v. Stephenson, 72 N.C. 570; Bank v. Bradley, 117 N.C. 530.