McDonald v. Magruder

ERROR to the circuit court of the county of Washington, in the district of Columbia.

This was an action of assumpsit, instituted in the circuit court by the defendant in error against the plaintiff in this court. The matters in controversy were submitted to the jury by a case agreed, which stated, that the plaintiff produced in evidence a promissory note drawn by Samuel Turner, Jun. in favour of George B. Magruder, or order, at sixty days, for $900, payable at the office of discount and deposit at Washington, for value received; which note was signed by Samuel Turner, and indorsed by George B. Magruder, and by John G. M'Donald.

The note was so drawn and indorsed, with the understanding of all the parties thereto, that it should be discounted in the office of discount and deposit, for the sole use and accommodation of the maker, Samuel Turner; no value being received by either of the indorsers. It was so discounted, and the proceeds thereof applied to the credit of Turner, in the office. Long before the making of the note, viz. in the year 1819, Turner had two notes discounted for his use and accommodation in the office, viz. one for $270, indorsed by George B. Magruder and by G. M.'Donald, and one for $710, indorsed by George B. Magruder and one Samuel Hambleton; which last mentioned note was continued, by renewal, with the indorsement of Magruder and Hambleton, until September 1820, when, in consequence of Hambleton's absence, it was protested; after which the office permitted the accommodation to be renewed, upon condition that Turner would get another good indorser in the place of Hambleton. Whereupon John G. M'Donald, upon the solicitation of Turner, indorsed a note for the sum of $710, which was brought to him, already indorsed by George B. Magruder. That in March 1821, a small part of the money having been paid, the two notes were consolidated and renewed by one note for $950, drawn by Turner, and indorsed by Magruder and by M'Donald, which was from time to time renewed by notes similarly drawn and indorsed; the last of which is this note, so produced in evidence by the plaintiff. Neither at the time of indorsing the notes respectively, nor at any other time, was there any communication between Magruder and M'Donald upon the subject of such indorsement. Both of them however knew at the time of indorsement the notes were intended to be discounted for the accommodation of Turner; and in every instance Magruder was the first indorser. The note, so produced in evidence by the plaintiff, not having been paid when due, was duly protested; and the payment thereof having been duly demanded, and due notice given of such demand, and of non-payment having been given to the indorsers, judgments at law were recovered against both, by the Bank of the United States; and the whole amount having been paid by Magruder, he brought this suit to recover from M'Donald one half of the amount so paid by him.

By consent of the parties, a verdict was rendered for the plaintiff, for one half of the amount so paid by the said Magruder, in satisfaction of the judgment against him; subject to the opinion of the court upon the case agreed.

Upon the case stated, the court below gave judgment for the plaintiff; and the defendant sued out this writ of error.

Mr Jones, for the plaintiff in error, contended,

1. That by the showing of the plaintiff himself, in the case stated, there never was any contract between the parties, but what their several indorsements on the note import.

2. That the import and effect of the contract of indorsement, the only contract between the parties, and that not attempted to be explained or modified by any collateral agreement or understanding whatever, were that the plaintiff himself, as first indorser and payee of the note, should pay and satisfy the whole amount of the note, in default of the maker, and should completely indemnify and save harmless the defendant, as last indorser, against all recourse from the holder. Consequently, if the bank had chosen to enforce the separate judgment which they had recovered against the last, instead of the first indorser, the former would have been entitled to recover of the latter, not a moiety, but the whole of the amount.

3. That this, the legal effect of the only contract subsisting between the parties, so far from being changed or impaired, is confirmed and strengthened by the origin and circumstances of the debt, as explained in the case stated; from which it appears, that near three-fourths of the amount consisted of a prior debt due from the plaintiff to the bank, for which M'Donald never was liable, till he made himself so, as indorsee of the plaintiff below, and as second indorser.

This action was brought by the first indorser against the second indorser of a promissory note, for contribution, he having paid the note to the holder. There never was any contract between the parties but that which appears on the face of the note. In the true sense of this agreement, Magruder promises to pay the note in case of the failure of the drawer to do so, and to save the subsequent indorser, the plaintiff in error, harmless. There is nothing collateral to this agreement; were it necessary or proper to go into any inquiry as to the real circumstances of the parties, three-fourths of the sum received on the discount of the note were for Magruder's use.

The only circumstance upon which the claim of the defendant in error can be supposed to rest, is, that the note was to go into bank for the benefit of the drawer; and this will not raise a contract, either express or by implication, different from that which is the known and established construction of such instruments. This is well known; and all who become parties to such contracts, are bound by the well established principles of law, operating upon them under such relations.

Mr Key, for the defendant, said, the question presented in this case is not novel. It has been frequently discussed in courts, and the position assumed for the defendant in error is founded in equity. It is claimed to divide the loss sustained by the failure of the drawer of the note between the indorsers. The bank had judgment against the indorsers. Magruder paid the whole amount of the execution against him, and proceedings on the execution against M'Donald were stayed, until this suit shall determine the rights of the parties.

In this case the note was made for the sole purpose of discount for the drawer, and the indorsers put their names upon it for that purpose only. As between the bank, there is no doubt the obligation of each was for the whole amount of the note; but between themselves it was not so. They united for the drawer, and they made no contract with each other for indemnity. The only contract was, that each should become one of two indorsers, for the benefit of the drawer, and that they would become mutual and equal sureties.

In other commercial contracts, the circumstances under which they arise are gone into. A bill of exchange drawn without funds in the hands of the drawer, is not subject to the strict rules of notice. So also where a note has been discounted for the use of the indorser. The bank of Columbia vs. French, 4 Cranch, 141. These cases show, that in actions on negotiable paper you may go beyond the form of the contract.

In the present case, the note was drawn, and after it was indorsed by Magruder, was handed back to Turner; it was then, at the request of Turner, indorsed by M'Donald, and was delivered to the bank by the drawer. Between the indorsers there was no contract, no consideration passed from the first to the second, and they stood as sureties between each other. Cited, 13 Johns. 52. 3 Harris & Johns. 125.

Mr Chief Justice MARSHALL delivered the opinion of the Court.