U.S. Supreme Court MCCULLOUGH v. HOUSTON, 1 U.S. 441 (1789)
1 U.S. 441 (Dall.)
Supreme Court of Pennsylvania
September Term, 1789
This was an action brought by Hugh M'Cullough, as assignee of Samuel Young, upon a promissory note drawn by John H. Houston; and, on the trial of the cause, a verdict was given for the Plaintiff, subject to the opinion of the Court on the following point:
'Whether the indorsee of a promissory note, takes it subject to all equitable considerations, to which it was subject, in the hands of the indorser, the original payee?' And, if the opinion of the Court was in favor of the Defendant, a new trial was to be awarded.
The point was argued at the last term, before all the Judges, by Sergeant, for the Plaintiff, and Ingersol, for the Defendant.
For the Plaintiff, it was observed, that in the act of Assembly, making bonds and notes negotiable, there is no provision enabling the promissee, or drawee, to bring an action on the note itself; 1 State Laws 77. that such an action did not lie at common law; and, consequently, that wherever it had been brought in Pennsylvania (which is in numerous instances) the proceeding must have been founded on the statute of 3 and 4 Ann. c. 9. and the law of merchants. That statute, therefore, must be considered as extended in practice to this country before the revolution; and a legislative sanction is given to the practice by the act of Assembly, which declares, that such parts of the statute law of England as were heretofore in force, shall still be binding in Pennsylvania. 2 State Laws. 3. On the assignment itself the assignee cannot bring an action against
the assignor; but he may bring covenant, of, perhaps, an action for money had and received &c.; 2 Lord Raym. 1242.1419. But, in respect to notes, a blank indorsement passes, as if payable to bearer; and every part of the statutes of William and of Anne, for giving negotiability to bills of exchange and notes of hand, has been introduced into this province from the earliest times. For the Defendant, it was urged, that, at common law, bonds and notes were mere choses in action, and the assignee took them under all the equitable circumstances to which they were liable in the hands of the assignor. That promissory notes do not come within the law of merchants is clear; for, if they did, the statute of Anne would have been unnecessary. The question, therefore, is, whether that statute has been extended to Pennsylvania? or, whether, by our act of Assembly, notes are put on the same footing with bills of exchange? From the general rule of the extension of statutes, the 3 & 4 Ann. has not been extended; because it was passed subsequent to the settlement of Pennsylvania; because the province is not particularly named in it, nor would it, indeed, have been the policy of the British Legislature to promote the circulation of our paper credit; and because it has not been recognized and adopted by any positive act of Assembly. With respect to the introduction of the statute by practice, it operates no further than this, that the payee of a promissory note has brought an action on the note against the signer before our act of Assembly was passed; but till then, the indorsee could not maintain such attraction; and obligations and promissory notes, are put on the same footing. With respect to the act itself, that the Legislature could not intend to put promissory notes upon the same footing with Bills of Exchange, appears evidently from this consideration, that the preceding part of the act pursues the statute of Anne, nearly verbatim; but when it comes to that clause in the latter, which places Notes on the same footing with Bills of Exchange, the Act equally varies its spirit and expression: And, it is declared, that the assignee of a note. &c.; shall recover so much thereof as shall appear to be due at the time of the assignment, in like manner as the assignor could have done. The Chief Justice now delivered the opinion of the Court in the following manner:
M'Kean, Chief Justice In pronouncing the opinion of the Court, on the point reserved for their consideration, I shall premise that Bonds, and Promissory Notes in writing, stood on the same footing at common law; and that the assignment of those instruments, as well as the form, operation, and effect of such assignment, depends entirely upon the municipal law of the place where it is made. By an act of Assembly of Pennsylvania, passed on the 28th day of May, 1715, entitled 'An act for the assigning of Bonds, Specialties, and Promissory Notes,' it is recited in the preamble, 'that it hath
been held, that Bonds and Specialties under hand and seal, and Notes in writing, signed by the party who makes the same, whereby such party is obliged, or promises to pay unto any other person, or his order, or assigns, any sum of money therein mentioned, are not by law assignable or indorseable over to any person, so as that the person to whom the said Bonds, Specialties, Note or Notes, is or are assigned or indorsed, may, in their own names, by action at law, or otherwise, recover the same, &c.;' 1 State Laws, 77. This, then, is conclusive as to the operation or effect of the assignment of a Bond, or the indorsement of a Note, previously to the passing of the Act; for, no assignment, or indorsement, could take place by law, though it might in equity; and, the assignee, or indorsee, could not, in any case, sue in his own name. The Act, however, afterwards provides for such assignment and indorsement toties quoties: It also declares, that the person or persons to whom the assignment or indorsement is made, may, in his, her, or their name, or names, sue at law, 'for the recovery of the money mentioned in the Bond, Specialty or Note, or so much thereof as shall appear to be due at the time of the assignment, in like manner as the person or persons to whom the same was, or were, made payable, might, or could, have done;' and that 'the assignors shall not, after the assignment, have power to release any of the debts or sums of money really due by the said Bonds, Specialties, or Notes. The question before the Court must be decided upon a just construction of the parts of the act of Assembly, to which I have just referred. Throughout the whole of this Act, Bonds and Promissory Notes are placed exactly on the same footing; except, indeed, that Bonds and Specialties are to be assigned under hand and seal, and in the presence of two or more credible witnesses: How, then, can the Court make any distinction or difference between assignees of the one, and indorsees of the other? They certainly may both sue in their own names, and respectively recover the money mentioned in the Bonds or Notes, assigned or indorsed, or so much thereof as shall be really due thereon, in like manner as the obligees, or payees, could have done; but, surely, this seems to be equally clear, that neither can recover more than what was really due at the time of the assignment or indorsement; in other words, no more than the original payees could have done prior to the transfer. Before this act was passed, it appears, that actions by the payee of a Promissory Note, were not maintained, nor can they since be maintained, otherwife than by extending the English statute of 3 & 4 Ann. c. 9. Sect. 1. Actions upon Promissory Notes were probably brought here, soon after the passing of the statute, by attornies. who came from England, and were accustomed to the forms of practice in that kingdom, but did not, perhaps, nicely attend to the discrimination with regard to the extension, or adoption of statutes.
I have no doubt, indeed, that many acts of Parliament, passed, not only before, but subsequent to the union of England and Scotland, have, by the same means, been introduced and practised upon in Pennsylvania; and as experience has proved such proceedings to be beneficial, so constant and uninterrupted usage has given them a legal existence, that cannot now be shaken or destroyed. But the indorsees of Promissory Notes, according to the best information which we can obtain, have never grounded their actions against the drawer, upon any other basis than the act of Assembly now under consideration; though, I think, the action by an indorsee, against the indorser, must be founded on the statute of Anne, and the usage under it, as no such action is given by the act.
The question, so far as it relates to the assignees of Bonds, has been determined in the affirmative, in the Supreme Court of Pennsylvania, before the revolution. See ant. 23. And, as, on the one hand, the Legislature has made no difference whatever between the assignees of Bonds and the indorsees of Notes, so, on the other, we cannot discover any solid or good reason to introduce a distinction in the particular before us.
Upon the whole, we are unanimously of opinion, that the indorsee of a promissory Note, does take it, subject to all equitable considerations, to which the same was subject in the hands of the indorser, the original payee. And, therefore,
Let the defendant have a new trial.