U.S. Supreme Court Scott v. Shreeve, 25 U.S. 605 (1827)
Scott v. Shreeve
25 U.S. 605
APPEAL FROM THE CIRCUIT COURT
FOR THE DISTRICT OF COLUMBIA
Relief in equity against a judgment at law upon certain bonds given for the indemnity of the obligee, as endorser of notes drawn by the obligor, the consideration having, failed.
The assignee of such bonds takes them subject to all equities existing between the original parties.
The plaintiff below is entitled to relief in equity, not having a complete and adequate remedy at law.
MR. JUSTICE THOMPSON delivered the opinion of the Court.
The object of the bill filed in the court below was to obtain relief against a judgment at law recovered against Shreeve, the appellee, upon certain bonds given by him to Elisha Janney, and which bonds had been assigned to the appellant, Scott, as his trustee, for the benefit of his creditors.
In the progress of the cause it was deemed necessary by the court that the Bank of Potomack should be made a party defendant. A supplemental bill for the purpose was accordingly filed and the bank made a party.
The first inquiry that seems naturally to arise is how the case stood as between Shreeve and Janney, the original parties to the bonds. The material facts upon which the complainant in the court below relied for relief are not denied by the answer of Scott. From the bill and answer and exhibits in the cause, accompanied by a written agreement between the solicitors of the parties before the cause was set down for argument, the leading facts in the case appear to be that sometime in the year 1808, Shreeve failed in business, being indebted to the Bank of Potomack in the sum of $6,300 upon a note discounted at the bank
and upon which Janney was the endorser, for whose security Shreeve transferred to him and John Roberts, who was also his endorser upon other notes, certain property at a valuation, but which, upon settlement of accounts between them, fell short of Janney's responsibility to the bank upon his endorsement, $1,980.88, for which, by agreement between the parties, Shreeve gave to Janney five bonds, payable in five annual installments, and Janney was to pay the note to the bank, upon which he was the endorser. The note, however, was continued running in the bank in its original form, Janney appearing responsible as endorser only. This note was renewed from time to time until 19 May, 1809, when, by the payments which had been made by Janney out of the property assigned by Shreeve, it was reduced to the sum of $3,306, and Janney himself having failed about this time, no further payments were made upon this note until the month of June, 1818, when Shreeve, after a long absence, returned to Alexandria and was called upon by the bank for payment of his note, upon which he paid the sum of $3,355.29, being the amount of principal and interest due upon the five bonds which he had given to Janney.
Upon this brief statement of the facts as between Shreeve and Janney it will be seen that Shreeve was exposed to a double responsibility for the same debt. He was liable on his note held by the bank (unless the bank may be considered as having assented to the arrangement and accepted Janney as solely responsible on the note, which will be hereafter considered), and he was also liable to Janney on the bonds which he had given him. For the purpose of indemnifying Shreeve against his responsibility to the bank, Janney gave him the instrument bearing date 1 March, 1809, acknowledging that Shreeve had satisfied him by his bonds of 28 February, 1809, for all demands against him as security at bank, and for all other accounts, and that the note above referred to, although originally discounted for the use of Shreeve, was continued in his name, but for the convenience of him, Janney, and engaging to save Shreeve harmless from the said note, and in due time to take it up.
An objection is here made to sustaining this bill in equity because there was a complete and adequate remedy at law. But this objection cannot be sustained. The bonds given by Shreeve to Janney were simply for the payment of money, and although the consideration for which they were given had failed by Janney's neglect to pay up the note in the Bank of Potomack according to his engagement, this could not have been set up at law as a defense in the suit upon the bonds; nor could he in that suit have set off the amount paid to the bank upon his note. The engagement of Janney, on assuming the payment of the note to the bank, was a contract of indemnity only, and rested in damages, and could never form the subject of a setoff at law, and although an action at law might be maintained against Janney upon this indemnity, it would be going too far, even if Janney was solvent, to say that a court of equity could not interpose and stay a recovery upon the bonds, but that the party must be turned round to his remedy at law upon his indemnity. But in the present case it would be gross injustice and a certain denial of all remedy to refuse relief on this ground, Janney having become insolvent. There was, then, no defense at law which Shreeve could have set up against these bonds, nor had he any other remedy at law to which he was bound to resort.
Was there, then, any defense which he could have set up against a suit upon his note if he had permitted the bank to prosecute him? None is perceived by the Court. He stood upon the note as maker and was liable to the bank as such, and although, by the agreement between him and Janney, the note was continued in that form for the convenience of Janney, yet the bank was no party to that arrangement, and could not be bound by it. Even admitting the knowledge of that agreement by the bank, it certainly could not have been set up as a defense to the note unless it could be shown that there was an express or implied agreement to accept Janney as the debtor and to discharge Shreeve.
It has been urged, however, on the part of the appellants that the statute of limitations had run against the note, and that Shreeve might and ought to have availed himself of it.
If the statute of limitations had run against this note and might have been pleaded, we should be very unwilling to say that Shreeve was bound to plead it. It is a defense which a party may often avail himself of with great justice and propriety. But whether he will or not must be left to his own election. It is, however, unnecessary to inquire into the duty or obligation of Shreeve to have pleaded the statute under the circumstances of the case, because we do not think it could have been set up as a defense to the action.
The letter of license given by the bank to Shreeve bears date on 12 January, 1809, and was for the term of seven years, which of course expired in January, 1816. It certainly cannot be pretended that the statute ran during the continuance of this letter of license. Payment of the note was demanded by the bank and made by Shreeve, in June, 1818, about two years and five months after the expiration of the letter of license, a period much within the time necessary to bar the action.
The next inquiry is whether Scott, the assignee of Janney, has acquired any greater right or interest in these bonds than Janney himself had. So far as relates to the question whether the consideration had failed, the assignee stands precisely in the situation of the original party. He took the bonds subject to all existing equities. This is the settled rule in chancery, and that which is recognized by the laws of Virginia which are in force in Alexandria. Nor has anything occurred since the assignment to give to Scott or the creditors of Janney any additional rights. These bonds were assigned by Janney as his own property, and for the benefit of his own creditors, which was a violation of the trust and confidence reposed in him by Shreeve. They were given expressly, according to the agreement of the parties, to provide for the payment of the note to the bank of Potomack, and it is admitted that no part of this note has been paid out of the funds of Janney. The note had been reduced from $6,300 to $3,306 at the time Janney failed in the spring of 1809, but these payments were made out of Shreeve's funds, assigned by Janney to Roberts by the deed of 11 August, 1808. And it is also admitted that Scott, the assignee
has made no payments upon this note since the assignment to him. The creditors of Janney have therefore been deprived of none of his funds, nor can they have any right to claim the benefit of those bonds, which must be deemed to have been held by Janney in trust for the bank, and not as his own property.
The only remaining inquiry is whether the bank, by any express or implied agreement, accepted Janney as their debtor and discharged Shreeve from his responsibility.
The answer of the appellant, Scott, alleges that Janney considered himself as having assumed the payment of the note in question, and that he was considered debtor to the bank for the same, and was solely relied upon by the bank for the payment of the note. That he believed the bank had full knowledge of the deed of 11 August, 1808, by which provision was made for the payment of the note, and were satisfied with it. And he further alleges that the bank was so well satisfied with this provision that it considered neither Janney nor Shreeve liable for it.
If these allegations were supported by proof, they would go far, if not conclusively, to show that the bank had adopted Janney as solely responsible for the note, and had discharged Shreeve. If so, the payment by Shreeve would be considered voluntary, and without any legal obligation, and would form no objection to the recovery on the bonds.
The bank, however, denies it was a party to the arrangement made by the deed of 11 August, 1808, or that it made any stipulation or agreement with Shreeve or Janney, in any manner connected with that deed, unless the order of 12 January, 1809 (the letter of license), be considered as connected with it. The answer further denies that the bank ever did release, or agree to release, Shreeve or that it ever did look solely to Janney, or the trust estate created by the deed of 11 August, 1808. It admits that when this deed was executed, Janney and Roberts were both directors of the bank, but avers that no proposition in relation to it ever came before the board previous to 12 January, 1809, when the letter of license was granted to Shreeve, with the concurrence of Janney and Roberts, sitting and acting as directors of the bank.
The answer of Scott is not evidence against the bank, and his allegations with respect to the bank's having accepted Janney as the sole debtor for this note, are entirely unsupported by proofs, and must be laid out of view, as they are positively denied by the answer of the bank, and which answer is strongly supported by the order for the letter of license, which was granted subsequent to the arrangement between Shreeve and Janney. For if the bank had considered Shreeve exonerated from the payment of the note, there could have been no necessity for or propriety in giving him a letter of license. Indeed, it would have been absurd to give a letter of license to a man who was not a debtor to the bank. The order for this purpose is cautiously drawn so as to retain the responsibility of both maker and endorser. The indulgence is granted expressly upon the condition that it is sanctioned by Janney, and without lessening the right of the bank against him.
Nor is the bank chargeable with negligence that can in any manner prejudice its rights or of which the appellant has any right to complain. The indulgence was granted with the concurrence of Janney, and under an impression, no doubt, by all parties that the trust fund created by the deed of 11 August, 1808 would be sufficient to satisfy this note. And it was upon this supposition, no doubt, that the letter of license for seven years was granted to Shreeve. No steps would be taken against him until the expiration of that time, and demand of payment was made as soon thereafter as he returned to Alexandria.
The utmost, then, that can be alleged against the bank is that it had full knowledge of the provision made by the deed of 11 August, 1808, for the payment of this note. And admitting that provision to have been amply sufficient, it would not bind the bank without its assent to resort to that fund alone and discharge the parties to the note. The bank could have no objection to the provision made by that deed for the payment of the note, as it would add to its security if the maker and endorser were also held responsible. And the proceedings in relation to the letter of license are conclusive to show that it was the understanding of all parties that the bank had not, at that
time, relinquished its claims upon Janney and Shreeve for the payment of the note.
We are, accordingly of opinion that the decree of the court below granting a perpetual injunction against the appellant, and a dismission of the bill as to the bank, be
Affirmed with costs.