Herring v. Winans

Chancellor.,

The demurrer in this case presents three questions for my consideration. 1. Does a bill lie in this Court for a new trial ? 2. Is the excuse offered by the complainant in this case a valid one, for not making his defence at law ; and, 3, would that defence, if made, avail him ?

I have presented the points made by the demurrer in the above order, for the reason, that unless I answer them each in the affirmative, as I have stated them, the demurrer must be sustained.

Upon the first point I can have no doubt. Originally, the power to grant new trihls at law, in cases of fraud or surprise, was a prolific source of equitable jurisdiction ; and was so frequently called into exercise, that, from necessity, courts of common law were compelled to assume the same authority. And since, in cases where it is in their power to do so, these latter courts have exercised the right, courts of equity have rarely interfered, and never where, in the court of common law, the party had his full opportunity to obtain a new trial, and failed to avail himself of it. In that numerous class of cases, however, where it is out of the power of the common law tribunal to grant this relief, where from fraud of the one party, or unavoidable' accident, or unforeseen necessity of any kind, the other party has not been able to make that defence or proof at law, which he really can make, and has himself been in no fault, and the term of the court has elapsed, at which the judgment at law has been rendered against'him, I could not doubt, even if the question were now presented for the first time for judicial determination, that upon well settled principles of equitable jurisdiction, this Court would interfere and arrest the enforcement of an iniquitous judgment, by a perpetual injunction, until the party obtaining it should himself yield to the just demands of the other. The High Court of Errors and Appeals has, however, in the case of Joslin v. Coffin (5 Howard, 589), expressly adjudicated upon this point, and I have, in other cases, frequently exercised the power.

2. The secdnd point is not altogether free from difficulty.

The declaration was filed in the Warren Circuit Court, on the 27th of September, 1840 ; the first writ of capias ad respondendum, was returned u not found.” An alias writ, however, was executed upon the complainant, on the 27th day of February, 1841, and was returnable on the third Monday of the ensuing April. At that term of the Court, judgment by default was taken against him. Is his excuse sufficient for not having made his defence at law ? and what is that excuse ?

He avers in his bill, that of the service of the writ he knew nothing, his only knowledge of the suit was derived from a letter to him from his retained attorney, to attend to his business generally, informing him of the pendency of the suit, and inquiring his defence, if he had any; that be is himself unable to read, advanced in years, and the resident of a different county from that in which the suit was pending ; that upon the reception of his counsel’s letter, he instructed his son to write his defence to his attorney, which was done; but that the letter was miscarried upon the way, and never reached its place of destination; that had the letter arrived safely, it would have been in time to have arrested the judgment by default, and he could have made his defence at law.

The general rule is, that the party applying for the aid of a court of equity, to obtain a new trial at law, must show that he has been guilty of no negligence ; that he has been prevented by fraud, or by accident beyond his control, from making his defence at law. Does the complainant bring himself within the rule ? I think he does. He could have no reasonable expectation that his letter would miscarry. That letter communicated his defence to counsel. By operation of law, had an ordinary plea of non assumpsit been filed, the cause would have been continued. It would not have been ready for trial at the return term of the writ. He had every reason to believe his counsel was in possession of his defence, and he had a right to repose upon that belief. He did not ascertain the existence of the judgment against him, until after the term of the court at law had elapsed, at which the judgment was rendered ; that court had no longer any power in the matter, and his application to this Court was coetaneous with his knowledge of the existence of the judgment; to deny him the right to make his defence, would be to exact a degree of vigilance and diligence, which the most prudent and careful man, in the full exercise of youth and intelligence, would not ordinarily exhibit. I think, if his defence is a good one, he should be permitted to make it; and this brings me to the third question raised by the demurrer.

3. Is the defence he proposes to make a good one ?

It seems that the plaintiff at law sued upon a note, made by Henry Green, now dead, as principal, and the complainant and two others as sureties, payable to the Mississippi Union Bank; the suit was brought for the use of Anthony V. Winans, who was the real plaintiff. The bill avers, that this note was made for discount at the Union Bank, that the discount was refused by the bank, and that, without the knowledge or consent of the complainant, the note, after it was “ functus officio,” was transferred to the defendant Winans, in payment of the debt of some third person, other than the said Henry Green, the principal in the note, and that Winans well knew the note was void. The complainant states, also, that he had never heard of the note after the bank had refused to discount it, until he was sued upon it at Jaw. In this state of fact, is the complainant liable upon the note ? I think not.

However I might, upon general principles, be inclined to think the law should be, I cannot doubt, since the adjudication of the High Court of Errors and Appeals, in the case reported in 5th Howard, of the Commercial Bank of Natchez v. Claiborne and others, that where a note is made to be discounted by one person, who refuses to discount itr and it is afterwards discounted by another, with full knowledge of the facts, that ■ the makers of the note are liable to the holder. But I apprehend it will be found, upon an examination of that case, and the reason and principle upon which the decision, both in that and the cases in New York, recognizing a similar doctrine, are based, that the case now before me is clearly distinguishable from both, rests upon a different basis, and cannot, by any analogy that I can discover between them, be determined in the same way.

As the cases from New York, and the decision of our own Court, have been pressed upon me in the argument, I will briefly state what I consider to be the distinguishing feature of the present case, and the distinction between this and the cases to which I am referred.

The case of the Commercial Bank of Natchez v. Claiborne and others, 5 How. 303, was briefly this: Claiborne had made his note for discount at the bank to which it was payable, with the proper sureties upon it; the bank refused to discount it, and Claiborne took it to Briggs, Lacoste, & Co., who gave him the money upon it. The Court say, that Briggs, Lacoste, & Co. shall recover upon the note. Why ? because the note was made for Claiborne, and Claiborne had the benefit of it. It was executed to raise money for the benefit of the principal; it accomplished its object; what room, then, was there for complaint on the part of-the sureties ? Their liability was neither abridged nor enlarged.

The case of the Bank of Rutland v. Beck, 5 Wend. 66, was decided upon the same principle. The bank refused to discount the note, and the principals in the note delivered it for their own use, and to secure a debt of theirs, to a third person : the note was made for the benefit of the principals ; they receive the benefit of it. And that is the principle which runs through and regulates all the cases on that subject.

I do not find myself without authority in the,view I take of this case. The defendant obtained the note, according to the averments of the bill, from some one who had no authority to it. He did not get it from the principal debtor, but from some third person, not a party to the note. He is not a bond fide holder without notice : the note is payable to the Mississippi Union Bank, and is not indorsed : the defendant is of course, therefore, affected with all the equities of the complainant; and if neither his principal nor himself had the benefit of the note, by what reason, or upon what principle, shall the defendant, who has full notice of these facts, be permitted to coerce of the makers the amount of the note ? By what authority does he hold it ? Whence did he derive his title to it ? These are pertinent questions, which he must answer, before he can be permitted to recover upon the note.

In the case of Woodhull v. Holmes, 10 John. 231, the note was executed to be discounted in bank, but was put into circulation by fraud, and the Court says : “in such case, the holder is bound to show himself a bond fide possessor.” In the same volume, I find a case very similar to the one before me : that of Denniston v. T. L. Bacon, and another, 10 John. Rep. 198. In that case, an agreement was made between the maker and payee, that the note should be discounted in bank, on certain terms ; the bank refused to discount it, and it was passed off by the payee and negotiated, without notice of the particular agreement upon which the note was to be discounted ; and the Court held the maker of the note discharged from it. The assignee did not obtain the note in the due course of trade.

I find, also, the case of Adams Bank v. Jones, 16 Pick. 574, and the case of Valetie v. Parker, 6 Wend. Rep. 615, are both decided upon the distinction I have laid down, that the note must be discounted for the benefit of the person for whom it was made, where the party taking it has notice of the object of the creation of the note.

I might extend this review further ; but I apprehend no case can be found, at least, the researches of counsel and my own investigations, have furnished me with none, where a surety upon a note made for a particular purpose, has been held liable, where the note has been entirely diverted from the design for which it was originally made, and been, with the full knowledge of the party taking it, appropriated to a wholly different one. In such case, neither the principal nor surety would be bound.

If the defendant Winans is a bona fide holder of the note, it is a defence peculiarly in his power and knowledge to make ; and I have repeatedly held, that where, a party designs to protect himself under the defence of being a bond fide purchaser for a valuable consideration without notice, it is a defence which he must set up himself, and that it is not necessary for the other party to charge him with notice.

The demurrer in this case must be overruled, and leave given to answer in sixty days.