McDowell v. Bank of Wilmington & Brandywine

Johns, Jr., Chancellor. In this case the complainant relies upon three distinct grounds: on the first two he claims to be entitled to relief, and on the third to damages. The first is, that a creditor is bound, whenever a fund comes into his hands, to apply it in discharge of his debt; and in support of this the decision in 4 Vesey Jr. 824, is referred to. In that case the creditor had no right to call on the surety until the accounts were settled. It cannot be considered analogous to the case before the Court, as the bill does not allege the fund to have been in the hands of the creditor until after the judgment was obtained against the indorser. It is, therefore, not necessary for me to consider the general question which might be presented, if the drawer, at the time when the note fell due, had had a sum deposited in bank sufficient to pay the — 7 — debt, and the bank, being the creditor, had omitted to charge the note. The complainant has not relied on any matter anterior to the protest and judgment as entitling him to relief. The only inquiry then is, can he claim a discharge from his contract as surety, after the creditor has elected to pursuehis legal remedy against him, because the creditor subsequently to the judgment has had other transactions with the party in reference to whom he originally stood as an indorser. The proof in the cause does not clearly and satisfactorily show that Thomas McDowell, in his own individual right and subsequently to the judgment, had any funds in the bank deposited to his credit. The answer admits that he had a small balance of $29.94, and alleges that the same was drawn out before his account as Justice of the Peace was commenced. The only proof to the contrary is that of the maker of the note, connected with several checks and his bank books No. 2 and 3—No. 1, showing the commencement of the account, not having been exhibited. The defendants, in support of their answer, refer to the books of the corporation showing the commencement of the account, and that it was kept with Thomas McDowell as Justice of the Peace. This, then, presents a very different case from that which has been referred to in 4 Ves. Jr.; and to apply the principles of that decision, so as to compel a creditor to retain funds deposited by an officer or agent, would manifestly be a violation of the clearest legal, as well ,as equitable, principles. The funds which came to the hands of Thomas McDowell as a Justice of the Peace, whether they remained in his own possession or were deposited in bank, constituted no part of his individual property, and he could not rightfully have appropriated them in payment of his own debts. If he could not do so, then, clearly, it was not competent for any other person. The bank having recognized the deposit as not being on his individual account, could not, under any pretext, have withheld the same, or pre — 8 — vented the application thereof to the persons lawfully entitled. Should a contrary doctrine be sanctioned in a court of equity, much inconvenience, as well as injustice, would be the result, as it is a common practice for officers and trustees to keep separate accounts in bank. The answer in this case standing uncontradicted but by the oath of the maker of the note, I cannot permit the indorser, after trial and judgment, to avail himself of the testimony of the maker of the note, (who still remains liable) for the purpose of avoiding the payment of the debt. The second, ground relied on is the arrangement made relative to the credits derived from the respective protests. If the proof of the agreement, as stated in the bill, that the same was to continue until the note was paid and that the indorser was not to be resorted to had been made by a competent witness, the complainant would clearly be entitled to relief; but, as the answer has denied that any such agreement was made, it was incumbent on the surety to present to the court evidence, in support of the allegation, other than that of the principal. Upon the testimony I am not satisfied, and can only cousiderthe question here presented as depending on the effect of the arrangement as admitted by the answer. If I were to consider this part of the complainant’s case as presented in the argument of the complainant’s counsel, that an agreement made with the principal, without privity of the surety, discharges the surety, and the testimony of Thomas McDowell is to be received on this point, it is conclusive that the surety was privy to the arrangement; for he says, while it was pending,, and when it was concluded he informed the surety of the terms and conditions. Considering the arrangement as admitted in the answer, that it was to credit a portion of the fees for protests, does it discharge the surety? Does such an arrangement prejudice the rights of the surety ? Does it amount) to an agreement which can be considered — 9 — as giving time to the drawer ? It is settled that an agreement to give time, to have the effect of discharging an indorser, must be an agreement for which there is consideration, and which suspends the liability of the drawer. Thus, in Philpot vs. Bryant, 4 Bing. R. 721; 13 Eng. Com. Law 128, which was an action by the indorsee against the drawer of a bill, it appeared that shortly before the bill became due the acceptor died, and the bill being dishonored the plaintiff had several interviews with the person who acted for the executrix, in which he stated that the acceptor had left property more than sufficient to pay all his debts. It appeared also, that about twelve months after the bill became due the plaintiff wrote to the executrix requesting to be informed when he might expect payment, and the answer was that there was not then sufficient personal property to pay the bill, but that if he would let the matter stand over the executrix would engage to pay it out of her own private income; to which the plaintiff replied, that, provided the interest was regularly paid, he would give a reasonable time. The interest had since been regularly paid out of the private income of the executrix, according to the agreement. Upon this evidence it was objected, that as the plaintiff consented to give time to the executrix of the acceptor, the defendant, as drawer, was discharged. The objection was overruled, and a verdict was found for the plaintiff. The acceptor of a bill of exchange is considered as the principal debtor. The extended time of payment must be given by a contract that is binding on the holder of the bill. A contract without consideration is not binding on him. The delay in suing is, under such a contract, gratuitous. Notwithstanding such contract he may proceed against the acceptor when he pleases, or recover the amount of the bill from the drawer or indorsers. As the drawer and indorsers are not prevented from taking up the bill by such delay their liability is not discharged by it. To hold them discharged — 10 — under such circumstances would be to absolve them from their engagements without any reason for so doing. In the ease of the Arundel Bank vs. Globe, which is to be found in a note to Chitty on Bills, 296,* this point was decided. There, the acceptor of a bill applied to the holders for indulgence for some months; they, in reply, wrote to the acceptor, informing him that they would give him the time that he required, but that they should expect interest; and on a motion for a new trial the Court of King’s Bench held, that as no fresh security was taken from the acceptor the agreement of the plaintiffs to wait was without consideration and did not discharge the drawer. These cases are much stronger than the present. In this case there was no agreement for any particular time, and the arrangements made to pay out of the charge for protests gave no claim to the holder beyond what, the note gave him. The liability of the maker under the note still continued, and the engagement of the maker to pay out of the proceeds of protests amounted to no more than a performance, to that extent, of his original engagement. The holder continued entitled to his money, if he elected to proceed on the note;.and the indorser was not precluded from taking up the note and pursuing his remedy against the maker. I am, therefore, of opinion that on this second ground the complainant is not entitled to relief. The only question that remains for consideration is, whether the eomplainantis entitled to damages on.account of the refusal by the bank to allow the transfer of stock. The defendant.relies upon the articles of association, which are included in the act of incorporation, and by which ,. it is provided that a stockholder being indebted, while the debt remains due and unpaid, his stock shall not be transferable; a rule by which the stock of such member is made — 11 — subject to satisfy the debts he should owé to the company. In Montigue on Set Off, 31, it is said, that if there is an express by-law to subject the stock of each member to a satisfaction of the debt which he owes to the company, such bylaw is reasonable and the debt may be set off. The complainant being indebted, must, as a member of the company, be bound by the articles of association; and hence, I am of opinion he could not transfer his stock; and therefore, as the refusal on the part of the bank to permit the transfer violated no right, there can be no foundation for the claim of damages. Upon the consideration I have been able to give the case presented, I am of opinion the complainant has not made out a case entitling him to the interposition of this Court further to restrain the defendant. Injunction dissolved and bill dismissed. This decree was reversed by the Court of Errors and Appeals, at the June Term 1834. 1 Harrington’s Rep. 369. The appellate court differed from the Chancellor in its view of the proof, and not upon the legal principles involved in the case. Footnotes [*] In 11th Amer. Edn. of 1849, p. 413. The case here cited does not seem to have been reported ; but it is stated in the nóte in Chitty, and also in Philpot vs. Bryant, 4 Bing. 721: 13 E. C. L. 128.