Case ID: sc-eq_27/html/0289-01.html
Source: Caselaw Access Project
Author: {"author": "Wardlaw, Ch.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

S. R. M. Holbrook vs. B. P. Colburn and others.
    
    W. M. gave five bonds to J. S., and at the same time gave him a> certificate -that tho bonds were given for valuable consideration, and that he had no offsets or discounts against them. J. S. afterwards assigned two of the bonds to S. H-, in discharge of a precedent debt — the agent of S. H. in taking the assignment placing some reliance upon the'cortificate. The five bonds were then put in suit by J. S. in his own name, and judgment was recovered at Law. IT. M. then filed a bill in Equity against J. S. to be relieved from payment of the bonds on the ground of fraud, and after the death of W. M. a decree was rendered in favor of his executor, the bill having been revived. Pending the suits at Law and in Equity, no notice Was given to W. M. or his executor of the assignment, although S. H. was informed of those suits, and through his agent watched their progress: — Rdd^ that S. H. was estopped by the decree from afterwards pursuing the executor of W. M. for payment of the two assigned bonds.
    
      Before Wardlaw, Ch., at Charleston, June, 1853.
    Wardlaw, Ch. If the plaintiff were formally party or privy to the suit in this Court of Matthews vs. Colburn which resulted in a decree perpetually enjoining the judgment at law-in the case of Colburn vs. Matthews, he would be estopped from fresh clamor on the principle of res judicata ; and if having notice of the suit in this Court he forebore to interpose or give notice of any peculiar equity on his part, and acquiesced in the defence made by Colburn as his trustee or agent, although not formally party or privy, he may be in this Court within the scope of the same principle. In my view, the determination of these points is decisive of the case.
    In May, 1842, H. A. DeSaussurej Esq., as agent of the plaintiff, who was a resident of Boston, Mass., received from J. S. Colburn in satisfaction of a debt from Colburn to plaintiff guaranteed by B. P. Colburn & Co., two of five bonds executed by Wm. Matthews to Colburn, Nov. 20, 1841, each conditioned for the payment of $2,400 with interest from the date, payable annually. The moving consideration of these bonds was to compromise the debts of P. B. Colburn, son-in-law of obligor, to J. S. Colburn. On the day of executing these bonds, Mr. Matthews, by a separate instrument under his seal, acknowledged in general terms, and without mentioning any person or purpose, that the bonds were given for valuable consideration, and that he had no offsets or discounts against the same. At the time of the arrangement with plaintiff, all the five bonds were in the hands of Mr. DeSaussure as counsel of J. S. Colburn, assigned in blank by the obligee. Mr. D. then placed a private mark upon two of them, and wrote to plaintiff that he held these two subject to plaintiff’s order: and Mr. D. afterwards retained all five of the bonds in his possession until a short time before the commencement of this suit, when, by direction, he delivered the two belonging to plaintiff to plaintiff’s solicitor. On November 10, 1842, and December 21, 1842, plaintiff wrote to Mr. De-Saussure concerning interest and anticipated payment of his bonds; and on December 28, 1842, in reply, Mr. D. explicitly referred plaintiff for information to Mr. Colburn. No further communication was had between plaintiff and Mr. D. before plaintiff’s letter of May 15, 1845, to which Mr. D., on 20 of same month, replied, explicitly informing him, that “ the five bonds were put in suit against Mr. Matthews in the name of Mr. Colburn, to obviate multiplicity of suits for the same object; Mr. Matthews set up a defence against the payment of both principal and interest on the bonds, but his defence was not sustained, and a verdict on the five bonds was given for Mr. Colburn ; Mr. Matthews has appealed, and his appeal will be heard in January next.” On February 21, 1846, Mr. D. again wrote to plaintiff that the Court of Appeals in Law had ordered a new trial in Colburn vs. Mathews to be determined by the jury, probably in May Term ensuing ; and again on September 11, 1846, that a second verdict had been obtained against Mr, Matthews, from which he had taken an appeal, to be heard in January following; and again on February 20, 1847, that the Court of Appeals had decided against Mr. Matthews. “ Since that time, he has filed a bill in Chancery against Mr. James S. Colburn, and his son, Benjamin P. Colburn, charging fraud, &c., — and when that new litigation is to end, time alone can decide. You may be assured you shall be promptly informed of any result favorable to your interest.” And again on February 17, 1849, that the proceedings in the Equity suit had been revived in the name of the executor of Matthews, and that the pending appeal would be heard in the Court of Appeals in Equity, in the January following. The decree in Matthews vs. Colburn was pronounced, after a hearing, in June, 1848, and was affirmed on appeal at the sitting of the Court of Appeals in January, 185U. In a letter of plaintiff to Mr. Desaussure of September 5, 1846, he inquires, whether, allowing his two bonds to be included in the suit brought by Mr. Colburn might not be prejudicial to his peculiar claim or equity, as assignee upon assurance of the obligor that there were no offsets; and again in a letter of April 18, 1849, he says: “ It has always appeared to me, that my bonds occupy a distinct and different ground from the other bonds given at the same time by Matthews, in consequence of his giving the assurance, &c.” But until the date of the last letter, which was after the circuit decree in Matthews vs. Colburn, the plaintiff took no measures to separate his interests from the common fate of the five bonds.
    Our Act of 1789, (5 Stat. 330,) which authorises the assignee of a bond to bring debt or other legal action in his own name, does not restrict him to this course of pleading; and it has been repeatedly decided, that the assignment may be construed as a power of attorney to the assignee to use the name of the assignor as plaintiff in a suit upon the bond. When suit is brought in the name of the assignee, the Act reserves to the obligor all the defence to which he would have been entitled, if the action had been brought in the name of the obligee; and when suit is brought in the name of the obligee, the Court of Law will protect the rights of the assignee from any release or admission made by the assigning obligee after notice to the debtor of the assignment. There is, therefore, little advantage at Law, and there may be disadvantage on thé score of costs, in bringing suit upon an assigned bond in the- name of the assignee. It seems to me too clear for discussion, that upon the evidence, Mr. Holbrook was really plaintiff in the Court of Law to the extent of two of the bonds, and as much liable to estoppels as if he had been nominal plaintiff. Indeed the plaintiff, by his pleading here, insists upon his interest in the judgment at Law, at least he mentions the judgment, and does not repudiate his proportional interest.
    But the more difficult question remains, whether plaintiff is fairly concluded by the decree in this Court, in Matthews vs. Colburn. The plaintiff was advised by his agent, Mr. DeSaus-sure, from time to time, of the progress of that suit, and yet did not interpose. It is not proved to my satisfaction, that either Mr. Matthews or his executor, had notice of the assignment to plaintiff before Chancellor Dunkin’s decree enjoining the judgment at Law. Neither plaintiff nor Mr. DeSaussure demanded interest from Mr. Matthews or his executor, on the two bonds, or in any other form gave express notice to the debtor of the assignment. All five bonds in the suits in both Courts, appeared to be within the possession or control of J. S. Colburn and his counsel; and even Mr. Colburn’s counsel were not made aware of plaintiff’s interest. In his answer to the bill in this Court, J. S. Colburn claimed and treated all five bonds as his own ; and ip the suit at Law, the copies of the bonds filed with the declation contained no assignment — and upon the originals the assignments are still in blank. The only countervailing evidence as to notice to Matthews of any interest of plaintiff in the bonds, is a covenant from J. S. Colburn- to Matthews, bearing the same date with the bonds, November 20, 1841, that Colburn will not exact interest from Matthews on these two bonds while Colburn neglects to pay his debt to plaintiff. This paper was drawn by Mr. Jervey, of the firm of Memminger & Jervey, and the fee for drawing it was charged in the books to Mr. Matthews, yet paid by P. B. Colburn, and the instrument was executed in Mr. DeSaussure’s office. Messrs. Memminger & Jervey were the counsel tíf B. P. Colburn and not of Mr. Matthews in all the negotiations concerning the arrangement of B. P. Colburn’s indebtedness to J. S. Colburn, and Mr. DeSaus-sure was the counsel of J. S. Colburn. Mr. Matthews intervened only to give his bonds for the relief of his son-in-law, B. P. Colburn, in consummation of the arrangements made by J. S. Colburn and B. P. Colburn. It is not made to appear that Mr. Matthews, by himself or authorised agent ever had control or knowledge of this covenant. It is argued, that it is so probable as to produce conviction, that B. P. Colburn, who certainly knew of this covenant, must have given notice of it to his father-in-law — but the force of this probability, in no aspect amounting to proof of the fact, is much diminished by the consideration that Mr. Matthews does not appear at the time to have known the fact of J. S. Colburn’s secret partnership in the firm of B. P. Colburn & Co., which was the ground of enjoining the collection of the bonds. The covenant at this trial is produced by plaintiff, and it must have been obtained from J. S. Colburn. I conclude that before decree no notice was given to Mr. Matthews or his representative of plaintiff’s interest by assignment, or otherwise, in any of the bonds. In general, an assignee can take only such interest as his assignor may properly transfer, and is bound by all equities limiting the right of the assignor. Thus, a bond or other chose void by fraud or other annulling circumstances in equity, in the hands of the obligee, acquires no additional validity by transfer to a third person. But if the obligor, upon notice to him of an actual or intended transfer, conceals any equity in his behalf, or admits a greater liability than in fact he has incurred, his concealment or admission may conclude him, if acted upon by the assignee in taking an assign, ment. In England, notice to the debtor seems necessary to the completeness of the assignment; but in the United States, according to the weight of authority, it is not so sternly exacted. But in every administration of well regulated equity, where the assignee conceals his interest, and permits the assignor to remain in possession of the instrument of debt, and thus acquire delusive credit'to the prejudice of innocent parties, he loses the advantage of priority in favor of such deluded parties. Notice, however, is exacted for the protection of the debtor, and third persons dealing with him in transactions subsequent to the assignment, and not for the disturbance of fixed pre-existing liabilities or equities. For authority for these principles, instead of citing numerous cases, I refer to the full discussion in White & T. L. C. Am. Ed: pt. 2, vol. 2, 574 et seq., and to 3 C. E. C. C. 266, 277, 281. But a pre-existing equity in the debtor, discovered by him after assignment and before notice thereof, is not without the principle prior in tempore potior injure. If. knowing his equity, he consents to waive it in behalf of an assignee, he is bound by the waiver — but general and loose assurances of having no equitable defences, if made ignorantly and before notice of a particular assignment, and without reference to transfer generally, are not to be pressed against him. The assurance of Mr. Matthews in this case, made at the time of executing the bonds, that he had no offsets against them, amounts to little more than the implication from the bonds themselves ; but if acted upon by an innocent purchaser of the bonds within a reasonable time, who gave timely notice of his purchase, might serve to cut off existing equities of Mr. Matthews. A general assurance of this sort has not as much force as a particular assurance to an individual about to deal in the matter; but still, if intended to give market value and trans-missibility to the instruments of debt, must operate for a reasonable time against the person making the representation. Such an assurance, however, operates as an equitable estoppel for a reasonable time only, and it should not prevail in favor of a purchaser who permits the obligee for many years to hold himself out as owner without giving any notice of other title. In the present case, inasmuch as the plaintiff knew of the progress of the suit in Equity against one who had acted, and was acting as his agent and trustee, and refrained from setting up a separate claim until after decree in the suit, and after the time for presenting claims against Matthews’ estate, fixed and published in Lawton vs. Hunt, he must be regarded as substantially a privy of J. S. Colburn in Matthews vs. Colburn. He permitted the Court and the debtor to believe that one acting as owner of all the bonds, was in fact, as his trustee or otherwise, owner of the whole, and having had the advantage of one adjudication, in which he had opportunity to present his claims, he has no title to vex doubly the representatives of his supposed debtor. Nicholson vs. Hooper, 4 Myl. & Cr. 186; Hammond vs. Messenger, 9 Sim. 327. The plaintiff, as cestui que trust of J. S. Colburn, is bound by acquiescence in the trustee’s conduct of the defence in the suit in Equity.
    It is ordered and decreed that the bill be dismissed.
    The defendant appealed on the grounds :
    1. Because the complainant, by accepting the assignment of the two bonds of the testator, William Matthews, in satisfaction of his notes, and on the faith of the certificate and waiver, was relieved from all after discovered equities, and Mr. Matthews was thereby precluded from setting up any such equities, especially when it is considered that the guarantee of B. P. Colburn & Co. was thereby extinguished, and an advantage gained to Mr. Matthews,
    2. Because, whether the complainant is to be regarded as a party to the suit at Law on the bonds or not, in either case his rights cannot thereby be precluded, as the defence at Law was overruled, and the judgment affirmed.
    3. Because, it must be presumed from the relation of the parties, and the history of the transaction, and especially from the covenant given by J. S. Colburn to William Matthews, that the latter had notice of the assignment.
    4. Because the want of notice could only enure to protect Mr. Matthews in any subsequent dealing with J. S. Colburn, and could not operate to divest the rights of the complainant acquired in consequence of his having accepted the bonds on the faith of Mr. Matthews’ certificate.
    5. Because, the complainant cannot be affected by the decree in the cause of Matthews vs. Colburn, inasmuch as he was neither a party or privy to the same; nor was the special case between himself and the complainant in that cause there considered or determined.
    
      6. Because, even if it had been proper for the complainant to give notice to Mr. Matthews, or to bring his rights specially before the Court in the last mentioned cause; yet, any apparent laches in this respect, is abundantly explained by his misapprehension as to the relation between himself and the professional gentleman, who, he fairly thought, was acting as his counsel, and should not operate to divest his rights, or defeat his claim in the present proceedings.
    
      Dukes, for appellant.
    McCrady, contra.
   The opinion of the Court was delivered by

Wardlaw, Ch.

We concur in the reasoning of the Chancellor on the topics he has discussed, and in his conclusion. ■Usually where a decree can be safely rested upon particular grounds, it is advisable to avoid debate of other questions which may be more disputable; and ■ such was the approved course pursued in this circuit decree. It has been strongly urged in the argument in this Court, that the plaintiff, who is resident in a foreign jurisdiction, forbore to intervene as a party in Matthews vs. Colburn, and to present a defence on his part distinct from that of the nominal defendant, from his mistake that his agent here was acting as his counsel; and that considerations affecting the character of counsel and the administration of jus - tice in the State, invoke full and indulgent review of the plaintiff’s claim. We yield to this appeal so far as to add something in corroboration'of the decree, without meaning to disparage the sufficiency of the Chancellor’s views. Certainly Mr. DeSaussure, on being examined as a witness in this case, disclaimed having been plaintiff’s counsel in the previous proceedings; and it may be conceded argumentatively, (although we conclude nothing judicially on this point,) that the correspondence between him and the plaintiff may have misled the plaintiff into the belief that Mr, D. was acting as his counsel.' ■

Did this mistake, if it existed,, affect injuriously any peculiar claim or equity of the plaintiff which might have been pleaded in the suit in this Court of Matthews vs. Colburn ? Before argument on this question, it is fit to re-state some of the facts.

November 20, 1841, William Matthews executed five bonds to James S. Colburn, each conditioned for the payment of $2,400, and interest from the date annually, respectively on November 20, of the years from 1842 to 1846, inclusive. On the same day, by a separate instrument under seal, after briefly describing the bonds, he made this statement: “ I do hereby acknowledge that the aforesaid five bonds or obligations are given by me to James S. Colburn for valuable consideration, and that I have no offsets or discounts against the same.” April 25, 1842, plaintiff wrote a letter to Mr. DeSaussure, enclosing two promissory notes made by J. S. Colburn to himself, dated October 1, 1836, each for $2,500, with interest from date, at the rate of six per cent, per annum\ payable quarterly, one due October 1, 1842, and the other October 1, 1844; stating that it had been agreed between Mr. Colburn and himself to exchange these notes for the two of said bonds of Mr. Matthews, payable in 1845 and 1846, with annual interest of seven per cent., waiving the difference of principal and interest, if Mr. D.’s opinion should concur with Mr. Colburn’s, that Mr. Matthews’ responsibility was unquestionable ; further stating, that it was through Mr. Colburn’s suggestion that the writer had solicited Mr. DeSaussure’s aid in accomplishing the exchange ; and authorising Mr. D. to complete the arrangement and hold the bonds subject to plaintiff’s order. In his reply, under date of May 10, 1842, Mr. D. expressed a confident opinion of the pecuniary responsibility of Mr. Matthews; informed plaintiff that the exchange of securities had been consummated; and added : “ Mr. Matthews has given a written certificate that the said'bonds are bona fide due, and that he has no offsets thereto.” It is probable that Mr. D. gave this version of the certificate from memory, without having the paper before him; for he does not pursue the precise terms, nor perhaps the legal effect of the certificate. He testifies in this cause, that he surrendered the notes and accepted the bonds on the faith of this certificate ; and of course the fact is unquestionable. Yet it is also true, that before the exchange, he held as the counsel of J. S. Colburn, all the five bonds assigned in blank by the obligee; and that at the time of the exchange, he did no more concerning the bonds than to endorse the letter H, on the two payable in 1845 and 1846, as a mark that they were to be held subject to plaintiff’s order. He retained the five bonds in his possession until the suit in Equity of Matthews vs. Colburn was decided on circuit; producing them as they were needed for evidence in the course of litigation in both Courts, and re-taking them when they had been used for this purpose.

It thus appears, that plaintiff originally agreed with Mr. Col-burn, without reference to the certificate now treated as so potent, to accept in discharge of the debt of the latter to him an assignment of two of the bonds specified by date; if his agent, appointed on suggestion of his debtor, should be satisfied of the responsibility of the obligor. By the use of this term responsibility in his letter, I suppose from the context the plaintiff intended the sufficiency of the obligor’s estate for his debts, and perhaps his punctuality in discharging them; and this is manifestly the construction adopted by his correspondent. At most, the phrase cannot be extended in meaning beyond the legal liability of the obligor on the bonds. So much of the certificate of the obligor as acknowledges that the bonds are given to the obligee on a valuable consideration, simply expresses what is the implication from the seals, and does not increase the force or validity of the obligations. That portion of the certificate which acknowledges that the obligor has no offsets or discounts against the bonds, might preclude him, under certain circumstances, from availing himself of a pre-existing credit or counter claim, but adds nothing to his obligation on the specialties themselves. Offsets and discounts are legal terms of familiar and identical import, and applicable to the bonds as legal instruments. If these terms had been incorporated in the bonds themselves, they would have been equivalent to a phrase often introduced into bonds “ without defalcation,” and they cannot have a more extensive interpretation when employed in a separate instrument. The certificate can mean no more in favor of an assignee than of the obligee to whom it was delivered. This Court would relieve against a purpose to cheat by the employment of equivocal or legal terms, as against any other intentional fraud; but no such fraudulent purpose is imputed here. It is 7'es judicata between the obligor and obligee, that the certificate does not exclude the obligor from defeating the collection of the bonds on the ground of mistake as to the liability of his son-in-law to the obligee, (to compromise which liability was the consideration of the bonds,) — a mistake arising from his ignorance of the secret partnership of the obligee in the firm of P. B. Colburn & Co. And we perceive no sound principle which entitles the plaintiff to different construction of the instrument or different measure of redress. The certificate was cotemporaneous with the bonds — it was faithful according to the state of Mr. Matthew’s knowledge at the time — it was delivered to the obligee and for his use, without expressing any special purpose — it was not founded on any consideration additional to that of the bonds, proceeding from the obligee, the subsequent assignee or other person — it was not the original inducement to the plaintiff’s agreement to accept assignment of the bonds, although influencing his agent in completing the agreement. Moreover the assignment was not purchased by money advanced, but was accepted in discharge of a precedent debt of the obligee; no notice of the assignment was given to the obli-gor, and the assignee, informed of the progress of litigation in both Courts for seven years, suffered the obligee to be dealt with as real as well as ostensible proprietor. Under these circumstances, we regard the assignee as standing in no better position than the obligee; and that if his case, so far as it is distinct from that of the nominal defendant there, had been formally presented in Matthews vs. Colburn, no different result in his behalf would have been attained.

The honest assignee of a bond is liable to be defeated of satisfaction by proof of fraud, mistake, or want of consideration affecting the obligation. If, however, the obligor, from fraud, negligence or folly, represent himself to be liable on the bond to one about to deal for assignment, (and perhaps the consequence may be the same as to any substituted purchaser who acts on the faith of the representation); or even if the obligor, with full knowledge of his defence, acquiesces in an assignment without disclosure of his defence; such representation or concealment will amount to an estoppel in pais upon the obligor from setting up his defence. It is indispensable to such estoppel, that the obligor should induce, promote or encourage the assignment, and that the assignment should be accepted in consequence of his representation or concealment. The general rule is that the assignee occupies no better position than the obligee; and the exception proceeds on the principle that the conduct of the obligor creates a new and independent contract between him and the assignee.

This (and no more) is-the doctrine of the cases cited by the appellant. McMillan vs. Warner, 16 Serg. & R. 21; Carnes vs. Field, 2 Yeates, 543 ; Ludwick vs. Croll, Ib. 465; Davis vs. Barr, 9 Serg. & R. 141 ; Davison vs. Franklin, 1 Barn. &. Ad. 142; Petrie vs. Feteer, 21 Wend. 172; 1 Penna. 478; 1 Washb. 296, 389. No case, however, has been cited, and I suppose none exists, deciding that where there is no fraudulent design, a vague assurance of a bond by the obligor at the time of execution, made to the obligee and for his use, without manifest purpose of promoting assignment, creates a new contract between the obligor and the assignee.. Such is the present instance. The agent of the plaintiff took the assignment with some reliance on the certificate; but he. was not -instructed to look to such certificate, and he had no communication with the obligor at the time or afterwards concerning the assignment. We are not satisfied that plaintiff has any equity to disturb the decree in Matthews vs. Colburn.

The Chancellor concluded upon the evidence that Mr. Matthews was ignorant of the covenant of J. S. Colburn to William Matthews; and upon review of the proof, we approve his conclusion. This instrument is important only in the question of notice of the assignment. Conceding the covenant was delivered to Mr. Matthews, it furnishes no intrinsic evidence of notice to him of an assignment which was made nearly six months after-wards, and which is not intimated therein as projected. To the concession that Mr. M. accepted this covenant, must be added the assumption that he surrendered it to the covenantor when the bonds were assigned to plaintiff, before the covenant has any significance in the cause. But this assumption is not supported by any express proof, is contrary to the answer of B. P. Colburn and to the probabilities of the case, and is hardly consistent with the testimony of Mr. Memminger and Mr. De-Saussure. It would be easy to conjecture motives in B. P. Col-burn for desiring the execution of this covenant, and for not communicating it to the nominal covenantee ; and it must be borne in mind, that all the arrangements of compromise between J. S. Colburn and B. P. Colburn were conducted by their counsel, and that Mr. Matthews, having no counsel, intervened only to give his bonds for the balance adjusted against his son-in-law. It is remarkable that the bonds, the certificate, the covenant, all bearing the same date, and the undated but probably cotemporaneous assignment in blank, are severally attested by different witnesses.

The bill in this case contained no prayer for relief against J. S. Colburn, who was made a party, and it was not intended in the circuit decree, nor is it now intended, to conclude the plaintiff, except on his case against the estate of Matthews.

It is ordered and decreed, 'that the circuit decree be affirmed, and the appeal be dismissed.

JohNstoN and Dunkin, CO., concurred.

DargaN, Ch., absent at the hearing.

Appeal dismissed.