#### *Joseph H. Dogan and others, Executors of Wm. Rice, vs. A. W. Dubois and others. Hill*& *Scaife vs. the Executors of Wm. Rice.*

The accommodation indorser of a note to be discounted in Bank, may, before the note is discounted, recede from his agreement, and direct the bank not to receive the note; nor will such indorser be liable to a third person who afterwards takes the note with notice that he had receded from his agreement.

Where such an indorser took a mortgage as an indemnity and afterwards receded from his agreement, *held*that, never having been liable on the note, neither himself nor his assignee could enforce the mortgage.

*Before*JohNstoN, Ch., *at Union,*

*June,*1844.

*The Chancellor.*These cases have been taken tip together. The contest is in relation to *the*rights of the plaintiffs in these suits respectively, to be satisfied for certain claims held by them,out of some lots or parcels of land, belonging to A. W. Dubois, one of the defendants in the first case. The plaintiffs in the first case claim relief under a mortgage of the premises, executed by Dubois, which has been assigned to them, and which they seek to foreclose. The plaintiffs in the second case, claim on two grounds — First, that they are part owners of the said premises, by virtue of their having purchased it jointly with Dubois, and paid part of the purchase money, although the title was made to Dubois alone. Second, that they are creditors of Dubois, (who has absconded from the State) and have levied an attachment on the premises, and obtained a judgment against Dubois, which remains unsatisfied. And, in this connexion, they ask that the incumbrance of the mortgage held by the plaintiffs in the other case, may be removed out of the way, for reasons stated in their bill. The facts necessary to the understanding this controversy, may briefly be stated thus :

A. W. Dubois, who had been engaged in trade at Union for some time, and who was becoming embarrassed in his circumstances, proceeded to Columbia sometime in February, 1839, intending to procure money from the branch of the Bank of the State of South Carolina, at that place. He applied to the late Wm. Rice, then in the town, for assistance, and exhibited to him a promissory note, bearing date the 8th of Feb., 1839, drawn by *86himself, to John Gist, or order, and payable at the said Branch Bank, at sixty days, for $2,000. It purported to have been endorsed by the said Gist, but the endorsement was in fact forged by .Dubois. Rice, for the accommodation of Dubois, who affected to be, and perhaps was, in a great hurry to leave town, advanced him the money for the note; the note was then offered by Rice, who was ignorant of the forgery, and was discounted by the Bank, and he received the amount which he had, in anticipation, advanced to Dubois.

Dubois returned to Union, and stated to one John F. Glenn, that he had failed to get the money from the Bank in the first instance, but had received it through Mr. Rice, and induced Glenn to endorse another note, to be discounted in Bank as a renewal of the one already discounted there. Accordingly, a note was drawn by Dubois, payable to the order of Glenn, at the said Bank, at 60 days, for $2,000, which was endorsed by Glenn, as first, and the late Gen. Shelton, as second endorser: it was made to bear date the 4th of April, 1839, so as to conform it as near as might be to the maturity of the former note.

To secure the said Glenn against his endorsement, Dubois executed the mortgage of which I have spoken, being a mortgage of that parcel of land, lying in the village of Union, on the South side of Union street, being known and designated in the plan of Union village, by numbers 49, 63, 77; together with the grounds in rear of said lots, to the old *race paths,*bounded on the North by Union street, South and East by John Joiner, and West by Bachelor street.

This mortgage bears date (for every part of the proceedings abounds in irregularities,) the 6th of Feb., 1839, two days before the date of the first note, and nearly two months before the date of the note which it was intended to secure. It was recorded the 11th of Feb., 1839.

Having thus possessed himself of a renewal note, Dubois inclosed it to Rice, in Columbia. After a very few days, Glenn became alarmed at his situation as endorser. Dubois absconded. The plaintiffs in the 2d bill, (Hill and Scaife) and perhaps others of his creditors, took out attachments. The attachment of Hill and Scaife, among other things, was levied upon the mortgaged premises and other personalties. On the 11th of Feb., 1839, the day on which he recorded his mortgage, Glenn addressed a written communication to Mr. McCord, the president of the Branch Bank, forbidding him to discount the note endorsed by himself and Gen. Shelton, or any other note drawn by Dubois, upon *87which his (Glenn’s) name might be endorsed. This communication was despatched by a special agent, and served on the Bank the next day. Receiving assurances that the note was not in Bank, and being informed that it was in the hands of Mr. Rice, Glenn, on the 16th of the same month, enclosed to Mr. Caldwell, a friend, in Columbia, the following communication to Mr. Rice.

UnioN Court House, Feb. 16, 1839.

Wm. Rice, *Esq..*— Dear *Sir:*— I hereby request you to hand over to Mr. .Caldwell, a note signed by A. W. Dubois, and endorsed by myself and Jos. S. Shelton, payable at the Branch Bank at Columbia, for $2,000, which was enclosed to you in a letter by A. W. Dubois. I further notify and request you, if yon do not deliver the note agreeable to the above demand, not to part with the *possession*of the note, nor to deliver it or transfer it to any other person, except by my order, as I do not intend to pay the said note, unless compelled by law. Mr. Caldwell is authorized by me to receive the note, and if you desire, to give you a receipt for it in my name. When the note was signed, it was only intended for the Bank; and I did, before it was accepted there, give notice to the officers of the Bank, not to accept it, and they complied with my request; and I consider myself as having been at no time liable on said note, the same having been never received in Bank. JNO. F. GLENN.

This communication was handed to Mr. Rice by Mr. Caldwell, the 18th of the same month. He refused to give up the note, saying, that it had been left with him to be presented to the Branch Bank for discount, and he should act with it as Dubois had directed. But that he was not an endorser, and that he had no interest in the note or lien on Dubois’ property. It does not appear whether the forgery of Gist’s endorsement on the note already discounted in Bank, and on which Rice had received the money, had been then discovered, or that Rice had any reason to suspect there was any liability on his part on that account. Shortly after the note fell due, the Bank brought suits simultaneously against Gist, the endorser, and against Rice, who had discounted the forged paper, unconscious of the forgery, and drawn the money on it. The former suit failed on account of the forgery ; the latter was abated by the death of Rice, which took place the 13th of March, 1842. His executors were then sued, pending which suit, the verdict was found exonorating Gist as endorser. Whereupon the executors, on the 8th of May, 1843, settled with the Bank, by giving their bond fojr the amount claimed, with in*88terest. Pending the said suit of the Bank against Rice, he signed a paper, to be used as evidence in that case, in which he admitted that he had presented the note endorsed by Gist, to the Bank for discount. That at the time he so presented it, it was, in fact, his (Rice’s') property, he having previously advanced to Dubois the money for the same; that he received the money paid and loaned by said Bank on said note, the same day, being $1979, after discounting usual charges, and that the money which he received from the Bank, he appropriated to his own individual use.

In a return made by Mr. Rice, as garnishee in the attachment of *Hill*and *Scaife*vs. Dubois, which return bears date the 23d of March, 1839, he holds the following language:

“ That on or about the 4th of February last, A. W. Dubois deposited in his hands a note (describing the note endorsed by Gist,) v£hich note he deposited in said Bank, on or'about the 8th of February last, and drew the amount thereof, deducting the discount, and applied the proceeds to the payment of a debt the Said A. W. Dubois owed this deponent, by his directions: that on or about the 11th or 12th of February last, this deponent received a letter from said Dubois, .enclosing; a note, (describing the note endorsed by Glenn and Shelton,) and $20 in money, to pay the discount on said note, with directions to put the same in said Branch Bank, to pay the note first above mentioned, endorsed by the said John Gist, for 2,000, as aforesaid.” He further states, that he promised the said A. W. Dubois, that if it should become necessary, in order to get the first mentioned note-(endorsed by the said John Gist,) discounted in said Branch Bank, he would endorse the same; and that he had no doubt the said Dubois believed he would have to endorse the same, to get it discounted ; “ but which this deponent never did, nor was required to do. Which last mentioned note, this deponent intends-to dispose of as the said A. W. Dubois directed him, for his own security and protection, and to claim said last mentioned note, (if it should become necessary for his protection,) if he should in any manner be held liable for the amount of the first mentioned note to the Branch Bank at Columbia.”

The attaching creditors of Dubois proceeded in their suits. The Sheriff sold the personalties attached, for about the sum of $600. The lots in question were, by him, at the request of Scaife, rented to the defendant, Fallen, for the benefit of the said creditors, and he is now in possession, in virtue of that tenancy. On the 23d of March, 1842, Hill and Scaife obtained judgment on their attachment, *for*
      *89$2S84 25, with interest on $2325.51, besides costs. Rice, under an apprehension that he might be made liable to the Bank, on account of his agency in discounting the note purporting to be endorsed by Gist, brought suit against Glenn on the note signed by him; the writ was returned to the Spring term, 1840. Declaration was filed, and defences entered, when the suit abated by the death of Rice, in the Spring of 1842. His executors renewed the suit, by writ returnable to fall term, 1842. The suit was defended. While it was pending a compromise was proposed and effected. Glenn (who was examined at the hearing) rather thinks he proposed the compromise, and that Dogan, one of the executors, to whom the proposition was made, did not accede to it at first, but took time to deliberate. The compromise was to the effect that Glenn confessed a judgment upon the suit brought by the executors against him, which judgment was entered up the 24th of February, 1844. The executors were to give, and did give, a receipt to him in full, satisfying the judgment. He, on his part, was to execute an assignment to them of the mortgage and mortgage debt he held on Dubois’ lots, which he did by assignment, without recourse on him, bearing date 12th of Feb., 1844. 1 believe I have stated all the material facts of the case, except that at the hearing Hill and Scaife proved, by the adduction of Dubois’ sealed receipt to them of the 7th of Feb., 1838, that they on that day delivered to him $330 ; “it being in part payment of their half of the house and lot whereon I (the said Dubois,) now live.”

I should think that a trust resulted to the parties advancing this money, as to so much of the mortgaged premises as falls within the description given by the receipt. As this is not ascertained by any thing before me, it may be proper to put the whole case upon other points made here:

There are two points made.

1. Was Glenn liable to the executors of Rice on his endorsement of Dubois’ note 7

2. Are the executors entitled to any advantage under his assignment of the mortgage *1*

There is no doubt that the parties, whether drawer or endorser, to a negotiable note, once put in circulation, are liable upon it to any person who receives it in the usual course of trade, without notice of fraud or any other-circumstance which should (in conscience) restrict their liability. But the material questions here are, whether the note endorsed by Glenn, ever was put in circulation, or had a legal inception, and whether Mr. Rice re*90ceived it in the usual course of trade, and without the notice spoken of. Glenn was a mere accommodation endorser of a note intended to be used in a particular manner, and discounted at a particular place, and the transaction was arrested by a notice extended by Glenn to the Bank, while the note was still *in transi-*tu., and in the hands of the agent of the party to be accommodated.

It will not be pretended, that at the time the note was endorsed and delivered back by Glenn to Dubois, he was indebted, by virtue of his formal endorsement, nor was it intended he should be so considered until the note should be'presented and discounted, according to the stipulations under which it was endorsed ; in other words, until, under the authority conferred by Glenn upon Dubois, it should be delivered to the Bank as evidence of a subsisting debt to that institution. According to the case of *Marvin*vs. *McCullum,*(20 Johns. R. 288,) the note had no legal inception until that should be done, and Dubois had no authority to do any thing else with it. I suppose it will not be doubted, that if the note had been presented to the Bank and discounted, after notice from Glenn, that there was no consideration but mere accommodation on his part for his endorsement, the Bank, acting under such notification, could not have made him their1 debtor. It was very material, therefore, to Glenn, that the note should not be diverted from its destined course, which entitled him to this privilege; and it was an essential wrong to him to change its destination, and put it into general circulation, or give it any other direction than that intended. Then it would be extraordinary, if Dubois could render the endorser, to whom he himself was personally liable, responsible, by mere delivery to his own agent; the delivery being for the purpose of having the note discounted, and no discount having been in fact effected. When I speak of the transaction, as between Dubois and Rice in this light, I do it in reference to the only authority Dubois had from Glenn. It may be, that Dubois may have actually transferred the note to Rice, as a security for the money Rice had already advanced to him: though the evidence does not show that this was the case. But if he did, he transgressed the authority conferred on him. But suppose it be true, that Rice received the note as an indemnity for the sum which Dubois owed him, was that in the usual course of trader in a sense to make Glenn liable to him ? “ Now,” says Ch. J. Spencer, in *Coddington*vs. *Bayi*(20 Johns. R. 637) “ I understand by the usual course of trade, not that the holder shall receive the bills or notes thus obtained, *91as securities for antecedent debts, but that he shall take them in his business, and as payment for a debt contracted at the time.” The evidence shows that Mr. Rice, when he received this note, had notice of the purpose for which it was created and endorsed. Indeed, that was almost evident on its face. Nothing is better established, than that having received it, upon whatever consideration, with this notice, he must hold it subject to the equities between the parties, as between whom there was no liability of Glenn to Dubois, but the other way ; and as between whom there was to be no note and no debt against Glenn, except to the Bank, in the regular course of Banking business. At the time Rice received this note, there was in fact no debt due from Dubois to him, that having been paid by the discounting of the other note. At all events, there was no debt *known*to him at that time ; which is conclusive that he could not have taken this note as means of payment, *but*merely as agent, to effect the purpose for which it was created, and of course with notice of these purposes. This is decisive of the question as to Glenn’s liability. But recurring to the supposition that he received it as security for a precedent debt, (the utmost that can be contended for,) the case of *War-dell vs.*Howell, (9 Wendell, 170,) is a conclusive adjudication, that Glenn was never liable to him.

So far, I have no doubt. But it is said that the liability of Glenn is concluded by the judgment confessed by him. I acknowledge that the conclusion which I have come to, is not entirely satisfactory to me ; but it is this, that Glenn never was liable, nor was he intended by that transaction to be made liable ; that the judgment was given merely to be satisfied; and was taken with the view of sustaining the assignment of the mortgage ; and to impart a color of right, on the part of Glenn, to enforce the mortgage. He never was liable; never would have consented, nor did he in truth consent, to be made liable ; neither was he, in fact, ever subjected to liability. His defence, and the grounds of it, were known to those with whom he transacted this business. It was a specious transaction, and under the circumstances, and with the notice they had, the assignees took no higher right to enforce the mortgage than Glenn had, which was no right a$all.

It is ordered, that the lots be sold towards satisfaction of the attachment debt of Hill and Scaife. That Fallen account for the rents due by him as tenant, according to the terms of his tenancy ; that an account be taken of the sums raised under the attachment applicable to said attachment, with the portion of rents applicable to the same, and of the proceeds of the sale hereby directed, shewing *92what balance may remain due on said attachment, and what excess of funds arising from the aforesaid sources, may remain after the said attachment is satisfied. If any such excess remains, the executors of Rice be at liberty to amend their bill, and apply for it. In the mean time, it is ordered that their bill for foreclosure, under the mortgage, be stayed.

The executors of Rice appealed, on the grounds :

1. Because his Honor, the presiding Chancellor, has decreed that the assignees of the mortgage should be enjoined from foreclosing the same, upon the land described therein, and that the confession of judgment, by John F. Glenn, did not ma|| him liable to the said assignees, in such manner as to subject the mortgage premises to a foreclosure under it, notwithstanding they had obtained a judgment against A. W. Dubois, the principal, on the same note.

*2.*Because the decree is contrary to law and equity, and the evidence.

*Herndon,*for the motion.

*Hawkins,*contra.

*Curia,*per JohNstoN, Ch.

The whole case turns upon the liability of Glenn, as endorser, either independently of the judgment confessed by him, or under that judgment: because, if he was not liable, in one or the other of these ways, he had no right to enforce the mortgage which he had taken for his indemnity; and, of course, could confer no such right by assigning the mortgage. The appeal, therefore, involves but two questions.

1. Was Glenn liable to Rice upon the note endorsed by him for Dubois 1

*2.*Was he made liable by the judgment ?

The argument of the appellant’s counsel was one of uncommon ability, and, for a time, shook the opinion I formerly entertained ; but mature reflection has satisfied me that the decree is right upon both points.

The evidence is, that the note was endorsed by Glenn for the purpose of being used as a renewal of the one already in bank. It cannot be doubted, that if the bank had received it, after the notice given them by Glenn, they could not have held him liable as endorser. His accommodation endorsement was a voluntary contract, from which he was at liberty, as between himself and Dubois, to recede at any moment he pleased ; and the note could not be transferred so as to make him liable to third persons, unless they received it in the due course of trade and without notice.

*93It was transmitted by Dubois to Rice, as his agent, to be discounted in bank as a renewal of the former note. As I have said, if it had reached its intended destination, after the notice imparted to the bank by Glenn, he would not have been liable to the bank. But the right is now asserted on the part of the agent of Dubois, to intercept it, and carve out of it an indemnity for a liability previously incurred by Dubois to the agent; which, however, was not known at the time the note came to the agent’s hands.. The answer to this claim is that, at the time the note came to the hands of Rice, the agent, it had no legal inception ; that he received it out of the due course oí business and with notice ; and that, in fact, the property/in the nóte was never transferred, nor intended to be transferred,.to him.

The principle, though not the precise question, is well examined in the case of *Coddington vs.*Bay, 20 Johns. R. 645, referred to in the circuit decree. Most of the cases relating to the right which a holder acquires in negotiable paper, are collected and commented on by Mr. Justice Woodworth. After stating the general rule, that, where such paper is transferred for a valuable consideration, and without notice of any fraud, such transfer is good, he says, “ the reason of the .rule would seem to be, that the innocent holder, having incurred loss by giving credit to the paper, and having paid a iair. equivalent, is entitled to protection. But,” continues he, “ what superior equity has the holder, who made no advances, nor incurred any responsibility, on the credit of the paper he received 7 — whose, situation will be improved, if he is allowed to retain; but, if not, is in the condition he was before the paper was passed.” *“*Although,” says he, “ the rule is laid down, generally, that the holder will be protected— where the bill or note is taken in the usual course of trade, for a fair and valuable consideration, and without notice; — in every case I have met with, where” he prevailed, “it appeared that the holder gave credit to the paper, received it in the way of business, and gave money or property in exchange.”

It is impossible, from the evidence in this case, to say'that Rice incurred the liability, which he did inctir for Dubois, with refer-rence to or on the faith of this note. He incurred it upon the faith of the preceding note: nor. does it appear that there was any stipulation on his part that that note should be renewed. It is unnecessary to repeat what is said in the decree, that he paid nothing for this note, and that he received it as a mere agent and with full notice of the purpose for which it was created.

A case has been referred to in support of this appeal, which, *94it appears to me, has been misconceived. It is the case of *Powell vs. Waters,*17 Johns. R. 176. It is to the effect that where A. made a note payable to B., or order, which was endorsed by B., for the purpose of being discounted at a bank for the accommodation of A., who, on being refused at the bank, negotiated it to a third person, with a knowledge of the circnmstances, — this does not amount to a fraud, which can affect the rights of the holder against the maker or endorser. But that case differs from this in several particulars. The diverting the note from its destination in bank worked no actual injury to the endorser, nor does he appear to have attempted to intercept its negotiation. The note was actually transferred to the third person, instead of being delivered to him as agent, as in this case. And he paid the money for it, (although he received it with notice,) which is not the case here. The case referred to, therefore, if it were of less doubtful authority than it is, could not govern this case.

I am, also, now perfectly satisfied upon the other point in the case. If the judgment had gone against Glenn by default; or even if he had confessed the judgment without more, I concede this would have been evidence of such liability on his part as would have entitled him to enforce the mortgage. But the testimony was, that “ he confessed the judgment on the note, on condition that he was to assign over the mortgage and be acquitted.” The judgment was clearly colourable. As the stipulation- was, that it should be discharged and go for nothing, why was not the mortgage assigned without it ? The manifest intent was to create the appearances of a liability, in order to support the assignment, when no real liability was contemplated by either party to the transaction.

It is ordered, that the decree be affirmed, and the appeal *dismissed .*

Harper and Dunkin, CO., concurred.

Johnson, Ch., being related to some of the parties, gave no opinion.