Case Name: Nashville Bank vs. Grundy & Hays
Court: Tennessee Supreme Court
Jurisdiction: Tennessee
Decision Date: 1838-12-18
Citations: 1 Meigs 256
Docket Number: 
Parties: Nashville Bank vs. Grundy & Hays.
Judges: 
Reporter: Tennessee Reports
Volume: 19
Pages: 256–261

Head Matter:
Nashville Bank vs. Grundy & Hays.
Chancery. Trust by implication or operation of Jaw, The fiduciary character cannot be superinduced upon property by implication or operation of law, unless the intent of the parties to invest it with that quality be deducible from the nature of the transaction.
SAME. Same — stipulation to take the shoes of an endorser, force of it. Hence if two persons be liable as accommodation endorsers for a bank debtor, on several notes, and one of them stipulate “to take the shoes of the other as regards the endorsements,” for a specific consideration which is paid him, and the bank be defeated of its remedy against the indorsers on one of the notes, whereby there arises a surplus of the fund placed in|jthe hands of the indem-nifier; the bank has no equitable right, title, or interest in the surplus; and it does not stand charged with a trust in the inderanifier’s hands: because the force of a covenant tor take the shoes of another, for a certain sum, is not to pay the sum in discharge of the liability, but to be liable instead'bf the party whose place is assumed, should he be made liable. The rule is the same if a stranger, and not a co-endorser assume the responsibility.
Same. Jurisdiction. If an accommodation endorser take an indemnity from his principal, the creditor cannot reach the property which constitutes the indemnity, till there shall be had a judgment at law against the endorser, and an execution returned nulla bona.
Edward Lanier having had a running accommodation in the Nashville Bank and Farmers’ and Mechanics Bank of Nashville, and given his bills single, or notes endorsed by Felix Grundy and Oliver B. Hays, or one of them, to secure said loans; and having also giveti other notes or bills single, endorsed by them or one of them, payable in some one of the Banks of Nashville; and wishing to continue their endorsements, in order to secure them for past as well as future endorsements, on the 3d of September, 1819, executed to them a deed for 276 acres of land in Davidson, ninety shares of Nashville Bank stock, and one hundred shares of Farmers’ and Mechanics’ Bank stock, in trust, that if he permitted any note or bill single on which Grundy and Hays, or either .of them was endorser, to lie over, and be unpaid by him in whole or part, and Grundy and Hays, or either of them should be compelled to take up any of the notes or bills endorsed for him by them; or they should be put to any trouble or costs, or be made to pay any damages by reason of their endorsements, they were authorised to sell the land and transfer the stock, or so much of them as might be necessary for their indemnity.
On the. 18th of April, 1832, with a view of adjusting some misunderstandings between them, relative to this trust deed, Grundy and Hays entered into an agreement in writing, under seal, in which Hays agrees “to take the shoes of Grundy as regards his endorsement of certain notes payable to the Nashville Bank, one for about 4800 dollars, on which Andrew Hays and said O. B. Hays were also endorsers; of one for about 625 dollars, on which Grundy and Thomas Hamilton were endorsers; also of a note of E. Lanier of 1000 dollars, on which Grundy and Edward Ward were endorsers, and on which Grundy had been sued by Ward, and of a note of Lanier to John Boyd for ninety dollars, on which Grundy was endorser.” In consideration of which, Grundy undertakes to pay certain judgments for which he and Hays were liable, to relinquish to Hays all his interest in the deed of trust, and on request of Hays, at his office in Nashville, to endorse to him good negotiable notes on men in Sumner county, then on interest, to the amount of $4000. But it was understood and agreed that Hays was to have the privilege of making all and every defence, to any or all of said notes, or the endorsements thereof, which Grundy might or could make: and Hays was authorised to use Grundy’s name therein, or in any appeal, or suit in equity which he might think proper to make or prosecute; and Grundy was not, by any thing to be said or done by him, in the least to hinder or impair the same. And Hays agreed to indemnify and save Grundy harmless from the payment of the notes, and interest thereon, and costs of suit, as to which Hays was to take his shoes, — but this indemnity was not in the least, to hinder or impair Hay’s right and privilege to make and put up any defence thereto, which Grundy could or niight make; and Hays was, in no respect, to be made responsible for endorsements in which they or either of them had been sued, except in the cases specified in the instrument; and he was to have the benefit of any recourse against La-nier, to which Grundy was or might be entitled, except,as to 2000 dollars, which Grundy had agreed with Lanier not to claim of him. But the instrument was not tp be so construed as to impair any claim which Grundy might have against the estate of Anthony Foster for contribution on one of the notes which Grundy engaged to pay; nor to impair the claim of 0,. B. Hays against Andrew Hays for contribution on the note .endorsed by him. On the 22d of April, Grundy and Hays added at the bottom of this paper, a covenant on part of Grundy, that, as regarded 800 dollars of the principal of the note of Lanier endorsed by Andrew Hays, and on which he had been sued by the Nashville Bank, and interest on that sum from the time the note became due, Andrew Hays was bound and liable therefor; and O. B. Hays took upon himself ihe risk of A. Hays’ solvency. And on the same 22d ,of April, O. B. Hays executed a receipt upon this paper of 400Q dollars in endorsed notes paid by Grundy. On the 26th of January, 1827, Lanier and Grundy joined in a deed of relinquishment to .0- B. Hays, of the 276 acres of land pjentioned in the d.eed of trust.
The Nashville Bank recovered separate judgments against Lanier and Hamilton upon the note for six hundred and twenty-five dollars, namely, against Lanier on the 5th of November, 1821, and against Hamilton on the 29th of November, 1831. The Bank issued executions upon these judgments, but not succeeding in making the money, they filed their bill on the 23d of January, 1834, in the chancery court at Franklin, against Grundy and Hays, which was twice afterwards amended. They charge the insolvency of Lanier and Hamilton and the consequent impossibility of making the money out of them; that Hays had sold the 276 acres of land mentioned in the deed of trust for upwards of 4000 dollars, and received from Grundy 4000 dollars upon the agreement between them, which, with the bank stock assigned to them by Lanier, and relinquished together with the land by-Grundy to Hays, was more than sufficient to indemnify Hays for his responsibilities for Lanier, and that there was a surplus of Lanier’s property in his hands, which ought to be subjected to the payment of their demand against him; and insisting moreover that the effect of the agreement between Grundy and Hays was to impose upon Hays a trust to pay the debt in question, and praying that he should be decreed to pay it accordingly.
The defendant Grundy demurred to the original bill, and Hays answered and demurred. To the first amendment they both demurred. The demurrers were overruled, and they answered the originál and first amended bill at great length,' as they did also the second amended bill, giving of the transactions out of which the papers ábove recited grew, ás also of those which followed their execution a minute' detail. But it is unnecessary to repeat it, as the questions dehatéd and decided in this court were —whether the agreement of the 18th of April, 1825, between Grundy and Hays did create' a trust on part of Hays to pay the note to the Bank on which Grundy and Hamilton were indorsers? And whether the Bank could have relief in equity against Grundy, who was responsible to them, as endorser of that note and not otherwise?
The cause was heard in the chancery court, before his Honor Chancellor Bramlitt, at October term, 1837, who being of opinion that no trust existed on part of Hays to pay the surplus of the sum which he had received from Grundy, towards the debt in question, dismissed the amended bills in' which the complainant attempted to set up that trust. Bui being also of opinion that Grundy and Hays were accountable to the Bank for any surplus that might be in their hands, of the proceeds of the lands conveyed to them by Lanier, wheth er rents or price, the chancellor ordered an account there" From this decree the complainant appealed.
Decem. 15, 17.
December 18.
James Campbell and Washington for the Bank.
Cook for Hays,—Meigs for Grundy.

Opinion:
Green, J.
delivered the opinion of the court.
The first question to be determined in this case is, the true' character of the covenant between Grundy and Hays, of the 18th of April, 1825.
It is insisted by the complainant, that the amount which Grundy by the said agreement placed in the hands of Hay's was a fund created by Grundy, for the payment of the debts therein mentioned, and that it was held by Hays in trust for that purpose. On the other side it is contended, that the amount given by Grundy, was advanced in consideration of the covenant of Hays, to stand in his shoes, and indemnify and hold him harmless from the payment of the debts mentioned in the covenant, and that Hays was to do this irrespective of the amount of the consideration advanced by Grundy.
We are of opinion, that this covenant does not create a' trust fund in which the Bank has any interest. Indeed, it' appears to us, that the parries have carefully avoided the use' of any language that would justify such a conclusion. Hays' undertakes to defend any suits that may be brought against Grundy, at his own expense, and without compensation for his trouble. It is not likely that he would have done so, had there not been a prospect of some corresponding benefit to himself. He stipulates for the privilege of making every de-fence, which Grundy would have a right to make, and that Grundy is not, by any thing he may say or do, to impair or hinder the same. If the fund were put in his hands, in trust to.pay Grundy's debts, why. should he feel solicitous about the privilege of making every possible defence, and .insert a: covenant that Grundy should not hinder or impair his right to' do so? He could have no interest to defend suits against-Grundy successfully, if it was impossible for him to be againer by Grundy's success. It must be observed too, that Hays was not previously liable for these debts. He was not Grundy's surety, receiving an indemnity against his liability, previously existing to the Bank. He is now for the first time connecting himself with the claims; and the undertaking is to resist them, by all legal means, and in case of failure to im demnify Grundy.
But the stipulation, that Hays "should stand in Grundy's shoes," a phrase very expressive of the meaning of the parties, not only gives him a right to make every legal defence that Grundy could make; but it exempts him from liability, except in cases where Grundy would have been liable, had the agreement not been made. How can he stand in Grundy's shoes if he is made liable for a debt, for which Grundy is not legally liable?
It cannot be doubted, but that if the consideration of this covenant had been but one dollar, Hays would have been liable in damages, to the full amount of all the demands against which he undertook to indemnify Grundy. The nature of the covenant and the responsibilities of the parties are not changed, by the amount of the consideration. Hays is bound to indemnify Grundy, or be responsible in damages for failing to do so. With the agreement the Bank has nothing to do; and as it cannot come into this court, on the ground of a trust fund having been placed in the hands of Hays for the payment of its debts, so there is no other ground upon which equity can take jurisdiction. ft
But if it could litigate its right to have judgment against Grundy in this court, it is clear that its action is barred by the statute of limitations. The statute commenced running, at furthest in 1823, and this suit was brought in 1834, more than six years thereafter.
This, however, is clearly inadmissible. The claim of the Bank against Mr. Grundy is purely legal, and must be litigated in a court of law. The jurisdiction of this court cannot attach, until there shall be had a judgment at law, and an execution against Grundy returned nulla bona.
The decree must be affirmed.