Case Name: MAGRUDER v. McDONALD
Court: United States Circuit Court of the District of Columbia
Jurisdiction: United States
Decision Date: 1828-05
Citations: 16 F. Cas. 488
Docket Number: 
Parties: MAGRUDER v. McDONALD.
Judges: (CRANCH, Chief Judge, dissenting).
Reporter: Federal Cases
Volume: 16
Pages: 488–494

Head Matter:
Case Wo. 8,965.
MAGRUDER v. McDONALD.
[3 Cranch, C. C. 299.]
Circuit Court, District of Columbia.
May Term, 1828.
Notes — Indorsers—Accommodation—Action inter Se.
If two persons, without any communication or agreement between them, severally indorse a note for the accommodation of the maker, and the first indorser is obliged to take up the note, he may recover one half from his indorsee.
Indebitatus assumpsit, for money paid, laid out, and expended by the plaintiff, for the use of the defendant, at his request, and upon an insimul computasset. At the trial a verdict was rendered for the plaintiff by consent, subject to the opinion of the court upon the following case agreed:
In this case it is agreed that the plaintiff produced in evidence a promissory note, in these words and figures, to wit: “8950. George Town, November 25th, 1S23. Sixty days after date, I promise to pay George B. Magruder, or order, nine hundred and fifty dollars, at the office of discount and deposit, Washington, for value received. Sam’l. Turner, Jr.” Which note was written and signed by the said Samuel Turner, and indorsed by the plaintiff, the said George B. Magruder, and by the defendant, the said John G. McDonald. That the said note was so drawn and indorsed, with the understanding of all the said parties thereto, that it should be discounted in the said office of discount and deposit, for the sole use and accommodation of the maker, the said Samuel Turner, no value being received by either of the said indorsers. That it was so discounted, and the proceeds thereof applied to the credit of the said Turner in the said office. That long befoie the making of the said note, viz., in the year 1S19, the said Turner had two notes discounted for his use and accommodation in the said office, namely, one for $270 indorsed by the said George B. Magruder and by the said John G. McDonald; and one for $719 indorsed by the said George B. Magruder and one Samuel Hambleton; which last-mentioned note was continued „bv renewal with the indorsement of the said Magruder and Ham-bleton until September. 1S20, when, in consequence of the said I-Iambleton’s absence, it was protested; after which the said office permitted the accommodation to be renewed, upon condition that the said Turner should get another good indorser in the place of the said Hambleton; whereupon the said John G. McDonald, at the solicitation of the said Turner, indorsed a note for the said sum of $710, which was brought to him already indorsed by the said George B. Magruder. That in March, 1S21, a small part of the money having been paid, the two notes were consolidated and renewed by one note for $950, drawn by the said Turner, and indorsed by the said Magruder. and by the said McDonald, which was, from time to time, renewed by notes similarly drawn and indorsed, the. last of which is the aforesaid note so pro duced in evidence by the plaintiff. That neither at the time of indorsing the said notes respectively, nor at any other time, was there any communication between the said Magruder and the said McDonald upon the subject of such indorsement. Both of them, however, knew, at the time of indorsement, that the said notes were intended to be discounted for the accommodation of the said Turner; and in every instance the said Ma-gruder was the first indorser. That the said note so as aforesaid produced in evidence by the plaintiff, not having been paid when due, was duly protested, and the payment thereof having been duly demanded, and due notice of such demand and of non-payment having been given to the said indorsers, judgments at law were obtained against both, by the Bank of the United States; and the whole amount having been paid by the said Ma-gruder, he brought this suit to recover, from the said McDonald, one half of the amount so paid hy the said Magruder.
By consent of the parties in this suit, a verdict is rendered for the plaintiff for one half of the amount so paid by the said'Ma-gruder, as aforesaid, in satisfaction of the judgment against him, subject to the opinion of the court upon this case agreed; and if, upon this case agreed, the court should be of opinion that the plaintiff is entitled to recover, then judgment shall be entered according to the said verdict; but if the court should be of opinion that, upon the said ease agreed, the plaintiff is not entitled to recover, then the said verdict shall be set aside, and judgment of nonsuit shall be entered for the defendant.
Mr. Wallach, for defendant,
cited Robertson v. Williams, 5 Munf. 381; Hixon v. Reed, 2 Litt. (Ky.) 174; Brown v. Mott, 7 Johns. 301; Morgan v. Reintzel, 7 Cranch [11 U. S.] 273.
Mr. Key and Mr. Dunlop, for plaintiff,
cited Wood v. Eepold, 3 Har. & J. 125.
[Reversed in 3 Pet. (28 U. S.) 470.]

Opinion:
MORSELL, Circuit Judge
(CRANCH, Chief Judge, dissenting).
This action was brought to recover of McDonald one half of a sum of money, which the plaintiff has been compelled to pay to the Bank of the United States, as indorser for Samuel Turner. This was the ease. In the year 1819 the bank discounted two promissory notes, for the sole accommodation of Turner: one indorsed by George B. Magruder and John G. McDonald, for 8270; the other indorsed by George B. Magruder and Samuel Hambleton, for 8710. On the 20th of September, 1S20, the last-mentioned note was renewed, and Mc-Douald received as indorser, in lieu of Samuel Hambleton. In March, 1821, the two notes were consolidated; some small sum of curtail having been paid. Magruder was the first indorser in each instance. This note of 8950 is a renewal and continuance of other notes, similarly drawn and discounted for the said Turner's sole accommodation. At length, Turner failing to pay, it was duly protested; and the bank recovered several judgments against Magruder and McDonald, as indorsers. Turner obtained the indorsement of Magruder, with the understanding that another accommodation indorser was to come on the note. The note, with Magru-der's indorsement, was taken to McDonald, by Turner, who presented it to him for his in-dorsement merely, and McDonald, as soon as he had indorsed it, returned it to Turner, who offered it to the bank, and for whom it was discounted. McDonald, at the time he received and indorsed it, knew that it was for the sole accommodation of Turner, and for that purpose was indorsed by Magruder. McDonald indorsed it at the instance and request of Turner, and for his like sole accommodation, and without having paid any consideration for the note.
The substance of the argument against the-recovery, as I have understood it, is, that this cannot be considered as a case of co-securities (sureties); that the indorsements-are separate, made at different times, and not joint, and without any understanding between them that they were so; and, from the nature of the instrument, the indorsement is evidence of a sufficient consideration, and amounts to an agreement, on the part of the-first indorser with the second, that, in the event of non-payment by the drawer, the first indorser was to pay the full amount. Several adjudged cases were cited and relied on, to support the defendant's objections. The-one which seems to me most like the case-before the court, was that of Wood v. Re-pold, in the court of appeals in Maryland; though in that case there was the absence of a fact which exists in this, and which might have been thought material. In that case Wood did not look to the case of any subsequent accommodation indorser coming on-the note. In this case it was otherwise with Magrudér. But, supposing the cases alike, let us examine its principles, to show in what cases persons are to be considered as securities, (sureties,) where they will be equally bound to each other to pay one half of the debt of their principal, and the principle of law by which they are so bound. The very familiar case of a joint bond is put. It is, however, conceded, that the bond need not be executed by the sureties at the same time; and there is no necessity that there should be any previous express agreement or understanding between them; and that it is not even necessary that the first-signing surety should know who, or that any one is to come after him, as surety in the bond; yet, by operation of law, they are co-securities, and either, who pays the whole, may call upon the other for his contribution.
Now what is here meant by the operation of law, creating or imposing upon them a joint liability? or, by operation of law they would be bound to contribute? Is it meant that there is any express or implied contract contained in the bond, between the securities? We are all too familiar with the terms of a joint bond to entertain a moment's doubt that there is not, from beginning to ending of it, one single stipulation between the securities,, either express, or from which the law can imply any such obligation. Therefore, if any such obligation is created between them by operation of law, it is upon other principles; which principles we shall endeavor to show are not peculiar to the form of a joint bond. It is said, with a view to show a difference-in principle between indorsers and co-securities in a bond, "that consideration is always presumed in the case of indorsers, inter se, and never in that of securities in a bond.'' We shall endeavor to show that, without an actual real consideration, there is no difference-in the cases. Other reasons are assigned, for the purpose of showing that the indorsers, in that case, were not to be considered as co-sureties, and not bound by the operation of the same principle of law as in the case of a bond. It is objected that their indorsement is several, and not joint; at different times, and without any understanding between them to that effect. But I understand it to be conceded that, in the case of a bond, they would be equally bound if it were a joint and several bond, and although it were signed at different times, and without any knowledge, by the first signer, who or whether any other was to sign it as such.
The other part of the opinion is taken up in showing that want of consideration could not be available as a defence in that action. It proceeds: "The bill in question, though drawn and indorsed for the accommodation of the drawer, to enable him to raise money upon it, must be considered as if' it had been made in the ordinary course of business, subject to all the law and incidents attending bills of exchange, indorsed and passed in the regular course of negotiation. The same principles of law, and the same rules of evidence, equally apply to both; and, when so considered, the objection that Wood received no money consideration at the time of his in-dorsement, appears to me to have no weight." "The want of consideration" "extends to all bills of exchange, whether for accommodation or otherwise. But that principle, when tested by the established practice and settled forms of proceedings in actions on bills of exchange, will, I think, be found applicable only to the particular stage of the negotiation in which the bill has stopped in the hands of the party suing, who, having never passed it away, has, consequently, been obliged to pay nothing upon it, nor has created any liability on himself to pay; and, therefore, can only recover in virtue of a consideration passed by him to the party from whom he received it; and, in such case, it is that consideration alone which gives him a right of action. And although the law supposes a consideration, and the plaintiff is under no necessity to prove one, yet, if none did pass, it was a naked undertaking, of which the defendant may discharge himself at the trial, by showing a want of consideration, or that it was an illegal one. But the same principle does not apply to this, or any case of an indorser or intermediate indorsee, who, under his liability on his indorsement, has been obliged to pay or take up the bill. If it did," (exist in such a case, or could apply in such a case,) "there never could be a recovery on a bill of exchange, by an indorser, or intermediate indorsee, against the drawer or immediate indorser; for every indorser, by his indorsement, discharges the preceding parties, as to himself, and constitutes his indorsee the payee. No consideration, therefore, which he may have originally paid for the bill can afford him a ground of action; for, having parted with all his interest in it. he is presumed in law to have received a valuable consideration for it, and can have no right to the money a second time. He cannot, then, recover, in consideration of what he may have originally given for the bill; nor could he have an action on the bill, in consideration of paj'inent by him in virtue of his indorsement; as such payment is not a consideration originally given for the bill, but must be subsequent, which is contrary to every day's experience; for no action is more common than that by an in-dorser against the drawer, or an intermediate indorsee against his indorser, in which the plaintiff can only recover on the proof of payment by him to the bona fide holder of the bill, which payment gives him a new title to receive the money from the antecedent party, and is the very foundation of the suit; and the consideration-money between them, as immediate parties to the bill, is never made a subject of inquiry, and, if proved, could not aid the plaintiff."
The judge then draws his conclusion: "And this shows that the principle, that, as between immediate parties to a bill of exchange, the want of consideration is a sufficient defence, is only applicable where a payee or indorsee has never parted with the bill;" "and that it does not apply to any party to a bill, who, on its being protested, has been obliged to take it up; in which case it is not the consideration originally moving from him which entitles him to recover, but it is the subsequent payment alone on which the law raises the promise, and gives him a new cause of action; and he sues in the capacity in which he paid, and not in that in which he received it."
In answer to the principles and reasoning in that part of the case just stated, I hold the law to be, that where a person merely indorses a bill for the purpose of assisting another in raising money, he is only a surety for that other, and he has no demand till the payment of the money. See Evans, Bills, p. 14Í). And if there were many, instead of one, they would be all equally sureties.
On the subject of the right to go into the consideration of the equitable circumstances attending the transaction, I understand the law to be, that it is not owing to the form of a bill of exchange, or note, nor the circumstance of its being in writing, that the law gives it the effect of carrying with it the same presumption of a consideration as a bond, or other specialty, when in the hands of a third person; but it is in order to facilitate and strengthen that commercial intercourse, which is carried on through the medium of this species of security. Therefore, in an action brought against the party, by the person with whom he was immediately concerned in the negotiation of the instrument, or by the person who has given no value for it, in such regular commercial intercourse, he will be at liberty to prove, either that the consideration was an unlawful one, or none at all, or what it was, with all the circumstances. Where a bill is not taken in the usual course of trade, it is subject to all the equities that subsisted between the original parties. Evans v. Smith, 4 Bin. 366.
A bill or note, therefore, does not become clothed or protected by the presumptions or incidents of real commercial negotiable paper, (the consideration whereof shall not be impeached,) until it gets into the hands of a bona fide holder before the bill or note falls due, and without notice. It is true that there are cases in which the equitable circumstances may be gone into, and where the want of consideration would not be an available defence, and this is sometimes the case of indorsements for the accommodation of the drawer; but it is in those cases only where the indorsee, or holder, has paid a valuable consideration for it at the time he receives it. If it has been paid to the drawer, for whose accommodation the note was drawn and indorsed, it is considered, in law, as being also for the benefit of the indorser, or indorsers; and so the following cases will show it has been adjudged. "If the indorsee knew that the bill was an accommodation bill, he can recover no more against the in-dorser than the value he has paid; but if the bill was made on a good consideration, he may recover the whole; and if he has not paid full value for it, he is a trustee for the indorser in respect of the surplus." Starkie, pt. 4, p. 2S2, o. "Whenever the holder has given full value for the bill before it is due, the defendant will not be at liberty to show that he had received none, although the plaintiff knew that circumstance at the time he became the holder, unless he also knew that the party from whom he received it was acting fraudulently." Chit.' Bills, S4, SG.
A plaintiff cannot, in general, maintain his action against the person from whom he received the bill, unless he gave him a valuable consideration for it. 7 Term R. 350, 378, 571. But it is said, "these principles will be found applicable only to the particular stage of the negotiation at which the bill has stopped in the hands of the party suing, who, having never passed it away, has consequently. been obliged to pay nothing upon it," &c. It really has been my most sincere desire rightly to understand, and duly appreciate this part of the opinion; but I doubt yet whether I have succeeded. That we may not be carried away by the mere sound of words, let the reasons assigned be taken. "Because, having never passed it away, he has, consequently, been obliged to pay nothing upon it, nor has created any liability upon himself to pay." Is this position correct? The case put is of immediate parties; such as the drawer and acceptor, the indorser and in-dorsee. Let us take the very case put, of an intermediate indorsee (or indorser). Such an indorser has paid to his immediate in-dorser, one half of the amount of the bill only, or has paid no value at all for it, or the consideration between them has been an unlawful one, or such, his next antecedent, in-dorser has passed (it) to him for his own accommodation, and he indorses to another for a full consideration received of such other, and that other indorses it for like consideration. When the bill falls due, it being unpaid by any of the other parties, this intermediate indorsee is obliged to take it up, or pay the amount to the last indorsee; can he recover any thing more from his next immediate indorser than he paid him for it, —suppose one half? Or, suppose he has received it from such immediate indorser without paying him any thing for it, but for his own accommodation; the books abound with authorities which support the position that he could not. The very case just cited by me, Starkie, pt. 4, p. 282, proves this; see, also, Chit. Bills, 91.
The next reason, "for every indorser by his indorsement, discharges the preceding parties as to himself, and constitutes his in-dorsee the payee. No consideration," &c. Suppose it to be the case. How could that be a reason to prevent the party sued from showing want of consideration, &e. But is it the case? By his indorsement or assignment, it is true, whilst the till remains in the hands of the assignee or indorsee, his rights and remedies upon the bill are suspended, but the moment he is obliged to pay the holder and receives back the bill, do not all the rights revive, and he become just as much entitled to recover upon the bill against the antecedent parties, as he ever was; and upon what consideration? Upon the new consideration, as it is stated, which is given him by thus having been obliged to pay it and take it up? Not at all so; it is upon the old consideration and none other; and to this effect is the case of Dugan v. U. S., 3 Wheat [10 U. S.] 182, 183. The words of the judge are: "After an examination of the cases on this subject, which cannot be all of them reconciled, the court is of opinion that if any person who indorses a bill of exchange to another for value, or for .the purpose of collection, shall come to the possession thereof again, he shall be regarded (unless the contrary appear in evidence) as the bond, fide holder and proprietor; and shall be entitled to recover notwithstanding there may have been one or more indorsements in full, subsequent to the one to him, without producing any receipt, or indorsement back from either of such indorsers, whose names he may-strike from the bill, or not, as he may think proper." This case then, surely answers all the reasons with respect to- the want of consideration, &e. being applicable only to the eases where the bill or note was stopped in the hands of the last indorsee. The Kentucky case of Hixon v. Reed rests upon the authority of the New York case of Brown v. Mott. That case differs essentiany from the one before the court. The second indorser did not indorse it solely for the accommodation of the drawer. He was as real a party as the last indorsee. He was to have, for his own use, one half of the amount of tiie bill, $250. In that case the court say, "If there had been any fraud in this case, or the plaintiff had not made any advance upon the note, the taking it under the knowledge stated in the ease," (that is, of the first in-dorser's indoi'sing it for the accommodation of the drawer,) would have let in a defence."
From the best consideration I have been able to give to the ease before the court, I think it is not so much a matter of consequence what the particular form of the instrument is, as what is the nature of the undertaking and engagement of the parties relatively considered to Turner the drawer. Is it a fair, proper case of contribution between the parties? To make it a case of that kind, and to be decided upon such principles, it is wholly immaterial what is the form of the instrument, which signs first, whether joint or several, with an understanding between the parties or not, whether signed at one time, or at different times, or whether it be by one instrument or several. The principle by which they are obliged is not founded in the written contract, either express or implied inter se, at all. The only material matter required is, has the undertaking. entered into by them, been in the same character? Are both of them bound as sureties for the same person, in the same sum? Are they in oequali jure, common in interest, common in burden? To this effect see Foth. Obi. pp. 68, 69, and 2 Bos. & P. 268. 270-272, in which last case it is thus stated by the court. ."The point remains to be proved that contribution is founded on contract If a view is taken of the cases, it will appear that the bottom of contribution is a fixed principle of justice, and is not founded in contract." Again, in another part of the same case, the court say, "In; the particular case of sureties, it is admitted that one surety may compel another to contribute to the debt for which they are jointly bound. On what principle? Can it be because they are jointly bound? What if they are jointly and severally bound? What if severally bound by the same or different instruments. In every one of those cases, sureties have a common interest, and a common burden. They are bound as effectually quoad contribution as If bound in one instrument," &c.
Upon the whole, therefore, I think the verdict for the plaintiff is right, and ought to stand.
THRUSTON, Circuit Judge, concurred.