U.S. Supreme Court
Russell v. Clark's Executors, 11 U.S. 7 Cranch 69 69 (1812)
Russell v. Clark's Executors
11 U.S. (7 Cranch) 69
ERROR TO THE CIRCUIT COURT FOR
THE DISTRICT OF RHODE ISLAND
The construction of a letter of credit or of guarantee must be the same in a court of equity as in a court of law, and any facts which might be introduced into one court to explain the transaction may be introduced into the other.
On the question of fraud also, the remedy at law is complete.
Where the only ground of equitable jurisdiction is the discovery of facts solely within the knowledge of the defendant, and the defendant by his answer discloses no such facts, and the plaintiff supports his claim by evidence in his own possession, unaided by the confessions of the defendant, the plaintiff should be dismissed from the court of chancery and permitted to assert his rights in a court of law.
To charge one person with the debt of another, the undertaking must be clear and explicit.
It is the duty of him who gives credit to another upon the responsibility or undertaking of a third person immediately to give notice to the latter of the extent of his engagement.
A fraudulent recommendation will subject the person giving it to the damages sustained by the person trusting to it.
An answer responsive to the bill is evidence in favor of the defendant.
A misrepresentation of the solidity of a mercantile house, made under a mistake of the fact, without any interest or fraudulent intention, will not sustain an action although the plaintiff may have suffered damage by reason of such misrepresentation.
A merchant who endorses the bills of another upon the guarantee of a third cannot, upon the insolvency of the principal debtor and of the guarantee, resort to a trust fund created by the principal debtor for the indemnity of the guarantee for the amount which the guarantee should pay. But the person for whose benefit a trust is created, who is to be the ultimate receiver of money, may sustain a suit in equity to have it paid directly to himself.
When the guarantee is insolvent, a court of equity will not decree the money raised for his indemnity to be paid to him without security that the debt to the principal creditor should be satisfied.
This Court will not make a final decree upon the merits of the case unless all persons who are essentially interested are made parties to the suit, although some of those persons are not within the jurisdiction of the court.
Error to the Circuit Court for the District of Rhode Island in a suit in equity brought by Russell against Clark in his lifetime as surviving partner of the firm of Clark & Nightingale to recover from him the amount of sundry bills of exchange drawn by one Jonathan Russell for the use of Robert Murray & Co, whose agent he was, upon James B. Murray, in London, and endorsed by the complainant, Nathaniel Russell upon the faith of two letters written to him by Clark & Nightingale in the following words:
"Providence, 20 January, 1796"
"Nathaniel Russell, Esq."
"Our friends, Messrs. Robert Murray & Co. merchants in New York, having determined to enter largely into the purchase of rice and other articles of your produce in Charleston but being entire strangers there, they have applied to us for letters of introduction to our friend. In consequence of which we do ourselves the pleasure of introducing them to your correspondence as a house on whose integrity and punctuality the utmost dependence may be placed; they will write you the nature of their intentions, and you may be assured of their complying fully with any contract or engagements they may enter into with you."
"The friendship we have for these gentlemen induces us to wish you will render them every service in your power; at the same time, we flatter ourselves the correspondence will prove a mutual benefit."
"We are, with sentiments of esteem, Dear Sir,"
"Your most obedient servants,"
"CLARK & NIGHTINGALE "
"Providence, 21 January, 1796"
"Nathaniel Russell, Esq."
"We wrote you yesterday, a letter of recommendation in favor of Messrs. Robert Murray & Co. We have now to request that you will render them every assistance in your power. Also that you will, immediately on the receipt of this, vest the whole of what funds you have of ours in your hands in rice on the best terms you can. If you are not in cash for the sales of the China and Nankins, perhaps you may be able to raise the money from the bank until due, or purchase the rice upon a credit till such time as you are to be in cash for them; the truth is, we expect rice will rise, and we want to improve the amount of what property we can muster in Charleston vested in that article at the current price; our Mr. Nightingale is now at Newport, where it is probable he will write you on the subject."
"We are, dear sir,"
"Your most obedient servants,"
"CLARK & NIGHTINGALE"
The bill stated that in February, 1796, Jonathan Russell arrived in Charleston from New York, bringing a letter of credit from the house of Joseph & William Russell of Providence, with whom the complainant had only a slight acquaintance, but believed them to be in good credit.
That Jonathan Russell informed the complainant, that when he left New York, he was authorized by R. M. & Co. to say that they would forward to him at Charleston, letters of guarantee from their friends, Clark & Nightingale, of Providence, addressed to the complainant, and that he expected soon to receive them.
That he soon afterwards presented to the complainant, the before-mentioned letters of Clark & Nightingale, of 20 and 21 January, 1796, and that confiding in the responsibility and integrity of C. & N. and in the purity and simplicity of their views, he endorsed chanroblesvirtualawlibrarychanroblesvirtualawlibrary
the bills in question, amounting in the whole to £3,886 10s 8d sterling.
That Clark & Nightingale, knew that the house of R. M. & C. began business without capital, under their patronage, and were supported by their credit, and that in the year 1795 it was found requisite in New York and Boston, where the house of R. M. & Co. chiefly did business, that their bills of exchange, in order to their being negotiated in those places, should have the endorsement of C. & N., and even then it was necessary they should be drawn for very small sums.
That the advances and responsibilities of the house of C. & N. for that of R. M. and Co. were originally predicated chiefly upon their personal honor and integrity, and afterwards continued upon the assurances of R. M. & Co. that in case of disastrous events, they should be secured by a priority of indemnity. And that upon like assurances C. & N. agreed to aid R. M. & Co. with funds and credit to enable them to carry on the Charleston speculation which had been concerted between them, and had agreed to give them a letter of credit and guarantee to the complainant, and if the letters sent, did not in legal construction, amount to such (which the complainant does not admit), it must have arisen either from the defendant, Clark, accidentally penning the letters in terms that did not quite come up to the idea intended by himself (in which case it would be contrary to equity and good conscience that he should be permitted to avail himself of such accident to the injury of the complainant), or from the terms being artfully and fraudulently contrived by the defendants, Clark, to give to the complainant the impression he intended, and yet by secret reservation to leave a door open for his own escape.
That the deceased partner of the defendant (Nightingale), in his lifetime, confessed that the house of C. & N. was bound by their letters to indemnify the complainant, and that Clark has offered to compromise.
The bill further states that the recommendations of the house of R. M. & Co. given by C. & N. were fallacious chanroblesvirtualawlibrarychanroblesvirtualawlibrary
and unwarranted, covenous, and deceitful, and were made in consequence of a concerted plan, to put R. M. & Co. into possession of large property, upon credit, to give the chance in the first instance of great profits to that house, in case the speculation should be successful, and finally, whether successful or not, to bring to the hands of C. & N. large reimbursements from the proceeds of property so to be acquired, and that accordingly, shortly after, it was known in America, that the house of R. M. & Co. must fall, the defendant, Clark, availed himself of the private stipulations before alluded to, by obtaining from that house, the greater part of their property, including the proceeds of the rice purchased upon the credit of the complainant's endorsements.
That J. B. Murray, who was named a trustee, being a citizen of New York, could not be compelled to appear in the circuit court, at Rhode Island, and therefore, is not made a party.
The complainant exhibited copies of five deeds from R. M. & Co. assigning their property to the defendant, Clark -- viz., one dated 23 March, 1798 -- one 24 March, 1798 -- two dated 22 March, 1799 -- and one 31 May, 1800, and called for the originals.
The bill avers that the house of R. M. & Co. has been duly declared bankrupt, and discharged -- that the assignees under the commission, are resident in New York and could not be made parties to this bill, and that in fact there was nothing left to assign to them -- the previous assignments to the defendant, having transferred the whole.
That Joseph & William Russell assigned away all their property, so that the complainant cannot enforce against them the judgment at law which he had obtained upon their letter of credit.
That in the deed of 24 March, 1798, among the uses to which the assigned property is to be applied is the following -- viz.,
"Also for the sum or sums which the said Clark & Nightingale have paid or are liable to pay on a suit commenced against them by Nathaniel Russell of Charleston, South Carolina, for
amount of certain bills of exchange, there drawn in his favor by Jonathan Russell of New York, for the amount of £3,998 7s. 2p. sterling or thereabouts."
And in a subsequent part of the same deed, another use declared is
"to retain and pay to Joseph & William Russell the amount that shall be recovered and paid from them to Nathaniel Russell of Charleston, in South Carolina, upon account of a letter of credit to him given by the said Joseph & William Russell in favor of Jonathan Russell,"
The complainant further states that although he is unable to compel the payment from Joseph & William Russell by reason of their having assigned away all their effects, yet William, who has survived Joseph, refuses to assent or afford any aid in converting those funds to the relief of the complainant, and the defendant has the use of the property for an indefinite time, and refuses to account therefor to the complainant.
He further charges that C. & N. were dormant co-partners with R. M. & Co. in the Charleston speculation -- that R. M. & Co. were, at the time of the recommendation from the complainant, deeply involved in debts, which they had not the means of discharging; that their credit was fictitious, and the fiction created and kept up by C. & N., who were privy to their transactions and who knew that the representation they made was false and fraudulent.
The bill seeks a discovery of the funds of R. M. & Co. in the hands of the defendant Clark and of the trusts upon which he holds them, and the manner in which he has applied them or any part of them, and prays that the intention of the parties as to the guarantee may be enforced -- that the proceeds of the rice purchased by means of the complainants endorsements may be applied to his relief -- that the defendant Clark may be compelled to execute the trust reposed in him and to apply to his indemnification the funds set apart for the indemnification of Clark & Nightingale and of Joseph & William Russell, and that he may have such other relief as his case may require and be entitled to. chanroblesvirtualawlibrarychanroblesvirtualawlibrary
The deed of assignment of 23 March, 1798, transferred all the property and effects of the firm of R. M. & Co. in the United States to the defendant Clark and J. B. Murray to pay the balances due them and to such other creditors as R. M. & Co. should nominate within twelve months, reserving to them also the power to appoint new trustees instead of Clark and J. B. Murray, if they should think proper. This assignment was made expressly subject to certain prior liens on certain parts of the property, which are particularly set forth, one of which was an assignment to Loomis & Tillinghast of a policy on certain goods laden on board the ship Jefferson, and a policy on goods on board the ship Butler -- and four promissory notes of Mott & Lawrence amounting to $6,460, the proceeds of which were to be applied first to indemnify and secure Loomis & Tillinghast, for a debt due to them and for responsibilities they had, or were about to incur -- and out of the surplus to pay to Joseph & William Russell of Providence all such monies as they should be liable to pay as guarantee to the defendant. This assignment was afterwards transferred by Loomis & Tillinghast to Clark in consideration of $60,000, of R. M. & Co.'s notes, endorsed by L. & T. given up to them by Clark.
The deed of 24 March, 1798, contained an express power in R. M. & Co. to revoke or alter the directions and appointments therein contained, and to make other appointments and give other directions, within twelve months from that date. In pursuance of which power they did, by an indenture tripartite dated 21 March, 1799, between R. M. and Co. of the first part -- the defendant Clark, and J. B. Murray of the second part, and the defendant and J. B. Murray and other creditors, of the third part -- revoke and annul the deed of 24 March, 1798, and substituted no other trust for the indemnification of the defendant Clark against his liability to the complainant.
The deed of 22 March, 1799, which declared the new trusts under which the defendant, Clark and J. B. Murray should hold the assigned property, directs them to pay
"to William Russell as surviving
partner of the firm of Joseph & William Russell the amount that shall be paid by them on a judgment recovered against them by Nathaniel Russell of Charleston, in South Carolina, for the amount of £3,998 7s 2d sterling in bills of exchange guaranteed by him by the said Joseph & William Russel in favor of the drawer Jonathan Russell. And the said parties of the first part do hereby order and direct the said parties of the second part to allow and pay, in manner before mentioned, to the parties of the third part, in addition to the claims hereinbefore admitted, all charges of suit and other expenses paid upon the said several claims together with interest due thereon, payable in like manner with the claims as hereinbefore recited."
This deed also contained a power of revocation and of making new appointments of trust.
On 31 May, 1800 (the day before the bankrupt law of the United States was to go into operation), R. M. & Co. made their final declaration of trust, under the power reserved in their former deeds, and expressing an intention to alter and add to the trusts formerly declared, but without expressing any intention of revoking any of them, they designate five successive classes of creditors to be paid in the order in which they are named; but neither of those classes included an indemnity to the defendant Clark or to William Russell against their liability to the complainant.
The defendant Clark, in his answer, admits his letters of 20 and 21 January, 1796, to the complainant, but does not admit that the complainant at that time considered them as letters of credit, or guarantee, that he endorsed the bills upon the faith of those letters. He avers that they were intended only as letters of introduction and recommendation, and not as letters of credit or of guarantee, and that the house of R. M. & Co. was then in good credit. He denies that the house of C. & N. had any interest in the purchases made in Charleston by Jonathan Russell. He does not admit that any bills of R. M. & Co. with the endorsement of C. & N. were negotiated in New York. He denies that he had any reason to suspect that the credit of the chanroblesvirtualawlibrarychanroblesvirtualawlibrary
house of R. M. & Co. was fictitious and not real -- he denies that C. & N. attempted to give them a false credit to deceive the public or any person. He avers that he as well as the house of C. & N. had full faith and confidence in the responsibility and solvency, the honor and integrity of the house of R. M. & Co., and had no agreement or understanding with them for their indemnity or security in case of any disastrous event, of which he had no apprehension. He denies that C. & N. ever made any agreement to aid R. M. & Co. in raising funds for the speculation in Carolina produce -- and that they ever asked from C. & N. any letter of guarantee to go or be sent to Charleston -- he denies that they ever promised such letter of guarantee, or gave R. M. & Co. any authority to instruct their agent to assure any person that such letter of guarantee should be furnished by them. He denies that the letters of 20 and 21 January were designed or written in artful and ambiguous terms with intent to deceive. He does not admit that his partner, Nightingale, acknowledged that they were letters of guarantee or that the house of C. & N. were bound thereby to indemnify the complainants.
He avers that C. & N. never asked, and R. M. & Co. never offered, any security for their responsibilities until after the failure of R. M. & Co. was publicly known in the United States. He admits the deeds and assignments to himself and J. B. Murray as set forth in the complainants bill, and admits the receipt of large sums of money, a part of which has been applied and part remains to be applied to the objects of the trust. He states that since the execution of the deeds of assignment to him and J. B. Murray, Robert Murray has been discharged as a bankrupt under the law of the United States, and the assignees under that commission have brought suit in equity in New York against this defendant and J. B. Murray and R. M. & Co., claiming an account of the assigned property and praying that it may be transferred to them; which suit is still pending.
He declares his belief that the assigned property will be sufficient to discharge all the appropriations made by the deeds of trust and also the whole claim due to the complainant, but denies that it is liable in his hands therefor. chanroblesvirtualawlibrarychanroblesvirtualawlibrary
William Russell, in his answer, admits the guarantee and judgment and the insolvency of the house of Joseph & William Russell. He states that he has no knowledge that R. M. & Co. ever conveyed any property to the defendant, Clark, and J. B. Murray in trust to indemnify him, but if there be any such conveyance, he is willing that the complainant should have the benefit thereof.
There was evidence that bills of exchange for £l5,500 sterling, drawn in eighteen sets by R. M. & Co. and endorsed by Clark & Nightingale, were sold in Boston in December, 1795, and January, 1796, and derived credit chiefly from their endorsement.
There was also evidence to prove that the house of R. M. & Co. were in good credit until after January, 1796.
The decree in the court below was rendered by consent against the complainant who brought his writ of error. chanroblesvirtualawlibrarychanroblesvirtualawlibrary
MR. CHIEF JUSTICE MARSHALL delivered the following opinion.
This is a suit in chancery instituted for the purpose of obtaining from the defendants, payment of certain bills of exchange drawn by Jonathan Russell an agent of Robert Murray & Co. and endorsed by Nathaniel Russell, which bills were protested for nonpayment and have since been taken up by the endorser. The plaintiff contends that the house of Clark & Nightingale had rendered itself responsible for these bills by two letters addressed to him, one of 20 and the other of 21 January, 1796, on the faith of which his endorsements, as he says, were made.
The letters are in these words: [See the preceding statement of the case].
The bill alleges that these letters bind Clark & Nightingale to pay to Nathaniel Russel any sum for which he might credit Robert Murray & Co. either because,
1st. They do in law amount to a guarantee, or that
2d. They were written with a fraudulent intent to be understood as a guarantee, or that
3d. They contain a misrepresentation of the solidity and character of the house of Robert Murray & Co.
Soon after the protest of these bills for nonpayment, Robert Murray & Co. failed and became bankrupts. chanroblesvirtualawlibrarychanroblesvirtualawlibrary
Previous to their bankruptcy, they assigned a great proportion of their effects, including the cargoes for the purchase of which these bills were drawn, to John J. Clark and John B. Murray in trust for Clark & Nightingale and for sundry other creditors and purposes mentioned in several trust deeds which are recited in the bill, and which appear in the record. The plaintiff claims to be paid his debt out of this fund.
The answer of John J. Clark was filed, and a certain William Russell, a partner of the house of Joseph & William Russell, who gave a letter of credit and guarantee to the drawer of the bills endorsed by the plaintiff, Nathaniel Russell, was made a party defendant. Against Joseph & William Russell a judgment had been obtained by Nathaniel Russell for the amount of the bills endorsed by him, but they had become insolvent and no part of this judgment had been discharged.
Many depositions having been taken and sundry exhibits filed, a decree of dismission without argument and pro forma was rendered in the Circuit Court for the District of Rhode Island, and the cause comes into this Court by appeal from that decree.
It is contended by the defendants that the letters which have been recited create no liability on the part of Clark & Nightingale, but are to be considered merely as letters of introduction. Whatever may be the construction of the letters, they insist that the plaintiff, if entitled to recover, has complete remedy at law, and that a court of chancery can take no jurisdiction of the cause.
It is believed to be unquestionable that a suit in chancery could not be sustained on these letters against Clark & Nightingale unless some additional circumstance rendered an application to this Court necessary.
The plaintiff contends that such application is necessary because there are a great variety of facts belonging to the transaction which could not be introduced into a court of law, or which would not avail him in that court, but which are proper for the consideration of a court of equity. chanroblesvirtualawlibrarychanroblesvirtualawlibrary
Because some of these facts rest within the knowledge of the defendants, and
Because he cannot, at law, subject the trust fund to his claim.
So far as respects the question whether these letters constitute a contract of guarantee, there can be no doubt but that the construction in a court of law or a court of equity must be precisely the same, and that any explanatory fact which could be admitted in the one court would be received in the other.
On the question of fraud, the remedy at law is also complete, and no case is recollected where a court of equity has afforded relief for in injury sustained by the fraud of a person who is no party to a contract induced by that fraud.
It is true that if certain facts, essential to the merits of a claim purely legal, be exclusively within the knowledge of the party against whom that claim is asserted, he may be required in a court of chancery to disclose those facts, and the court, being thus rightly in possession of the cause, will proceed to determine the whole matter in controversy. But this rule cannot be abused by being employed as a mere pretext for bringing causes proper for a court of law into a court of equity. If the answer of the defendant discloses nothing, and the plaintiff supports his claim by evidence in his own possession unaided by the confessions of the defendant, the established rules limiting the jurisdiction of courts require that he should be dismissed from the court of chancery and permitted to assert his rights in a court of law.
It is also true that if a claim is to be satisfied out of a fund which is accessible only by the aid of a court of chancery, application may be made in the first instance to that court which will not require that the claim should be first established in a court of law.
In the case under consideration, the answer confesses nothing. So far from furnishing any evidence in support of the plaintiff's claim, it denies in the most full and explicit terms the whole equity of the bill. chanroblesvirtualawlibrarychanroblesvirtualawlibrary
This ground of jurisdiction, therefore, is totally withdrawn from the case.
It remains to inquire whether the plaintiff can be let in to claim on any part of the trust fund, and this depends principally on his claim's being within any one of the trusts declared.
The first trust deed, which was executed by Robert Murray & Co. on 23 March, 1798, is declared to be in trust to apply the monies arising from the trust property
"in payment and satisfaction of the debts and balances which shall appear to be found to be due and owing from the said parties of the first part [Robert Murray & Co.] to them the said John J. Clark and John B. Murray [the trustees] and to such other of the creditors"
of the said Robert Murray & Co. as they should, by any instrument of writing, within twelve months, appoint.
It may be doubted whether this declaration of trust would be applicable to a collateral undertaking not at the time carried into judgment.
In the second deed, one of the trusts declared is to repay Clark & Nightingale for any sums they may pay or be liable to pay under a suit at the time depending against them. That suit was dismissed.
Without deciding whether Russell could avail himself of this trust, having failed in the particular action then depending, the Court will proceed to inquire how far Clark & Nightingale were liable to the plaintiff for the debt due to him from Robert Murray & Co.
The law will subject a man, having no interest in the transaction, to pay the debt of another only when his undertaking manifests a clear intention to bind himself for that debt. Words of doubtful import ought not, it is conceived, to receive that construction. It is the duty of the individual who contracts with one man on the credit of another not to trust to ambiguous phrases and strained constructions, but to require an explicit and plain declaration of the obligation he is about to assume. In their letter of the 20th, Clark & Nightingale indicate chanroblesvirtualawlibrarychanroblesvirtualawlibrary
no intention to take any responsibility on themselves, but say that Mr. Russell may be assured Robert Murray & Co. will comply fully with their engagements. In their letter of the 21st, they speak of the letter of the preceding day as a letter of recommendation, and add "we have now to request that you will endeavor to render them every assistance in your power."
How far ought this request to have influenced the plaintiff? Ought he to have considered it as a request that he would advance credit or funds for Robert Murray & Co. on the responsibility of Clark & Nightingale, or simply as a strong manifestation of the friendship of Clark & Nightingale for Murray & Co., and of their solicitude that N. Russell should aid their operations as far as his own view of his interests would induce him to embark in the commercial transactions of a house of high character, possessing the particular good wishes of Clark & Nightingale?
It is certain that merchants are in the habit of recommending correspondents to each other without meaning to become sureties for the person recommended, and that, generally speaking, such acts are deemed advantageous to the person to whom the party is introduced, as well as to him who obtains the recommendation.
These letters are strong, but they contain no intimation of any intention of Clark & Nightingale to become answerable for Robert Murray & Co., and they are not destitute of expressions alluding to that reciprocity of benefit which results from the intercourse of merchants with each other. "The friendship," say they in their letter of the 20th,
"we have for these gentlemen induces us to wish you will render them every service in your power; at the same time we flatter ourselves this correspondence will prove a mutual benefit."
Mr. Russell appears to have contemplated the transaction as one from which a fair advantage was to be derived. He received a commission on his endorsements.
The court cannot consider these letters as constituting a contract by which Clark & Nightingale undertook chanroblesvirtualawlibrarychanroblesvirtualawlibrary
to render themselves liable for the engagements of Robert Murray & Co. to Nathaniel Russell. Had it been such a contract, it would certainly have been the duty of the plaintiff to have given immediate notice to the defendants of the extent of his engagements.
It remains to inquire whether these letters contain such a misrepresentation of the circumstances and character of the house of Robert Murray & Co as to render them accountable to the plaintiff for the injury he has sustained by trusting that company.
The question how far merchants are responsible for the character they give each other is one of much delicacy and of great importance to the commercial world.
That a fraudulent recommendation (and a recommendation known at the time to be untrue would be deemed fraudulent) would subject the person giving it to damages sustained by the person trusting to it seems now to be generally admitted. The case of Pasley v. Freeman, reported in 3 Durnford & East, recognizes and establishes this principle. Indeed, if an act in itself immoral, in its consequences injurious to another, performed for the purpose of effecting that injury, be not cognizable and punishable by our laws, our system of jurisprudence is more defective than has hitherto been supposed.
But this does not appear to the Court to be the case described. It is proved incontestably that when the letters on which this suit depends were written, Robert Murray and Co. were in high credit and were carrying on business to a great extent which was generally deemed profitable. The bill charges particular knowledge in Clark and Nightingale that this apparent prosperity was not real. But this as well as every other allegation of fraud is explicitly denied by the answer, and the answer, being responsive to the bill, is evidence. Had the plaintiff been able to exhibit proofs which would have rendered this fact doubtful, it might have been proper to have directed an issue for the purpose of trying it; but he has exhibited no such proofs.
In writing the letters, then, recited in the bill, Clark chanroblesvirtualawlibrarychanroblesvirtualawlibrary
and Nightingale stand acquitted of the imputation of fraud.
But it is contended by the plaintiff that the representation they made of the circumstances of Robert Murray and Co. was at the time untrue, and that this misrepresentation, whether made ignorantly or knowingly, was equally injurious to Nathaniel Russell and equally charges them with the loss he has sustained by trusting to their assurances.
The fact that Robert Murray & Co. were not, in January, 1796, in solvent circumstances is not clearly made out; but the cause does not rest entirely on this fact. The principle that a mistake in such a fact as the real internal solidity of a mercantile house whose external appearance is unsuspicious shall subject the person representing their solidity to another to the loss sustained by that other in trusting to this representation is not admitted.
Merchants know the circumstances under which recommendations of this description must be given. They know that when one commercial man speaks of another in extensive business, he must be presumed to speak from that knowledge only which is given by reputation. He is not supposed to have inspected all the books and transactions of his friend with the critical eye which is employed in a case of bankruptcy. He must therefore be supposed to speak of the credit, not of the actual known funds of the person he recommends; of his apparent, not of his real, solidity. In such a case it is certainly incautious and indiscreet to use terms which imply absolute and positive knowledge. It may perhaps be admitted that in such a case fraud may be presumed on slighter evidence than would be required in a case where a letter was written with more circumspection. Yet, even in such a case, where the communication is honestly made and the party making it has no interest in the transaction, he has never been declared to be responsible for its actual verity. The reason of the rule is that merchants generally possess, and are therefore presumed in their correspondence to speak from that knowledge only of the circumstances of other merchants which may be acquired by observing chanroblesvirtualawlibrarychanroblesvirtualawlibrary
their course of business, their punctuality, and their general credit.
This principle appears to have been fully considered in the case of Haycraft v. Creasey, reported in 2 East, in which case all the authorities were reviewed. It does not appear that a single decision has been ever made asserting the liability of the writer of such a letter. The case of Haycraft v. Creasey denies his liability, and that case appears to this Court to have been decided in conformity with all previous adjudications.
It is therefore the opinion of the Court that Clark & Nightingale, having believed and had reason to believe, so far as is shown by the evidence in this cause, that the representation they made to the plaintiff of the character and circumstances of Robert Murray and Co. was true, are not liable to the plaintiff in consequence of that representation for the credit he gave to that company.
A claim is also set up the funds in the hands of Clark & Nightingale founded on the circumstance that they consist, in part, of the rice purchased with the bills endorsed by the plaintiff. But as no specific lien is alleged to have existed, and as the particular fraud alleged to have been committed to acquire those funds is not proved, this claim is unsustainable.
The plaintiff, then, cannot be considered as a trust creditor in consequence of any claim he can assert against Clark & Nightingale.
The second deed, which is dated 24 March, 1798, is also in trust
"to pay to Joseph & William Russell the amount that shall be recovered and paid from them to Nathaniel Russell . . . upon account of a letter of credit, . . . and for which the said Nathaniel Russell hath recovered a judgment against the said Joseph & William Russell."
No part of this judgment has ever been paid, and Joseph & William Russell are insolvent. The state of things, then, has perhaps not yet occurred in which Joseph & William Russell could demand the execution chanroblesvirtualawlibrarychanroblesvirtualawlibrary
of the trust; and the Court, though with some hesitation, feels constrained to decide that under the terms of this trust, Nathaniel Russell, claiming through Joseph & William Russell, cannot demand its execution directly to himself.
It also appears that in September, 1796, Robert Murray and Co. assigned to Loomis & Tillinghast certain personalties in trust. This assignment was surrendered to Clark & Nightingale in consideration of notes to a large amount, in which Loomis & Tillinghast were bound for Robert Murray and Co. It appears that Clark & Nightingale are otherwise secured with respect to these notes; at least there is reason to believe that they are secure.
Clark & Nightingale, having taken this assignment with notice of the trust, take it clothed with the trust. They are trustees for the same uses and to the same extent with Loomis & Tillinghast.
A paper appears in the cause which purports to be the assignment to Loomis & Tillinghast. The assignment is in trust first to repay themselves any sums which they may pay on account of certain undertakings made by them for Robert Murray and Co., and secondly in trust "to pay the Joseph & William Russell all such monies as they shall be liable to pay as guarantee as aforesaid to Nathaniel Russell upon bills," &c., reciting the bills for which this suit is instituted.
It is settled in this Court that the person for whose benefit a trust is created, who is to be the ultimate receiver of money, may sustain a suit in equity to have it paid directly to himself.
This trust being to pay Joseph & William Russell a sum they are liable to pay to Nathaniel Russell and, being created in such terms that the money is certainly payable to them, the purposes of equity will be best effected by decreeing it, in a case like the present, to be paid directly to Nathaniel Russell. Indeed, a court ought not to decree a payment to Joseph & William Russell without security that the debt to Nathaniel Russell should be satisfied. chanroblesvirtualawlibrarychanroblesvirtualawlibrary
But it is not shown by any legal evidence that this paper is the assignment which was made in trust to Loomis & Tillinghast and transferred by them to Clark & Nightingale. Its verity is not admitted by the defendants nor proved by the plaintiff.
Nor are the circumstances under which the transfer was made, nor the present circumstances of the trust, sufficiently before the Court to enable it to decide with certainty whether the prior trust to Loomis & Tillinghast is satisfied or otherwise so secured that the trust fund may now be applied to the debt of Joseph & William Russell.
Could these defects be supplied, the Court would still be unable to decree in favor of the plaintiff, for want of proper parties.
The incapacity imposed on the circuit courts to proceed against any person residing within the United States but not within the district for which the court may be holden would certainly justify them in dispensing with parties merely formal. Perhaps in cases where the real merits of the cause may be determined without essentially affecting the interest of absent persons it may be the duty of the court to decree, as between the parties before them. But in this case, the assignees of Robert Murray & Co. are so essential to the merits of the question, and may be so much affected by the decree, that the Court cannot proceed to a final decision of the cause till they are parties. They may contest the validity of all the deeds under which, both parties claim, and assert in themselves, for the benefit of the creditors generally, a right to the whole fund. Certainly this Court ought not, on light grounds and without due precaution, to change the hands in which this fund is placed until any claim of the assignees to it may be decided.
Should this difficulty be obviated suspending the effect of the decree till the validity of the trust deeds should be decided or by directing security to be given, another presents itself which cannot be removed. The assignees have a right to contest the claim of Nathaniel Russell, and may either deny its original validity or chanroblesvirtualawlibrarychanroblesvirtualawlibrary
show that it has been paid. They are, then, essential parties, and the Court ought not to decree in favor of the plaintiff without them. It is possible that they may consent to make themselves parties in this cause, and, as a court may, instead of dismissing a bill brought to a hearing without proper parties, give leave to make new parties, the Court will, in this case,
Set aside the decree of the circuit court dismissing this bill and remand the cause to the circuit court with leave to make new parties.