US SUPREME COURT DECISIONS

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."

"DEAR SIR,"

"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 "

Page 11 U. S. 70

"Providence, 21 January, 1796"

"Nathaniel Russell, Esq."

"DEAR SIR,"

"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 chanrobles.com-redchanrobles.com-red

Page 11 U. S. 71

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 chanrobles.com-redchanrobles.com-red

Page 11 U. S. 72

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

Page 11 U. S. 73

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,"

&c.

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. chanrobles.com-redchanrobles.com-red

Page 11 U. S. 74

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

Page 11 U. S. 75

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 chanrobles.com-redchanrobles.com-red

Page 11 U. S. 76

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. chanrobles.com-redchanrobles.com-red

Page 11 U. S. 77

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. chanrobles.com-redchanrobles.com-red

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