Homer v. Savings Bank , 7 Conn. 478 ( 1829 )

Bissell, J.

The right of the plaintiffs to have any part of the fund in question applied to their benefit, must depend upon a construction of the assignment, and upon the facts found in the case. Before, however, attending to these, it may be proper, very briefly, to review the authorities relied on, by the plaintiffs, in support of their claim, and to see how far the principle established by those authorities' is applicable to the ease before us.

In Maure v. Harrison, 1 Eq. Ca. Abr. 93. it was adjudged, that a bond creditor “ shall in chancery have the benefit of all the counter bonds or collateral securities, given by the princi-pa], to the surety “ as if A. owes B. money, and he and C. are bound tor it, and A. gives C. a mortgage or bond to m-demnify him, B. shall have the benefit of it to recover his debt” In Russell v. Clark’s executors, 7 Cranch, 69. 94.97. the same doctrine was admitted. The court, in that case, declare, that the person, for whose benefit a trust is created, who is ultimately to recover the money, may sustain a suit in equity to have it paid directly to himself. In Phelps v. Thompson,2 Johns. Ch. Rep. 418. the holder of a promissory note was held entitled to the benefit of a collateral security of the debt, given by the maker to the indorser for his indemnity. And in the case ex parte Rushworth, 10 Ves. 411. and in Wright v. Morley, 11 Ves. 13. and in numerous other cases, the same general principle is recognized. In Miller v. Ord, 2 Binn. 202. it was distinctly stated, that where the principal assigns a fund to trustees to pay the debt of a creditor, and his surety pays the debt, he is entitled to the benefit of the fund. In the case of Moses v. Murgatroyd, 2 Johns. Chan. Rep. 219. an assignment was made to secure an indorser, against the payment of certain promissory notes ; and the maker having become insolvent, and the indorser having died, without making payment, it was decided, that the holders of these notes were entitled, in equity, to the benefit of the assignment. In giving his opinion, in that case, Chancellor Kent remarks: — “ The plaintiffs, as holders of the notes, are entitled to the benefit of this collateral security, given by the principal debtor to his surety ; and the case of Maure v. Harrison is directly to this point. These collateral securities are, in fact, trusts executed for the better protection of the debt; and it is the duty of the court to see, that they fulfil the design.” In the case of Kip v. The Bank of New-York, 10 Johns. Rep. 65. it was decided, that where an assignment of property was made to secure an indorser against certain notes, indorsed by him, and he had sold and converted the property assigned, into money, and become insolvent, (the notes being unpaid, and the maker also insolvent,) that the money being kept separate from the other property of the bankrupt, did not pass to his assignees, — but that a court of chancery would follow the fund and apply it to the payment of the notes, for the discharge of which the trust was created.

The principle to be extracted from these cases, is this — that when collateral security is given, or property assigned, for the better protection or payment of a debt, it shall be made effeclu-vd for that purpose, — and that not only to the immediate party to the security, but to others, who are entitled to the debt. And to make them thus effectual, a court of chancery will lend its aid. And the reason is, that such is the intent of the transaction. “ They are trusts,” says the late Chancellor Kent, in the case already cited, “ executed for the better protection of the debt; and a court of chancery will see, that they fulfil their design.”

Beyond this principle, however, it is believed, no case has gone. No court of chancery, it is believed, has interposed to grant relief in any case not falling within this well established principle of equity. Does the case before us fall within this principle ? And can the plaintiffs derive from it any aid whatever ? Was here a debt due from the bank to William C. Holly, which it w.as the object to secure, by this assignment ? So far from this being the fact, the case finds, that he was indebted to the bank to a very large amount. Was it the object of this assignment to make provision for the payment of Eagle Bank post-notes, generally, or of such as had been indorsed by William C. Holly ? It is impossible to draw that inference either from the language of the instrument, the objects of the assignment, or the facts connected with it and found in the case. What is the language of the deed of assignment, so far as it is applicable to this case ? The trustees are “ to secure, indemnify and protect William C. Holly against and concerning any indorsments of the said William C. Holly, on the post-notes of the said Eagle Bank, to an amount not exceeding twenty thousand dollars.” It is, I think, very apparent from the language here used, that the benefits of this assignment, so far as regards the post-notes, were intended to be personal to William C. Holly. It was to indemnify, protect, and secure him. This intent could hardly have been more obvious, had the parties expressly provided, that if Holly should be subjected on his indorsements, he should be indemnified to a certain amount.

Again ; what were the general objects of this trust ? They doubtless were to give a preference to a certain class of favour-ed creditors. Was it intended to give the holders of post-notes such preference ? Why should this be done; and what should entitle these creditors to a priority to other bill-holders? Like them they had received these notes, as currency, in the course of circulation ; and who these holders were, the bank neither did nor could know. Besides, this was a numerous c]agg creators. It is found, that there were then post-notes outstanding to the amount of more than one hundred thousand dollars, indorsed by Holly. Why should twenty thousand dollars have been set apart, for the holders of these notes, without designating to which of them it should go, and without providing that it should be divided pro rata among them ? And here I should remark, that it is found, that more than thirty thousand dollars in these notes, which were never in the hands of these plaintiffs, were outstanding at the failure of the Eagle Bank, and have since been taken in, by the agents. What superior equity have these plaintiffs over the holders of these notes ? These facts not only furnish strong reasons against the plaintiffs’ equity, — but they also go strongly to show, that the benefits of this trust, were intended to be personal to William C. Holly.

In further illustration of this remark, suppose that the trustees had paid out this fund to the plaintiffs, and William C. Holly should be afterwards subjected to the same amount, on his indorsements on the other post-notes, and should come into chancery for the fund ; — would it be any answer for the trustees to say, that they had paid it out, on the other notes, which he had indeed indorsed, but on which he had never been subjected? And a court of chancery will not, surely, compel the trustees to make a payment, which, if made voluntarily, would afford them no protection.

There are other considerations, which might be successfully urged; — but those which have heen suggested, are, it is believed, sufficient to evince, that the trust in question was not created for the payment of Eagle Bank post-notes, but for the mere indemnity of William C. Holly. If this conclusion be correct, it is most obvious, that the cases cited and relied upon, are wholly inapplicable. It as clearly follows, that Holly can have no claim to this fund, but on the ground of payments actually made upon his indorsements. Shepard v. Shepard & al. 6 Conn. Rep. 37. It also follows, that no third person can claim the benefits of this trust, but through William C. Holly, —and claiming through him, must stand in his place, and be subject to the same equity, to which he would be subjected, were he now claiming the execution of this trust. What that equity is, the facts found in the case, sufficiently disclose. It cannot be necessary to advert to them. It is sufficient to observe, that equity would require of him to pay to the Eagle Bank at least half a million of dollars, before the shadow of a claim would exist in his favour.

It has been emphatically asked, What becomes of this sum of twenty thousand dollars, if [the plaintiffs are not entitled to it ? It is not necessary to answer this enquiry, to show that it does not belong to them. The enquiry, however, is susceptible of an easy and perfectly satisfactory answer. It sinks into a residuum. 2 Mad. Ch. 81. Willes 293.

I think that the plaintiffs are not entitled to the relief sought by their bill; and would therefore advise the superior court,that it be dismissed with costs.

Hosmer, Ch. J., was of the same opinion. Peters, J., being interested in the event of the suit, and Daggett and Williams, Js. having been of counsel for other claimants under the same assignment, gave no opinion.

Bill to be dismissed, ^(a)

(a) See note to United Society v. Eagle Bank, ante, 476,