author: Hurlbut, J. Bronson, Ch. J. (dissenting.)

text:
    Clark vs. Rowling.
    A discharge in bankruptcy under the late act of congress operates upon a judgment obtained against the bankrupt intermediate the commencement of the proceedings and the granting of the discharge, where the judgment is founded on a debt existing at the time the proceedings were commenced.
    Accordingly where a creditor brought a suit against his debtor, and pending the suit the debtor instituted proceedings to be discharged as a bankrupt, but the discharge was not obtained until after judgment was recovered; held, that the discharge was a good defence to a bill in equity subsequently filed by the creditor for the purpose of collecting the judgment out of the equitable property of the debtor.
    The cases of Thompson v. Hewitt, (6 Hill, 254,) and Kellogg v. Schuyler, (2 Denlo, 73,) commented on and explained.
    A judgment upon a contract technically merges the demand, but not in so complete a sense that the courts may not look behind the judgment to see upon what it is founded, for the purpose of protecting the equitable rights connected with the original relation of the parties.
    The costs included in a judgment for the recoveiy of a- debt, are considered as accessory to the debt, so as to be discharged by bankruptcy when the debt itself is discharged.

      Clark filed a .bill in the court of chancery before the vice chancellor of the fifth circuit against John Bowling, jun. and Joseph Rowling, for the purpose of procuring satisfaction of a judgment against them, after execution at law had been returned unsatisfied. Other persons were also made defendants who were alledged to be the fraudulent assignees of the property of the judgment debtors. The decree of the vice chancellor was favorable to the complainant as against the judgment debtors, and they appealed to the chancellor. Pending the appeal the cause became vested in the supreme court organized under the new constitution; and that court, sitting in the fifth district, reversed the decree of the vice chancellor and dismissed the bill. The complainant appealed to this court..

      W. Crafts, for appellant.
    A bankrupt’s discharge extends only to such debts as he owed at the time of presenting his petition ; and the judgment to collect which the bill was filed in this cause did not exist when the bankrupt presented his petition, and therefore is not reached by the bankrupt’s discharge. The former debt is merged in the judgment. (Clements v. Langley, 5 B. & Ald. 97, 250; Lansing v. Prendergast, 9 John. 127; Frost v. Carter, 1 John. Cas. 73; Crouch v. Gridley, 6 Hill, 250; Thompson v. Hewitt, id. 254; Kellogg v. Schuyler, 2 Denio, 73; Russ v. Gilbert, 2 M. & Sel. 70; Birch v. Charland, 1 T. R. 715; Butler v. Miller, 1 Denio, 407; Andrews v. Smith, 9 Wend. 53; 6 T. R. 489; 16 Ves. 256; 3 Wilson, 14; 2 id. 137,139; Taylor v. Mills, Cowp. 138, 525, 544; 17 Verm. R. 503; Brooks v. Rogers, 1 H. Black. 640 ; Virgers v. Aldrich, 4 Burr 2482; Stewart v. Green, 11 Paige, 535.) This suit was pending at the time Rowling presented his petition to be declared a bankrupt; and Rowling or his assignee should have applied to the judge of the district court of the northern district for an injunction restraining the plaintiff from proceeding in the suit to judgment, and compelling him to come in and prove his debt. (Smith v. Gordon, 6 Law Rep. 313; id. 7 id. 119, 553; Bellows v. Peck, 3 Story's R. 428.)
    The costs included in the judgment arose, in part, after Rowling presented his petition, and were not due till taxed, and therefore not discharged by the certificate. (Ex parte Hill, 11 Ves. 646 ; Eden on Bank. Law, 34 Law Lib. part 1, p. 115, §12; 4 Bing. 57.)

      H. C. Van Schaack, for respondents.
    The notes upon which the judgment mentioned in the complainant’s bill of complaint was entered, and the judgment upon those notes, constituted a debt provable under the bankrupt law, and the discharge and certificate obtained by John Rowling, jun. under that law, “ fully and completely discharged” him from that debt; and such discharge and certificate are “ a full and complete bar” to the bill. (Const. U. S. art. 1, § 8; Bank. Law of 19th Aug. 1841, §§ 1, 4; Graham v. Benton, 1 Wil. R. 41; Blandford et al. ex'rs of Froud v. Foote, Cowp. 138, (1774;) Bonteflour v. v. Coats, id. 25; Lewis v. Piercy, 1 H. Black. R. 29 ; Hurst v. Mead, 5 T. R. 365; Phillips v. Brown, 6 id, 282; Bamford v. Burrell, 2 Bos. & Pul. 11 ; 2 Black. Com. 484, Christ, note (23;) Willett v. Pringle, 5 Bos. & Pul. 190; Scott v. Ambrose, 3 M. & Sel. 320; Dinsdale v. Eames, 6 Com. Law R. 3 ; Wyman v. Mitchell, 1 Cowen, 316 ; Raymond v. Merchant, 3 id. 147; In the matter of Wendell, 19 John. 153; Betts v. Bagley, 12 Pick. 572; McDougald v. Reid, 5 Ala. R. 810; Johnson & Clark v. Fitzhugh, 3 Barb. Ch. R. 360; 15 John. 358; 3 Cowen, 89; 4 John. 191; 1 Barb. Ch. R. 347, 246; 1 John. Cas. 105; 1 Cowen, 165; id. 42; 1 Bos. & Pul. 427; 3 Caines' R. 100; 6 Hill, 246; Tillotson v. Preston, 3 John. 229 ; Warner v. Constant, 5 id. 135.)
   Hurlbut, J.

In the year 1840, the defendants, John So Joseph Rowling, who were partners in the milling business in Madison county in this state, were indebted to the plaintiff and others in various sums, which were secured by seven promissory notes. In the year 1841, the plaintiff instituted a suit upon these notes, and after some litigation, finally obtained a verdict upon them on the 18th day of April, 1843, for the sum of $929,-27, upon which a judgment was perfected on the 13th day of May of that year for $1052,75, including $123,48 as costs of suit; and execution was returned unsatisfied in the month of August thereafter.

The present suit was commenced in the late court of chancery on the 7th day of February, 1845, by bill in the usual form of a creditor’s bill, for the purpose of obtaining satisfaction of the judgment out of the property of the defendants, which the plaintiff had not been able to reach by execution at law.

The defendant John Rowling jun. set up in his answer, that on the 29th day of December, 1842, he duly presented his petition to the district court of the United States for the northern district of New-York, and applied for the benefit of the bankrupt act of 1841. That such proceedings were thereupon had, that he was duly declared a bankrupt, and afterwards on the 10th day of July, 1843, a decree was made by that court whereby he was fully discharged from all the debts owing by him at the time of the presentation of his petition, and a certificate of such discharge was duly granted him. A like defense was set up by the answer of Joseph Rowling, except that his petition in bankruptcy was presented on the 27th day of January, 1843, and his discharge was granted on the 25th day of August, of the same year.

It therefore appears from these answers, that the suit at law was pending on the notes when the defendants respectively presented their petition in bankruptcy, and that their certificates of discharge were granted, the one in about two and the other in about three months after the judgment was perfected. There was no opportunity for them to plead their discharge during the pendency of the suit at law; and the question now presented is, whether in answer to this bill, which is a species of equitable suit upon the judgment, the defendants can set up their discharge with the same effect as in an action on the notes upon which the judgment was founded; it not being denied that the discharge operated upon the debt which was secured by the notes—the same being provable under the proceedings in bankruptcy—but the plaintiff contending that the notes were merged in the judgment; that the latter is a new debt which did not exist at the time the bankrupts petitioned, and that therefore it ought not to be affected by their discharge.

It is true, that the notes as evidence of an indebtedness were merged in the judgment; which being greater security, operated to extinguish the lesser; but does it therefore follow, that the judgment to all intents became a new debt, and that the merger or extinguishment of the notes was so- complete, as that for the purpose of protecting the defendants in an equity connected with their original indebtedness, we may not look behind the judgment and see upon what it was founded ? A'judgment, instead of being regarded strictly as a new debt, is sometimes held to be merely the old debt in a new form, so as to prevent a technical merger from working injustice. And this exception to the doctrine contended for by the plaintiff, has obtained, especially in cases of insolvency and bankruptcy, for the protection as well of the creditor as the debtor, and has been applied impartially for the benefit of both. An example in. favor of the creditor is found in the case of Wyman v. Mitchell, (1 Cowen’s Rep. 316.) This was an action of debt on a judgment of the supreme court of this state, of August term, 1816 ; the plea was, that the defendant on the 30th day of December, 1817, was discharged under the insolvent act of this state, of 1813; to which there was a replication that the judgment declared on was rendered on a judgment obtained in the year 1814, in the court of common pleas of Cumberland in the state of Marne, which last judgment was rendered upon certain notes made by the defendant to the plaintiff, in the state of Maine, prior to the New-York insolvent act of 1813. And the court held, that although the original undertaking of the defendant was so merged in the judgment that no suit could be maintained upon it, yet that it was proper to inquire into the time and circumstances of the contract upon which the first judgment was founded, for the purpose of taking the case out of the operation of the defendant’s discharge. (See also Raymond v. Merchant, 3 Cowen’s Rep. 147.) An example of a similar kind, but in favor of the debtor, may be found in the case of Betts v. Bagley, 12 Pick. Rep. 572,) which was an action of debt on a judgment recovered in October, 1823, in the court of common pleas of Berkshire county in the state of Massachusetts. The defendant pleaded with proper averments, a discharge under the insolvent laws of the state of New-York, of 1813, which was granted on the 17th day of May, 1828, but which could not have operated upon a judgment in the state of Massachusetts, unless the court had inquired into the circumstances of the case and the nature of the debt upon which the judgment was founded. Upon such inquiry, it appeared, that, when the suit was commenced in the common pleas of Berkshire, and the original judgment was rendered, both parties were citizens of this state, and that the judgment was upon promises made and to be executed here ; and under these circumstances the court gave effect to the defendant’s discharge, refusing to cany the technical doctrine of merger to such extent as to defeat the equities of the defendant arising from the nature and circumstances of the original debt.

We have been referred to cases of bankruptcy in England, where the judgment was obtained before the certificate on a debt which existed previous to the bankruptcy, so that the defendant had no opportunity to plead his discharge, and where the courts have given effect to the discharge on motion. But as this practice was expressly enjoined by the 13th section of the statute of 5 Geo. 2, entitled an “ act to prevent the committing of frauds by bankrupts,” and other bankrupt acts, many of the cases cited do not come with the same authority as if they had been determined in administering the common law powers of the British courts. Some of these cases, however, base the relief which is granted to the bankrupt, under such circumstances, upon broader ground. (See Lester v. Mundell, 1. Bos. & Pull. 427.) This was an application to have a writ oí fieri facias set aside and the goods and money levied under it restored to the defendant, on the ground of his having become a bankrupt subsequent to the time when the cause of action accrued, and having obtained his discharge after the fi. fa. was issued. The court entertained the motion rather than drive the defendant to his audita querela, saying that by the modern practice, the defendant might obtain the same relief as by au. quer. in a summary way. But upon its being suggested by counsel that fot a particular cause stated the defendant was deprived of the benefit of the bankrupt act, and that he had frequently promised payment since his certificate; the court said that when they entertained summary jurisdiction, in order to relieve a party from the necessity of having recourse to an au. quer., they would look into the circumstances of the case, and see whether there was any thing to prevent the au. quer. from taking effect; and ordered the rule to stand over, the paintiff to deliver a declaration, and the defendant to plead his certificate; and the parties to go to trial at the ensuing assizes.

An audita querela lay in behalf of a defendant in a judgment to be relieved upon good matter of discharge which happened after the judgment, but which he had no opportunity of pleading. It was in the nature of a bill in equity and was a writ of the most remedial nature, and seems to have been invented,” says Blackstone, lest in any case there should be an oppressive defect of justice where a party who hath a good defense, is too late to make it in the ordinary forms of law.” (3 Black. Com. 406, 407.) The relief formerly procured by this writ is now obtained summarily by motion; and yet it often happens that complete justice can not be administered in this summary manner, and the court's are compelled to frame an issue, or to direct an action to be brought, in order to determine the rights of the parties, as was done in the case of Lester v. Mundell. But an issue thus joined has no higher merit than if it were framed by the voluntary act of the parties themselves ; and if in a suit upon a judgment, they frame an issue presenting the identical questions which might be raised upon a summary application, it is difficult to perceive any well founded objection to their determination in such suit.

The defendants in the present case, instead of moving summarily for the relief, to which it appears they would have been entitled, awaited the action of the plaintiff; and when he instituted an equitable suit upon the judgment, they set up in their answer by way of defense, the very matter upon which they might formerly have been relieved by au. quer. or according to the present practice, by motion. The court was thus relieved from the burthen of framing an issue to determine the validity of the discharge—-it was presented to them by the pleadings in this suit—the plaintiff having asserted by his bill that the debt secured by his judgment was a valid and subsisting demand against the defendant, and of which he was entitled to satisfaction out of their assets; and the defendant having answered that the judgment was discharged by the decree in bankruptcy.

The issue thus presented was as complete as could be framed for the purpose of testing the effect of the defendant’s discharge, and I am satisfied that the court below were correct in entertaining it.

The leading cases to which we were referred in support of the plaintiff’s case do not uphold it, In Birch v. Charland, (1 T. R. 715,) the bankrupt, after his bankruptcy, gave a bond and warrant of attorney to confess judgment, which was held not to be barred by his certificate, although the original debt was contracted before; because the judgment was regarded as a new debt, arising upon a new consideration, the bond and warrant of attorney having been given in order to procure the defendant’s liberty.

In Thompson v. Hewitt, (6 Hill, 254,) the defendant moved for a perpetual stay of execution upon the judgment in that suit, on the ground that he had obtained a discharge as a voluntary bankrupt. The action was commenced in May, 1842, to recover the amount of a promissory note; on the 9th of January, 1843, the defendant presented his petition in bankruptcy; on the 6th of May following his attorney gave a relicta and cognovit, and judgment was perfected on the 29th of July. On the 7tlx of August following, the defendant obtained his discharge. It appeared, however, that the cognovit was given and' received as a compromise for a less sum than was claimed to be due, and upon the express understanding that any discharge in bankruptcy which the defendant might obtain should not affect the judgment. And the court refused to grant the defendant a favor in direct violation of his agreement, and under the circumstances of the case, treated the judgment which was entered on the cognovit, as a new debt, which was not affected by the discharge ; and it would seem there was enough in the case to enable the court to do so, upon the principle which obtained in Birch v. Charland, without determining that the judgment, divested of the circumstances under which it was rendered, was, of itself, a new debt.

The case of Kellogg v. Schuyler, (2 Denio, 73,) in strictness decided no more than that a cause of action in trespass was not affected by a discharge in bankruptcy, although a verdict had been rendered before the presentation of the petition to be declared a bankrupt; which is in harmony with all the cases.

The case of Stewart v. Green & Bannister, (11 Paige's Ch. R. 535,) arose upon a creditor’s bill, and the chancellor intimated, although he did not definitely pass upon the point, that the bankrupt’s discharge of the defendant Bannister, which was obtained more than a month before the recovery of the judgment against him, could not avail him in the court of chancery while that judgment remained in full force; and that he ought to have pleaded his discharge in bar of the further maintenance of the suit at law. And this may be conceded, where the defendant has an opportunity for that purpose, which was not the case of the defendants in this suit. It seems, however, from subsequent decisions in the late court of chancery, that but for such opportunity of Bannister to plead his discharge at law, it would have been held a good answer to the plaintiff’s bill in the suit referred to. For in Johnson v. Fitzhugh, 3 Barb. Ch. R. 360,) the chancellor held, that although to a certain extent a judgment technically changed the nature of a debt, yet its identity still remained, so far as that, if contracted previously to the institution of proceedings in bankruptcy against the debtor, it would be barred by a discharge obtained after the entry of the judgment. (See also Penniman v. Norton, 1 Barb. Ch. R. 246.)

As to the costs which were added to the original debt by the plaintiff’s proceeding to judgment, these have always, in cases of bankruptcy, been regarded as accessory to the debt, and as standing upon the same foundation in reference to the discharge. (Cowp. R. 138; 1 Wils. R. 41.)

On the whole, I think it may be held both upon principle and authority, that the bankrupt discharges which the defendants have set up in their answers, are available as a defence to this suit. The decree of the supreme court must be affirmed.

Bronson, Ch. J. (dissenting.)

The complainant filed a creditor’s bill for the purpose of obtaining satisfaction of a judgment which he had recovered against John and Joseph Rowling. The suit in which the judgment was recovered was commenced in 1841, on several promissory notes made by the Row-lings in 1840. In December, 1842, John Rowling presented his petition to be discharged as a voluntary bankrupt. In May, 1843, judgment was rendered for the plaintiff; and in July following, Rowling obtained a discharge from all the “ debts owing by him at the time of the presentation of his said petition,” December, 1842. Joseph Rowling was also discharged as a bankrupt, under circumstances which make the same question as that which relates to John; and I shall hereafter make no distinction between the two cases. The Rowlings have set up their bankrupt discharges as a bar to the complainant’s claim on the judgment. They insist that “ they were fully and completely discharged, released and exonerated of and from the said judgment,” and from the notes on which the judgment was entered; and that the discharges are a full and complete bar to the filing of the complainant’s bill as against them respectively ;” and that they are under no legal or equitable obligation to pay the said judgment.” The whole matter may be summed up and brought to a point in few words. The complainant sues to enforce a judgment recovered in May, 1843: to this the defendants answer, that the action is barred, because they have been discharged from all the debts which they owed in December, 1842—five months before the judgment was rendered. To say that a discharge from debts owing in 1842, is a discharge from a judgment recovered the year afterwards, or a bar to a remedy on the judgment, is simply and absolutely absurd. The thing is so plain that it cannot be illustrated or made more clear by argument.

But it is said, that the notes on which the judgment was re-. covered were discharged. If that be granted, it does not advance a single step towards showing the judgment discharged. The judgment was a debt—or conclusive evidence of a debt— the moment it was entered, whether there was any consideration for it or not. It was a demand of the highest nature known to our law—a debt of record. A record imports absolute verity; and no averment in pleading is admissible against it. So far has this rule been carried, that where the court on motion has made an order setting aside a judgment for irregularity, the order is no answer to the judgment, until a vacatur has been enrolled or entered of record. (Croswell v. Byrnes, 9 John. 287.) Let it be granted that the notes were paid, released, discharged, or even annihilated, the day before the judgment was recovered, still the judgment, until vacated or set aside, would be conclusive evidence of a debt. In an action on the judgment the defendant could not plead to the consideration, nor set up as a bar that there should not have been a recovery,. Where the court has jurisdiction, it matters not how irregularly or unjustly a judgment may have been entered; it is still a judgment, and can not be impeached in pleading. The irregularity or injustice can not be set up as an answer to an action on the judgment. No color for such a defence can be found in the books. It is a new thing in the law.

When the case, is such that the defendant ought to have relief, his remedy is a direct proceeding to get rid of the judgment, either by setting it aside, or obtaining an order for a perpetual stay of proceedings. This relief is granted in a summary way, on motion, by the court in which the judgment was rendered; and upon such terms as the justice and equity of the case may require. If the judgment was irregularly entered, it will be set aside, and the defendant allowed to plead his defence. In cases where he has had no opportunity to plead, as where the original debt or demand was satisfied, released or discharged between the verdict and the judgment, the judgment will either be set aside, or a perpetual stay of proceedings will be ordered, as the circumstances of the case may require. And where some matter arises after judgment which should preclude the plaintiff from having execution, a perpetual stay of proceedings, or an acknowledgment of satisfaction will be ordered. Formerly the remedy in such oases was by writ of audita querela; but the courts began about two centuries ago to give a more cheap, expeditious and 'equally efficient remedy by motion; and the writ of audita querela has every where fallen into disuse. But whether the remedy is by audita querela or by motion, it is a direct and orderly proceeding either to vacate the judgment, or to restrain the plaintiff from using it. There is no authority for saying that the judgment may be attacked in any other way. Relief is granted by audita querela or on motion for the very reason that the party has no other remedy. If the case be such that he can plead in bar, that is a sufficient reason for refusing relief on motion. The books are full of cases where relief has been granted on motion, while there is not one case which holds that the defendant may in pleading go behind the judgment for the purpose of impeaching it.

On the argument of the cause, and in the opinion to which we are referred as containing the reasons of two of the judges of the supreme court for this decree, (Dresser v. Brooks, 3 Barb. 440,) a good deal was said about some remarks of mine touching the doctrine of merger or extinguishment. It can not be necessary to cite authorities to prove the general doctrine that a claim for damages on account of a tort is extinguished by a judgment recovered for the wrong. Clearly there can not be a second action for the same injury. Nor did I suppose it would be denied, that if a creditor accept or obtain a security of a higher nature than he had before, it is an extinguishment of the first debt or security, except in cases where the second security is collateral to the first. (Higgeris case, 6 Co. 44; Goodwyn v. Goodwyn, Yelv. 39; Vin. Ab. Debt (Y.); Bac. Ab. Extinguishment, (D.); Andrews v. Smith, 9 Wend. 53; Davis v. Anable; 2 Hill, 339.) After the plaintiff in this case had sued and obtained a judgment on the notes, I supposed no lawyer would say that he could have another action on the same notes; and the reason why he could not is, that the notes were merged in, and extinguished by the judgment. Still it is undoubtedly true, that courts may sometimes look beyond the judgment to see for what cause it was recovered. This may be done for various purposes. The plaintiff may do it for the purpose of securing his rights as a creditor against a fraudulent conveyance by the debtor, or as an answer to an insolvent or exemption law passed after the contract was made on which the judgment was recovered. The defendant may do it for the purpose of showing an extinguishment of the original cause of action ; and for other purposes not inconsistent with the validity of the judgment. Cases of this kind are cited by the supreme court. But neither party can go behind the judgment for the purpose of attacking or impeaching it by pleading in a collateral action. No case of the kind was found by the learned judge who delivered the opinion of the supreme court, and none has been found by the counsel for the defendants. I have carefully examined the long list of authorities cited by the court and the counsel, as well as many others: and with the exception of an obiter dictum of the chancellor in Johnson v. Fitzhugh, (3 Barb. Ch. R. 360,) there is no color of authority for saying, that the defendant may plead in bar of an action on a judgment the fact that there was or is a good answer to the cause of action on which the judgment was recovered. Cases are cited, and many more might be added, which show that the defendant may sometimes have relief on motion, or by audita querela, where he had no opportunity to plead the defense on which he relies; but none which show that he can have relief in any other way.

I ought perhaps to notice more particularly the case of Blandford v. Foote, (Cowp. 138,) because it has been put forward as a direct and conclusive decision on the very point in dispute,” and as one which ought to be decisive of the question ; sustained as it is by the great authority of Lord Mansfield’s name, and having survived a period of 70 years without ever having been questioned or doubted.” Now without derogating in the least from the high respect which is claimed for that decision, two remarks upon it will be sufficient for the present purpose. In the first place, the case arose and was decided on a provision in the English bankrupt act, (12 Geo. 3, ch. 47, § 2,) which is not contained in our bankrupt law; and consequently no such case either has, or can arise in this country. And secondly, the relief which was given to the defendant in that case he got on motion, and could not have been obtained in any other way. So much for the case in point.

It has been said, that the judgment was provable under the bankrupt act; and that a discharge may extend to all debts which are provable. To _ this I answer, first, that there is nothing in the bankrupt act which makes a judgment provable under it which was recovered after the petition was presented. And secondly, it is not important to inquire what the discharges might have been, for we must be governed by what they are; and they are respectively discharges from the “ debts owing by him [the bankrupt] at the time of the presentation of his petition and from no other. This judgment did not then exist, and consequently was not reached by the discharges.

This carries us back again to the starting point. In answer to an action to enforce a judgment recovered in 1843, the defendants set up bankrupt discharges from all debts which they owed the year before. Such a defence is a palpable absurdity.

I have assumed that the Rowlings might have had relief against the judgment on motion, if they had applied in due time. But it is proper to say, that our bankrupt act does not, like the English bankrupt law, make provision for such a case; and it is far from being clear that the defendants could have got rid of the judgment in any way. But conceding that they might, we can not give the relief which they claim without a plain departure from well established principles.

It is my humble office to search out and declare the law as it is. I have no commission to make it better: that high prerogative has been entrusted to the legislature.

I think the decree of the supreme court' erroneous; and my brother "Jewett concurs in that opinion.

Taylor, J. did not hear the argument, and gave no opinion.

And thereupon the decree of the supreme court was affirmed. .


source: Caselaw Access Project

author: Ruggles, J.

license: Public Domain

text:
    The Bank of Commence vs. The Union Bank.
    The drawee of a bill of exchange, it seems, is presumed to know the hand-writing of the drawer.
    And the payment of a bill by the drawee is ordinarily an admidsidn of the drawer's signature, which he is not afterwards, in a controversy between himself and the holder, at liberty to dispute.
    And therefore if the drawer’s signature is on a subsequent day discovered to be a forgery, the drawee can not compel the holder, to whom he has paid the bill, to restore the money, unless the holder be in some way implicated in the fraud.
    But the reason of the rule fails, and the rule itself does not apply, where the forgery is not in counterfeiting the name of the drawer, hut in altering the body of the bill.
    A bank in New Orleans drew a bill at sight upon the plaintiffs’ bank .in New-York for $105, payable to “J. Durand.” After it was issued the bill was fraudulently altered to a bill for $1005, payable to “ J. Bonnet,” and indorsed, with that name. The plaintiffs, at sight, paid the bill to the* defendants’ bank in New-York, which had received it for collection from a bank in Charleston. Held, that the plaintiffs, on ascertaining the forgery, were entitled to recover back the money, the jury having found that they were not guilty of any.negligence in not discovering the forgery before paying the bill, and notice of the forgery having been given as soon as discovered.
    Money paid by one party to another, through a mutual mistake of facts in respect to which both were equally bound to inquire, may be recovered back.
    The Bank of Commerce brought assumpsit in the superior court of the city of New Work, against the Union Bank, to recover money paid by mistake. On the trial before Sanford, J. the case was this:
    On the 18th of December, 1847, the New Orleans Canal and Banking Company dréw a draft on the Bank of Commerce in New-York, payable to the order of “3. Durand,” for one hundred and five dollars. After the draft was issued it was fraudulently altered in several respects, and among others, by the substitution of the word “ thousandi for “ hundred,” and the name “ Bonnet” instead of “ Durand,” so that it appeared to be a draft for one thousand and five (instead of one hundred and five) dollars, and payable to the order of Ji Bonnet (instead of J. Durand.) In this altered condition, and bearing the indorsement “ J. Bonnet,” the Union Bank in New-York received the draft from the State Bank of Charleston for collection, and credited the amount to that bank. The Bank of Commerce, on the draft being presented by the Union Bank, paid it to the latter. Two days afterwards the Bank of Commerce received advices from the New Orleans Canal and Banking Company, and then ascertained the alterations in the draft. Thereupon the draft was returned to the Union Bank, and the money, which had been paid, demanded; but payment was refused.
    The evidence being closed, the court charged the jury that if they were satisfied the draft had been altered, in the manner before mentioned, after it was issued by the drawers, and that the plaintiffs paid the amount of it, as altered by, mistake, and without knowledge of or reason to suspect the alterations, they were entitled to recover the amount of money so paid. Also that the rule requiring a banker to know the hand-writing of his customer, as to the signature to a check or draft, did not extend to the filling up of the body thereof; and that paying the draft in question under the circumstances was not of itself evidence of any negligence or want of due caution on the part of the plaintiffs. There was an exception to the charge and to the refusal of the court to charge certain propositions as requested. The plaintiffs had a verdict for $1035,38, which the superior court refused to set aside, and after judgment the defendants appealed to this court.

      H. Ketchum, for appellants.
    I. There is no rule that the banker must know the hand-writing of his customer as to the signature, but the rule is “ that the banker shall take care that he do not pay away his customer’s money without sufficient authority for the purpose; and if paid to a forged order, he must bear the loss, and it is immaterial whether the order was forged wholly or in part. It is the banker’s duty to see that the check is genuine in all respects. (Hall v. Fuller, 5 Barn. & Cress. 750, referred to in note (a); Chitty on Bills, 288, ed. of 1839 ; see also Smith v. Mercer, 6 Taunt. 75.) The attempt to establish the principle that a different degree of scrutiny is required in examining the body of a draft by the person on whom it is drawn, from that required in examining the signature of the drawer, is utterly fallacious and ought to be discountenánced.
    II. The second proposition laid down in the second divison of the judge’s charge, is “ that paying the draft, under the circumstances, was not of itself evidence of any negligence or want of due caution on the part of the plaintiffs. This assumes that which it is the province of the jury to find. The jury were to judge of circumstances, and of negligence or no negligence. (Price v. Neal, 3 Burr. 1355.)
    III. The court erred in refusing to charge the jury, as requested, that the drawee of a draft is bound, before accepting or paying the same, to know its genuineness, and it is negligence in him not to inform himself whether the draft is genuine or not; and if he accepts or pays it, (unless upon misrepresentation,) that is an admission of its genuineness, which concludes him. (Price v. Neal, 3 Burr. 1355; Markle v. Hatfield, 2 John. 462, last paragraph in opinion of Kent, Ch. J.; Bass v. Cline, 4 Maule & Selwyn, opinion of Dampier, J. p. 15; Smith v. Mercer, 6 Taunt. 75 ; Story on Bills, § 113 ; U. S. Bank v. Bank of Georgia, 10 Wheat. 333.)
    IV. Even if there was no negligence on the part of the plaintiff—still, if there were none, (and no fraud) on the part of the defendants, there is no reason why one innocent party should suffer rather than the other, and the law therefore leaves the parties in the same condition in which it found them. (Cases before cited, and Bank of Gloucester v. Salem Bank, 17 Mass. 33.) If, when the defendants presented the draft in question for payment, they held it in good faith, and for a valuable con- ' sideration; or if the party from whom they received it so held it, when he passed it to them, and if upon such presentation the plaintiffs’ bank paid the amount of it to them, without being induced to do so by any fraud, deceit, or untrue representation of the defendants, this action could not be maintained.
    V. The only ground upon which the respondent claims a right to recover in this case, is that the amount of the altered draft was paid by mistake. That action can only be maintained where it is against conscience for the defendant to retain the money. Here there is no pretence that the appellants can not conscientiously retain the money, for they have paid out in good faith, and without fault, all that they claim of respondents. (See rule laid down by Lord Mansfield in Price v. Neal, before cited ; Brisbane v. Dacres, 5 Taunt. 142; Moses v. Macfarlan, 2 Burr. 1012.)

      B. D. Silliman, for respondents.
    I. Money paid under mistake of facts, may be recovered back. (Chit, on Cont. Am. ed. of 1844, p. 626, and cases cited in notes ; Chitty on Bills, Am. ed. of 1849, p. 425 ; 2 Smith’s Lead. Cas. p. 237, Law Lib. vol. 28, new series, p. 269, and notes; Potter v. Everett, 2 Hall, 252; Mowatt v. Wright, 1 Wend. 355 ; Burr v. Veeder, 3 id. 412; Waite v. Leggett, 8 Cowen, 195 ; Union Bank v. U. S. Branch Bank, 3 Mass. 74; Garland v. Salem Bank, 9 id. 389; Lazell v. Miller, 15 id. 207.)
    II. The Bank of Commerce paid the money through mistake of facts. The forged alterations in the amount of the draft being without their knowledge at the time they paid it, they are entitled to recover back the sum paid. The rule requiring a banker to know the signature of his customer to a check or draft, does not extend to the filling up of the body of the instrument. (Chitty on Bills, ed. of 1849, p. 245, and cases cited ; Jones v. Ryde, 5 Taunt. 488; Bruce v. Bruce, id. 495 ; Merchants’ Bank of New York v. Exchange Bank of New Orleans, 16 Louis. Rep. 457.) So where a party has procured payment of forged or altered paper without indorsing his name on it, yet he must pay back the money, although he may have paid it over to the party of whom he was the agent. (Fuller v. Smith, 1 C. & P. 197; S. C. Ryan & Moody, 49; Chitty on Bills, ed. of 1849, p. 245.)
    III. The party paying has a right to recover his money as well where the forgery is that of the indorser’s name, as where it is an alteration of the amount for which the bill was drawn. In this case the draft was assignable only by the indorsement of’Durand, in whose favor it was drawn. It lacks that indorsement,. and no title therefore ever passed either to the Charleston Bank or to the Union Bank. (Chitty on Bills, ed. of 1849, p. 260, and cases cited; Smith v. Chester, 1 Term Rep. 654 ; Dick et al. v. Leverich, 11 Louis. Rep. 573 ; Canal Bank v. Bank of Albany, 1 Hill, 287; Talbot v. Bank of Rochester, 1 id. 295 ; Coggill v. Am. Ex. Bank, 1 Comst. 11.)
    IY. There is an implied warranty in the transfer of every negotiable instrument that it is not forged— and the actual indorsement of this draft by the Union Bank, was an express averment, and a guarantee to the Bank of Commerce that it was not forged or altered. It was an assurance of its genuineness in every respect, save the signature of the drawer. (Chitty on Bills, ed. of 1849, p. 245 ; Jones v. Ryde, 5 Taunt. 488 ; Wilkinson v. Johnson, 3 Barn. & Cress. 428; Herrick v. Whitney, 15 John. 240; Harris v. Bradley, 7 Yerg. 310) Story on Bills of Exch. §§ 110, 235.)
   Ruggles, J.

delivered the opinion of the court.

The payment of a bill of exchange by the drawee -is: Ordinarily an admission of the drawer’s signature, which he is not afterwards, in a controversy between himself and the holder, at liberty to dispute; and therefore if the drawer’s signature is on a subsequent day discovered to be a forgery, the drawee can not compel the holder to whoiri he paid the bill, to restore the money, unless the holder be in some way implicated- in the fraud. (Price, v. Neal, 3 Bur. 1354.) This rule is founded on the supposed negligence of the drawee in failing by an examination of the signature, when the bill is presented, to detect the forgery and refuse payment. The drawee is supposed to know the hand-writing of the drawer, who is usually his customer or correspondent. As between him, therefore, and an innocent holder, the payer, from this imputed negligence must bear the loss. In Price v. Neal, the plaintiff had paid to Neal the holder two bills of exchange, purporting to be drawn on him by Sutton, whose name was forged. On discovery of the forgery, Price brought his action against Neal, to recover back the money as paid by mistake. Lord Mansfield in delivering the opinion of the court in favor of the defendant, said, “ it was incumbent upon the plaintiff to be satisfied that the bill drawn upon him, was the drawer’s hand before he accepted or paid it, but it was not incumbent upon the defendant to inquire into it.” “ Whatever neglect there was, was on his side. It is a misfortune which has happened' without the defendant’s fault or neglect.”

In Wilkinson v. Lutwidge, (1 Srange, 648,) Lord Chief Justice Pratt was of opinion that “ acceptance was a sufficient acknowledgment of the drawer’s hand-writing on the part of the acceptor, who must be supposed to know the hand of his own correspondent.” So the acceptance of a bill whether general, or for honor, or supra protest, after sight of the bill) admits the genuineness of the signature of the drawer; and consequently if the signature of the drawer turns out to be a forgery, the acceptance will nevertheless be binding and entitle a bona fide holder for value and without notice to recover thereon according to its tenor. (Story on Bills, § 262.)

But it is plain that the reason on which the above rule is founded does not apply to a case where the forgery is not in counterfeiting the name of the drawer, but in altering the body of the bill. There is no ground for presuming the body of the bill to be in the drawer’s hand-writing, or in any hand-writing, known to the acceptor. In the present case, that part of the bill is in the hand-writing of one of the clerks in the office of the Canal and Banking Company in New Orleans. The signature was in the name and hand-writing of the cashier. The signature is genuine. The forgery was committed by altering the date, number, amount and payee’s name. No case goes the length of saying that the acceptor is presumed to know the hand-writing of the body of the bill, or that he is better able than the indorsers to detect an alteration in it. The presumption that the drawee is acquainted with the drawer’s signature, or able to ascertain whether it is genuine, is reasonable. In most cases it is in conformity with the fact. But to require the drawee to know the hand-writing of the residue of the bill, is unreasonable. It would, in most cases, be requiring an impossibility. Such a rule would be not only arbitrary and rigorous but unjust. The drawee would undoubtedly be answerable for negligence in paying an altered bill, if the alteration were manifest on its face. Whether it was so or not, in this case was properly submitted to the jury, who found that it was paid by mistake and without knowledge of, or reason to suspect the fraudulent alterations. It would have been difficult to find otherwise upon the evidence, the bill having passed through the defendants’ bank, and the Charleston bank without suspicion. If the forgery had been in the name of the drawer, it might not perhaps have been incumbent on those banks to scrutinize the bill, because they might have relied on the drawee’s better knowledge of the hand; but the forgery being in the body of the bill the plaintiffs were not more in fault than the defendants.

The greater negligence in a case of this kind is chargeable on the party who received the bill from the perpetrator of the forgery. So far as respects the genuineness of the bill each indorsee receives it on the credit of the previous indorsers; and it was the interest and duty, in the present case, of the Bank of Charleston, to satisfy itself that the bill was genuine, or that its immediate indorser was able to respond in case the bill should prove to be spurious. The party who fraudulently passed the bill can not avoid his liability to refund on the pretence of delay in detecting the forgery, or in giving notice of it; and if reasonable diligence is exercised in giving notice after the forgery comes to light it is all that any of the parties can require. (Canal Bank v. The Bank of Albany, 1 Hill, 287, 292, 3.)

In Smith v. Mercer, (6 Taunt. 76,) in Cocks v. Masterman, (9 Barn. & Cres. 902,) and in Price v. Neal, (3 Burr. 1354,) the plaintiffs who paid the forged bills, being chargeable with a knowledge of the signature of the drawer, (which was forged,) were held to have paid it negligently and without due caution and examination, and on that ground it was that, the defendants to whom they paid the money were held not liable without immediate notice of the forgery. But in the present case, no such negligence is imputable to the plaintiffs, the plaintiffs being no more capable of detecting the forged alteration by inspection of the bill, than either of the other parties.

This action is not founded on the bill as an instrument containing the contract on which the suit is brought. The acceptor can never have recourse on the bill against the indorsers. But the plaintiffs’ right of recovery rests on equitable grounds. In the Canal Bank v. The Bank of Albany, the principle was recognized that money paid by one party to another through mutual mistake of facts in respect to which both were equally bound to inquire, may be recovered back. The defendants here as in that case have obtained the money of the plaintiffs without right and on the exhibition of a forged title as genuine, the forgery being unknown to both parties. The de-‘ fendants ought, not in conscience to retain the money, because it does not belong to them; and for the further reason that the defendants and the previous indorsers have, each, on the same principle, their remedy over against the party to whom they respectively paid the money, until the wrongdoer is finally made to pay. If that party should be irresponsible, or if he can not be found, the loss ought to fall on the party who, without due caution, took the bill from him.

In cases where no negligence is imputable to the drawee in failing to detect the forgery, the want of notice within the ordinary time to charge the previous parties to the bill, is excused, provided notice of the forgery be given as soon as it is discovered.

Judgment affirmed.


text:
    De Ruyter vs. St. Peter’s Church.
    The charter of St. Peter's church (Stat. of April 11, 1917,) authorizes the trustees of the corporation “ to give, grant, demise, lease, or otherwise dispose of its real and personal estate,” provided that nothing in the act contained should authorize the trustees to “ sell" the real estate without the concurrence of the chancellor to be obtained according to the 11th section of the general act for the incorporation of religious societies. Under this provision of the charter, held, that an assignment by the trustees, with the concurrence of the chancellor, of all the real and personal estate of the church, in trust to pay its debts, was valid.
    A corporation, whether trading or religious, may, at the common law, assign its property in trust for the payment of its debts, unless restrained by its charter, or by some other statute.
    An assignment of all the property of a corporation in trust to pay its debts, does not, it seems, operate as a transfer of the corporate franchises.
    And such an assignment may be made to persons ineligible under the charter as general trustees of a religious society.
    Under the general act for the incorporation of religious societies, (Slat. April 5, 1813,) the power to sell real estate is vested in the court pf chancery, and not in the trustees; and the sale, it seems, may be directed to be made by a master or other officer, as well as by the trustees.
    De Rutter filed his bill for the satisfaction of a mortgage' executed to him by the trustees of St. Peter’s church, in the city of New-York, and obtained a decree for the sale of the mortgaged premises. After a sale under the decree the surplus moneys, amounting to $2507, were brought into court and an order was entered for a reference to a master to ascertain who were entitled thereto. John Power and Charles Constantine Pise claimed the entire surplus by virtue of a deed of assignment made by the trustees of St. Peter’s church, on the 13th of September, 1844, conveying to them the property of the church in trust for the payment ratably of all the debts of the corporation excepting those secured by mortgage. This assignment was executed in pursuance of an order made by the vice chancellor of the first circuit upon the application of the trustees under the 11th section of the general act for the incorporation of religious societies. The assignment was executed shortly pre vious to the mortgage sale. After the execution of the deed of assignment and before the sale, Lalor, Gallagher, and others, obtained two judgments against the trustees of the church in their corporate capacity, and these judgment creditor's claimed the surplus moneys on the ground that the assignment to Power and Pise, and the vice chancellor’s order in pursuance of which it was executed, were void.
    The master reported in favor of the judgment creditors. Power and Pise excepted to his report. The vice chancellor overruled the exceptions and confirmed the report, by an order made on the 16th of July, 1845. On appeal to the chancellor this order was reversed, the exceptions to the master’s report were allowed, and the surplus moneys were directed to be paid over to Power and Pise, the assignees. (See 3 Barb. Ch. Rep. 124.) From the decision of the chancellor the judgment credv itors appealed to this court.

      L. Livingston, for appellant.

      J. Miller, for respondents.
   Ruggles, J.

delivered the opinion of the court.

The question is upon the validity of the deed of assignment-in trust for the payment of the debts of the corporation. In this question is involved another, on which the case turns; and that is, whether the vice chancellor’s order authorizing and concurring in the sale or assignment for the payment of debts was valid, or void for want of jurisdiction to make it.

The trustees of St. Peter’s church in the city of New-York were incorporated on the 11th of April, 1817. The first section of their act of incorporation confers upon them the power to “ purchase, take, have, hold, receive and enjoy to themselves and their successors forever in fee simple or by any lesser title any estate or interest in any lands, tenements or hereditaments, and the rents, issues and profits thereof, the yearly income or rent of which shall not exceed the sum of $10,000, whether the same be by gift, grant, bargain or sale; and also to purchase, take, hold, possess and enjoy any moneys or other personal estate whatsoever, by gift, grant, bargain and sale, bequest or otherwise; and the same lands, tenements, hereditaments, or personal estate, to give, grant, demise, lease, or otherwise dispose of as to them shall appear proper and just according to the best of their judgment, for the benefit and advantage of the said church and congregation. Provided that, nothing herein contained shall authorize the trustees to sell the real estate unto the said church or congregation belonging, without the concurrence of the chancellor to be first had and obtained in the manner specified in the 11 th section of the act entitled “ an act to provide for the incorporation of religious societies.”

By the 11th section of that statute it was made “ lawful for the chancellor of this state upon the application of any religious corporation, in case he should deem it proper, to make an order for the sale of any real estate belonging to such corporation, and to direct the application of the moneys arising therefrom, by the said corporation, to such uses as the same corporation, with the consent.and approbation of the chancellor, shall conceive to be most for the interest of the society to which the real estate so sold did belong.”

The trustees of St. Peter’s church stand on a different footing with respect to their power to sell their real estate, from corporations formed under the general act “ to provide for the incorporation of religious societies, passed 5th April, 1813.” (3 R. S. 206, 2d ed.) By that act the religious societies incorporated in pursuance of its provisions had power to purchase, take, and hold real estate, and to demise, lease, and hold the same for the use of the church, but not to sell or otherwise dispose of the same. (See section 4.) The only authority to sell their lands was that contained in the eleventh section of the statute; and this is an authority to the chancellor to make an order for the sale, and not a power to the corporation. When the’ corporation conveyed under such an order it acted rather as the agent of the court to which the power was granted, than as the owner of the land. Under that section the chancellor might have directed the sale to have been made by a master or other officer, and the sale would have been as valid as if made by the trustees.

But in the case of St. Peter’s church, the power to sell is granted expressly and directly to the corporate body, and when the trustees execute a deed they act as owners in passing the title. Their charter requires that they should have the concur- • rence of the chancellor before they sell; and this concurrence must be obtained in the manner specified in the 11th section of the general act. But the power to sell is in the trustees and not in the court of chancery. It would seem to be unnecessary for the chancellor to direct the application of the moneys arising from a sale by this corporation, for although his concurrence is to be obtained in the manner prescribed by the 11th section of the general statute, his duty is not, in express terms, regulated by it. But in the present case, the money was directed to be applied to the payment of the debts. The order specified the trusts to be contained in the deed of assignment, one of which was to sell the estate, and another was to apply the money to the payment of the debts ratably and without preference.

The performance of the trust by the assignees may be enforced in equity; and the assignment having been made under an order of the court of chancery, I think the remedy for a violation of the trust may be administered on a summary application. If therefore the vice chancellor was required in this case, as in the case of a sale of the lands of a corporation formed under the general statute, to direct the application of the money arising from the sale, he has substantially done so.

The question here, however, is not wheth er the vice chancellor’s order is erroneous. It is not before us on an appeal for reversal: the question is whether it is void, and we think it is not. The vice chancellor had the same power as the chancellor to act under the first section of the charter of this corporation in giving his concurrence in a sale of their real estate. (1 R. S. 168, §2.) And having jurisdiction of the subject matter, the order could not be treated as a nullity, even if we had been of the opinion that the authority had been indiscreetly or improperly exercised. The deed of assignment passed the entire legal title of the lands from the corporation to the assignees; and it was therefore a sale within the meaning of the charter. But if it should be conceded that in consequence of the equitable interest which the corporation still retains in the application of the avails of the lands, the assignment was not, strictly speaking, a sale, the concession is of no advantage to the judgment creditors in the present case ; because the charter gives power to the trustees not only to sell, but otherwise to dispose of” their lands; and the concurrence of the chancellor is made necessary to a sale, but not to any other disposition thereof.

It was insisted on the argument that the vice chancellor’s order in sanctioning the assignment was virtually an appointment of new trustees in place of those elected under- the charter ; and of new trustees ineligible by the charter, which requires * laymen only to be elected; and therefore that the assignment was a violation of the charter. But this position does not seem to be well founded. The reason for excluding the clergy from the management of the temporalities of that church was probably this; that the salaries of the clergy are paid from the temporalities, and they have therefore an interest which may be at variance with their duties as trustees. But they have no such interest as assignees. The whole assigned fund being received in trust for the payment of debts, no part of it can be applied to their individual use or otherwise diverted from the express purpose of the trust. The assignees are not clothed with a general discretionary power of managing the fund, but their duty being regulated by the order and assignment, is special and ministerial. The assignment, therefore, if valid, does not operate as a transfer of the corporate franchises.

The power of a corporation to assign its property in trust for the payment of its debts can not at this day be doubted. It has been settled not only in this state, (Harlem v. Bishop, 3 Wend. 13,) but in New-Harnpsbire, Vermont, Pennsylvania, Maryland, Tennessee, Alabama and Arkansas. The cases are cited in the chancellor’s opinion in this case, 3 Barb. Ch. 124. It is unnecessary to repeat them here.

There is no solid distinction between the corporation of St. Peter’s church and a bank or railroad company with respect to its power of making an assignment for the payment of its debts, excepting that in the case of this corporation it must be made with the concurrence of the court of chancery. There is no allegation against the fairness and honesty of the transaction. It was the duty of the trustees to cause the debts to be paid, and this mode of doing it does not seem to be liable to any legal objection. The vice chancellor had therefore authority to make the order concurring in the deed of assignment, and the deed is valid. The chancellor’s order ought to be affirmed.

Order affirmed,


author: Hurlbut, J.

text:
    Cowperthwaite vs. Sheffield and others,
    £ bill of exchange drawn against a consignment of goods and a mere letter of advice from the consignor to the consignee do not, it seems, operate as a specific appropriation of the proceeds of the goods to the payment of the bill.
    On a shipment of cotton from Mobile to Glasgow, the shipper drew bills on the consignee against the proceeds and advised him thereof. The bills being presented before the cotton arrived, acceptance was refused. The cotton was received and sold by the consignee, and by a subsequent arrangement between him and the shipper the proceeds were deposited with a third party, to be paid over to the shipper when his creditors should assent thereto; the shipper intending to apply such proceeds to the payment of the bills. The holder of the bills in England, who also held other demands against the shipper, got possession of the fund (which was sufficient to pay the bills) by a judicial proceeding founded on the bills and his other demands. In an action against the indorser of the bills, held that the bills and letter of advice did not operate as an appropriation of the proceeds of the cotton to the payment of the bills, and therefore that the facts stated did not sustain the defence of payment.
    Where, in an action against the indorser of a bill the defendant moved for a non-suit without stating any specific objection to the notice of protest, and the motion was denied, held, that on a motion, for a new trial on a bill of exceptions, the sufficiency of the notice could not be inquired into.
    ' Cowperthwaite, for the benefit of the Bank of England, brought assumpsit in the superior court of the city of New-York against Sheffield & Co. as the second indorsers of two bills of On the trial exchange^ Plea, the general issue, and payment, before Oakley, J. the plaintiff had a verdict, on which the superior court rendered judgment. The defendants appealed to this court,] The facts are stated in the opinion of Hurlbut, J. See also 1 Sandford’s Superior Court Reports, where the case is stated with fuller details.

      Gerardus Clark, for appellants.
    I. The bills were drawn against a shipment of cotton, by the drawers to the drawees, which operated as an assignment of so much of the proceeds of the cotton in the hands of the drawees as would be sufficient to pay the bills. (Peyton v. Hallett, 1 Caines, 363, 379; McMennomy v. Ferrers, 3 John. 75, 83 ; Cutts v. Perkins, 12 Mass. R. 206; Conroy v. Warren, 3 John. Cas. 264; Yates v. Groves, 1 Ves. jun. 280; Corser v. Craig, 1 Wash. R. 424.) The court below erred in supposing this principle applied only to orders, and not to negotiable bills of exchange. There is no such distinction known in the law. (3 John. Cos. 264; id. 5; Corser v. Craig, 1 Wash. R. 424.) The principle we contend for, is inherent in the very nature of bills of exchange, and the question of negotiability has nothing to do with the fact of assignment. (Chitty on Bills, 1, 2, 8th ed.; Story on Bills, §13 ; 3 Kent’s Com. 74; Gibson v. Nicuet, 1 H. Black. 602 ; Walwyn v. St. Quintin, 1 Bos. & Pul. 654; Pardessus, §§ 343 429, 422.) It is on this principle that if the drawer of the bill/ after negotiating it, withdraws the fund from the drawee, he is liable to the payee in an action for money had or received, although discharged from the bill for want of notice. (Conroy v. Warren, 3 John. Cas. 259, 264; Baker v. Burch, 3 Camp. 107.) Even if the drawer dies before acceptance or payment, it does not affect the destination of the fund. (Cutts v. Perkins, 12 Mass. R. 206.) The court below also erred in supposing that in order to constitute an assignment, it was necessary that the bill or order should be for the whole fund, and that it should be accepted. (Peyton v. Hallett, 1 Caines, 379; Yeates v. Groves, 1 Ves. jun. 280; Row v. Dawson, 1 Ves. sen. 332 ; Corser v. Craig, 1 Wash. C. C. R. 424.) In neither of these cases were the bills or orders accepted, or drawn for the whole fund. (See also Wheeler v. Wheeler, 9 Cowen, 34.) In this case, the bills and the fund assigned for their payment having got into the same hands, (and the fund being sufficient,) the one paid the other, and there is no claim on the bills against any of the parties.
    II. Whether there was an assignment or not, there was an appropriation by the drawer. And the proceeds of the cotton being more than sufficient to pay all the bills drawn by the Reids on Kelly & Co. and held by the Bank of England, the bank were bound to apply the fund to the bills, according to the original intent and direction of the drawers; it being a well settled rule of law, that a debtor has a right to apply a payment to any one of several demands of his creditor. (Seymour v. Van Wyck, 8 Wend. 403, 416; Stone v. Seymour, 15 id. 19; Hall v. Constant, 2 Hall, 185; Bonaffi, v. Woodbury, 12 Pick. 456, 463; Robinson v. Doolittle, 12 Verm. R. 246; Colt v. Netherwell, 2 P. Wms. 308.) The very drawing of the bills against the cotton, and giving notice thereef to the drawees, was a direction for the application of the proceeds, to the payment of the bills. (3 John. Cas. 254.) Again, Reid, in his deposition, expressly states that the fund received from Kelly & Co. and deposited in the Bank of Liverpool, was intended to meet the demand of the holders of the bills drawn on Kelly & Co. By this very act of deposit, therefore, it became a trust fund, applicable only to the payment of the bills drawn on that house.
    III. It is also a well settled rule of law, that the source or fund from which a payment is made, will direct the application. That is, when money has come from a particular source, it must be applied by the creditor in relief of the source from which the fund arose. (Hicks v. Bing, 11 Mass. R. 300; Gwyn v. Whitaker, 1 Harr. & John. 754, 5; Brett v. March, 1 Vern. 463; Weller v. Lacy, 1 Man. & Gran. 54.)
    IV. In the absence of any specific application, the presumed intention of the debtor is to govern. . The whole doctrine of the common law, as to the appropriation of payments, is derived from the civil law. (Gass v. Slimson, 3 Sumner, 98; Pattison v. Hall, 9 Cowen, 747.) And according to the civil law rule, if there was no positive proof of the debtor’s direction as to the application of the payment, then his presumed intention always governed; and such appropriation was made as was most beneficial to him. (1 Ev. Pothier, 368 to 376, art. 7.) And this rule has been adopted by the American courts. (Gass v. Stinson, 3 Sumner, 110, 111; Pattison v. Hall, 9 Cowen, 768; Robinson v. Doolittle, 12 Verm. R. 246; Gwyn v. Whitaker, 1 Harr. & John. 755; Dorsey v. Gassoway, 2 id. 402, 412; 1 Story’s Eq. Juris. § 459.) The presumed intention or advantage of the creditor does not govern in the application of payments, except where it is a matter of entire indifference to the debtor how the payment is applied. (Pattison v. Hall, 9 Cowen, 767, 771; id. 773, note ; Story’s Eq. Jur. § 459, c ; id. § 459, d.)

      V. If no application is satisfactorily shown to have been made by the debtor and there are no circumstances from which his direction may be inferred or presumed, then the Creditor may make it; but if none is made by either party, then the court will make the application according to the justice and equity of the case. (Seymour v. Van Wyck, 8 Wend. 403 ; Baker v. Stackpole, 4 Cowen, 420 ; Story on Cont. § 980; 1 Story’s Eq. Jur. § 459 ; Creemer v. Higginson, 1 Mason, 338 ; Reed v. Boardman, 20 Pick. 446; United States v. Kirkpatrick, 9 Wheat. 737; Merrimack Bank v. Brown, 12 N. Hamp. Rep. 320.) In this case no special application was made by the Bank of England, and therefore the fund should have been applied to the payment of the bills drawn against it.

      E. H. Blatchford, for respondent.
    I. The drawing of the bills on account of a shipment of cotton, cailnot be regarded as an assignment of any part of the proceeds of sdeh shipment. The instruments in this case were naked bills of exchange, not drawn on any particular fund, and the payment being dependent upon no contingency. Were it otherwise, they would have lost their character as bills of exchange. (Chitty on Bills, Springfield ed. of 1842, p. 137, 8, and cases there cited.) Had the bills of exchange been in the form of orders for the entire proceeds of the shipment of cotton, they would, after notice to the Kellys, have operated as an assignment of such proceeds within the cases of McMenomy v. Ferrers, (3 John. 72,) and Peyton v. Hallet, (1 Caines, 363.) But had the bills in question been in the form of orders on said proceeds, as they did not embrace the entire amount, they would not have amounted to an assignment of a part, or have given a lien as against the drawees, unless Kelly & Co. had consented to the appropriation by accepting the orders. (Mendeville v. Welch, 5 Wheat. 277; Tiernan v. Jackson, 5 Pet. 580 ; De Besse v. Napier, 1 McCord, 106;) The bills not being accepted by Kelly & Co., there was no obligation on their part as between them and the holders of the bills to pay them at all. The disposition to be made of the proceeds of the shipment was a matter wholly between Kelly & Co. and the Messrs. Reid, the drawers, and was so treated by them in the settlement which took place.
    II. The balance in question was paid over to the Bank of England, on account of eight bills of exchange which it held, drawn by Jno. and James Reid, and which did not include the bills in suit. This was done under the grant or warrant issued under the process of outlawry, and it is conclusive upon the question of the application of the amount received by the Bank of England.
    III. The Bank of England had a right thus to apply the funds in question. (Clark v. Burdett, 2 Hall, 197; Stone v. Seymour, 15 Wend. 19 ; Niagara Bank v. Roosevelt, 9 Cowen, 409 ; Baker v. Stackpool, 9 id. 420 ; Pattison v. Hull, id. 747 ; Mann v. Marsh, 2 Caines' R. 99 ; Briggs v. Dwight, 1 Man. & Ryl. 308; Campbell v. Gow, Dallas, 74; Hall v. Wood, 14 East, 243; Kirby v. Marlborough, 2 M. & S. 18; Peters v. Anderson, Taunt. 596.)
   Hurlbut, J.

The bill of exceptions in the present case does not properly present the question which was argued at the bar, as to the sufficiency of the notice of dishonor of the bills which are the subject of this suit. When the plaintiff rested his case, he had given what he deemed sufficient proof of such notice, but he may not have exhausted all the evidence in his power If the defendants designed to make a point as to the sufficiency of the proof delivered, they should have objected against it specifically, and pointed out the defects which they conceived to exist in this branch of the case, in order that the plaintiff might have had an opportunity to supply such defects by the delivery of further evidence, or in default of it, that the ruling of the court might have been obtained upon the precise point presented by the objection. But instead of this, the bill of exceptions merely states, that when the plaintiff rested, the defendants’ counsel moved for a nonsuit, which was denied, and the defendants excepted. This presents no question as to the sufficiency of the notice of protest. (Gillett v. Campbell, 1 Denio, 520; Whiteside, &c. v. Jackson, 1 Wend. 418; Ford v. Mannor, 20 id. 210; Norman v. Wells, 17 id. 136.)

The other questions which are presented by the bill of exceptions, arise upon the following facts:—On the 8th of February, 1837, Messrs. James and John Reid, of Mobile, drew two' bills of exchange on Messrs. Kelly & Co. of Glasgow, for one thousand pounds each, and payable sixty days after sight to the order of the drawers. They were drawn against a shipment of cotton by the Messrs. Reid to Kelly & Co., of which they were advised by letter dated February, 28, 1837, which contained a notice of the shipment and of four drafts drawn on account of the same, amounting in the aggregate to four thousand pounds, including the two drafts in suit. The letter was received by Kelly & Co. on the 14th of April, 1837, and on the 15th the bills were presented to them, and were protested for non-acceptance on the 17th of the same month. The cotton arrived at Glasgow about the 27th of June, 1837, and the proceeds were credited in account of Kelly & Co. with Messrs. Reid on the 14th of August of that year. The bills contained nothing on their face indicative of their having been drawn on a specific fund, but were in the ordinary form of negotiable bills of exchange; and there is nothing in the case which shows that the defendants purchased them with information of their having been drawn against a shipment of cotton. Other bills were drawn by Messrs. Reid on Kelly & Co. against shipments of cotton made to the latter, which, including the two bills in question, amounted in the aggregate to £4529 0 4; and all these bills, together with others of the same drawers on other houses, came into the possession of the Bank of England before their maturity, and were claimed to be owned by that bank, for whose benefit this suit is prosecuted.

John H. Reid, one of the drawers, after the failure of his firm, went to Glasgow and made a settlement with Kelly & Co. on the 15th of August, 1837, by which a balance of £4593 3 7 was found to be due to the Reids from Kelly & Co., which was sufficient to pay all the outstanding bills drawn by the former upon the latter house. This balance, by agreement between Reid and Kelly & Co., was placed in the first instance in the hands of Mr. Cuthbertson of Glasgow; and afterwards by the consent of parties the money was transferred to the Bank of Liverpool and deposited in the names Langdon & Miller, subject to the joint order of the Messrs. Reid and Kelly & Co., and to be retained until the discharge granted by the Reids to Kelly & Co. upon their settlement should be ratified by the creditors of the former.

The Bank of England was the holder of ten bills of exchange drawn by the Messrs. Reid, including the two bills in suit, and upon these bills instituted suit against the drawers (the Reids) and proceeded to outlawry against them, and under that process obtained possession of the funds which had been deposited in the Bank of Liverpool. The Messrs. Reid afterwards appeared in the suit, the outlawry was reversed, and on the 5th of March, 1842, judgment was recovered in England on all the bills, including the two now in suit, for £8893 1 5. The fund which had been seized now amounted to £4696 3 2, and the Bank of England claimed that by reason of an exception of the bills in this suit from the benefit of the seizure made in the process of outlawry, the fund thus obtained ought to be applied to the satisfaction of eight of the ten bills included in their judgment, to the exclusion of the two bills in this suit. The superior court, however, held, that the bank could not single out a part only of the separate demands upon which their judgment was recovered and apply the fund to their payment to the exclusion of the bills in this suit, but must apply the amount collected through the instrumentality of the process against the drawers, as a payment upon all the bills embraced in the consolidated debt constituting the judgment-—-whereby the bills in this suit were reduced by a pro rata application of tlie fund derived from the drawers, to the same extent as the others upon which the judgment was recovered. But the defendants were not content with this ; they claimed upon the trial that under the facts of this case, their liability upon the bills in suit was extinguished altogether, and they requested a ruling of the court to the effect: .

I. That the drawing of the bills against the shipment of cotton operated as an assignment of so much of the proceeds thereof as would be sufficient to pay these bills; that the drawees must be considered as having held the fund for the benefit of the holders of the bills, and that the Bank of England being such holders, and receiving the funds destined for their payment, the bills must be regarded as paid.

II. That the drawers having appropriated the proceeds of the cotton to pay all the bills drawn by them on Kelly & Co., and the fund being sufficient for that purpose, the bank was bound to apply the fund according to the intention and direction of the drawers.

The defendants, in taking these grounds of defense, seem to have mistaken the true character of this transaction, and the nature of these bills of exchange. They were not in the nature of orders drawn on a particular fund, nor were they payable upon any contingency, but were in the form of proper bills of exchange, and were negotiated as such; so that the parties thereto became answerable, not upon a special contract to be inferred from the circumstances of the case, but according to the obligation created by the bills themselves as the law defines it. Had the bills been accepted by Kelly & Co. they would have been bound to their payment, whether they received the consignment of cotton or not, and irrespective of the amount of its proceeds. There was nothing on the face of the bills either binding such proceeds to their payment, or limiting thereby the liability of the drawees. The holder had a right to require an unconditional acceptance, and in default of it, might have resorted to the drawers and indorsers for payment of the bills. The defendants’ relation to them, under these circumstances, can not be distinguished from that which would arise in an ordinary transaction of negotiating bills of exchange proper, when the indorsement is made at the hazard of the bills being protested for non-acceptance.

| A proper bill of exchange does not of itself operate as an assignment to the payee of the funds of the drawer in the hands of the drawee; and even after an unconditional acceptance, it can not in strictness be held to have that effect, since the drawee becomes bound by reason of the contract of acceptance, irrespective of the funds in his hands. He may refuse when he ought to accept by reason of having funds, and yet neither he nor the funds would in any way be bound or affected by the bill. The holder would have to resort to the other parties to the instrument, and the drawer’s remedy to obtain the fund would depend in no respect upon the bill. If the drawee accept, he is primarily liable to pay the bill, but he is under no contract or liability beyond that created by the acceptance itself. (Luff v. Pope, 5 Hill, 413, affirmed in error, 7 id. 577; Chitty on Bills, 333 ; 3 Kent's Com. 115.)

Kelly & Co. refused acceptance, notwithstanding they had received advice of the shipment of cotton on the day preceding the presentation of the bills. This might have raised a question as between them and the drawers, as to their right to retain the consignment, without accepting the bills; but the Messrs. Reid were the only persons who could have taken any effective measures to change the disposition of the cotton, and they acquiesced in Kelly & Co.’s retaining possession and disposing of it—allowed the proceeds to enter into general account between them, and finally settled all their transactions, and assumed to own and control the balance found to be due them from Kelly & Co. without seeking to make any specific application of the proceeds of the shipment to the payment of these bills.

But it was urged on th,e part of the defendants that although the drawing of the bills alone might not be held to operate as a specific appropriation of the fund in question to their payment, yet that taken in connection with the other facts in the case, such appropriation was on the whole established, and we were referred to the letter of advice and to the testimony of John H. Reid as controlling the determination of this branch of the case. The letter contains notice of four several bills, including the two in suit, having been drawn on account of the shipment of cotton—but we look in vain to this letter for an express direction as to the application of the proceeds. The Messrs. Reid no doubt expected that by reason of this advice Kelly & Co. would have been induced to honor their bills upon the prospect thus held out, of receiving funds for their indemnity—and beyond the holding out. of such inducement, it does not appear that the letter was intended to have any effect whatever.' But if it could, by any equitable intendment, be held to amount to a specific direction to apply the proceeds of the shipment to the payment of these bills, it could only be in favor of a party who had notice of the arrangement, and who had purchased the bills or become liable upon them, on the faith of it, which is not the condition of the defendants in this suit. Neither this letter of advice, nor the bill of lading, accompanied the bills when they were put into the market, and there is no evidence that the defendants negotiated and indorsed them on the faith that the proceeds of the shipment of cotton would be applied to their payment.

Nothing transpired on the occasion of John H. Reid’s arrangement with Kelly & Co. in Glasgow, which materially changes this aspect of the case. Although Mi‘. Reid states, in his testimony, that the funds in question were intended to meet the demands of the holders of the bills, drawn by the Reids on the Kellys, yet he does not testify to any fact from which such intention can be inferred, and it appears that the balance in the hands of Kelly & Co. on the 15th of August, 1837, was paid over to the Reids on that day, who discharged the former from all indebtedness on account of their past transactions; but it was arranged for the security of the Kellys, that the fund should be held by a third person till the discharge which the Reids had given to the Kellys should be approved by the creditors of .the former, and it would seem that, but for the Kellys’ insisting upon being protected in the manner stated, the Reids would have received the entire fund as their absolute property, without any qualification on account, of its alledged specific appropriation to the payment of the bills in suit.

On the whole, the idea of such appropriation does not seem to be supported by the facts of this case ;¡~when, therefore, the Bank of England issued their process of outlawry against the Messrs. Reid, the fund in question belonged to them, and was liable to be applied in satisfaction of the ten bills upon which the judgment was finally recovered; but as the fmid was not sufficient for that purpose, it was just and equitable that it should be applied pro rata upon-all the bills, according to the direction of the superior court, whose judgment ought to be affirmed. $->

Judgment affirmed. (


author: Harris, J.

text:
    Cromwell vs. Selden and others.
    Under a reservation in a grant of lands and water privileges, of sufficient water to propel certain specified machinery, the grantor is entitled to the use of the water for any purpose not requiring a greater power than is reserved.
    Thus, where the owner of lands upon a mill stream granted a portion thereof, together with water sufficient to operate a saw mill at all times, when there should be more than enough to drive a grist mill with three rum, of stone, and certain other specified machinery; held, that the grantor in the deed and those holding under him were not restricted in the use of the water to the particular objects mentioned in the deed, but might use the quantity reserved for any other purpose.
    Cromwell brought an action on the case in the supreme court against Selden and others, for diverting from the plaintiff’s grist mill, &c. the waters of Fish creek, in Oswego county. The cause was heard before referees, and on the hearing, the case, so far as necessary to be stated, was as follows: On and before the 20th of May, 1834, one Solomon Rathbone owned the premises and water privileges on Fish creek, occupied and claimed by the plaintiff and defendants respectively at the commencement of the suit; and on that day he conveyed to one Marvin certain premises “ together with the saw mill standing thereon, and the privilege of bringing the water from the dam to said mill and water sufficient to keep a saw mill in operation at all times, when there is more than is wanted to drive a grist mill with three run of stone, and one set of carding machines, and picker, and fulling mill, and other machinery for dressing cloth.”—“It is understood that the above named water may be put to any use that will not in any wise interfere with the grist mill, carding machines and fulling mill; said saw mill privilege to be at one-third of the expense of the repairs that may be necessary to be done on the dam or in rebuilding.” The defendants held under this deed. On the 7th of September, 1835, said Rathbone conveyed to the plaintiff certain premises together with the grist mill and clothing works situated thereon, being the same grist mill, dec. mentioned in the deed to Marvin. After the plaintiff became owner under this conveyance, he applied a portion of the water- to propel a spinning machine, looms, and other machinery for the manufacture of cloth; and the question was, whether such use of the water was justified by the deed from Rathbone to Marvin. On the part of the defendants it was contended that the plaintiff was entitled to use the water reserved only for the purpose of propelling the grist mill, and other establishments specified in that deed. The plaintiff, on the other hand, insisted that he was entitled to use the water for any purpose, provided he djd not draw more than the specified quantity. The referees determined the question in favor of the plaintiff, and reported against the defendants. The supreme court sitting in the fifth district refused to set aside the report, and after judgment the defendants appealed to this court.

      S. Beardsley, for appellants.

      B. D. Noxon, for respondent.
   Harris, J.

Rathbone, at the time of his conveyance to Marvin, was the owner of the entire water power in question. He was entitled to its unrestricted use. The plaintiff, as his grantee, has succeeded to all his rights, except such as he had granted to Marvin, and those are vested in the defendants. The single question now presented, relates to the„extent of the rights of the parties respectively, to the use of the water, and this depends upon the construction to be given to the terms found in the grant from Rathbone to Marvin. The defendants are entitled to “ water sufficient to keep a saw mill in operation at all times when there is more than is wanted to drive a grist mill with three run of stone, and one set of carding machines, and picker, and fulling mill, and other machinery for dressing cloth.” The grantor reserved to himself the first use of the water to the extent required to drive a grist mill, &c. The grantee only acquired a right to use a limited quantity of water, and that only when it was not wanted for the prior use reserved. Was that prior use to be limited to the particular kinds of machinery specified in the reservation, or were the terms employed as a mode of determining the quantity of water the prior use of which the grantor reserved to himself? In other words, was it intended that the grantor should be restricted, in the use of the water, to the machinery to which it was then applied, or might he, at his pleasure, apply the same quantity of water to any other machinery'?

It is a general rule of construction, applicable to grants of water powers, that when the question arises whether, by a grant of a sufficient quantity of water to propel a particular kind of machinery, the terms employed are used merely to indicate the quantity of water intended to be granted, or to restrict the use of the water to the machinery specified, the former construction is to be favored, when the language of the grant will admit of such construction. The grounds upon which this rule rests are twofold. First, it is more beneficial to the grantee, without being more onerous to the grantor, that he should be permitted to apply the water granted to any machinery he pleases, not requiring a greater amount of power than that specified in the grant. Secondly, it is supported by public policy. The interests of the community will generally be best promoted, by allowing an unrestricted application of the power to such machinery as will be most profitable ,to the owner. (Ashley v. Pease, 18 Pick. 268.)

There is another rule of construction equally well settled, of which the defendants claim the benefit. It is, that in every grant, it being the act of the grantor, all doubtful expressions are to be taken in a sense most favorable to the grantee. Where terms are employed which, unexplained, are susceptible of two constructions, if the intent of the parties is not otherwise apparent, that construction is to be adopted, which will operate most to the advantage of the grantee.

In this case I think the most that can be said in favor of the construction for which the defendants contend is, that the terms of the reservation will bear that construction. They certainly do not demand it. That we may the better determine what the parties intended by the reservation in the grant, let it be supposed that Rathbone, the original owner of the whole power, had first conveyed to the plaintiff “ so much water as is sufficient to drive a grist mill with three run of stone, and one set of carding machines and 'picker and fulling mill, and other machinery for dressing cloth and then had conveyed to the defendants “ water sufficient to keep a saw mill in operation at all times when there is more than is wanted to drive a grist mill” &-c. Would any one doubt that in each case the parties intended to determine the quantity oipower to which the grantee should be entitled, without reference to the use which should be made of it? Rathbone was willing to dispose of a certain portion of the water power of which he was the owner. In doing so, however, he would not deprive himself of the quantity which he himself desired to use. How should this be done ? How should the quantity of power to be granted, arid the quantity to be reserved be defined ? There was perhaps no other way, at any rate none so practicable, as to say that the power reserved should be sufficient to drive certain well known machinery, and that the power granted should be sufficient to propel other machinery equally well known. By such a standard the quantity intended to be reserved, and the quantity intended to be granted, could be most easily ascertained. There is nothing in the terms of the grant itself, or in the situation of the parties, so far as it appears, from which it can be inferred that either party to the grant desired to restrict the other in the mode of using the amount of power to which he would be entitled. Much less is there any thing to show that the grantor himself, in reserving the prior use of a certain portion of the power, intended to limit himself in the exercise of the right he before enjoyed, of applying that power in such manner as he might deem most to his advantage.

The construction thus proposed to be given to the grant in question, is supported by all the adjudged cases with which I have met. Bigelow v. Battel, (15 Mass. 313,) is not distinguishable in principle from this case. There the plaintiffs being the owners of the entire water power of the Charles river, at Natick, granted to the defendants the privilege of taking from their dam a specified quantity of water, “ except when the quantity of water is so small as not to be sufficient to carry theplaintiffs’ grist mill and a cotton factory which may be erected, with . not more than 5000 spindles? Instead of erecting a cotton factory, the plaintiffs built a paper mill. The action was brought for taking more water from the dam than by their lease the defendants had a right to take. For the defense it was insisted, that the water power reserved for the plaintiffs was for the use of a cotton mill containing 5000 spindles. Until such a mill should be erected, the reservation was not to take effect. Being an exception in a grant, it should be taken most strongly against the grantor. It was no part of the contract, that the plaintiffs should have a right to the water for the use of a paper mill. But it was held, that the right reserved did not limit the use of the water to a cotton factory; that the true intent of the reservation was that water should, at all times, be left sufficient to carry 5000 spindles. “ It can not be imagined,” say the court, “ that the plaintiffs would limit and restrict the use of their own privilege, nor could it be of any importance to the defendants, when the contract was made, to what use that part of the water should be applied to which they had no claim.”

In Johnson v. Rand, (6 N. Hamp. 22,) the grantor had reserved to himself “ the exclusive right to a corn mill, with two sets of stones, and to draw water sufficient to supply the same, in preference of any and all other machinery whatever.” It was held, that he might change the mode of using the water, provided he took no more water than was necessary to work the mill. (See also Bullen v. Runnels, 2 N. Hamp. 255.)

In Luttrell’s case, (4 Coke, 86,) the plaintiff alledged that he was seized in fee of two old and ruinous fulling mills, to which from time immemorial, magna pars aqua cujusdam rivuli ran from a place called Head Wear, that afterwards he had pulled down the fulling mills and erected two mills to grind corn, and he complained that the defendant had diverted the water from these mills. The plaintiff had judgment, and it was assigned for error, that by breaking and abating the old fulling mills, and building new mills, of another nature, the plaintiff had destroyed the prescription and could not prescribe to have any water course to grist mills. If a man grant me a water course to my fulling mills, I can not, it was said, convert them to corn mills, nec e contra. For prescription in such case shall be intended to commence by grant, and it might be more beneficial to him who made the original grant, and to others who had his estate, to have them fulling mills rather than corn mills. Perhaps they have corn mills so near that the building of corn mills would be prejudicial to them, and it would be against reason to extend a grant or prescription to have a water course to fulling mills to corn mills, which is not within the purport or intention of the grant or prescription. But it was resolved that the prescription did extend to the new grist mills ; that the plaintiff might alter the mill into what nature of a mill he pleased, provided always that no prejudice should thereby arise by diverting or stopping the water, as it was before.

Upon the argument the defendants’ counsel relied upon Ashley v. Pease, (18 Pick. 268,) and Strong v. Benedict, (5 Conn. 210,) as favoring the construction for which they contend. It is true that in both these cases it was held that the grantee was not only limited in the quantity of water which he had a right to use, but also in the manner of using it. But each of these cases is clearly distinguishable from that under consideration. In Ashley v. Pease, the plaintiff being the owner of an entire water privilege, granted and conveyed to. the defendants’ ancestor a fulling mill, and covenanted with him that when there should be a sufficiency of water to carry and supply the uses of all the mills then standing, or which might thereafter be standing in their place, on the dam, he would suffer and permit. him to draw from the floom “ so much water as might be necessary to carry and supply the fulling mill then standing or which might thereafter stand upon the lot he had granted,” but when there was not a sufficiency of water for the purposes and uses aforesaid, then he was to draw water for the use of the said fulling mill or mills, twelve hours successively, in the twenty-four, and no more. The grantee also covenanted, in the same instrument, that he would never use or occupy the foiling mill, nor any other mill or building which might thereafter stand in the same place, so as to interfere with or obstruct the going or working of the plaintiff’s saw mill, or any other mill or building which the plaintiff might erect in the same place. The defendant erected a carding machine in the same building occupied as a fulling mill, and used the water for the purpose of running both, but not both at the same time. The court held that it was manifest from the general tenor of the contract, that it was the intention of the parties that the grant should be limited to the use of the water for driving the foiling mill, and that the use of it for a carding machine was unauthorized. That this is what the parties intended, the court say, is confirmed by the grantee’s covenant not to obstruct or interfere with the plaintiff’s mills, by using and diminishing the water power, except by drawing water to carry and supply the fulling mill.

In Strong v. Benedict, the grant was of four acres of land, “ with the privilege of building a mill for the purpose of fulling cloth, together with the privilege of drawing so much water as should be necessary to carry or drive a good well built overshot fulling mill, at any time when the grantee shall have occasion to use the said fulling mill.” The grantee was to have so much water as was necessary when he should have occasion to run the fulling mill. “ It would seem, therefore,” say the court, “ as if there was a limitation of the use as well as of the quantity. But without expressing a definitive opinion on this subject, it is clear, from the condition and situation of the parties and other collateral facts known to them at the time, and which may properly be recurred to for the purpose of ascertaining their mutual intentions, that it was intended that the use of the water as well as the quantity should be restricted.” Thus, it will be seen, that in the first of these cases the covenant of the grantee himself amounted to an express, prohibition of the use of the water for any other purpose than that specified in the grant; and in the other, although by the terms of the grant the defendant was only entitled to the use of the water “ when he had occasion to use the fulling mill,” the court refrain from expressing “ a definitive opinion” upon the construction of the terms of the grant, but place their decision upon collateral facts known to the parties at the time, clearly indicating that it was their mutual intention that the water granted should be used for a particular object only.

I think, therefore, that the referees gave the proper construction to the reservation in the deed, and that the judgment of the supreme court should be affirmed.

Judgment affirmed.