Mankey v. Willoughby

U.S. Court of Appeals for the D.C. Circuit
Mankey v. Willoughby, 21 App. D.C. 314 (D.C. Cir. 1903)
1903 U.S. App. LEXIS 5485

Mankey v. Willoughby

Opinion of the Court

Mr. Chief Justice Alvey

delivered the opinion of the Court:

The answers of Mankey and Clegg, not being called for under oath, are not evidence of the facts set forth therein, as against the complainant, but they are proper to be referred to as showing the ground of defense of the parties. Both Mankey and Clegg were examined as witnesses in their own behalf, but Mankey does not profess to have any personal knowledge of the transactions that occurred between Willoughby and Clegg; and the statements of Clegg as to *322what transpired between himself and Willoughby, in regard to the matter here involved, being excepted to, are not admissible against the complainant as executrix of Willoughby, under the statute. Code, D. C., Sec. 1064.

The exhibits in the case, to which we have referred, together with the undisputed facts as disclosed in the testimony, present, at least, a prima facie case for the relief prayed by the complainant. The case as thus presented, apart from the matters of defense, is plainly within the established principle, that a surety, or a party who stands in the position of a surety, such as indorser or guarantor,, is entitled to receive and to be subrogated to all the rights- and remedies of the creditor whose debt he has been required to pay, as to any security, fund, lien or equity, which the creditor had against any other person or property, on account of such debt. This right of the surety to be subrogated, on the payment of the debt, to the securities held by the creditor, does not depend upon contract, but rests upon principles of justice and equity. The surety is entitled to have the security in the same plight and condition-in which it stood in the creditor’s hands, and is entitled to all the remedies thereon that were available to the creditor. Wright v. Morley, 11 Ves. 12; Craythorne v. Swinburne, 14 Ves. 159; Mayhew v. Crickett, 2 Swanst. 185 ; Pledge v. Buss, Johns. (V. C.) 666; King v. Baldwin, 2 Johns. Ch. 554; Mathews v. Aikin, 1 N. Y. 595; Swan v. Patterson, 7 Md. 164.

In the answers, as we have seen, and also in the testimony on the part of the defendants, it is claimed that the certificates pledged as security for the payment of the $600' note, guaranteed by Willoughby, belonged to Mankey, and that they had been pledged by Willoughby for the payment of the note in violation of the agreement by which they had been placed in the hands of Clegg by Mankey. And while it is averred that-Willoughby had knowledge of that agreement, the proof fails to show that he knew anything about the terms upon which the certificates had been delivered to Clegg by Mankey. That the certificates belonged *323to Mankey may be conceded, but that fact does not operate to conclude the right against Willoughby, the guarantor of the note, for which the certificates were pledged as collateral security.

It is not indispensable, says Judge Story, in his work on Bailments, Sec. 291, that the pledge should belong to the pledgor; it is sufficient if it is pledged with the consent of the owner. And even without the consent of the owner, the thing may, as between the parties, be completely deemed a pledge, so that the pledgor himself cannot reclaim it except on discharging the obligation. If Clegg abused the confidence that was reposed in him by Mankey, in not using the certificates in the way and for the purpose only for which they were obtained, and in not returning them to the owner, after they were so used, that was an affair to be settled and adjusted as between Mankey and Clegg. The certificates would appear to have been lawfully in the hands oí Clegg, with the assignment of Mankey indorsed thereon in blank, without any restriction of the use that might be made of the certificates, with an express authority to have made upon the books of the syndicate a transfer of all right and interest evidenced by the certificates. Phillips, with whom the certificates were pledged as collateral security, was well justified in receiving and relying upon the certificates, and when the note was paid or taken up by the executrix of the surety or guarantor, Phillips, the creditor, was fully justified, indeed, required by the settled rules of law to deliver up to the surety the note, together with the certificates, as means of indemnity to the surety. Jarvis v. Rogers, 13 Mass. 105; Same Case, 15 Mass. 389; Tally v. Freedman’s Savg. and Trust Co., 93 U. S. 321.

If the defense set up by Mankey and Clegg had been clearly made out by competent proof, that the money obtained on the note to Phillips for $600 had been received and applied by Willoughby to his own use, or that he had received money with which to take up the note when due, but failed to so apply the money, such proof, of course, would be a full answer to this proceeding by the executrix *324of Willoughby, and would require the bill to be dismissed. And, in such case, having obtained the certificates upon the payment of the note, they could not be retained to indemnify the estate of Willoughby for any other liability that he may have incurred for Clegg. The onus of proof, however, is upon the defendants, and they are required to make out the defense by clear and definite proof, in order to overcome the prima facie case shown on the part of the complainant. The testimony of Jackson, a partner of Clegg, a witness produced on the part of the defendants to prove that the money received on the note for $600 from Phillips was paid over to Willoughby would appear to be directly in conflict with the testimony of Phillips; and besides, the testimony of Jackson seems to be inconsistent with much of the most material Bvidenee of the case. Indeed, the proof on the part of the defendants, when considered as a whole, is far from satisfactory to establish the defense. It is altogether too loose, indefinite, and conflicting to warrant any certain conclusion therefrom. The court below passed a decree granting the relief prayed by the bill; and upon default of the redemption of the certificates by the defendants, or one of them, that said certificates should be sold and the proceeds of such sale be applied under the direction of the court. We find no error in the decree, and it must, therefore, be affirmed; and it is so ordered.

Decree affirmed.

A motion for a rehearing filed on behalf of the appellants March 16, was denied April 7, 1903.

Reference

Full Case Name
MANKEY v. WILLOUGHBY
Status
Published
Syllabus
Equity Pleading and Practice; Answer as Evidence; Witnesses, Competency oe; Principal and Surety; Subrogation; Collateral Notes, Indorsers or Guarantors oe; Burden oe Proof. 1. Upon a hearing in equity on the pleadings and testimony taken, the answers when not called for under oath by the bill, are net evidence of the facts alleged therein, but may be referred to as showing the grounds of defense. 2. Statements of one of two defendants in a suit in equity by an executrix to establish a lien upon certain certificates of shares of real estate, pledged as collateral security, and received by her upon payment of a collateral note made by such defendant and indorsed by the decedent, of what transpired between himself and the decedent in regard to the matter, are not admissible against the complainant, if objected to; construing Sec. 1064, Code D. C. 3. An indorser or guarantor of a promissory note secured by collateral, standing as he does in the position of a surety, is subrogated to the rights of the maker, if he pays the note, and is entitled to treceive the collateral in the same condition in which it stood in the maker’s hands, and to all remedies thereon available to the latter; and this right does not depend on contract, but rests upon principles of justice and equity. 4. Where the executrix of a deceased indorser or guarantor of a promissory note, secured by certain certificates of shares of real estate, which had been assigned in blank by the owner thereof and turned over to the maker of the note to be used by him, paid the note and received the collateral, a defense by the owner in a suit by her against such owner and maker to establish a lien upon such certificates and ownership thereof, is unavailable when to the effect that the maker of the note abused the confidence reposed in him by such owner in not using the certificates in the way and for the purpose only for which they were obtained and in not returning them after they were so used. 5. The holder of a promissory note secured by collateral is required by law, upon payment of the note by an indorser or guarantor, to deliver to the latter the note and collateral as means of indemnity to him. 6. In a suit in equity by the executrix of a deceased indorser or guarantor of a collateral note to enforce the collateral after payment by her of the note, against a former owner of the collateral and the maker of the note, where the defense is that after the maker had borrowed money on the collateral for which purpose he had obtained it from the owner, the deceased repaid the loan with money sent him by the maker, and then borrowed money for his own use on a note of the maker, indorsed and guaranteed by him and secured by the collateral, the burden of proof is upon the defendants to make out such defense by clear and definite testimony, in the absence of which a decree is not erroneous which grants the relief asked by the complainant and provides that upon default of the redemption of the collateral by the defendants, or one of them, the collateral shall be sold and the proceeds applied under direction of the court.