[Bank of the United States v. Daniel et al.]

claim of the bank for ten per cent. damages on the amount of the protested bill. If the bank be not entitled to those damages, and it was correct in the circuit court to relieve the complainants against that amount; it was doubtless proper also to enjoin the bank from the collection of the interest which has accrued thereon. But that interest is incidental to, and forms no part of, the matter in contest; and ought not to be taken into computation in estimating the value of the subject in dispute. The damages claimed are less than two thousand dollars.

But should this Court entertain jurisdiction of the case, it is respectfully insisted, on the part of the complainants, that there is no error in the decree.

In reviewing the decree, and deciding on the matters in contest, the Court will doubtless be governed by the law of Kentucky, as judicially expounded by the supreme court of that state. Such is understood to be the acknowledged principle on which this Court acts, in cases depending on the laws of a particular state. 5 Cranch, 22, 32; 1 Wheat. 279; 10 Wheat. 119; 11 Wheat. 301. And as the bill was drawn, accepted, and endorsed in Kentucky, by persons then residing and living in that State, their liability for damages, oh the return of the bill, and the right of the bank to demand damages, must depend on the particular laws of Kentucky. Story's Conflict of Laws, 261-2.

Under the law of Kentucky, the complainants were not liable to damages. There was, at the time the bill was drawn and accepted, in'force in Kentucky, a statute containing the following provisions: "If any person or persons shall draw or endorse any bill or bills of exchange, upon any person or persons out of this state, on any other person or persons within any other of the United States of North America, and the same being returned back unpaid, with legal protest, the drawer thereof, and all others concerned, shall pay the contents of said bill, together with legal interest from the time said bill was protested, the charges of protest, and ten per centum advance for the damages thereof, and so proportionably for a greater or smaller sum." 1 Littell's Laws of Kentucky, 178; and 2 Littell's Laws of Kentucky, 103.

If not liable to damages under the statute, the complainants cannot be liable by the law merchant, independently of the statute. It was competent to the legislature of Kentucky to regulate the liability of parties to bills of exchange, drawn, accepted, and endorsed within

[Bank of the United States v. Daniel et al.]

the limits of the state. This was done by the acts referred to, passed in 1793 and 1798; and, consequently, no principle of the law merchant, incompatible with the provisions of those laws, if any such there be, can prevail. These laws, when examined, will be found, by necessary implication, if not by express words, to exclude the law merchant from any influence on questions as to damages on bills of exchange.

But, according to the law merchant, the complainants were not liable to any damages on this bill. The law of re-exchange is understood to be applicable to foreign bills only, or to such as are drawn by a person residing in a foreign country, on some one in this country; or vice versa: and not to bills drawn in the United States, upon any one in any other of the United States. The statute of Kentucky clearly discriminates between the two classes of bills, and recognises the former, and not the latter, as foreign bills: and in the case of Cresson v. Williamson, &c., 1 Marshall's Rep. 454, it was held by the supreme court of Kentucky, that a bill drawn in Kentucky on merchants at Philadelphia, was not a foreign bill. The same principle was held by the supreme court of New York, in the case of Miller v. Hackley. The character of the bill is not, however, conceived to be material in the present case; for it is evident that, in liquidating the damages, the parties acted on the supposition that the bill was embraced by the act of 1798 of Kentucky; and the damages were included in the note, not on account of any supposed liability in the complainants for re-exchange upon the general principles of the law merchant; but under the mistaken belief that they were liable under the act for ten per centum damages on the amount of the bill. If such was not the understanding and intention of the parties, it is strange that they should have included in the note damages to the exact amount of ten per cent.; when it is not, and cannot be pretended, that the exchange between Kentucky and New Orleans was at the time any thing like that amount.

If then the complainants were not liable to the ten per centum damages on the return of the bill, have they imposed on themselves a liability from which they cannot be relieved by the after execution of the notes to the bank? If, instead of including in the note. the balance which remained unpaid of the bill as well as the damages, the damages only had been included; there could, it is conceived, be no serious doubt on the subject. The note would then have been founded on no sufficient consideration; and under the laws

[Bank of the United States v. Daniel et al.]

of Kentucky, authorizing defendants by special plea to go into and impeach the consideration, the complainants might have defeated a recovery at law. The case of Ralston and Sebastian v. Bullits, 3 Bibb, 262, decided by the supreme court of Kentucky, would be decisive in such a case. In that case it was decided, that a bond given by an endorser of a bill for the amount, after he was discharged of his liability, by the neglect of the holder to give notice, might be avoided by plea, impeaching the consideration. In the opinion delivered in that case, the court, after showing that the maker of the note was at the time it was executed discharged from liability to pay the bill for which the note was given, make use of the following remarks, viz: "If, therefore, the defendants were wholly discharged from any responsibility for want of due notice of the non-acceptance of the bill, the bond given for the payment of the amount of the bill was without consideration. A promise to pay in such a case, is held not to be binding. Blesard v. Hurst, 5 Burr. 2670; Kydd, 119. Nor would the circumstance that the promise was reduced to writing, make any difference; for a written, no more than a verbal promise, is binding, if made without consideration: and the act of 1801, 2 Littell's Laws of Kentucky, 442, having authorized the defendant in an action upon a bond or other writing under seal, by special plea, to impeach or go into the consideration, in the same manner as if such writing had not been sealed, it evidently follows that the bond on which suit is brought, is in this respect placed upon the same footing as a verbal or written promise, and consequently not binding on the defendant." Since that case was decided, many others of like character have been brought before the courts of Kentucky; and in no one instance has the correctness of the principle on which it turned been doubted, or its authority departed from. It has now become the settled and inflexible rule by which like cases are decided in that state, and should be sanctioned by this Court; so far, at least, as respects cases depending on the laws of Kentucky.

But the note is not for the damages only; it includes the amount unpaid of the bill as well as the ten per centum damages. The note cannot, therefore, with propriety, be said to be without consideration. The liability which the complainants were under to pay the sum remaining unpaid on the bill, was a sufficient consideration for any promise or note which they might make for that amount. to that amount, therefore, there was an adequate consideration for the note executed by the complainants. But their liability in that

[Bank of the United States v. Daniel et al.]

respect formed no sufficient consideration for any note or promise which they might make for the ten per centum damages on the amount of the bill; and as to that amount contained in the note, it was as clearly voluntary and without consideration as if contained in a separate note. It was not, however, competent for the complainants, by plea at law, to draw in question the right of the bank to the damages; as they might have done, if nothing but the damages had been contained in the note. Such a defence would have gone to part of the consideration of the note, only; and is clearly inadmissible under the act of 1801, of Kentucky, as judicially expounded and settled by many cases in the supreme court of that state. 1 Bibb's R. 500; 4 Bibb, 277; 1 Marsh. 168; 5 Monroe, 274; 1 J. J. Marsh. 489. It does not, however, follow that, because they could not defend at law, the complainants are without redress. Their case is one proper for the aid of a court of equity, to which they have applied for relief.

The appellants contend that the claim of appellees to relief was barred by the lapse of time, and the statute of limitations.

On the contrary, we suppose that neither lapse of time nor the statute of limitations apply to the case, or bar the right to relief.

In the first place, to make out their case, the appellants assume the fact, that the payment made in 1819 on the bill of exchange, was first applied to the discharge of the damages claimed by the bank, and the remainder to the bill, and the new note given for the residue of the bill; whereas there is neither allegation nor proof that this was the case.

The same reinark applies to the assumption, that the mistake of want of liability for the damages was discovered more than five years before this suit was instituted.

But suppose that in each particular the facts of the case bore out the counsel of the bank in their assumption, still, lapse of time nor the statute of limitations does not cut off the right to relief. That right in equity attached to the new note when given, and has followed the debt ever since as a living equity, against enforcing its collection to the extent of a mistake. To that extent there was no consideration for the note.

Suppose a note is given without any consideration at all, is the party who gives it bound to file his bill in five years after its date, and pray that it may be cancelled; or may he wait until there is an attempt to enforce it, and then assert his equity? Does not the

[Bank of the United States v. Daniel et al.]

equity against the obligation subsist as long as the legal right to enforce it? If it does when it applies to the whole demand, does it not when it applies to a part?

If a partial payment had been made eighteen years on an obligation, and not credited, can it be contended that because the obligee has waited that long and now sues, that the obligor is barred from setting up the payment? The same may be asked if the whole debt had been paid?

Now, in equity, that which was paid in 1819, was a credit on the whole debt; and if it were not all applied, a court of equity will treat the subject matter as if it had been applied, and will restrain the obligee from collecting the part paid and not credited.

If, in 1819, Daniel and others had paid the bank one thousand dollars, in extra or usurious interest on the debt in controversy, and a new note had then been given for the residue of the debt, which the bank was now attempting to coerce; would not a court of equity apply the one thousand dollars as a credit to the debt and legal interest due in 1819, and treat it as a payment made on the same at that time? This is a familiar instance of the application of the principle contended for. Equity disregards forms, and marches directly forward to the justice of the case: it considers that as actually done which in good conscience should have been done: it does not apply the credit now, but considers it as applied in 1819. Hence neither lapse of time nor the statute of limitations apply to the case.

Mr. Justice CATRON delivered the opinion of the Court.

To a just comprehension of the legal questions arising in this cause, it becomes necessary that the facts be stated, in the form and sense they present themselves to the Court.

The first transaction giving rise to the controversy, was a bill of exchange, in the following words:

"Exchange for 10,000 dollars.

"Lexington, October 12th, 1818. "One hundred and twenty days after date, of this my first of exchange, second and third of same tenor and date unpaid, pay Henry Daniel, or order, ten thousand dollars, at the office of discount and deposite of the Bank of the United States, in New Orleans, for value received of him; which, charge to the account of yours, &c. "ROBT. GRIFFING.

"To Mr. JAMES DANIEL."