
    
      Enders, &c. v. Brune.
    August, 1826.
    Principal and Surety — Substitution—Case at Bar. — ■ Where A. gives his bond for duties on goods imported into the United States, for B. the importer, and B. is not bound in the bond; if A. discharges the bond, it seems that he cannot be placed in the condition of the United States, as to priority, in a claim against A. under the law of Congress.
    Same — Same—Same.—But, upon general principles of equity, A. in such case, will be substituted in place of the creditor (the U. S.) and have every preference that the U. S. were entitled to.
    Same — Same—Operation of Doctrine.1! — Equity does not regard form but substance; and therefore It does not require that a surety shall be bound in the same bond with his principal, in order to make the doctrine of substitution operate, but merely that having bound himself for the debt of the principal debtor, he should have paid it.
    This was an appeal from the Richmond Chancery Court, where Bruñe (suing for the benefit of the house of Van Kapff & Bruñe) filed his bill against Shelton & Co. and Enders and Clarke, their trustees. The bill states, that Shelton & Co. imported in the ship Clara, certain goods and merchandize, from Bremen to Baltimore: that at the particular instance and request of the said Shelton & Co. and under the rule of the Custom House, requiring that the obligors in the duty bonds should reside in Baltimore, the complainant was induced to become bound in bonds for the duties on the goods so imported, to the United States, and procured two other persons to join in the said bonds: that the said bonds were fully paid to the United States by the complainant: that the said Shelton & Co. had assigned over all their effects to Enders and Clarke, for the benefit of certain creditors specified in the deed of assignment: that at the complainant having paid off the said duty bonds, conceives that he is entitled to be paid out of the effects of Shelton & Co. the amount of the said bonds, in preference to any other creditor, not only on the ground of the law relative to the collection of duties, but upon the general principles of equity. The bill prays that the said Shelton & Co., and Enders and Clarke may be made defendants: that the said trustees may be compelled to exhibit the deed of * trust aforesaid: that they be decreed to pay the demand of the complainant out of the trust subject, &c.
    The answer of Enders and Clarke admits the assignment of the co-partnership effects of Shelton & Co. to them as trustees: that they believe that each of the partners of the said firm, has made an assignment of his individual estate to trustees, since the assignment of their partnership funds; and they refer the complainant to their answer in another suit, for a similar demand, for their grounds of defence to the allegations of the plaintiff.
    The plaintiff filed an amended bill, making Chamberlayne and Bacchus defendants, as the trustees of Walter Shelton (one of the firm of Shelton & Co.) alleging, that the said Walter had conveyed to them, for the benefit of certain creditors, a considerable property real and personal, other than that "conveyed by the first deed: that the said Walter, at the time he executed the said second deed, was entirely insolvent, and had no other estate than that conveyed by the said deed: that the Sheltons have both taken the oath of insolvent debtors. The bill prays also, that the several creditors under the two deeds aforesaid may be made defendants.
    Enders and Clarke answered the amended bill, suggesting that the second deed was not made to secure bona fide creditors; and that, therefore, if the, plaintiff is entitled to the preference which he claims, his demand ought, in equity, to be paid out of that fund, rather than out of the property conveyed to them, which was intended to satisfy real and bona fide debts.
    The Chancellor decreed that the defendants Enders and Clarke should pay, out of the trust subject in their hands, the amount claimed by the plaintiff, with interest, &c.
    Enders and Clarke appealed.
    Scott, for the appellants.
    Nicholas, for the appellee.
    '*The Attorney General, for the trustees of Walter Shelton.
    The topics of argument are so fully stated in the following opinion, that it is unnecessary to insert them here.
    
      
      Subrogatlon — On What Doctrine Founded. — The doctrine of subrogation cannot be perverted so as to work injustice. It is the creature of equity, and justice is its object. It is founded upon principles of equity and benevolence, and is only to be administered in a clear case, and never to the prejudice of the rights of others. Miller v. Holland, 84 Va. 669, 5 S. E. Rep. 701, citing the principal case as authority for the statement.
      The doctrine of subrogation is the offspring of natural justice, and is not founded in contract. It is the creature of equity, and is so administered as to attain real essential justice without regard to form. "It has nothing of form, nothing of technicality about it. and he who, in administering it would stickin the letter, forgets the end of its creation, and perverts the spirit which gave if birth.Douglass v. Fagg, 8 Leigh 598; Hudson v. Dismukes, 77 Va. 247; Fidelity Ins., etc., Co. v. S. V. R. Co.. 86 Va. 17. 9 S. E. Rep. 759; Sands v. Durham, 99 Va. 268, 38 S. E. Rep. 145; Hawker v. Moore, 40 W. Va. 51, 20 S. E. Rep. 849: Myers v. Miller, 45 W. Va. 617; 31 S. E. Rep. 981; Pace v. Pace, 95 Va. 793, 30 S. E. Rep. 361.
      Again in McNeil v. Miller, 29 W. Va. 483, 2 S. E. Rep. 337, it is said; “The doctrine of subrogation is derived from the civil law, and has been adopted by our courts of equity. It is treated as a creature of equity, and administered so as to secure real and essential iustice without regard to form, and is independent of any contractual relations between the parties to be affected by it. It is broad enough to include every instance in which one party pays a debt for which another is primarily answerable, and which, in equity and good conscience should have been discharged by the latter; but it is not to be applied in favor of one who has, officiously and as a mere volunteer, paid the debt of another, for which neither he nor his property was answerable, and which he was under no obligation to pay; and it is not allowed where it would work any injustice io the rights of others. Clevinger v. Miller, 27 Gratt. 740; Enders v. Brune, 4 Rand. 438; Lewis v. Palmer, 28 N. Y. 271; Sheld. Subr, §§1 — 3, and cases cited." The principal case is also cited with approval on the subject of substitution in Ford v. Thornton, 3 Leigh 700; Powell v. White, 11 Leigh 316, 325, 332; foot-note to Buchanan v. Clark, 10 Gratt. 164; Jones v. Phelan, 20 Gratt. 243; Johnson v. Young, 20 W. Va. 661; Norris v. Woods, 89 Va. 876, 17 S. E. Rep. 552. See further, on this subject, mono-graphic note on “Subrogation” appended to Janney v. Stephen, 2 Pat. & H. 11.
      Same — Sureties.—A principal for whom another, at his request, undertakes as security, although such principal’s name does not appear in the obligation given by the surety, is as much bound to indemnify such surety for what he pays on the obligation as if his name appeared in it as principal, and the surety in such case is entitled by subrogation to enforce for his exoneration or indemnity all the rights, remedies and securities of the creditor against the principal debtor. Harnsberger v. Yancey, 33 Gratt. 539. saying that Enders v. Bruñe was decided upon this principle. To the same effect, the principal case was cited in Sherman v. Shaver, 75 Va. 11.
      Same — Same—Estate of Principal. — That the surety has the right of substitution against the estate of his principal, where payment of a preferred debt has been made by such surety after the death of the principal, would seem to be settled in Virginia. Robertson v. Trigg, 32 Gratt. 85, referring especially to the principal case.
    
   August 7.

JUDGE CARR

delivered his opinion.

The case made by the bill is briefly this i that Shelton & Co. merchants of Richmond, imported some linens from Bremen to Baltimore; that they requested the plaintiffs to enter into bonds with the collector of the port, for the duties accruing to the United States on these goods; that in compliance with this request, the plaintiff, Bruñe, executed, with sureties, these bonds to the collector, which the plaintiffs have discharged; that by this payment, the plaintiffs have acquired the right, as well under the laws of Congress, as by the general principles of equity, to be placed in the shoes of the United States, and to enjoy the preference which is secured to them by law, over other creditors; that Shelton & Co. becoming insolvent subsequently, have conveyed all their property to trustees for the benefit of certain creditors. The prayer of the bill is, that the plaintiffs may be substituted to the United States, and that the trustees be decreed to pay first their debt, out of the trust subject.

Shelton & Co. have not answered, and the bill as to them is taken for confessed. The trustees answer, resisting the claim on various grounds.

The points taken by their counsel in the argument, were, 1. That there is no evidence, that Bruñe & Co. ever executed bonds for the duties: 2. No proof that they have discharged them: 3. That if executed and paid, the transaction does not present the case of principal and surety contemplated by the act of Congress: 4. That it is not a case for substitution : S. That there is another fund, (the second deed of trust,) to which the plaintiffs ought to resort.

*1. In considering the first point, I will not stop to enquire, whether the affidavit of Bruñe is admissible, but will throw it out of the case, being satisfied that there is abundance of evidence without it. By the letter of Shelton & Co. dated Richmond, September 11, 1818, these defendants say to the plaintiffs, “The linens sent to your address you will please to bond, and ship them by the first vessel bound for this place. We have not as yet received the invoice and bill of lading; calculate on getting it tonight. We shall make the necessary entries at our custom-house, and transmit the same to your address.”

It may not be amiss to remark, in passing, that this last sentence seemed to be considered in the argument, as rendering it probable that Shelton & Co. meant to pay the duties at the custom-house in Richmond. But, that could not be done. The duties must be bonded and paid to the collector at the port of entry. Nor does the letter indicate such an idea. Shelton & Co, knew that the invoice, or evidence of it was necessary to the entry of the goods at Baltimore. They supposed that there was but one invoice; and expecting that it would come to them of course as owners of the goods, they meant to take the proper steps at the custom-house here, to enable them to send on the evidence. This is clear from the letter of the plaintiffs in reply to the above. Under date of September 14, 1818, they' say, “The twelve bales of linen per Clara, having been shipped to our address, and being also furnished with a duplicate invoice, we have been enabled to enter them at our custom-house; consequently, you need not make any entry to be forwarded here. None of the said linens,” (the letter adds,) “have been bonded. As soon as they are, we’ll forward them to you, and advise you thereof.”

It will be as well here, to dismiss with a passing remark, another point much relied ■on in the argument, to wit: that the bonds given to the collector could not have been executed under the authority of the letter of Shelton & Co. ^because the bonds and the letter both bore date on the 11th of September, 1818. But, it is clear to me, that the bonds, though dated the 11th, were not executed till afterwards. The letter just quoted is dated the 14th, and it states that the bonds were not then given. I understand it thus. By the act of Congress, the master must report his vessel to the proper officer within 24 hours after his arrival; and within 15 days thereafter, the goods must be entered with the collector. It is not required that immediately upon such entry, bonds should be given ; but the goods cannot be landed until they are given. They are payable on goods of this description in 8, 1Ó and 12 months from the date of the entry; and, therefore, though executed after it, they bear equal date with it. Under date of ■September 24th, 1818, the plaintiffs write to the defendants, Shelton & Co., thus: ^‘Your 12 bales linen per Clara, have been forwarded per schooner Varnat, capt. Banks, which sailed a couple of days since. We gave to capt. Banks the original invoice, certified at. our customhouse, and the bill of lading signed by capt. Banks, both under cover to you. Annexed you’ll find account of charges of said linens, amouting to $383 26 cents, for which, if found correct, please give us credit,” &c. The account here referred to, contains a particular statement of all the charges, freight, primage, drayage, &c. paid by the plaintiffs for Shelton & Co.; and also, of the three bonds entered into at the custom-house; and the letter states, that for that part of it which the plaintiffs advanced in cash, they had valued on Shelton & Co. in favor of Imke & Sizer. These accounts are received by Shelton & Co. without objection, retained by them, and now produced by the defendants as evidence. The answer which sets them out acknowledges, that the goods had been sent to Richmond. JV11 this evidence, .taken together with the law,, (which forbids the landing of the goods until the bonds are given,) proves clearly to me, that the bonds were executed as charged in the bill.

*11. Have the plaintiffs discharged these bonds? The answer itself states that the respondents have been informed, and believe, that the plaintiffs did pay some money for duties upon goods imported by Shelton & Co. and refers to the account before mentioned to shew in what character they paid it. The money, thus admitted to be paid, could be no other than the duty bonds. But further and stronger 1 The plaintiffs produce these bonds, agreeing exactly in date and sum with those in the account. Bruñe makes a statement that these are the bonds given to the collector; that they have been paid - off by his house, and are annexed to the statement; and to this statement the collector of the port sets his certificate, that it is correct, only as to a few groats in the amount; thereby admitting its correctness in every thing else. This, I think, is equal to a receipt in full of the bonds.

III. We come now to the only real question in the case. Have the plaintiffs a right to the priority they claim, I. Under the laws of the United States: 2. Under the doctrine of substitution?

1. In the 3rd volume of the laws of the United States, (old edition,) p. 423, sec. 5, it is enacted, that where any revenue officer, or other person, hereafter becoming indebted to the United States by bond or otherwise, shall become insolvent, &c. the debt of the United States shall be first paid: and he is declared insolvent by the act, who, not having enough to pay all his debts, shall voluntarily convey all his property away. (It was admitted on all hands, that Shelton & Co. were insolvent, and had made a general conveyance of their property.) 4th vol. U. U. S. (same edition) p. 386, sec. 65. If the principal in any bond given for duties on goods, &c. shall become insolvent, &c. and any surety in the bond &c. shall discharge it, such, surety, &c. shall have and enjoy the like advantage, priority or preference, for the recovery of such monies, &c. as are reserved to the United States, and may maintain a suit in his own name, in law or equity, for all ^monies paid thereon. Is the case of the plaintiffs within this last act? I incline to think not. The law speaks of principal and surety in the bond. Although these bonds were executed by Bruñe, for the debt of Shelton & Co. and the plaintiffs, by discharging them, paid their debt; yet Shelton & Co. were not principals and the plaintiffs sureties in the bonds. They could hardly, it would seem, maintain an action on the bonds at law, against Shelton & Co. as principals; and I doubt whether equity could help them. The law was providing for a particular case. If ours be not that case, equity, no more than law, can make it so. Both Courts must construe the statute according to its true meaning; and that meaning is the same, whichever forum has to expound it.

2. Can the plaintiffs claim a preference to the other creditors of Shelton & Co. on the doctrine of substitution? This doctrine, which was, I believe, borrowed from the civil law, has long been well known to the English Chancery, and constitutes one of the most beautiful features of the system. Pothier, in his Treatise on Obligations (the greatest portion of which, Sir William Jones says, is law at Westminster, as well as at Orleans, and which seems to be growing still more into use since his day,) Pothier says, Art. 6, No. 518, “It is to be holden as a principle, that all 'who are bound for a debt for others or with others, by whom they ought to be discharged, either for the whole or a part, have a right, in paying such debt, to. require the cession of the actions of the creditor, against the other debtors who are liable' for it.” “This obligation of the creditor to cede his actions, is grounded, (he says,) on this rule of equity, that being commanded to love all men, we are bound to grant them every thing, which they have an interest in having, when we may do so without injuring ourselves.” He adds, “a debtor in solidum having then a, just interest in having the actions of the creditor, against his co-debtors, to make them pay their part of a debt which they owe as well as he, the creditor cannot refuse it. For -*the same reason he cannot refuse it to a surety, and generally to all those, who, being bound for the debt, have an interest in being discharged, in whole or in part, by those for or with whom they are debtors.”

In enforcing these principles, Courts of Equity look not to the form, but to the essence, of the transactions. They consider the doctrine of substitution, not as one founded in contract, but the offspring of natural justice. Nor do they leave it to the creditor to cede his actions; but so soon as a third person, who has become bound with ' the debtor, pays his debt to the creditor, they substitute him to the creditor, giving him every right, every lien, every security, to which the creditor could resort; and if the creditor should, with bad faith, release any of those securities, it would be a bar pro tanto to his recovery against the surety. (Seethe cases on this subject, referred to in Mitchell v. Thompkins, 2 Rand. 428; M’MahOn v. Fawcett, Ib. 514.)

How does this doctrine apply to the case? Shelton & Co. were the importers., The duties on the goods were a debt accruing to the United States, from the time of the actual importation ; and the importation was complete, as soon as the goods were brought within any port, with the intention of being unladen or sold there. U. S. v. Vowell, 5 Cranch, 368. The Mary, 1 Gall. 206; U. S. v. Arnold, 1 Gall. 348. U. S. v. Prince, 2 Gall. 204. Immediately, therefore, that these .goods reached the port of Baltimore, Shelton & Co. owed a debt to the United States, which, independent of any security by bond, they had a right to enforce by action of debt on the principles of the common law. If Shelton & Co. had themselves executed a bond for the duties under the revenue' act, it would not have extinguished the original debt created by the act of importation; much less was that debt extinguished by the execution of such bond for them by the plaintiffs. From the time of the importation the United States has a lien on the goods. This is collateral to the personal claim *on the importer. The law provides, that the importer, within 15 days after the arrival of the goods, may enter them, pay the duties at once, or give: bond with sufficient sureties to secure the payment of them in future; or otherwise, that the goods be deposited in the public, stores, as a security for such payment. If the importer gives bond with sureties for the duties, this security takes the place of the goods, and they are released; but in either case, whether the goods remain as a security, or the bond is given in their stead, the original debt remains. The act directing bond to be given, evidently intended to extinguish no debt, but to substitute one security for another; for throughout the act, the bond is called a bond to-secure the duties, and not a bond in payment of the duties. For the positions here taken, I refer to the United States v. Lyman, 1 Mason, 482, where the whole subject is ably discussed, and many cases-cited.

Here then, the plaintiffs, at the request of Shelton & Co. executed bonds to the collector for the payment of the duties on their goods, Shelton & Co. remaining bound to the United States to the full amount of those duties. The United States-had their choice, either to sue Shelton & Co. on their original debt, or the plaintiffs-on their bond. Shelton & Co. were the principál debtors; by which I mean, those who contracted the debt for their own benefit. The plaintiffs (call them sureties or what you will) were persons bound for the debt of another. The United States, if they had chosen to sue Shelton & Co. would unquestionably have had a preference over every creditor who claims under the deed of trust. But, instead of suing Shelton-& Co. they collected their debt of the plaintiffs. Ought not the plaintiffs then, to succeed to the rights of the United States? To be substituted to their lien, their priority?

It is objected that this is not a case for substitution, because Shelton & Co. were not principals, and the plaintiffs sureties in the same bond; and we are told, that all the cases in the English books are of this kind. I grant *that when one man becomes bound for another, he generally takes care to have that other bound along with him; and, therefore, the cases for substitution are generally of this-bind. I admit, also, that when a statute gives a particular remedy, (as the law before cited,) to a surety in a bond, for recovery of the debt paid for his principal, we may be bound to follow the strict letter of the law. But, the doctrine of substitution is governed by principles wholly different. It has nothing of form, nothing of technicality about it; and he who, in administering it, would “stick in the letter,” forgets the end of its creation, and perverts the soirit which gave it birth. It is the creature of equity, and real essential justice is its object. All agree that where A. is bound in a bond with B. for B.’s defat, the doctrine of substitution holds. Now, I ask, where is the difference in the eye of reason, whether A. is bound for the debt of B. jointly with B. or separately from him? He is still bound for the debt of B. As between him and B. he stands as much in the relation of a surety, as if they were jointly bound. So he does, as between him and the creditor, where the separate bond is taken as collateral security. Suppose A. owed B. a debt by simple contract or bond. C. at the request of A. executes his separate bond to B. as collateral security. After this, the creditor B. gets a mortgage from the debtor A. further to secure this debt. Would not C. upon discharging the debt, be substituted to this mortgage? Again. Suppose that C. when he executed his separate bond to pay the debt of A. to B. had taken a mortgage from A. for his security. 1 ask, would not the creditor B. have had a right to resort to this mortgage to satisfy his debt? These principles are the every day equity of the Court; and the case before us rests on precisely the same ground. The United States are the creditor; Shelton & Co. the debtors. At the request of these debtors, the plaintiffs execute their bond to the United States. The priority given by the law to the United States, is the mortgage taken by the creditor *of his debtor. The plaintiffs pay off the debt, and ask the Court to give them the benefit of the creditor’s lien. Who can object to this? Who is injured by it? Not the United States; for, they have received their debt from the plaintiffs, and justice binds them to give the plaintiffs their vantage ground. Not Shelton & Co., for they have no interest in the matter. Not the creditors of Shelton & Co. under the trust; for, the United States had this priority. These creditors were but subsequent incumbrancers. The elder lien was upon the property; and whether enforced by the United States in their own name, or by the plaintiffs standing in their stead, could make little difference with these creditors.

There are some minor points that I do not notice, not because they have been overlooked, but because they do not seem to have any weight. Thinking the right of the plaintiffs clear, to come in under the first deed of trust, I have not thought it worth while to speak of the second.

I am clear that the decree be affirmed.  