Lanfear v. Blossman

The judgment of the court was pronounced by Eüstis, C. J. This is an action brought by the holders against the endorser, who was also the drawer, of a bill of exchange for $3324 4s. 3d., drawn in-New Orleans on Fermín da Tastet, & Co., of London, at sixty days after sight, and dated 23d February, 1844. The bill of exchange was purchased by the. plaintiffs from Blossman, the drawer and endorser, in New Orleans; and with it the bill of lading, upon which the bill of exchange was drawn, was delivered by the broker who made the bargain between them. The bill of lading was for 344 bales of cotton, shipped by the Provincialisl, and was endorsed in blank. The bill of exchange was also endorsed in blank. The bill of exchange, accompanied by the bill of lading, was remitted to Prime, Ward Sp King, of New York, and by them negotiated to Baring, Brothers & Co., of London. Be Tastet & Co. offered to accept the bill on presentation, but insisted on having the bill of lading delivered to them. This was declined, and the bill was protested for non-acceptance, and subsequently for nonpayment. The cotton was taken possession of by Baring, Brothers & Co., under the bill of lading, and disposed of. It not producing a sufficient sum to satisfy the — 154 — bill, this suit was instituted for the recovery of the amount thereof, with damages, interest and costs. We shall not decide the question as raised on the sufficiency of the notice, as it was not urged at bar. It was admitted on the trial, that the defendant was entitled to a credit on the bill for ¿62120 2s. 3d., to date on the 16tlt September, 1844. There was judgment in the court below for the defendant, and the plaintiffs have appealed. The question which has been argued before us, and on which the case is held to turn, is, whether De Taslet & Co. had a right to insist on the delivery of the " bill of lading on accepting the bill of exchange ; or, in other words, whether .Baring, Brothers & Co., had a right to retain the bill of lading until the payment of the bill of exchange. The facts are so few and simple that there is no necessity to refer to them particularly; tho subject can be examined in the abstract under the different views which have been presented to us by counsel. It is proved that had tho bill been accepted at the time of its presentation, it would have been paid; and tho only obstruction to its acceptance and payment arose from the course adopted by Baring, Brothers & Co., in relation to the acceptance. We do not consider the evidence as seriously affecting the credit of De Taslel & Co., so far as the rights of the parties to this suit are concerned. But we must first disembarass the case of some questions that are not immediately connected with the subject, under the point of view in which we shall determine it. Both parties rely upon an usage, which each insists is established by conclusive evidence in his favor. On this subject of an usage, or custom of trade, which is to control and regulate the rights of the parties, we concur with the learned judge of the Commercial Court, in adopting’the language of Judge Story, in the case of tho schooner Reeside, 2 Sumner’s Rep. p. 569. “ I am, myself, no friend to the almost indiscriminate liabit of late years, of settingup particular usages or customs, in almost all kinds of business and trade, to control, vary or annul the general liabilities of patties, under the common law, as well as under the commercial law. It has long appeared to me, that there is no small danger in admitting such loose and inconclusive usages and customs, often unknown to particular parties, and always liable to great misunderstanding and misinterpretations and abuses, to outweigh the well known and well settled principles of law. And I rejoice to find that of late years the courts of law, both in England and America, have been disposed to narrow the limits of the operation of such usages and customs, and to discountenance any further extension of them. The true and appropriate office of a usage or custom is, to interpret the otherwise indeterminate intentions of parties, and to ascertain tho nature and extent of their contracts, arising, not from express stipulations, but from mere implications and presumptions, or acts of a doubtful or equivocal character,” &c. And. again, in Donnell et al. vs. Columbia Insurance Company, 2 Sumner’s Rep. p. 377 : “Usages among merchants should be very sparingly adopted as rules of law by courts of justice, as they are often founded on mere mistakes, and still more often in the want of enlarged and comprehensive views of the full bearing of principles.” We have examined the testimony of the witnesses with attention, and have cometo the conclusion that, so far from establishing the existence of an usage or custom on this subject, the evidence proves that it is involved in great doubt and — 155 — uncertainty, even in the minds of experienced and judicious merchants. The fact of private agreements being exacted authorizing the retention of the bills of lading accompanying bills of exchango, and of instructions being required by the bankers in London in relation thereto, tend to show an unseltlod state of opinion touching the rights and liabilities of the parties to the bills. In relation to bills of exchange drawn in the East Indies and accompanied by bills of lading, the usage to retain the bills of lading until payment of the bill is proved to exist. But this case appeal's to us to present an exception, and not the rule itself, as to all bills accompanied by bills of lading. Nothing could moro strongly indicate this state of things than the errors of opinion into which intelligent persons have fallen, in respect to the unlimited power with which the holder of the bill of exchange is supposed to be invested, under all circumstances, and which several respectable witnesses maintain with unquestionable sincerity. Those witnesses who testified most strongly for the plaintiffs on the point of custom or usage, went no further than to say, that the matter lay wholly in the discretion of the bill holder in England ; but they all admitted that it would bo considered unusual to refuse to give up the bill of lading, if the house accepting had a first rate standing. The position assumed by the plaintiffs is that, on acceptance of the bill of exchange, it is in the absolute and entire discretion of the bill holder, or his agent in London, to give up the bill of lading, or retain it until final payment. This position is suicidal •, for if the bill holder, or his agent, has the absolute right to retain the bill of lading, to give it up in any instance would be to discharge every previous name upon the bill. What merchant, whatever might be his standing, whether a friend or indifferent to the agent in London, could expect him to do an act which would involve such consequences ? It is also to be observed that, in customs and usages of trade there is no such thing ns discretion ; they are absolute, imperative and universal, in favor of, and against all the parties to the contract, when no special agreement to the contrary is made. It is clear that if there existed any such custom, or usage of trade, to retain the bill of lading until the payment of the bill of exchange, if the bill of lading was given up in any case before payment, the drawor and eveiy endorser would be discharged, because their rights would be impaired. The giving up of the bill of lading on the acceptance cannot be optional with the holder of the bill of ; exchange. He is bound either to give it up, or to retain it. ■ The supposed difficulties in this case arise from a courso of business which has of late years grown up in this city, imoperating the change of ownership of the produce shipped to this mart for sale. This great mutation of property is produced by means of bills of exchange; and when the credit of the drawer of the bill is not sufficient to give it currency, a bill of lading for the produce on which the bill is drawn is appended to it, and sold with it; so that the holder has not only the names on the bill for his security, but the bill of lading and the shipment it represents. The movement of the markot being thus accomplished by means of bills of exchange, it is obvious that when a bill of exchange, with a bill of lading appended to it, is sold, the fair inference is that the drawer could not have sold his bill without tire additional security of the bill of lading, or that the purchaser would not take it without such security, and that the bill represents either the price of the property sold, or the reimbursement of the price to some party. The holder of the J<syo bills then has in his possession the property and the ob — 156 — ligation for the price, and with these in his hands presents himself to the drawee of the bill of exchange, and demands its acceptance. Now the merchant on whom the bill is drawn, has either authorized the purchase of the shipment, or he has not. If the shipment is on his account, he is only bound to pay for it at the expiration of sixty days after the presentation of the bill; and is entitled to this credit on the face of the contract to which his direct obligation is demanded. If it is not on his account, the drawer stipulated for him the same term of credit on his acceptance of the bill, and no other conditions can be exacted from him by the holder. In either case, how can the drawee of the bill be required to give out his name unconditionally for the price before the property is delivered to him, or how can the holder of the bill exact from the acceptor his obligation for the price, and retain the thing for which lire obligation is given ? To say nothing of the unresonableness of such a supposition, the incompatibility of such a state of things with commercial transactions among persons of credit, is so palpable as to render its existence problematical. Nor is there any thing forced in assimilating the holder of the bill of lading to the vendor. The holder of a bill of lading like this, is considered as standing in the place of the vendor by the English law. Abbot on Shipping, tit. Stoppage in transitu. Gross on Liens, tit. Stoppage in transitu, and cases there cited. But if we consider the position of the drawee of the bill, the same conclusion forces itself upon us. If the shipment is his, or has been ordered by him, the transfer of the property to him is the consideration of the acceptance which he is to give out, and, if it be on account of others, the consignment is the consideration — the benefit which he derives from the commission and profits, for doing the business of other persons. The property is his guarantee against loss, and he has sixty days to dispose of it, and apply the proceeds to the payment of the bill of exchange drawn on him. Mason v. Hunt, 1 Douglas, 299. We believe there is no instrument, the relations of the parties to which are so frequently changed by parol evidence, as bills of exchange. The whole doctrine of accommodation bills, and the enquiry into the consideration of bills, prove this fact beyond contestation. The rule is properly confined to the original parties to the bills, and to those who have receivod the bills under notice. “What circumstances will amount to actual or constructive notice of any defect or infermity in the title to the bill, so as to let it in as a bar or defence against a holder for value, has been a matter of much discussion and of no small diversity of judicial opinion. It is agreed on all sides that express notice is not indispensable, but it will be sufficient if the circumstances are of such a strong and pointed character as necessarily to cast a shade on the transaction, and to put the holder on enquiry.” Story on Bills of Exchange, § 194. The value of a bill of exchange, as such, depends solely upon the certainty of its being paid at all events, and its being entirely independent of the original consideration upon which it was drawn. This is the element of its circulation, and of its being used as a part of the currency, in all mercantile operations. The difficulty in this case arises from the attempt to make the bill, which is drawn on a particular shipment, with its consideration in a manner ¡, ppended to it, and held and retained by the holder of the bill as a security without which he wotxld not have taken the bill, a current bill of exchange, forming a part of the commercial currency, passing from hand to hand like a bank note, without any reference to, or connection with, its original consideration. — 157 — It is not pretended that the bill of lading connects, in any manner, the holders of the bill with any of the other transactions relating to the properly which it represents ; but it is said that, in this case, the bill of exchange having been discounted with the bill of lading, both instruments must bo consulted in order to ascertain the agreement between the parties, they constituting, in fact, but one contract. The judge of the Commercial Court has thus given his views on this subject: “ I shall examine the question presented in this case under both points of view. First, vyhat are the legal consequences and inferences to be deduced from the act of the drawer of a bill of exchange and shipper of cotton, presenting such bill of exchange, accompanied by a bill of lading, to a capitalist or banker fer discount. In such an act there is a direct implication that, the bill of exchange is drawn against the property covered by the bill of lading; in such cases the property covered by the bill of lading, or, to avoid periphrasis, we will say, the cotton, is either bought by virtue of orders given by the foreign house on whom the bill is drawn, in which case the bill of exchange is to be considered as drawn to pay for the cotton, or else it is a shipment by the drawer of a bill of exchange, of cotton bought for his own account and risk, and the bill of exchange is to be considered as a demand upon the English house, to make an advance upon the cotton thus shipped to their consignment. If the cotton has been bought by virtue of orders given, it is easy to perceive that the English house may refuse to accept, on the ground that their orders have been violated or departed from in some particulars, which violation or departure authorizes them to refuse acceptance. In the present case a very intelligent witness gave it as his opinion that, the orders had been violated, so as to authorize De Tastet & Co. to refuse acceptance ; perhaps I do not concur in this opinion, and I do not cite it as bearing upon the case, because acceptance was not refused on that ground, but only to illustrate the general principle of the risk which buyers of these bills run, when they purchase or discount them. On the other hand, if the bill of exchange is a demand for an advance on the shipment made on the shipper’s account, the house on whom the bill of exchange is drawn may refuse to accept, because it considers the advance exceeds the value of the property, which may also come to a falling market, and the house may be unwilling to become the creditors of the drawer of the bill of exchange. The bill of exchange in its inception is an incomplete contract, and is only rendered complete by the acceptance of the person on whom it is drawn. “ It is manifest that such are the facts and circumstances out of which the double contract springs, and that they ought to regulate and govern the rights of the parties.” In relation to this undoubted and well known origin of bills of this sort, the testimony of the witnesses of the plaintiff is not unimportant. JS. J. ForslalL says: “ He has done a great deal of business in exchange. Is of opinion that bills of lading are ihe security for the payment of bills of exchange. Houses to whom bills of exchange are sent, always prefer instructions being sent as to giving up bills of lading when acceptances are made; otherwise they are placed in a position of responsibility by giving them up on their own account.” Being asked by the court whether, when a bill of lading accompanies a bill of exchange, it is or is not a direct implication that the bill of exchange is drawn against the property covered by the bill of lading, the witness answered in the affirmative. — 158 — Samuel Nicholson lias been a large dealer in exchange in New Orleans, since 1837. “ The practice of attaching hills of lading of cotton to hills of exchange is very common.'” Edward Skiff: “ When he receives a hill of exchange accompanied by a bill of lading, considers the former drawn upon the property represented by the latter.” Frederic Frey: “ The bill of exchange is predicated on the cotton represented by the bill of lading.” James Conrey “ considers a bill of lading accompanying a bill of exchange, according to common usage, security for the acceptance and payment of such bill.” Ruison Maury “ has sold bills of exchange with bills of lading, without any specific agroement.” James R. Behn “ is of opinion that bills of lading, when attached to bills of exchange, stand as security for both acceptance and payment.” Fames, a witness of the defendant, negotiated the bill to the plaintiffs. He says : “ On a little hesitation being exhibited by the latter (Lanfear), I proposed to get the bill of lading from Blossman, when the money was paid.” The bill sued on was forwarded by the plaintiffs to Prime, Ward & King of New York, and by their clerk this memorandum was written on it: “ Bill of lading for 344 B. Cotton, p. Provincialist, attached hereto.” The bill was negotiated by Prime, Ward & King to Baring, Brothers & Co., of London. Being the judges of the facts as well as of the law, we are not permitted to impute to that eminent house any want of knowledge concerning the course of trade in bills of exchange, accompanied by bills of lading of. cotton shipped from this port to its market abroad. In this case the memorandum on the bill of exchange fixed its character beyond any reasonable doubt. In determining the question as to the right of the holders of the bill of exchange to withhold the bill of lading after the acceptance of the former was tendered, we are at a loss for anj positive authority of decisions in the English courts. We have not been favored with the opinions of any counsel in England on this subject, which could easily have been had, and which would have been of great assistance to us. We must decide according to the lights we have before us. There does not appear to be any controversy about the right of the holder of the bill of exchange to retain the bill of lading, in case of the imminent insolvency of the drawee. The counsel who argued this case did not differ as to the course the holder might, for his security, adopt, in such a state of things. It is imposible for us, under the evidence and our own positive knowledge of what is passing every day under our eyes, to consider this transaction otherwise than as one and indivisible, and that Baring, Brothers & Company, so far as any obligations on their part resulting from the possession of the bill of lading are concerned, were in the situation of the original purchasers of the bill of exchange, of which thé bill of lading and the memorandum on the bill of exchange gave them full notice ; and that they were bound to know and well knew, what the respectable witnesses of the plaintiffs concur in opinion about, as to the origin and character of these hybrid instruments. The hypothesis which isolates the bill of exchange from all the facts with which it originated, and separates it from the shipment upon which it was — 159 — drawn, we cannot consider as tenable. Are the drawees bound to accept before the bill of lading was presented to them 1 Suppose accident, or bad faith, were to have separated the two instruments — suppose each of them to be negotiated to different persons, for value — could the holder of the bill of exchange alone insist on the acceptance, when the bill of lading should be outstanding ? The holder of the bill insists that he is not bound to part with his main security, and the acceptor that he is not bound to accept without having the consignment, which is tlie consideration of his becoming a party to the bill, by putting his name out. In the one case, the holder runs the risk of the credit of the parties to the bill; in the other, the acceptor that of the good faith of the holder, who by putting the bill of lading in circulation, may deprive the acceptor of the property, which the acceptor has aright to have applied to the payment of the bill. It is urged that, by considering the bill of exchange as dependent on the bill of lading, the doctrine of the negotiability of bills of exchange, as established by the law merchant, is violated. But this is the very question in dispute, which is, whether this bill is a MU of exchange in the mercantile sense. It wants the essential requisite of a bill of exchange, which is that it is negotiable and payable at all events, independent of its consideration. A bill, with a condition like this appended to it, with a concomitant agreement from which it cannot he separated, may be called a bill of exchange, but it wants the requisites which alone give it value and circulation as such. The case cited of Mason v. Hunt, determined by tire Court of King’s Bench in 1779, and which we are not aware ever to have been overruled, was tried before Lord Mansfield at Guildhall, and the opinion of the court was delivei-ed by him after a full argument at bar. It was by that able and learned bench decided, “ that an agreement to accept a bill on certain conditions, is discharged if the conditions are not complied with; and if there is a virtual acceptance, on consideration that goods shall be consigned to the acceptor to answer the bill, together with a policy of insurance on thorn, the holder of the bill by taking to the goods and selling them discharges the acceptance.” 1 Douglas, 290. In this case the dependence of bills of exchange on agreements imposing conditions connected with their consideration, is expressly recognized. “An agreement to accept is still but an agreement; and if it is conditional, and a third person takes the bill knowing of the conditions, he takes it subject to such conditions,” says Lord Mansfield. “ After a refusal to accept the bills drawn, and a negotiation of two or three days, the holder and drawees of the bills signed a memorandum by which the former took the bill of lading and policy of insurance, and undertook to apply the proceeds of the property, as far as they would go, in part payment of the hills. There was a deficiency; and this action was brought against the defendants, as acceptors of the bills drawn on the consignment, for the difference; find the court came to the conclusion that, if there was an acceptance, the conduct of the holder of the bills of exchange, under the memorandum and agreement, discharged them.” In the conclusion of the opinion, the Chief Justice remarked : “ The temptation to accept was the commissions on the consignment, or they (the defendants) were to have the security of the goods and the insurance. But the plaintiff undoes all this and says: ‘ Then I will take all from you, security, commissions,’ Sec. This was saying : * I will stand in your place, but not so as to be answerable tor more than the produce of the tobacco.’ It — 160 — is impossible the defendants could mean to accept, without any benefit or security. We are all clear that this made an end of the agreement.” In this case the bill of lading was delivered up by the party sought to be made liable as acceptor, and thoro was a previous agreement of which the holder had notice. The facts in the case of Mason v. Hunt are not in many respects similar to those under consideration. What was made out by positive testimony in that case, we arrive at in this by necessary implication. But some of the main reasons given in the opinion of Lord Mansfield are the same to which we have arrived, in investigating, with great attention, the obligations of the parties in the present litigation, in which we have had the assistance of the judge of the Commercial Court of New Orleans, iii the able and lucid opinion he had prepared on the first hearing of the cause. We can come to no other conclusion than that, the acceptance was to be the consideration for the consignment, which the holders of the bill had no right, to withhold when they exacted the acceptance ; that there is nothing in the evidence which authorized such a proceeding; tiiat the drawees were not bound to accept tho bill, except on delivery of the bill of lading; end that in refusing to accept as they did, there has been no default on their part; and the mil was, therefore, protested without cause, and the drawer is discharged. It is vain to attempt to reconcile irreconeileable things, or to determine tho obligations of parties to an instrument like this under consideration, by a standard to which it cannot in reason be applied. These bills are entitled to no credit, and ought to receive none, as constituting a part of the commercial currency. They have a consideration coupled with them which strikes at the very root of their availability, and those who take them cannot complain of the hazards to which they think proper to expose their business. Judgment affirmed. * Footnotes [*] Peirce, for a rehearing. If this contract is to be construed, not by any particular usage, but by the general law appertaining and applicable to such class of contracts, the drawer of the bill guáranteos its payment, and should there be any doubt of this construction, it must bo against the drawer. Pitman, Principal and Agent, p. 38. Whether De Tasiet Sy Co. were required by their agreement with Blossman to accept, is not tho question here, as Lanfear Sy Co, were in no manner privy to tho correspondence of tho parties, but took the bill as a mercantile instrument called a bill of exchange, which is an unconditional order for the payment of a certain sum of money, and passes as a bank note, making part of the currency of merchants. 1 Chitty on Bills, edition of 1834, pp. 28, 30, 33. 3 Taunton, 9S. Smith on Bills of Exchange, 126, 128, 159. 3 Campbell, 57. 4 Camp., 214* Byles 67. No verbal understanding, if there had been any, could have altered this character, if made contemporaneously. Such an understanding must appear on th e face of tho bill at its inception, or it is void. Vide authorities supra. Byles, 4, 5. 5 T. It. 4S2. Basing, Brothers ty Co. took the hill as au ordinary bill of exchange. If they acted wrongly with the collateral security, an action will lie against them in favor of the parties injured for damages; and though TJe Tasiet d¡’ Co. might have refused acceptance, the fact cannot alter Blossman’s liability to Lanfear Sy Co., which was entire and unconditional. Had Barring, Brothers ¿y Co. 'given Blossman the bill of exchange, and it was true that the bill of lading was given as security for acceptance alone, and had been improperly refused to be giveir up, this would be no defence, because there would be but a partial failure of consideration, as the property was ready to be delivered on the payment of the bill. Smith, 156. 1 Camp. 40. 2 Ibid, 54(5. 2 B. and Ad. 155. Byles 38. There is no doubt that the bill, as between Blossman and De Tastet Sy Co,, was drawn on — 161 — the cotton, which had been purchased by Blossman as Be Tastet <§• Co.’s agent, as alleged by him in bis answer; but lie did not buy the cotton of Lanfear fy Co., nor pay even with tlieir money, for the bills of lading were delivered to Lanfear fy Co. before they bought Blossman3s bill. They were not, therefore, privy to any transaction of Blossman with the owner of the cotton, and when shipped by Blossman, as the agent of Be Tastet §■ Co., it was so much in Tastet Co.’s possession that Blossman himself bad no right of stoppage in transitu, and could not transfer any, as, by bis own statement, he was not selling to Be Tastet S? Co., but bad bought and paid as their agent. His possession was Be Tastet fy Co.’s possession, and no such defence could be allowed on the bill, as is stated in 2 B. and Ad., 380. The case of Mason v. Hunt, Douglas 299, is certainly good law: “ If one man, to give credit to another, makes an absolute promise to accept bis bill, the drawer, or any other person, may show sucli promise on tlic exchange to got credit, and a third person wlio should advance his money upon it would have nothing to do with the equitable circumstances which might subsist between fclie drawer and acceptor; but an agreement to accept is still but an agreement, and if it is conditional, and a third person take the bill knowing of the conditions annexed to the agreement, ho takes it subject to such conditions.” But here there was no agreement shown with conditions. In fact, no agreement was specified at all, and Lan-fear # Co. were left with the absolute promise of Blossman — the consequence of drawing tlic bill, that Be Tastet Co. would accept and pay it, or, in case of their default, that ho would pay. Lanfear Co. took the collateral security as security for this engagement of Blossman, and it seems to bo begging the very question to say, that the condition was known to Lanfear fy Co. that Blossman has to be released, if any party thereafter owning the bill should fail to give up this security on tlio more acceptance. This cannot be presumed to have been the intention of the partios, as it would make Lanfear fy Co.’s condition worse than if they had taken no security. By such a construction their absolute bill of exchange would lose its mercantile character, and be changed into a special agreement. Rehearing refused.