Searles Bros. v. Smith Grain Co.

Whitfield, C. J., delivered the opinion of the court. This case falls within Miller v. Bank, 76 Miss., 84 (23 So., 439), which is in accord with and supported by Landa v. Lattin, 19 Tex. Civ. App., 246 (46 S. W., 48); Bank v. White, 65 Mo. App., 679, and Finch v. Gregg, 126 N. C., 176; 35 S. E., 251; 49 L. R. A., 679. We especially refer to the reasoning in Landa v. Lattin as thoroughly sound. There are cases to the contrary of our view, biit they clearly fail to apprehend the true nature of this sort of transaction. The bank buying the draft and bill of lading is bound to comply with all the terms of the contract between seller and buyer. It is placed, as to the buyer, in the exact situation in which its assignor stood. We quote, to adopt, the following from the Texas court of civil apneals: “The banks know that shipments of this character are seldom made without some understanding between the original assignor and the original assignee (the person to be notified). . . . The real inquiry is as to what effect should be given to this transaction, so far as it related to the rights of appellant, Landa, under the contract between him and Lattin Bros. The correct rule concerning the rights of a nurchaser or an — 693 — assignee by the transfer of a bill of lading, and the quasi quality of negotiability of such instruments, is thus stated in the fourth volume of the second edition of the Am. & Eng. Enc. Law (page 549), where it is said: ‘While- the transfer of bills of lading may pass the title to the goods, unless the common law has been modified by statute, these instruments are not negotiable, in the sense in which that term is applied to bills and notes and other negotiable instruments of a like character. Although it has sometimes been said that a bill of lading is negotiable, nothing more is meant by this than that the transfer of the bill of lading passes to the transferee the title of the transferor to the goods described therein. Negotiability may 'be predicated of bills of exchange and promissory notes because they are representatives of money, which is itself negotiable to the extent that it cannot be reclaimed from any one who receives it in good faith, for value. On the other hand, bills of lading do not stand as representatives of money, but of the goods therein described, and as chattels are not negotiable, that quality cannot be given to the symbol; no greater effect can -be given to the transfer of the svmbol than to that of the thing which it represents. The transfer of a bill of lading, then, by the person in possession of the instrument, can give no higher title than would the transfer of the property itself by the same person. lienee it may be stated as a general rule that, where bills of lading are made negotiable by statute, the holder of a bill of lading, in the absence of either title to the goods or authority to transfer them in himself, cannot, by a transfer of the instrument, pass the right of property in the goods, even to a bona fide purchaser for value; he can convey no greater rights than he himself has/ The supreme court, in support of the text, in the case of Shaw v. Bank, 101 U. S., 557-564 (25 L. Ed., 892, 894), says: ‘The function of that instrument (bill of lading) is entirely different from that of a bill or note. It is not a representative of mono- used for transmission of money or for the payment of debts or foi; — 694 — purchases. It does not pass from hand to hand as bank notes or coin. It is a contract for the performance of a certain duty. True, it is a symbol of ownership of the goods covered by it, representative of those goods. . . . Bills of lading are regarded as so much cotton, grain, iron, or other articles of merchandise. The merchandise is very often sold or pledged by the transfer of the bills which cover it. They are, in commerce, a very different thing from bills of exchange and promissory notes, answering a different purpose, and performing different functions. It cannot be, therefore, that the statute which made them negotiable by endorsement and delivery or negotiable in the same manner as bills of exchange and promissory notes are negotiable, intended to change totally their character, putting them in all respects on the footing of instruments which are the representatives of money, and charge the negotiation- of them with all the consequences which usually attend or follow the negotiation of bills, and notes. Some of these consequences would be very strange, if not impossible; such as the liability of indorsers, the duty of demand ad diem, notice of nondelivery by the carrier, etc., or the loss of the owner’s property by the fraudulent assignment of a thief.’ . . . But a different principle, we think, governs this case. Here, the First National Bank of Hutchison purchased from the consignor, before delivery to the appellant, the wheat in question, and knew at the time that the wheat was not paid for by the appellant, and undertook to deliver the same to him, and in effect carry out the contract which had been entered into between the appellant and Lattin Bros. The Hutchison bank, as the purchaser from Lattin Bros., the original consignors, acquired against Landa no greater right in the property or shipment than that possessed by the vendors of the bank, and, between the latter and the consignors, it is charged with the same defense that could be urged where the contract was sought to be enforced between these parties. “Now, the bank, when, by a transfer of the bills of lading — 695 — to it by Lattin Bros., it acquired the right to the property they represented, could enforce against the purchaser thereof no greater right than that possessed by its vendors. It acquired title to the property in its then condition, and, if it was wheat of a damaged or defective quality, the fact that it supposed that it was worth the amount of money paid therefor to Lattin Bros, did not convert it into wheat of a superior quality, nor authorize them to demand from Landa, upon a tender of the wheat, payment of the full sum it was put by the transaction. When the bank purchased the wheat, it was substituted to the same rights, and no more, possessed by the vendors to enforce against Landa the contract entered into between him and Lat-tin Bros.; and, if it had sought to enforce the contract by action, it could only do so charged with its burdens, and Landa could have in defense asserted any breach thereof that he- could have urged against Lattin Bros. The bank in this case reaped the benefit of the contract in this: that, upon presentation to Landa of the bills of lading, it received the full amount due under the contract for a shipment of sound wheat. Landa, before payment, did not have an opportunity to inspect the wheat, and only discovered its damaged condition thereafter. The bank, in this way electing to reap the benefit of the contract existing between Lattin Bros, and appellant, became bound by it; and as it was the owner of the wheat, and undertook to carry out the contract, it assumed the same 'position in relation to the transaction as its vendors. It enjoyed no greater rights, and occupied its position charged with the demands that could have been urged against its vendors for a breach of the contract. The facts, beyond dispute, show clearly that there was a breach of the contract. Lattin Bros, and the LIutchison Bank, which succeeded to their rights under the contract, delivered to the appellant wheat in a damaged condition when the contract called for sound wheat, and the bank received therefor payment for sound wheat. This presents a clear case of breach of warranty as to the quality of the article purchased; and because — 696 — the bank, in purchasing from Lattin Bros., may not have known of the inferior quality of the article nurchased, would not, in its undertaking to perform the contract with Landa, justify it in imposing upon Landa wheat of a quality different from that called for in the contract. The court in the case of National Bank of Commerce v. Merchants’ National Bank, 91 U. S., 98, 23 L. Ed., 208, says: ‘That the holder of a bill of lading, who has become such by indorsement, and by-discounting the draft drawn against the consigned property, succeeds to the situation of the shipper, is not to be doubted. He has the same right to demand acceptance of the accompanying bill and no more. If the shipper cannot require acceptance of the draft without surrendering the bill of lading, neither can the holder. Bills of lading, though transferable by indorsement, are only quasi negotiable. 1 Pars. Shipping, 192; Blanchard v. Page, 8 Gray, 297. The indorser does not acquire a right to change the agreement between the shipper, which was not in the power of the drawer and consignor.’ Bank v. White, 65 Mo. App., 697, was a case where a manufacturer of lumber and shingles sold and shipped to a dealer a carload of shingles, and at the same time drew a draft on the purchaser, with a bill of lading attached, and assigned the same to plaintiff, the banking company. When the shingles arrived, they were found to be of inferior quality, and the purchaser, the defendant, refused to pay the draft. Thereupon, the bank sued him for the entire amount of the draft. The purchaser interposed his defense; and, from the brief of appellant in the report of the case, it appears that the bank contended that it acquired the bill of lading, and became the purchaser of the shingles, in the due course of trade, for a valuable consideration, unaffected by the contract under which they were purchased by the defendant. The court, in supporting the contention of the defendant, sáys: ‘We can discover no prejudicial error in the trial of this case; since, too, substantial justice has been done, the judgment will not be disturbed. Plaintiff’s counsel are right in the con — 697 — tention that when the bank took an assignment of the draft and bill of lading from the lumber company — whether as an absolute purchase or as collateral security — -it became vested with the title of the property. From that time on, plaintiff occupied the same relation toward the shingles then in transit that the lumber company did before the bill of lading was transferred. The assignment of the bill of lading operated as a symbolical delivery of the property covered by it. However, the rights of "White, the consignee, were not impaired or disturbed by the change of ownership in the property. He was left with the same defense as against the plaintiff bank that he would have against the lumber company.’ “Now, from these views, the conclusion is reached that the First National Bank of Hutchison, in becoming the owner of the wheat and undertaking to deliver it to Landa, became responsible for the performance of the contract which had been entered into between the latter and Lattin Bros. They could not by delivery of the wheat, and electing to reap the benefits of that contract, and demanding the payment of the sum called for, and receiving the same, take the position that they were not parties to the contract between appellant and Lattin Bros., and that in acquiring title to the wheat they became purchasers thereof unaffected by the burdens of the contract. The facts and circumstances show that the bank undertook its performance, and, such being the case, they had no greater rights against Landa than were possessed by Lattin Bros. The injury to the appellant is in part traceable to the conduct of the bank in delivering to the appellant, and exacting payment therefor, wheat of a damaged and defective quality; and, upon a discovery of the defective quality "of the wheat by Landa, a cause "of action arose in his behalf against the bank, to recover from it the damages he had sustained by reason of the wrong imposed upon him in delivering to him, and exacting from him payment for, damaged Avheat. . . . The inconvenience to which banks may be put, in the manner in which commercial — 698 — transactions with its customers may be affected, by the rule announced in this opinion, is a question with which we are very little concerned, as we apprehend that the principles of law that would apply to individuals in dealing in transactions of this character would also apply to banks in dealing with their customers. The appellees, on this branch of the case, in their brief, say: 'If the banker had to examine the contract between the original shippers and purchaser of the goods, to see and know its terms, and then examine the cargo, to see if it complied with the terms of the original contracting parties, upon, penalty of being held liable for some real or imagined defect therein, we fancy that there would be very little business of this kind carried on by the banks.’ The diligence required of banks in their efforts to protect themselves for the money advanced to their customers should extend to an inquiry as to the value of the articles upon which they make their advances. It was a matter of slight inconvenience to this bank to have made investigations as to the quality of the wheat which it purchased from Lattin Bros., and as to the terms of the, contract between Lattin Bros, and appellant. It could not, by relaxing diligence in this respect in the purchase of wheat in a damaged condition, by paying therefor a price for sound wheat, impose its want of caution on another by exacting from him payment for sound wheat. Landa was only responsible for the character of the wheat which was actually delivered to him; and this was of an inferior quality and in a damaged condition. The bank, because it was imposed upon by Lattin Bros., would not have the right to likewise impose upon Landa. The duty of the bank to exercise diligence to protect and guard its interests in a transaction of this character is as great as would be the ease in a bank advancing or loaning money upon a security offered by a borrower. Except in cases of the purchase of negotiable paper, or advancing money upon paper of that character, a bank, or any one else advancing money upon a contract which its customer may have with another party, would — 699 — be put upon inquiry to ascertain the terms of that contract and tbe extent of the right of its customer thereunder; and the bank, in dealing with one claiming under such a contract, and as to the articles it represents, could not, because it was ignorant of its true terms and the rights of the other party, enlarge the responsibility of that party, and impose upon him a liability different from that called for in the contract.” We think the courts which have taken the other view have dealt with half the transaction — not the whole of it. They have looked to the draft, not to the bill of lading. They have failed to give every factor in the transaction its full .significance, and to look through form to substance. This is no attachment against a national bank, in any proper legal view. The ease is in chancery. All the parties are before the court for the adjustment of all the equities. The national bank is a mere claimant of the fund; intervening as such claimant, and preferring its claim. Being in equity, the equities can all be adjusted, and the rights of all parties protected. It is a misconception to say that the national bank is in this proceeding attached, within the meaning of the United States statute relied on. Reversed and remanded.