Goetz v. Bank of Kansas City

• Decision Date: 10 January 1887
• Citation: 30 L.Ed. 515,7 S.Ct. 318,119 U.S. 551
• Parties: GOETZ, Jr., and another v. BANK OF KANSAS CITY
• Court: U.S. Supreme Court

119 U.S. 551

7 S.Ct. 318

30 L.Ed. 515

GOETZ, Jr., and another v. BANK OF KANSAS CITY.

January 10, 1887.

F. W. Cotzhausen, for plaintiffs in error.

O. H. Dean, (argued,) Jas. Hagerman, Wm. Warner,

[Argument of Counsel from page 552 intentionally omitted] B. K. Miller, for defendant in error.

FIELD, J.

In Oc

tober, 1881, the plaintiffs in error, Goetz and Luening were partners in the business of buying and selling hides on commission, at Milwaukee, Wisconsin. At that time one Du Bois was a dealer in hides at Kansas City, Missouri. On the tenth of that month Du Bois telegraphed to them from Kansas City, inquiring what they could sell 400 green salt hides for, and what they would advance on a bill of lading of the shipment. The firm answered by telegram, stating the market price of light hides on that day, and that they would pay a draft 'for two-thirds value, bill of lading attached.' On the same day the firm sent a letter to Du Bois, repeating the message, and adding that if the hides were in good condition, and No. 1, they could sell them readily; that their commission was 2 1/2 per cent.; and that they would sell all hides that he might ship to the market at Milwaukee. Upon this understanding, and during the same month, Du Bois drew upon the firm five drafts, amounting in the aggregate to $9,395, which were accepted, and, with the exception of the fifty one, were paid. The fifth one, which was for $2,000, was protested for non-payment. To each of the drafts were attached a bill of lading and an invoice of the shipment. The bill of lading purported to have been issued by the Chicago & Alton Railroad Company, stating that it had received hides, giving the number and estimated weight, to be transported on the road from Kansas City to Milwaukee, and marked and consigned as follows: 'To shipper's order. Notify Goetz and Luening, Milwaukee, Wis.' The invoice purported to give the net weight in pounds of the hides shipped, and the market price at Milwaukee, and their estimated aggregate value, referring to the sight draft for two-thirds of the amount.

The drafts were made payable to Thornton, the cashier of the Bank of Kansas City, and were cashed as drawn, the bank paying their full face, less the usual rate of exchange on Milwaukee. The amount, as each was cashed, was passed to the credit of Du Bois, and was checked out by him in the usual course of business, within a few days. The drafts were sent by the bank to its correspondent at Chicago, indorsed 'for collection' on its account, and by him were forwarded to Milwaukee. The invoices of some of the shipments were indorsed in the same way. The bills of lading were indorsed by Du Bois, per J. MacLellon, his clerk. The signatures to the bills of lading proved to be forgeries, on which account Goetz & Luening refused to pay the fifth draft. The bank thereupon brought an action against them for the amount in the circuit court of the United States. They defended, and set up as a counter-claim the sums they had paid on the four drafts. At the same time they commenced an action in the state court against the bank to recover the money paid on those four drafts. The latter action was removed, on application of the bank, to the circuit court of the United States, where the two actions were consolidated and tried as one, the same questions being involved in both. The trial resulted, by direction of the court, in a verdict for the bank, by which it recovered against the firm the amount claimed on the unpaid draft, and defeated the claim of the firm for the return of the money paid on the other four drafts.

The contention of Goetz & Luening was substantially this: that they accepted the drafts in the belief that the bills of lading were genuine; that their genuineness was asserted by the indorsement of the bank on the invoices accompanying them; that the bills of lading were forgeries; that no shipments as stated therein had been made; and that Du Bois bore in the community such a reputation for dishonesty, having been charged at other times with forging bills of lading attached to drafts drawn by him, that the bank was guilty of culpable negligence, amounting to bad faith, in discounting these drafts, on the faith of the bills of lading presented by him without inquiring as to their genuineness.

The testimony offered by the firm respecting the character of Du Bois was of great length, but it would serve no useful purpose to discuss it. It is sufficient to say that it consisted of a mass of loose statements, general charges of criminality, with vague references in some instances to reported particulars, sensational articles in newspapers, surmises, insinuations, rumors, beliefs, and suspicions, which might make men cautious in their dealings with him; but they were altogether of too indefinite and uncertain a character to interdict all transactions with him, in the ordinary course of business.

Besides, testimony was produced by the bank highly favorable to the standing and character of Du Bois. He is shown to have been a man of great enterprise and capacity, and, just before opening business with the bank, to have been a member of the government of Kansas City, representing his ward in the common council, and spoken of as a prominent candidate for its mayoralty. He was a member and director of the board of trade of the city, and one of its committee on arbitration, to which business disputes of its members were referred for settlement. He had been a captain in the Union army, and bore the reputation of a brave and gallant officer. He was received in the best society of the city, and was generally popular. He commenced business with the bank in March, §881, and drafts by him, cashed by the bank, amounted from twenty to one hundred thousand dollars a month. Those drafts were always accompanied by bills of alding, and not until after the discovery of the forgery of the bills of lading in this case was it known that in any of these transactions he had been guilty of dishonest conduct.

Under these circumstances, it is not surprising that, when the drafts on the merchants in Milwaukee were presented for discount, the bank made no inquiry as to the genuineness of the bills of lading attached to them. A bank in discounting commercial paper does not guaranty the genuineness of a document attached to it as collateral security. Bills of lading attached to drafts drawn, as in the present case, are merely security for the payment of the drafts. The indorsement by the bank on the invoices accompanying some of the bills, 'for collection,' created no responsibility on the part of the bank. It implied no guaranty that the bills of lading were genuine. It imported nothing more than that the goods, which the bills of lading stated had been shipped, were to be held for the payment of the drafts, if the drafts were not paid by the drawees, and that the bank transferred them only for that purpose. If the drafts should be paid, the drawees were to take the goods. To hold such indorsement to be a warranty would create great embarrassment in the use of bills of lading as collateral to commercial paper against which they are drawn.

The bank, after discounting the drafts, stood towards the acceptors in the position of an original lender, and could not be affected in its claim by the want of a consideration from the drawer for the acceptance, or by the failure of such consideration.

This has been held in numerous cases, and was directly adjudged by this court in Hoffman v. Bank of Milwaukee, 12 Wall. 181, which in essential particulars is similar to the one at bar. There the bank had discounted drafts drawn by parties at Milwaukee on Hoffman & Co., commission merchants of Philadelphia, to which were attached bills of lading purporting to represent shipments of flour. Hoffman & Co. accepted and paid the drafts. The bills of lading proved to be forgeries, and Hoffman & Co. sued the bank to recover the money paid. It was contended that they had accepted and paid the drafts in the belief that the accompanying bills of lading were genuine, and that, had they known the real...