National Bank of Commerce of Boston v. Merchants National Bank of Memphis

• Decision Date: 01 October 1875
• Citation: 23 L.Ed. 208,91 U.S. 92
• Parties: NATIONAL BANK OF COMMERCE OF BOSTON v. MERCHANTS' NATIONAL BANK OF MEMPHIS
• Court: U.S. Supreme Court

91 U.S. 92

23 L.Ed. 208

NATIONAL BANK OF COMMERCE OF BOSTON v. MERCHANTS' NATIONAL BANK OF MEMPHIS.

October Term, 1875

ERROR to the Circuit Court of the United States for the District of Massachusetts.

This was a suit brought by the Merchants' National Bank of Memphis against the National Bank of Commerce of Boston for alleged negligence in surrendering three bills of lading attached to three drafts,—two at thirty days, and one on sight,—which were sent by the Metropolitan National Bank of New York to the defendant, who surrendered the bills of lading to the drawees upon their acceptance of the drafts. These were drawn against the cotton mentioned in the bills of lading. The defendant had no information that the drafts had been discounted by the Bank of Memphis, and no instructions either to surrender the bills upon acceptance, or to hold them until payment of the drafts. The defendant had received through the same bank in New York drafts to a large amount on the same parties, accompanied by bills of lading, which they had always surrendered on acceptance, except in one instance, when special instructions were given to hold the latter until the accompanying draft was paid.

A verdict was rendered for the plaintiff.

Several questions were raised in the court below; but it is not deemed material to mention any thing more than two portions of the charge of the court, which were as follows:——

'In the absence of any consent of the owner of the bill of exchange, other than such as may be implied from the mere fact of sending for collection a bill of exchange, the bank so receiving the two papers for collection would not be authorized to separate the bill of lading from the bill of exchange, and surrender it before the bill of exchange was paid.'

'If the Metropolitan Bank merely sent to the defendant bank the bill of exchange with the bills of lading attached 'for collection,' with no other instructions, either express or implied from the past relations of the parties, they would not be justified in surrendering on acceptance only.'

To both of these instructions the defendant excepted.

Messrs. H. W. Paine and H. C. Hutchins for plaintiff in error.

In the absence of instructions, the plaintiff in error was authorized to infer that the bills of lading were annexed to the drafts to secure their acceptance, and were to be surrendered on acceptance. Lanfear v. Blossom, 1 La. Ann. 148; Coventry v. Gladstone, L. R. 4 Eq. 493; Gurney v. Behrend, 3 Ell. & Bl. 622; Shepherd v. Harrison et al., L. R. 4 Q. B. 196; Schuchardt et al. v. Hall et al., 36 Md. 590; Bryan v. Nix, 4 M. & W. 775; Marine Bank of Chicago v. Wright et al., 48 N. Y. 1; Shepherd v. Harrison et al., L. R. H. of L. 5, 116; Wisconsin Bank v. Bank of British N. A., 21 Upper Canada Queen's Bench, 284; Clark v. Bank of Montreal, 13 Grant's Ch. (Upper Canada) 211.

Mr. W. G. Russell, contra.

The later authorities in England and this country hold, that the holder of a draft, discounted bona fide for value, with the bill of lading attached, holds it as security for payment, and not for acceptance merely. Gilbert v. Guignon, L. R. 8 Ch. 16 (1872); Seymour v. Newton, 105 Mass. 272; Newcomb v. Boston & Lowell R.R., 115 Mass. 230; Stollenwerck et al. v. Thacher et al., 115 Mass. 224. The bank which holds the bill of exchange and the bill of lading attached 'for collection' holds them in trust for both parties, and is under obligation not to detach one from the other.

MR. JUSTICE STRONG delivered the opinion of the court.

The fundamental question in this case is, whether a bill of lading of merchandise deliverable to order, when attached to a time draft and forwarded with the draft to an agent for collection, without any special instructions, may be surrendered to the drawee on his acceptance of the draft, or whether the agent's duty is to hold the bill of lading after the acceptance for the payment. It is true, there are other questions growing out of portions of the evidence, as well as one of the findings of the jury; but they are questions of secondary importance. The bills of exchange were drawn by cotton-brokers residing in Memphis, Tenn., on Green & Travis, merchants, residing in Boston. They were drawn on account of cotton shipped by the brokers to Boston, invoices of which were sent to Green & Travis; and bills of lading were taken by the shippers, marked in case of two of the shipments 'To order,' and in case of the third shipment marked 'For Green & Travis, Boston, Mass.' There was an agreement between the shippers and the drawees that the bill of lading should be surrendered on acceptance of the bills of exchange; but the existence of this agreement was not known by the Bank of Memphis when that bank discounted the drafts, and took with them the bills of lading indorsed by the shippers. We do not propose to inquire now whether the agreement, under these circumstances, ought to have any effect upon the decision of the case. Conceding that bills of lading are negotiable, and that their indorsement and delivery pass the title of the shippers to the property specified in them, and therefore that the plaintiffs, when they discounted the drafts and took the indorsed railroad receipts or bills of lading, became the owners of the cotton, it is still true that they sent the bills with the drafts to their correspondents in New York, the Metropolitan Bank, with no instructions to hold them after acceptance; and the Metropolitan Bank transmitted them to the defendants in Boston, with no other instruction than that the bills were sent 'for collection.' What, then, was the duty of the defendants? Obviously, it was first to obtain the acceptance of the bills of exchange. But Green & Travis were not bound to accept, even though they had ordered the cotton, unless the bills of lading were delivered to them contemporaneously with their acceptance. Their agreement with their vendors, the shippers, secured them against such an obligation. Moreover, independent of this agreement, the drafts upon their face showed that they had been drawn upon the cotton covered by the bills of lading. Both the plaintiffs, and their agents the defendants, were thus informed that the bills were not drawn upon any funds of the drawers in the hands of Green & Travis, and that they were expected to be paid out of the proceeds of the cotton. But how could they be paid out of the proceeds of the cotton if the bills of lading were withheld? Withholding them, therefore, would defeat alike the expectation and the intent of the drawers of the bills. Hence, were there nothing more, it would seem that a drawer's agent to collect a time bill, without further instructions, would not be justified in refusing to surrender the property against which the bill was drawn, after its acceptance, and thus disable the acceptor from making payment out of the property designated for that purpose.

But it seems to be a natural inference, indeed a necessary implication, from a time draft accompanied by a bill of lading indorsed in blank, that the merchandise (which in this case was cotton) specified in the bill was sold on credit, to be paid for by the accepted draft, or that the draft is a demand for an advance on the shipment, or that the transaction is a consignment to be sold by the drawee on account of the shipper. It is difficult to conceive of any other meaning the instruments can have. If so, in the absence of any express arrangement to the contrary, the acceptor, if a purchaser, is clearly entitled to the possession of the goods on his accepting the bill, and thus giving the vendor a completed contract for payment. This would not be doubted, if, instead of an acceptance, he had given a promissory note for the goods, payable at the expiration of the stipulated credit. In such a case, it is clear that the vendor could not retain possession of the subject of the sale after receiving the note for the price. The idea of a sale on credit is that the vendee is to have the thing sold on his assumption to pay, and before actual payment. The consideration of the sale is the note. But an acceptor of a bill of exchange stands in the same position as the maker of a promissory note. If he has purchased on credit, and is denied possession until he shall make payment, the transaction ceases to be what it was intended, and is converted into a cash sale. Everybody understands that a sale on credit entitles the purchaser to immediate possession of the property sold, unless there be a special agreement that it may be retained by the vendor; and such is the well-recognized doctrine of the law. The reason for this is, that very often, and with merchants generally, the thing purchased is needed to provide means for the deferred payment of the price. Hence it is justly inferred that the thing is intended to pass at once within the control of the purchaser. It is admitted that a different arrangement may be stipulated for. Even in a credit sale, it may be agreed by the parties that the vendor shall retain the subject until the expiration of the credit, as a security for the payment of the sum stipulated. But, if so, the agreement is special, something superadded to an ordinary contract of sale on credit, the existence of which is not to be presumed. Therefore, in a case where the drawing of a time draft against a consignment raises the implication that the goods consigned have been sold on credit, the agent to whom the draft to be accepted and the bill of lading to be delivered have been intrusted cannot reasonably be required to know, without instruction, that the transaction is not what it purports to be. He has no right to assume and act on the assumption that the vendee's term of credit must expire before he can have the goods, and that he is bound to accept the draft, thus making himself absolutely responsible for the sum named therein, and relying upon the vendor's engagement to deliver at a future time. This would be...