A., B., & Co., a firm engaged in selling livestock on
commission, authorized a bank to cash drafts drawn on the firm by
C., their agent, who forwarded livestock to them. Some controversy
arising, A., B., & Co. wrote to the bank as follows:
"JAN. 15, 1876"
"Hereafter we will pay drafts only on actual consignments. We
money a week in advance of shipment. The stock must be in
transit so as to meet dr'ft same day or the day after presented to
us. This letter will cancel all previous arrangement of letters of
credit in reference to C.
The cashier of the bank replied as follows : -
"JAN. 17, 1876"
"Your favor of the 15th received. I note what you say. We have
never knowingly advanced any money to C. on stock to come in. Have
always supposed it was in transit. After this, we shall require
There was no further communication on this subject between the
parties. Two clerks of A., B., & Co. who were aware of this
correspondence became partners without the knowledge of the bank,
and the business was thereafter carried on in the same name. C.
continued to draw on the firm as before, and the bank, without
requiring bills of lading, to cash the drafts, all of which were
accepted and paid by the firm. The bank acted in good faith. C.
absconded with the proceeds of two drafts, and the firm brought
this action against the bank to recover the amount.
1. That the letters constitute no contract, and the bank is not
responsible to the firm for cashing the drafts without bills of
2. That if, however, a contract did arise from the cashier's
unanswered letter of Jan. 17, 1878, it was with the then existing
firm, and ceased on the subsequent change thereof by the admission
of new members, without the knowledge or the consent of the
Page 101 U. S. 44
MR. JUSTICE SWAYNE delivered the opinion of the Court.
This is an action of tort growing out of a contract. The bill of
exceptions is well drawn, and reflects clearly the points in issue
between the parties. A brief statement of the case as it appears in
the record will be sufficient for the purposes of this opinion.
During the years 1874, 1875, and up to April 1, 1876, a firm
under the name of Hall, Patterson, & Co. had existed at
Chicago. It consisted of S. Frank Hall, Frank D. Patterson, and
Augustus L. Patterson, three of the five defendants in error. Their
business was selling livestock on commission at the Chicago
stockyards. William G. Melson was their agent at Quincy. To secure
consignments at that point to his principals, it was frequently
necessary to make advances there. Hall, Patterson, & Co.
arranged with The First National Bank of Quincy to cash Melon's
drafts on them for this purpose. The drafts were numerous, and were
all payable at sight. Penfield was the cashier of the bank. A draft
for $125 was returned to the bank unpaid. This gave rise to some
controversy between the bank and the drawees, but the matter was
satisfactorily adjusted. Thereafter Hall, Patterson, & Co.
addressed a letter to the cashier, which was as follows:
"CHICAGO, Jan. 15, 1876"
"U. S. PENFIELD, Cashier, Quincy, Ill.:"
"DEAR SIR -- Hereafter we will pay drafts only on actual
consignments. We cannot advance money a week in advance of
shipment. The stock must be in transit so as to meet dr'ft same day
or the day after presented to us. This letter will cancel all
previous arrangement of letters of credit in reference to G. W.
Melson. Please acknowledge receipt of this, and oblige,"
"HALL, PATTERSON, & Co."
Page 101 U. S. 45
Penfield replied as follows:
"QUINCY, ILL., Jan. 17, 1876"
"MESSRS. HALL, PATTERSON, & Co., Chicago:"
"DEAR SIR -- Your favor of the 15th received. I note what you
say. We have never knowingly advanced any money to Melson on stock
to come in. Have always supposed it was in transit. Have always
taken his word. After this, we shall require ship'g bill."
"Very truly yours,"
"U.S. PENFIELD, Cashr.
This letter closed the correspondence.
On the 1st of April, 1876, two of the defendants in error,
Frazee and Greer, were added as partners to the firm of Hall,
Patterson, & Co., as it had before existed. They had previously
been employed as clerks, and knew of the writing of the letter to
Penfield of the 17th of January, 1876. The new firm continued to do
business under the name of Hall, Patterson, & Co., until after
this suit was commenced. Melson acted as the agent of the new firm
as he had acted for the old one. Between the 1st of April, 1876,
and the happening of the loss out of which this controversy has
arisen, he, as such agent, drew thirty-one drafts on his
principals, amounting in the aggregate to $50,000. They were all at
sight, were cashed by the bank, and were duly accepted and paid by
Hall, Patterson & Co. There was no communication personally or
by letter between any officer of the bank and any member of the
firm, from the date of the cashier's letter of the 17th of January,
1876, until after the loss before mentioned. In the meantime, the
bank was wholly ignorant of the change which had been made in the
firm, and the drafts were cashed without such knowledge.
On the 7th of December, 1876, Melson drew drafts as follows:
"$2,505 QUINCY, ILL., Dec. 7, 1876"
"Pay to the order of U.S. Penfield, Cas., twenty-five hundred
and five dollars on account Jos. Hunnele 5 l'ds stock."
"W. G. MELSON"
"TO HALL, PATTERSON, & Co., Stockyards, Chicago, Ills. "
Page 101 U. S. 46
"$2,004.00 QUINCY, ILLS., Dec. 7, 1876"
"Pay to the order of U.S. Penfield, Cas., two thousand and four
dollars on account S. C. Fooley 4 l'ds hogs and cattle."
"W. G. MELSON"
"TO HALL, PATTERSON, & Co., Stock-yards, Chicago, Ills."
Both these drafts were cashed by the bank on the day of their
date, and the proceeds were paid to Melson. They were taken in the
usual course of business and in entire good faith. The cashier
testified that by "ship'g bill" in his letter of the 17th of
January, 1876, he meant bill of lading, but that no bill of landing
was taken by the bank after the date of that letter, and that all
Melson's drafts -- being thirty-one after the 1st of April and ten
or twelve between January 17 and April 1 of that year -- were paid
by Hall, Patterson, & Co. without bills of lading being
attached and without inquiry by the bank or its cashier concerning
such securities. When the two drafts last mentioned were cashed,
the cashier had no knowledge whether they were drawn against stock
or not. It was a rule of the bank, understood by all the stock
agents doing business there, that no draft should be drawn unless
the stock was in transit. Agents, when drawing, were therefore not
usually questioned upon the subject. Their compliance with the rule
was assumed by the bank. The two drafts last mentioned were
endorsed and transmitted by the cashier to his correspondent in
Chicago for collection. They were accepted and paid by Hall,
Patterson, & Co., and the plaintiff in error received the
money. No stock was forwarded by Melson. The transaction was a
fraud on his part. Upon receiving the proceeds of the drafts, he
fled the country. He was diligently sought for, but could not be
found. Hall, Patterson, & Co. brought this suit against the
bank to recover the amount they had paid. A verdict and judgment
were rendered in their favor in the court below, and the bank has
brought the case here for review.
The bill of exceptions contains all the evidence given upon the
trial. It discloses nothing which affords the slightest ground for
any imputation against the bank or its officers with respect to
their good faith and fair dealing in the transaction
Page 101 U. S. 47
out of which this controversy has arisen. The defendants in
error claimed nothing in that respect in the court below, and they
have made no such claim here.
The counsel for the bank has assigned twenty-seven errors. Some
of them are repetitions of the same objections in different forms.
None of them is frivolous, and many of them, if the exigencies of
the case required it, would be entitled to grave consideration by
The two letters between the parties of the 15th and 17th of
January, 1876, are the heart of the controversy. The stress of the
case is upon their construction and effect. Passing by the other
points raised in the record, we shall first give our attention to
this subject, and our remarks will be confined to that and one
other of the errors assigned.
By this letter Hall, Patterson, & Co. advised the bank: 1.
that thereafter they would pay drafts only on actual consignments
of stock; 2. that they would not pay money a week in advance of
shipments; 3. that the stock must be in transit, so as to meet the
draft the same day or the day after it was presented to them; 4.
that this letter was to cancel all previous letters of credit as to
W. G. Melson; 5. they asked an acknowledgment of the receipt of the
These terms were clear and explicit. What was the reply of the
The cashier answered: 1. that the letter of the other party was
received; 2. that its contents were noted; 3. that the bank had
never knowingly advanced money to Melson on stock to come in; 4.
that the cashier had always taken Melson's word; 5. that thereafter
the bank would require a "ship'g bill," meaning a bill of lading.
This letter Hall, Patterson, & Co. never answered.
What was its effect as to them? It certainly did not accept
their proposition, nor accede to their terms, that "the stock must
be in transit to meet the draft on the same day or the day after
presented." They made this expressly the condition of their
accepting. The letter made no allusion to the requirement and was
wholly silent on the subject. Upon this point the parties were as
wide asunder as if the letters had not been written.
Page 101 U. S. 48
For whose benefit was the shipping bill mentioned by the cashier
to be taken? Prima facie,
the point is left in
uncertainty. Here again, the cashier is silent. But the
interpretation is reasonable that Hall, Patterson, & Co.,
having in advance refused to accept, except upon the condition
mentioned, the bank notified them in reply that it would thereafter
take a bill of lading, not for their protection, but for its own.
This view is strengthened by the conduct of the defendants in error
and the practical construction which they seem to have thus given
to the clause. They did not say in reply that they understood the
shipping bill was to be for their benefit, and that they should
expect it to accompany the draft. No such bill was ever required by
them or sent by the bank. They went on accepting and paying in
silence exactly as before. The large number of drafts so accepted
and paid by them has been already stated. If they relied on the
shipping bills, their conduct is inexplicable: if the understanding
of the cashier had been different from what we have suggested, it
is hardly to be supposed he would, from the date of his letter,
have constantly disregarded his promise. Such conduct would have
been worse than negligence. It would have been a gross breach of
good faith to the other party. If, on the other hand, he meant by
the clause that the bill of lading, if taken, was to be solely for
the security of the bank, then it was for the bank to determine
whether it should be required or not. If the cashier had confidence
in Melson, and chose to exercise it, he exposed the bank to the
hazard of the consequences; but there was certainly no
responsibility to Hall, Patterson, & Co.
It is a remarkable feature of the case that when the loss
occurred, the defendants in error attached no importance to their
own letter, but fell back upon the letter of the cashier which they
had not answered, and which they had not before in any manner
recognized as concerning them, much less as constituting a contract
by the bank for their protection and benefit. To give it that
effect, early and explicit notice to the bank was necessary. The
afterthought of Hall, Patterson, & Co., when the loss occurred,
came too late, and cannot avail them. Adams v.
12 Pet. 207; McCollum v. Cushing,
22 Ark. 540; White v. Corlies,
46 N.Y. 467; Story, Contr.,
Page 101 U. S. 49
The minds of the parties, as shown by these letters, moved on
parallel, not on concentric lines. There was not the meeting of
minds and the mutuality of assent to the same thing which are
necessary to create a contract. It is not pretended that the bank
ever agreed to the proposition -- if it may be considered such, and
not the mere announcement of a purpose -- contained in the letter
of Hall, Patterson, & Co., and there is no evidence that the
proposition of the bank -- if the letter of the cashier can be
regarded in that light -- was ever accepted and acted upon by the
parties to whom it was addressed. We are satisfied, however, that
no proposition or promise was intended to be made by the bank, and
that this was the understanding of the defendants in error. Their
letter revoked the letter of credit they had before given to
Melson. The bank announced, in reply, the manner in which it should
thereafter do business with him. Thereafter each occupied a
position independent of the other. If the bank discounted drafts
for Melson, the defendants in error, like any other drawees, had
the option to accept or not, and in the latter event the bank could
have had no redress against them, whether it had or had not taken a
bill of lading. The destruction of the stock, after the bank took
such a bill, would not have changed the relations of the parties.
In our view, it was a thing with which the defendants in error had
nothing to do.
If it be said they were obliged to accept if the bank took a
shipping bill, it may be asked in reply where is the evidence of
such an understanding on their part? There is nothing in the record
that gives the slightest support to such an assumption. If they
were not bound, where is the consideration for the alleged promise
of the bank? The true view of the subject is that neither was in
any wise bound or liable to the other.
The defendants in error notified the bank that thereafter they
would accept only on the condition specified. The cashier answered
that the bank would protect itself. This is the sole effect of the
letters. Thereupon the correspondence of the parties ceased because
there was nothing left for either to add.
Where there is a misunderstanding as to the terms of a contract,
neither party is liable in law or equity. Baldwin v.
Page 101 U. S. 50
2 Hall (N.Y.) 176; Coles v. Bowne,
10 Paige (N.Y.) 526;
Utley v. Donaldson, 94 U. S. 29
Where a contract is a unit, and left uncertain in one
particular, the whole will be regarded as one inchoate because the
parties have not been ad idem,
and therefore neither is
bound. Appleby v. Johnson,
Law Rep. 9 C.P. 158.
A proposal to accept, or acceptance upon terms varying from
those offered, is a rejection of the offer. Baker v. Johnson
37 Ia. 186. See also Jenness v. Mount Hope Iron
53 Me. 20; The Chicago & Great Eastern Railway
Co. v. Dane,
43 N.Y. 240; and Suydam v. Clark,
Sandf. (N.Y.) 133.
The learned judge who tried the case below instructed the jury
that the letters constituted a binding contract, and that if the
bank cashed any bills not based on actual consignments to the
plaintiffs, and the plaintiffs sustained any injury by such
failure, the bank is responsible.
This instruction was erroneous.
In making a contract, parties are as important an element as the
terms with reference to the subject matter. Mutual assent as to
both is alike necessary. If in fact there were here, as claimed, a
contract with reference to the latter, it was made on the 17th of
January, 1876, with Hall and the two Pattersons, then constituting
the firm known as Hall, Patterson, & Co. The change of the firm
on the 1st of April following, by taking in Frazee and Greer as new
members without the knowledge or consent of the bank put an end to
the contract as to the latter. The proof is conclusive that the
bank had no knowledge of the change until after commencement of
this suit. The alleged cause of action arose more than eight months
after the new partnership was formed and nearly a year after the
date of the letters by which the contract is claimed to have been
made. There was no privity between the bank and the new firm. There
was no binding acquiescence by the bank. There could be none
without knowledge, and it is not claimed or pretended that such
knowledge existed. A new party could no more be imported into the
contract and imposed upon the bank without its consent than a
change could be made in like manner in the other preexisting
stipulations. The bank might
Page 101 U. S. 51
have been willing to contract with the firm as it was
originally, but not as it was subsequently. At any rate, it had the
right to know and to decide for itself. Without its assent, a thing
was wanting which was indispensable to the continuity of the
contract. Barns v. Barrow,
61 N.Y. 39; Grant v.
4 Cranch 224; Bleeker v. Hyde,
McLean 279; Taylor v. Wetmore,
10 Ohio, 490; Taylor v.
2 Houst. (Del.) 24; Hunt v. Smith,
(N.Y.) 179; Cremer v. Higginson,
1 Mas. 323; Russell
v. Perkins, id.,
The court refused an instruction asked for in accordance with
this view of the subject. This also was an error.
The judgment will be reversed, and the cause remanded to the
court below with directions to proceed in conformity to this
opinion, and it is