A consignor who had been in the habit of drawing bills of
exchange on his consignee with bills of lading attached to the
drafts drawn (it being part of the agreement between the parties
that such bills should always attend the drafts) drew bills on him
with forged bills of lading attached to the drafts, and had the
drafts with the forged bills of lading so attached discounted in
the ordinary course of business by a bank ignorant of the fraud.
The consignee, not knowing of the forgery of the bills of lading,
paid the drafts.
Held that there was no recourse by the
consignee against the bank.
Chapin & Miles, a forwarding and commission firm in
Milwaukee, were engaged in moving produce to Hoffman & Co., of
Philadelphia, for sale there. The course of their business was
thus: They first shipped the produce, obtaining a bill of lading
therefor, to which they attached a draft drawn by them on their
consignee for about the value of the grain and then negotiated the
draft with bill of lading attached to some bank in Milwaukee and
obtained the money.
Page 79 U. S. 182
It was understood that the draft was drawn upon the credit of
the property called for by the bill of lading, and would be paid by
the consignee upon receipt of the bill of lading, and -- with
perhaps a single exception where the bills of lading, not being
obtained during bank hours, was sent otherwise than with the draft
-- the drafts were accompanied by such bills. The Philadelphia
firm, however, rarely knew what flour belonged to any particular
bill of lading, not being obliged by the railroad clerks at
Philadelphia, where they were known, to exhibit any bill of lading
in order to get the flour, and their custom being, on getting
notice from the railroad office that flour had arrived for them, to
pay the charges, give receipts and send their drayman for it and
bring it away. It was the practice of the Milwaukee firm to advise
their Philadelphia correspondents by letter of shipments made and
drafts drawn, which advisements were acknowledged with a promise
"to honor
the drafts." When flour was "slow" in going
forward, they corresponded with the Milwaukee house about it, but
did not on that account refuse acceptance or payment of any
bill.
Having been thus dealing for about sixteen months, Chapin &
Miles drew three drafts on Hoffman & Co. in the ordinary way,
and, attaching to them bills of lading which they had forged,
negotiated, in the ordinary course of business, the drafts, with
the forged bills of lading attached, to the City Bank of Milwaukee,
getting the money for them. The bank knew nothing of the forgery of
the bills of lading. The ordinary correspondence between the two
houses took place. That in regard to one draft will exhibit its
character.
"MILWAUKEE, February 26, 1869"
"MESSRS. HOFFMAN & CO., PHILADELPHIA."
"DEAR SIRS: We ship to you today 200 bbls. 'Prairie Flour,' and
draw at s't for $1,100, which please honor. Will draw for $5 only
when we can, but must crowd $5 l/2 part of the time."
"Yours truly,"
"CHAPIN & MILES"
Page 79 U. S. 183
"PHILADELPHIA, March 2, 1869"
"MESSRS. CHAPIN & MILES."
"GENTLEMEN: Yours 26th ult. here. Your
draft $1,100, will be
paid, but we think you should try to keep them down to $5 per
barrel. We advise sale of 100 Prairie at $7 and 54 at $7.25."
"Yours, respectfully,"
"HOFFMAN & CO."
No flour was forwarded. The Milwaukee bank forwarded the drafts,
however, with the forged bills of lading attached, to their
correspondent, the Park Bank in New York, for collection. The Park
Bank forwarded the same to its correspondent, the Commonwealth Bank
of Philadelphia, for the same purpose, and the latter bank
presented the draft and bill of lading to the drawees, Hoffman
& Co., who, knowing the drafts to be genuine and not supposing
that the bills of lading were otherwise, paid the drafts to the
Philadelphia bank, which remitted the money back to the Park Bank
to the credit of the Bank of Milwaukee.
No flour coming forward, Hoffman & Co. discovered that the
bills of lading were forged, and Miles & Chapin being
insolvent, they sued the Bank of Milwaukee to recover the amount
paid, as above stated.
The declaration in the case contained the common counts in
assumpsit, with a notice attached to the defendant
"that the action was brought to recover $3,100, money paid by
the plaintiff under mistake of fact upon drafts and bills of lading
(of which copies were annexed), the mistake being that the
plaintiffs paid the money upon the belief that the said bills of
lading were genuine instruments, whereas in fact they were forged,
the amount of money paid being the amount called for by the drafts,
which was paid upon the credit and inducement of the bills of
lading."
Neither the name of the defendant, the Milwaukee bank, nor of
any of its officers or agents, appeared in or upon the bills of
lading in question, and lead it not been for extrinsic evidence, it
could not have been told from those bills that the bank had had
anything to do with them. Nor had the bank
Page 79 U. S. 184
lead any dealings or correspondence of any kind with the
Philadelphia house, relative to the shipments of flour by Chapin
& Miles, or relative to the drafts drawn by them.
On this case, the court below directed the jury to find for the
hank, defendant in the case, and the plaintiff's brought the case
here.
Page 79 U. S. 186
MR. JUSTICE CLIFFORD delivered the opinion of the Court.
Acceptors of a bill of exchange, by file act of acceptance,
admit the genuineness of file signatures of the drawers, and the
competency of the drawers to assume that responsibility. Such an
act imports all engagement, on the part of the acceptor, to the
payee or other lawful holder of the bill, to pay the same, if duly
presented, when it becomes due, according to the tenor of the
acceptance. He engages to pay the holder, whether payee or
endorsee, the full amount of the bill at maturity, and if he does
not, the holder has a right of action against him, and he may also
have one against the drawer. Drawers of bills of exchange, however,
are not
Page 79 U. S. 187
liable to the holder, under such circumstances, until it appears
that the bill was duly presented, and that the acceptor refused or
neglected to pay the same according to the tenor of the instrument,
as their liability is contingent and subject to those conditions
precedent.
Three bills of exchange, as exhibited in the record, were drawn
by Chapin, Miles & Co., payable to the order of the defendants,
and the record shows that they, the defendants, received and
discounted the three bills at the request of the drawers. Attached
to each bill of exchange was a bill of lading for two hundred
barrels of flour, shipped, as therein represented, by the drawers
of the bills of exchange, and consigned to the plaintiff's, and the
record also shows that the drawers in each case sent a letter of
advice to the consignees apprising them of the shipment, and that
they would draw on them as such consignees for the respective
amounts specified in the several bills of exchange. Prompt reply in
each case was communicated by the plaintiffs acknowledging the
receipt of the letter of advice sent by the shippers and promising
to honor the bills of exchange as therein requested. Evidence was
also introduced by the plaintiffs showing that the defendants
endorsed the bills of exchange and forwarded the same, with the
bills of lading attached, to the National Park Bank of the City of
New York, their regular correspondent; that the same were
subsequently endorsed by the latter bank, and forwarded to the
Commonwealth Bank of Philadelphia for collection; that the
Commonwealth Bank presented the bills of exchange, with the bills
of lading attached, to the plaintiffs, as the acceptors, and that
they paid the respective amounts as they had previously promised to
do, and that the Commonwealth Bank remitted the proceeds in each
case to the National Park Bank, where the respective amounts were
credited to the defendants. Proof was also introduced by the
plaintiffs showing that each of the bills of lading was a forgery,
and that the plaintiffs, before the commencement of the suit,
tendered the same and the bills of exchange to the defendants,
Page 79 U. S. 188
and that they demanded of the defendants, at the same time, the
respective amounts so paid by them to the Commonwealth Bank.
Payment as demanded being refused, the plaintiff brought an action
of assumpsit against the defendants for money had and received,
claiming to recover back the several amounts so paid as money paid
by mistake, but the verdict and judgment were for the defendants,
and the plaintiffs sued out a writ of error, and removed the cause
into this Court. Testimony was also introduced by the defendants
tending to show that the shippers were millers; that they made an
arrangement with the plaintiffs to ship flour to them at
Philadelphia for sale in that market, the plaintiffs agreeing that
they, the shippers, might draw on them for advances on the flour,
to be reimbursed out of the proceeds of the sales; that for more
than a year, they had been in the habit of shipping flour to the
plaintiffs under that arrangement and of negotiating drafts on the
plaintiffs to the banks in that city, accompanied by bills of
lading in form like those given in evidence in this case; that the
drafts, with the bills of lading attached, were sent forward by the
banks, where the same were discounted, and that the salve were paid
by the plaintiffs; that the drawers of the drafts in every case
notified the plaintiffs of the same, and that the plaintiffs, as in
this case, answered the letter of advice and promised to pay the
amount. They also proved that the drawers of the drafts in this
case informed their cashier that the same would always be drawn
upon property, and that the bills of lading would accompany the
drafts, and that they bad no knowledge or intimation that the bills
of lading were not genuine. Instructions were requested by the
plaintiff's, that if the jury found that the respective bills of
lading were not genuine, that they were entitled to recover the
several amounts paid to the Commonwealth Bank, with interest; but
the court refused to give the instruction as prayed, and instructed
the jury that if they found the facts as shown by the defendants,
the plaintiffs could not recover in the case, even though they
should find that the several bills of lading were a forgery.
Page 79 U. S. 189
Money paid under a mistake of facts, it is said, may be
recovered back as having been paid without consideration, but the
decisive answer to that suggestion, as applied to the case before
the court, is that money paid, as in this case, by the acceptor of
a bill of exchange to the payee of the same, or to a subsequent
endorsee, in discharge of his legal obligation as such, is not a
payment by mistake nor without consideration, unless it be shown
that the instrument was fraudulent in its inception, or that the
consideration was illegal, or that the facts and circumstances
which impeach the transaction, as between the acceptor and the
drawer, were known to the payee or subsequent endorsee at the time
he became the holder of the instrument. [
Footnote 1]
Such an instrument, as between the payee and the acceptor,
imports a sufficient consideration, and in a suit by the former
against the latter the defense of prior equities, as between the
acceptor and the drawer, is not open unless it be shown that the
payee, at the time he became the holder of the instrument, had
knowledge of those facts and circumstances.
Attempt is made in argument to show that the plaintiff's
accepted the bills of exchange upon the faith and security of the
bills of lading attached to the same at the time the bills of
exchange were discounted by the defendants. Suppose it was so,
which is not satisfactorily proved, still it is not perceived that
the concession, if made, would benefit the plaintiffs, as the bills
of exchange are in the usual form and contain no reference whatever
to the bills of lading, and it is not pretended that the defendants
bad any knowledge or intimation that the bills of lading were not
genuine, nor is it pretended that they made any representation upon
the subject to induce the plaintiff's to contract any such
liability. They received the bills of exchange in the usual course
of their business as a bank of discount and paid the full amount of
the net proceeds of the same to the drawers, and it is not
Page 79 U. S. 190
even suggested that any act of the defendants, except the
endorsement of the bills of exchange in the usual course of their
business, operated to the prejudice of the plaintiff's or prevented
them from making an earlier discovery of the true character of the
transaction. On the contrary, it distinctly appears that the
drawers of the bills of exchange were the regular correspondents of
the plaintiffs, and that they became the acceptors of the bills of
exchange at the request of the drawers of the same and upon their
representations that the flour mentioned in the bills of lading had
been shipped to their firm for sale under the arrangement before
described.
Beyond doubt, the bills of lading gave some credit to the bills
of exchange beyond what was created by the pecuniary standing of
the parties to the same, but it is clear that they are not a part
of those instruments, nor are they referred to either in the body
of the bills or in the acceptance, and they cannot be regarded in
any more favorable light for the plaintiff's than as collateral
security accompanying the bills of exchange.
Sent forward, as the bills of lading were, with the bills of
exchange, it is beyond question that the property in the same
passed to the acceptors when they paid the several amounts therein
specified, as the lien, if any, in favor of the defendants was then
displaced and the plaintiffs became entitled to the instruments as
the muniments of title to the flour shipped to them for sale and as
security for the money which they had advanced under the
arrangement between them and the drawers of the bills of exchange.
Proof, therefore, that the bills of lading were forgeries could not
operate to discharge the liability of the plaintiffs, as acceptors,
to pay the amounts to the payees or their endorsees, as the payees
were innocent holders, having paid value for the same in the usual
course of business. [
Footnote
2]
Different rules apply between the immediate parties to a bill of
exchange -- as between the drawer and the acceptor, or between the
payee and the drawer -- as the only consideration
Page 79 U. S. 191
as between those parties is that which moves from the plaintiff
to the defendant, and the rule is, if that consideration fails,
proof of that fact is a good defense to the action. But the rule is
otherwise between the remote parties to the bill, as, for example,
between the payee and the acceptor, or between the endorsee and the
acceptor, as two distinct considerations come in question in every
such case where the payee or endorsee became the holder of the bill
before it was overdue and without any knowledge of the facts and
circumstances which impeach the title as between the immediate
parties to the instrument. Those two considerations are as follows:
first, that which the defendant received for his liability, and,
secondly, that which the plaintiff gave for his title, and the rule
is well settled that the action between the remote parties to the
bill will not be defeated unless there be an absence or failure of
both these considerations. [
Footnote 3]
Unless both considerations fail in a suit by the payee against
the acceptor, it is clear that the action may be maintained, and
many decided cases affirm the rule, where the suit is in the name
of a remote endorsee against the acceptor, that if any intermediate
holder between the defendant and the plaintiff gave value for the
bill, such an intervening consideration will sustain the title of
the plaintiff. [
Footnote 4]
Where it was arranged between a drawer and his correspondent
that the latter would accept his bills in consideration of produce
to be shipped or transported to the acceptor for sale, the Supreme
Court of Pennsylvania held, [
Footnote 5] that the acceptor was bound to the payee by
his general acceptance of a bill, although it turned out that the
bill of lading forwarded at the same time with the bill of exchange
was fraudulent, it not being shown that the payee of the bill
Page 79 U. S. 192
was privy to the fraud. Evidence was introduced in that case
showing that the payee knew what the terms of the arrangement
between the drawer and the payee were, but the court held that mere
knowledge of that fact was not sufficient to constitute a defense,
as the payee was not a party to the arrangement and was not in any
respect a surety for the good faith and fair dealing of the
shipper.
Failure of consideration, as between the drawer and acceptor of
a bill of exchange, is no defense to an action brought by the payee
against the acceptor, if the acceptance was unconditional in its
terms and it appears that the plaintiff paid value for the bill,
even though the acceptor was defrauded by the drawer, unless it be
shown that the payee had knowledge of the fraudulent acts of the
drawer before he paid such value and became the holder of the
instrument. [
Footnote 6]
Testimony to show that the payees were not
bona fide
holders of the bills would be admissible in a suit by them against
the acceptors, and would constitute, it believed, a good defense,
but the evidence in this case does not show that they did anything
that is not entirely sanctioned by commercial usage. They
discounted these bills and they had a right to present there for
acceptance, and having obtained the acceptance, they have an
undoubted right to apply the proceeds collected from the acceptors
to their own indemnity. [
Footnote
7]
Forgery of the bills of lading would be a good defense to an
action on the bills if the defendants in this case had been the
drawers, but they were payees and holders for value in the regular
course of business, and the case last referred to, which was
decided in the Exchequer Chamber, shows that such an acceptance
binds the acceptor conclusively as between them and every
bona
fide holder for value.
Very many cases decide that the drawee of a bill of exchange is
bound to know the handwriting of his correspondent,
Page 79 U. S. 193
the drawer, and that if he accepts or pays a bill in the hands
of a
bona fide holder for value, he is concluded by the
act although the bill turns out to be a forgery. If he has
accepted, he must pay, and if he has paid, he cannot recover the
money back, as the money in such a case is paid in pursuance of a
legal obligation as understood in the commercial law. [
Footnote 8]
Difficulty sometimes arises in determining whether the
plaintiff, in an action on a bill of exchange, is the immediate
promisee of the defendant, or whether he is to he regarded as a
remote party, but it is settled law that the payee, where he
discounts the bill at the request of the drawer, is regarded as a
stranger to the acceptor in respect to the consideration for the
acceptance; consequently, if the acceptance is absolute in its
terms and the bill is received in good faith and for value, it is
no answer to an action by him that the defendant received no
consideration for his acceptance or that the consideration therefor
has failed; and it is immaterial in that behalf whether the bill
was accepted while in the hands of the drawer and at his request,
or whether it had passed into the hands of the payee before
acceptance and was accepted at his request. [
Footnote 9]
Certain other defenses, such as that the payments were
voluntarily made, and that the title to the bills at the time the
payments were made was in the National Park Bank, were also set up
by the defendants, but the court does not find it necessary to
examine those matters, as they are of the opinion that the
payments, if made to the payees of the bills, as contended by the
plaintiffs, were made in pursuance of a legal obligation and that
the money cannot be recovered back.
Judgment affirmed.
[
Footnote 1]
Fitch v. Jones, 5 Ellis & Blackburn 238;
Arbouin v. Anderson, 1 Adolphus & Ellis N.S. 498;
Smith v. Braine, 16
id. N.S. 244;
Hall v.
Featherstone, 3 Hurlstone & Norman 287.
[
Footnote 2]
Leather v. Simpson, Law Reports, 11 Equity 398.
[
Footnote 3]
Robinson v. Reynolds, 2 Q.B. 202;
Same v.
Same, in error,
ib., 210; Byles on Bills (5th Am.
Ed.) 124;
Thiedemann v. Goldschmidt, 1 De Gex, Fisher
& Jones, Ch.App. 10.
[
Footnote 4]
Hunter v. Wilson, 4 Exchequer 489;
Boyd v.
McCann, 10 Md. 118;
Howell v. Crane, 12 La.Ann. 126;
Watson v. Flanagan, 14 Tex. 354.
[
Footnote 5]
Craig v. Sibbett, 15 Pa. 240.
[
Footnote 6]
<|15 Pet. 393|>United States v. Bank of
Metropolis, 15 Pet. 393.
[
Footnote 7]
Thiedemann v. Goldschmidt, 1 De Gex, Fisher &
Jones, Ch.App. 10;
Robinson v. Reynolds, 2 Q.B. 211.
[
Footnote 8]
Goddard v. Merchants' Bank, 4 Comstock 149;
Bank of
Commerce v. Union Bank, 3
id. 234;
<|10 Wheat.
348|>Bank of the United States v. Bank of Georgia, 10
Wheat. 348;
Price v. Neal, 3 Burrow 1355.
[
Footnote 9]
Parsons on Bills 179;
Munroe v. Bordier, 8 C.B.
862.