1. A bill of lading of merchandise, deliverable to order, when
attached to and forwarded with a time draft, sent without special
instructions to an agent for collection, may be surrendered to the
drawee on his acceptance of the draft. It is not the agent's duty
to hold the bill after such acceptance.
2. The holder of a bill of lading who has become such by
endorsement and by discounting the draft drawn against the
consigned property, succeeds to the rights of the shipper. He has
the same right to demand acceptance of the accompanying draft, and
no more, and, if the shipper cannot require such acceptance without
surrendering the bill of lading, neither can the holder.
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 anything 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
Page 91 U. S. 93
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.
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
Page 91 U. S. 94
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 endorsed 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 endorsement 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 endorsed 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
Page 91 U. S. 95
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
endorsed 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
Page 91 U. S. 96
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 entrusted 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 treating a sale on credit as a mere executory
contract to sell at a subsequent date.
If the inference to be drawn from a time draft accompanied by a
bill of lading is not that it evidences a credit sale, but a
request for advances on the credit of the consignment, the
consequence is the same. Perhaps it is even more apparent. It
plainly is that the acceptance is not asked on the credit of the
drawer of the draft, but on the faith of the consignment. The
drawee is not asked to accept on the mere assurance that the drawer
will, at a future day, deliver the goods to reimburse the advances;
he is asked to accept in reliance on a security in hand. To refuse
to him that security is to deny him the basis of his requested
acceptance; it is remitting him to the personal credit of the
drawer alone. An agent for collection having the draft and attached
bill of lading cannot be permitted, by declining to surrender the
bill of lading on the acceptance
Page 91 U. S. 97
of the bill, to disappoint the obvious intentions of the parties
and deny to the acceptor a substantial right which by his contract
is assured to him. The same remarks are applicable to the case of
an implication that the merchandise was shipped to be sold on
account of the shipper.
Nor can it make any difference that the draft with the bill of
lading has been sent to an agent (as in this case) "for
collection." That instruction means simply to rebut the inference
from the endorsement that the agent is the owner of the draft. It
indicates an agency.
Sweeny v.
Easter, 1 Wall. 166. It does not conflict with the
plain inference from the draft and accompanying bill of lading that
the former was a request for a promise to pay at a future time for
goods sold on credit, or a request to make advances on the faith of
the described consignment, or a request to sell on account of the
shipper. By such a transmission to the agent, he is instructed to
collect the money mentioned in the drafts, not to collect the bill
of lading; and the first step in the collection is procuring
acceptance of the draft. The agent is therefore authorized to do
all which is necessary to obtaining such acceptance. If the drawee
is not bound to accept without the surrender to him of the
consigned property or of the bill of lading, it is the duty of the
agent to make that surrender, and if he fails to perform this duty,
and in consequence thereof acceptance be refused, the drawer and
endorsers of the draft are discharged.
Mason v. Hunt, 1
Doug. 297.
The opinions we have suggested are supported by other very
rational considerations. In the absence of special agreement, what
is the consideration for acceptance of a time draft drawn against
merchandise consigned? Is it the merchandise, or is it the promise
of the consignor to deliver? If the latter, the consignor may be
wholly irresponsible. If the bill of lading be to his order, he
may, after acceptance of the draft, endorse it to a stranger, and
thus wholly withdraw the goods from any possibility of their ever
coming to the hands of the acceptor. Is, then, the acceptance a
mere purchase of the promise of the drawer? If so, why are the
goods forwarded before the time designated for payment? They are as
much, after shipment, under the control of the drawer, as they were
before. Why
Page 91 U. S. 98
incur the expense of storage and of insurance? And if the draft
with the goods or with the bill of lading be sent to a bank for
collection, as in the case before us, can it be incumbent upon the
bank to take and maintain custody of the property sent during the
interval between the acceptance and the time fixed for payment?
(The shipments in this case were hundreds of bales of cotton.)
Meanwhile, though it be a twelve-month, and no matter what the
fluctuations in the market value of the goods may be, are the goods
to be withheld from sale or use? Is the drawee to run the risk of
falling prices, with no ability to sell till the draft is due? If
the consignment be of perishable articles -- such as peaches, fish,
butter, eggs, &c. -- are they to remain in a warehouse until
the term of credit shall expire? And who is to pay the warehouse
charges? Certainly not the drawees. If they are to be paid by the
vendor or one who has succeeded to the place of the vendor by
endorsement of the draft and bill of lading, he fails to obtain the
price for which the goods were sold.
That the holder of a bill of lading, who has become such by
endorsement 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
endorsement, are only quasi negotiable. 1 Parsons on Shipping 192;
Blanchard v. Page, 8 Gray 297
a. The endorser does
not acquire a right to change the agreement between the shipper and
his vendee. He cannot impose obligations or deny advantages to the
drawee of the bill of exchange drawn against the shipment which
were not in the power of the drawer and consignor. But were this
not so in the case we have now in hand, the agents for collection
of the drafts were not informed, either by the drafts themselves or
by any instructions they received or in any other way, that the
ownership of the drafts and bills of lading was not still in the
consignors of the cotton. On the contrary, as the drafts were sent
"for collection," they might well conclude that the collection was
to be made for the drawers of the bills. We do
Page 91 U. S. 99
not, therefore, perceive any force in the argument pressed upon
us that the Bank of Memphis was the purchaser of the drafts drawn
upon Green & Travis, and the holder of the bills of lading by
endorsement of the shippers.
It is urged that the bills of lading were contracts collateral
to the bills of exchange which the bank discounted and that, when
transferred, they became a security for the principal obligation --
namely the contract evidenced by the bills of exchange -- for the
whole contract, and not a part of it, and that the whole contract
required not only the acceptance, but the payment of the bills. The
argument assumes the very thing to be proved -- to-wit that the
transfer of the bills of lading were made to secure the payment of
the drafts. The opposite of this, as we have seen, is to be
inferred from the bills of lading and the time drafts drawn against
the consignments, unexplained by express stipulations. The bank,
when discounting the drafts, was bound to know that the drawers on
their acceptance were entitled to the cotton, and, of course, to
the evidences of title to it. If so, they knew that the bills of
lading could not be a security for the ultimate payment of the
drafts. Payment of the drafts by the drawees was no part of the
contract when the discounts were made. The bills of exchange were
then incomplete. They needed acceptance. They were discounted in
the expectation that they would be accepted and that thus the bank
would obtain additional promisors. The whole purpose of the
transfers of the bills of lading to the bank may therefore well
have been satisfied when the additional names were secured by
acceptance, and when the drafts thereby became completed bills of
exchange. We have already seen that whether the drafts and
accompanying bills of lading evidenced sales on credit, or requests
for advancements on the cotton consigned, or bailments to be sold
on the consignor's account, the drawees were entitled to the
possession of the cotton before they could be required to accept,
and that if they had declined to accept because possession was
denied to them concurrently with their acceptance, the effect would
have been to discharge the drawers and endorsers of the drafts. The
demand of acceptance, coupled with a claim to retain the bills of
lading, would have been an insufficient demand.
Page 91 U. S. 100
Surely the purpose of putting the bills of lading into the hands
of the bank was to secure the completion of the drafts by obtaining
additional names upon them, and not to discharge the drawers and
endorsers, leaving the bank only a resort to the cotton
pledged.
It is said that if the plaintiffs were not entitled to retain
the bills of lading as a security for the payment of the drafts
after their acceptance, their only security for payment was the
undertaking of the drawees, who were without means, and the promise
of the acceptors, of whose standing and credit they knew nothing.
This may be true, though they did know that the acceptors had
previously promptly met their acceptances, which were numerous and
large in amount. But if they did not choose to rely solely on the
responsibility of the acceptors and drawers, they had it in their
power to instruct their agents not to deliver the cotton until the
drafts were paid. Such instructions are not infrequently given in
case of time drafts against consignments, and the fact that they
are given tends to show that in the commercial community it is
understood that without them, agents for collection would be
obliged to give over the bills of lading on acceptance of the
draft. Such instructions would be wholly unnecessary if it is the
duty of such agents to hold the bills of lading as securities for
the ultimate payment.
Thus far, we have considered the question without reference to
any other authority than that of reason. In addition to this, we
think the decisions of the courts and the language of many eminent
judges accord with the opinions we avow. In the case of
Lanfear
v. Blossom, 1 La.Ann. 148, the very point was decided after an
elaborate argument both by the counsel and by the court. It was
held that
"where a bill of exchange drawn on a shipment, and payable a
certain number of days after sight, is sold with the bill of lading
appended to it, the holder of the bill of exchange cannot, in the
absence of proof of any local usage to the contrary, or of the
imminent insolvency of the drawee, require the latter to accept the
bill of exchange, except on the delivery of the bill of lading, and
when, in consequence of the refusal of the holder to deliver the
bill of lading, acceptance is refused, and the bill protested,
Page 91 U. S. 101
the protest will be considered as made without cause, the drawee
not having been in default, and the drawer will be discharged."
This decision is not to be distinguished in its essential
features from the opinions we have expressed. A judgment in the
same case to the same effect was given in the Commercial Court of
New Orleans by Judge Watts, who supported it by a very convincing
opinion. 14 Hunt's Merchants' Magazine 264. These decisions were
made in 1845 and 1846. In other courts also the question has arisen
what is the duty of a collecting bank to which time drafts, with
bills of lading attached, have been sent for collection?, and the
decisions have been that the agent is bound to deliver the bills of
lading to the acceptor on his acceptance. In the case
Wisconsin
Marine & Fire Insurance Company v. Bank of British North
America, 21 Upper Canada Queen's Bench 284, decided in 1861,
where it appeared that the plaintiff, a bank at Milwaukee, Wis.,
had sent to the defendants, a bank at Toronto, for collection, a
bill drawn by A. at Milwaukee on B. at Toronto, payable forty-five
days after date, together with a bill of lading, endorsed by A.,
for certain wheat sent from Milwaukee to Toronto, it was held that
in the absence of any instructions to the contrary, the defendants
were not bound to retain the bill of lading until payment of the
draft by B., but were right in giving it up to him on obtaining his
acceptance. This case was reviewed in 1863 in the Court of Error
and Appeals, and the judgment affirmed. 2 Upper Canada Error and
Appeal Reps. 282.
See also Goodenough v. City Bank, 10
Upper Canada Com.Pleas 51;
Clark v. Bank of Montreal, 13
Grant's Ch. 211.
There are also many expressions of opinion by the most
respectable courts which, though not judgments, and therefore not
authorities, are of weight in determining what are the implications
of such a state of facts as this case exhibits. In
Shepherd v.
Harrison, L.R.Q.B., vol. iv., p. 493, Lord Cockburn said,
"The authorities are equally good to show, when the consignor
sends the bill of lading to an agent in this country to be by him
handed over to the consignee, and accompanies that with bills of
exchange to be accepted by the consignee,"
that that
"indicates an intention
that the handing over
Page 91 U. S. 102
of the bill of lading, and the acceptance of the bill or
bills of exchange, should be concurrent parts of one and the same
transaction."
The case subsequently went to the House of Lords, 5 H.L. 133,
when Lord Cairns said,
"If they [the drawees] accept the cargo and bill of lading and
accept the bill of exchange drawn against the cargo, the object of
those who shipped the goods is obtained. They have got the bill of
exchange in return for the cargo; they discount or use it as they
think proper, and they are virtually said for the goods."
In
Coventry v. Gladstone, 4 L.R. Eq. 493, it was
declared by the Vice-Chancellor that
"the parties shipping the goods from Calcutta, in the absence of
any stipulation to the contrary, did give their agents in England
full authority, if they thought fit, to pass over the bill of
lading to the person who had accepted the bill of exchange"
drawn against the goods and attached to the bill of lading, and
it was ruled that an alleged custom of trade to retain the bill of
lading until payment of the accompanying draft on account of the
consignment was exceptional, and was not established as being the
usual course of business. In
Schuchardt v. Hall, 39 Md.
590, which was a case of a time draft, accompanied by a bill of
lading, hypothecated by the drawer, both for the acceptance and
payment of the draft, and when the drawers had been authorized to
draw against the cargo shipped, it was said by the court,
"Under their contract with the defendants, the latter were
authorized to draw only against the cargo of wheat to be shipped by
the
Ocean Belle, and they [the drawees] were therefore not
bound to accept without the delivery to them of the bill of
lading."
See also the language of the judges in
Gurney v.
Behrend, 3 Ell. & Bl. 622;
Marine Bank v. Wright,
48 N.Y. 1;
Cayuga Bank v. Daniels, 47
id.
631.
We have been unable to discover a single decision of any court
holding the opposite doctrines. Those to which we have been
referred as directly in point determine nothing of the kind.
Gilbert v. Guignon, L.R. 8 Ch. 16, was a contest between
two holders of several bills of lading of the same shipment. The
question was which had priority? It was not all whether the drawee
of a time draft against a consignment has not a right to the bill
of lading when he accepts. The drawer
Page 91 U. S. 103
had accepted without requiring the surrender of the first
endorsed bill of lading, and the Lord Chancellor, while suggesting
a query whether he might not have declined to accept unless the
bills of lading were at the same time delivered up to him,
remarked,
"If he was content they should remain in the hands of the
holder, it was exactly the same thing as if he had previously and
originally authorized that course of proceeding, and that
(according to the Chancellor's view) was actually what had happened
in the case."
Nothing, therefore, was decided respecting the rights of the
holder of a time draft, to which a bill of lading is attached, as
against the drawee. The contest was wholly
inter
alios.
Seymour v. Newton, 105 Mass. 272, was the case of an
acceptance of the draft without the presentation of the bill of
lading. In that respect, it was like
Gilbert v. Guignon.
No question, however, was made in regard to this. The acceptor
became insolvent before the arrival of the goods, and all that was
decided was that, under the circumstances, the jury would be
authorized to find that the lien of the shippers had not been
discharged. It was a case of stoppage
in transitu. It is
true that in delivering the opinion of the court, Chief Justice
Chapman said, "The obvious purpose was that there should be no
delivery to the vendee till the draft should be paid." But the
remark was purely
obiter, uncalled for by anything in the
case.
Newcomb v. Boston & Lowell Railroad Corporation,
115 Mass. 230, was also the case of acceptance of sight drafts
without requiring the delivery of the attached bills of lading, and
the contest was not between the holder of the drafts and the
acceptor; it was between the holder of the drafts with the bills of
lading and the carrier. We do not perceive that the case has any
applicability to the question we have now under consideration.
True, there, as in the case of
Seymour v. Newton, it was
remarked by the judge who delivered the opinion, "The railroad
receipts were manifestly intended to be held by the collecting bank
as security for the acceptance and payment of the drafts." Intended
by whom? Evidently the court meant by the drawees and the bank, for
it is immediately added,
"They continued to be held by the bank after the drafts had been
accepted by Chandler & Co. [the drawees], and until at
Page 91 U. S. 104
Chandler & Co.'s request they were paid by the plaintiff,
and the receipts with the drafts still attached were endorsed and
delivered by Chandler & Co. to the plaintiff."
In
Stollenwerck v. Thacher, 115 Mass. 224 (the only
other case cited by the defendants in error as in point on this
question), there were instructions to the agent to deliver the bill
of lading only on payment of the draft, and it was held that the
special agent, thus instructed, could not bind his principal by a
delivery of the bill without such payment. Nothing was decided that
is pertinent to the present case. In
Bank v. Bayley,
reported in the same volume, p. 228, where the instructions given
to the collecting agent were, so far as it appears, only that the
drafts and bills of lading were remitted for collection, and where
acceptance was refused, Chief Justice Gray said,
"The drawees of the draft attached to each of the bills of
lading were not entitled to the bill of lading, or the property
described therein, except upon
acceptance of the
draft."
It is but just to say, however, that this remark, as well as
those made by the same judge in the other Massachusetts cases
cited, were aside from the decision of the court.
After this review of the authorities cited as in point in the
very elaborate argument for the defendants in error, we feel
justified in saying that in our opinion no respectable case can be
found in which it has been decided that when a time draft has been
drawn against a consignment to order, and has been forwarded to an
agent for collection with the bill of lading attached, without any
further instructions, the agent is not justified in delivering over
the bill of lading on the acceptance of the draft.
If this, however, were doubtful, the doubt ought to be resolved
favorably to the agent. In the case in hand, the Bank of Commerce,
having accepted the agency to collect, was bound only to reasonable
care and diligence in the discharge of its assumed duties.
Warren v. Suffolk Bank, 10 Cush. 582. In a case of doubt,
its best judgment was all the principal had a right to require. If
the absence of specific instructions left it uncertain what was to
be done further than to procure acceptances of the drafts, and to
receive payment when they fell due, it was the fault of the
principal. If the consequence was a loss, it would be most unjust
to cast the loss on the agent.
Page 91 U. S. 105
Applying what we have said to the instruction given by the
learned judge of the circuit court to the jury, it is evident that
he was in error. Without discussing in detail the several
assignments of error, it is sufficient for the necessities of this
case to say that it was a mistake to charge the jury, as they were
charged, that
"in the absence of any consent of the owner of a bill of
exchange, other than such as may be implied from the mere fact of
sending 'for collection' a bill of exchange with a bill of lading
pasted or attached to 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."
And again: there was error in the following portion of the
charge:
"But if the Metropolitan Bank merely sent to the defendant bank
the bills of exchange with the bills of lading attached for
collection, with no other instructions, either expressed or implied
from the past relations of the parties, they would not be so
justified in surrendering (the bills of lading) on acceptance
only."
The Bank of Commerce can be held liable to the owners of the
drafts for a breach of duty in surrendering the bills of lading on
acceptance of the drafts, only after special instructions to retain
the bills until payment of the acceptances. The drafts were all
time drafts. One, it is true, was drawn at sight, but in
Massachusetts such drafts are entitled to grace.
What we have said renders it unnecessary to notice the other
assignments of error.
The judgment of the circuit court is reversed and the record
is remitted with directions to award a new trial.