Utley v. Donaldson,
94 U.S. 29 (1876)

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U.S. Supreme Court

Utley v. Donaldson, 94 U.S. 29 (1876)

Utley v. Donaldson

94 U.S. 29


1. The telegraphic correspondence in this case in relation to the sale and purchase of certain bonds considered and held to constitute a complete contract of sale upon the condition, or with an implied warranty, that the bonds were genuine.

2. The contract was not so modified by subsequent correspondence as to amount to a waiver on the part of the purchaser of such condition or warranty.

This is an action to recover from Donaldson & Fraley the sum of $15,375, paid to them by the plaintiffs, for fifteen bonds, purporting to be first mortgage bonds of the Central Pacific Railroad Company, and which subsequently proved to be counterfeit.

The court below found the following facts:

1. On the twenty-fourth day of May, 1871, Newman & Havens, bankers, of Leavenworth, Kansas, telegraphed to St. Louis from Leavenworth to W. Nichols, cashier of the Commercial Bank of St. Louis, as follows:

"Get rate for $15,000, California Central Pacific R.R. bonds, delivered tomorrow."

This dispatch was, on said day, shown by Nichols to defendants, and defendants made a bid for said bonds, i.e., (100 1/2) one hundred and one-half. This offer was reported by telegraph to Newman & Havens by Nichols, and was by them accepted by telegraph.

2. On the following day, May 25, Nichols received from Newman & Havens a letter, as follows:

"LEAVENWORTH, KANSAS, 24th May, 1871"

"W. NICHOLS, Esq., Cash., St. Louis, Mo.:"

"DEAR SIR -- Your favor of the inst., with enclosure as stated, is received. We, this A.M., telegraphed you as follows, viz.: 'Get rate for $15,000, California Central Pacific R. R. bonds, delivered tomorrow.' Same is hereby confirmed. We herewith hand you bonds. Please close the transaction and telegraph us immediately. The party selling these bonds is waiting here to get

Page 94 U. S. 30

the money for them. This same gentleman is an entire stranger to us, therefore, will you be kind enough to satisfy yourself that the bonds are all right. We desire them sold without any recourse on us. Your early attention will much oblige, respectfully, yours,"


This letter accompanied fifteen papers, purporting to be so many bonds in said letter described.

Nichols handed this letter to defendants May 25, with the bonds, and proposed that the defendants should take said bonds without recourse. Defendants refused to take the bonds without recourse, but said they would do this; viz., would give to the Commercial Bank their (defendants') check for the agreed amount, $15,075, with the understanding that this check was not to be charged up by the Commercial Bank, where defendants kept their accounts, until defendants had sent the bonds to New York and learned that the bonds were ("O.K.") correct. If the bonds were found to be correct, the check was to be charged up against defendants, and Newman & Havens to be advised; if not, the bonds were to be returned to the Commercial Bank, and the check returned to defendants.

3. On the 24th of May, defendants having received invitation to make a bid from Nichols, as requested by Newman & Havens in their dispatch, telegraphed to plaintiffs by night dispatch as follows:

"ST. LOUIS, May 24, 1871"


"Make best bid fifteen Central Pacifics, quick."


After sending this dispatch, and before receiving reply thereto, to-wit, on the morning of May 25, defendants were shown by Nichols the letter of May 24, from Newman & Havens above recited, and the bonds.

Plaintiffs received this dispatch, and on the twenty-fifth day of May replied by dispatch, as follows:

"NEW YORK, May 25, 1871"


"We will buy Central Pacifics at a hundred and two and a half (102 1/2)."


Page 94 U. S. 31

Defendants received this dispatch on the same day about ten A.M.; and on the same day replied by telegraphic dispatch, as follows:

"ST. LOUIS, May 25, 1871"


"We accept your offer, fifteen Centrals, one hundred two and a half."


4. On the same day plaintiffs wrote and mailed a letter to defendants, as follows:

"NEW YORK, May 25, 1871"

"DEAR SIRS -- Your telegram of today received. You have sold us fifteen thousand Central Pacific 6's at 102 1/2 flat. . . ."

"Respectfully yours,"


The fifteen bonds were delivered to defendants by Nichols, cashier of Commercial Bank, May 25, and were by defendants forwarded by express on the same day to the Bank of North America, New York, with a draft on plaintiffs for $15,375, the bonds to be delivered by the bank to plaintiffs on payment of the draft. By mail -- mailed by defendants. On the morning of the 25th of May, defendants sent to plaintiffs a letter, as follows:

"ST. LOUIS, May 25, 1871"


"GENTLEMEN -- In accordance with your offer for 15 Central Pac. 1st mort. bonds, 102 1/2, we replied, we accept your offer, and have forwarded them by ex. to Bank North America, with draft attached for $15,375. We would further add that we have purchased the bonds from a party strange to us, and, not having ever handled any of the Pacific Central, we would sell the bonds without recourse as to their being genuine; consequently, please examine them, and, upon being found correct, telegraph immediately (Central all O.K.). We do not doubt the bonds, but, coming to us through strange parties, we use this as a precaution, and not willing to take any risk."

"Respectfully yours,"


This letter was received by plaintiffs at New York on Monday, the 29th of May, a short time before the bonds were presented

Page 94 U. S. 32

by the messenger of the Bank of North America for delivery to plaintiffs, and prior to defendants' draft for $15,375, which was presented at the same time as the bonds, as hereinafter stated.

5. On the 29th of May, Monday, the messenger of the Bank of North America, with the bonds, fifteen in number, and the draft of defendants for $15,375, appeared at the office of plaintiffs in New York, to deliver said bonds and collect said draft.

Plaintiffs had, on the said twenty-fifth day of May, sold the bonds "to arrive" to Rasmus & Lissignola, bankers and stock dealers in New York, engaging to deliver them four days thereafter.

When the messenger of the Bank of North America arrived at the office of plaintiffs with the bonds and draft, it lacked but five or ten minutes of the hour after which, by the rules of the New York stock board, deliveries of bonds and stocks sold could not be made for that day.

Utley therefore, without examining the bonds, went hurriedly with the bank messenger to the office of Rasmus & Lissignola, to be in time for delivery that day. Arriving there with the messenger of the bank, he asked Rasmus to examine the bonds, saying he had not had time to do so. Rasmus opened and briefly examined the bonds; said they seem to be correct; and, at the request of Utley, gave the messenger of the Bank of North America Rasmus & Lissignola's check for the amount agreed between them and plaintiffs, $15,403.12, which check was paid.

On the same day, and after the delivery of the bonds as above stated, plaintiffs wrote and mailed letter to defendants as follows:

"NEW YORK, May 29, 1871"


"DEAR SIRS -- Yours of 25th, and 15 thousand Centrals, with draft, received. The Centrals all correct, and we telegraphed you to that effect."

"Respectfully yours,"


7. On the same day, plaintiffs sent telegraphic dispatch to defendants, as follows:

Page 94 U. S. 33

"NEW YORK, May 29, 1871"


"Centrals all right."


8. On receipt of this dispatch by Donaldson & Fraley, on the 29th or 30th of May, they informed Mr. Nichols, cashier of the Commercial Bank, that the bonds were all correct, whereupon Donaldson & Fraley's check for $15,075 was charged up, and Newman & Havens were advised by the Commercial Bank, and remittance made to Newman & Havens.

9. On the 12th of June, 1871, information was for the first time received in New York, or elsewhere, that there were counterfeits of these bonds in existence.

On that day, plaintiffs wrote and mailed a letter to defendants, as follows:

"JUNE 12, 1871"

"Messrs. DONALDSON & FRALEY, St. Louis, Mo.:"

"DEAR SIRS -- Yours of 8th and 9th and 3d, Leavenworth, from Bank North America, 5th from U. & C. received."

"Look out for counterfeit Central Pacific 6's. Some appeared on market today. . . ."

"Respectfully yours,"


10. On the next day, June 13, 1871, plaintiffs sent telegraphic dispatch to defendants, as follows:

"NEW YORK, June 13, 1871"


"Central Pacifics you sold us probably counterfeit. Trace your party. Bonds shipped to Europe; can't hear from them for several days."


11. On the same day, June 13, 1871, plaintiffs wrote to defendants, and mailed letter, as follows, viz.:

"JUNE 13, 1871"


"DEAR SIRS -- Yours of the 10th, &c. . . . We feel uneasy with regard to the genuineness of the Central Pacific 6's you sold us. The bonds have been shipped to Europe, and cannot be heard from for several days. In case your parties are doubtful, it would be

Page 94 U. S. 34

well to act at once as if the bonds are not genuine. There has been no suspicion that there were counterfeits out until yesterday."

"Respectfully yours,"


12. On June 13, defendants sent a telegraphic dispatch to plaintiffs, as follows:

"ST. LOUIS, June 13, 1871"


"We refer you to our letter, May 25, in which we sold without risk. Have purchased same day from Commercial Bank, and they from Newman & Havens, Leavenworth, without risk. Will aid you all we can, if counterfeit."


The bonds in question were sold by Rasmus & Lissignola, immediately after they purchased them, to parties who sent them to Europe, whence they were returned declared to be counterfeit, and returned to Rasmus & Lissignola, who immediately demanded repayment from Utley, Dougherty, & Scott, plaintiffs; whereupon, on July 12, plaintiffs sent a telegraphic dispatch to defendants, as follows:

"NEW YORK, July 12, 1871"


"The Central Pacifics bought of you in May are declared counterfeit. We shall look to you for indemnity."


13. On the same day, July 12, 1871, plaintiffs wrote and mailed to defendants a letter, as follows:

"NEW YORK, July 12, 1871"


"GENTLEMEN -- We beg to inform you that the Central Pacific bonds we bought from you on 25th May last have been returned from Europe, and are declared counterfeit. On behalf of the parties for whom we purchased the bonds, we shall look to you for indemnity. We do not consider that the terms of your letter of 25th May in any way precludes us from our recourse upon you, especially not in view of the facts disclosed by your telegram to us of June 13, 1871. We therefore telegraphed you today as follows: 'The Central Pacifics we bought of you in May are declared counterfeit. We shall look to you for indemnity.'"

"Yours truly,"


Page 94 U. S. 35

14. On the 12th of July defendants wrote and mailed to plaintiffs a letter, as follows:

"ST. LOUIS, July 12, 1871"

"Messrs. UTLEY, DOUGHERTY, & SCOTT, New York City:"

"GENTLEMEN -- Your telegram received, in which you state that the Central Pacifics are counterfeit, and that you look to us for indemnity. In my former letter on this subject, we referred you to our letter of May 25, and again call your attention to it. Will you have the kindness to write to us in detail on what grounds you propose holding or looking to us for indemnity?"

"An early answer will oblige, very respectfully,"


On the 3d of August, 1871, defendants wrote and mailed to plaintiffs a letter, as follows:

"ST. LOUIS, Aug. 3, 1871"

"Messrs. U., D., & S.:"

"GENTLEMEN -- Mr. Fraley just returned from Madison today, hence the delay in answering yours of 25th. We are acting under legal advice, and must refuse to make any assignment of claim, as we are not aware yet that we have any."

"Respectfully yours,"


15. On the 8th of August, 1871, plaintiffs wrote and mailed to defendants a letter, as follows:

"NEW YORK, Aug. 8, 1871"

"Messrs. DONALDSON & FRALEY, St. Louis, Mo.:"

"GENTLEMEN -- We have yours of 3d inst., and regret that you do not give us any more satisfactory information. You will allow us to remind you that we paid your draft for $15,375, and received therefor nothing but counterfeit bonds. In answer to our dispatch to you that counterfeit Central Pacifics had appeared in the markets, you sent us a telegram, referring us to your note of 25th May, and saying, at the same time, 'Will aid you all we can, if counterfeit.' Setting aside all questions of legal liability, we submit to your sense of fair dealing, whether you are fulfilling this pledge. You now refuse to make an assignment of any claim you may have against the parties from whom you received the bonds, and assign as the reason for such refusal that you are under legal advice, and do not know whether you have any claim. But we

Page 94 U. S. 36

do not ask you to guarantee that you had any claim, and it seems to us that the fact of your being under legal advice is no reason why you should not do everything in your power to help us in recovering the money you have had from us for worthless bonds, but rather a reason why you should help us the more readily. We beg to ask from you a full statement of the precise position you occupied in relation to these bonds, and if this will aid us in our efforts to make good our loss, you ought to be thankful, and also willing, to give us any rights you have against these parties."

"Yours truly,"


16. On the 12th of August, 1871, defendants wrote and mailed to plaintiffs a letter, as follows:

"ST. LOUIS, Aug. 12, 1871"

"Messrs. U., D., & S.:"

"GENTLEMEN -- In reply to your letter regarding the position we have taken, we can only say that when you consider the circumstances connected with same, we think that you or anybody would act likewise; viz., sometime in May the Commercial Bank called on us and offered the bonds, and we made a bid. The cashier then informed us that the inquiry came from Newman & Havens, Leavenworth, and they would telegraph to them the bid we made to the Commercial Bank. In short time answer to Commercial Bank from Newman & Havens, that they would accept the bid, and had forwarded bonds to Commercial Bank. Upon arrival of bonds at the Commercial Bank, they received a letter from Newman & Havens, stating that they had never dealt in like bonds, and they were selling them for strange parties, consequently sell them without recourse. The Commercial Bank tendered us the bonds under same condition, and we refused to purchase bonds in the manner presented, but gave the Commercial Bank a check under the following conditions -- not to charge the check against us until we had been informed by you that the bonds were O.K. We then forwarded the bonds, and wrote you precise that we had not ever handled any of the bonds, and we sell them without recourse, and particularly asked you to examine them, and more distinctly said we sell without recourse as to genuineness, as they come from strange parties, and use this precaution, not willing to take any risk whatever. Upon receipt of the bonds, you telegraphed us, 'Centrals all right,' and also wrote by mail, confirming your dispatch, by saying, received bonds and draft, and found

Page 94 U. S. 37

them all correct. When we received this information, we then informed the Commercial Bank to charge up check, which they did, and at the same time credited Newman & Havens, and we are furthermore informed, the parties of whom Newman & Havens purchased did not call for the money within ten days after this information of bonds being correct. Now you see plainly that you are all to blame. Had you used the necessary precaution in examining the bonds, specially when your attention was called by us selling without risk, not only would none of us have any trouble or unpleasantness, but would have caught the thieves and brought them to justice. Now please inform us what else could we have done. It shows that we acted prudently and with care. It is true, you may say, you received the bonds before the letter; but even and more so should you have examined them and informed us. You are aware that New York is the market to detect all irregularities in the bonds spoken of, and you could easily have discovered, had you not been careless. Now you plainly see our position. The Commercial Bank will not take them back from us unless they are compelled to do so, and why should Donaldson & Fraley suffer for negligence of yours, when they used all precautions and measures at the time? It is true, it is hard for you to part with your money, but not more so than us, whilst we are in no manner to blame. Upon your information, confirming the genuineness of the bonds we parted with the money received for the bonds. Should the Commercial Bank, or Newman & Havens, at any time come forward and offer to redeem the bonds, we certainly would be most happy, and be much better satisfied than the way it is now."

"Regarding our writing that we would aid you all we could, did not infer that if you made a demand upon us for the money that we would pay same, but meant that if it was in our power to make parties originally selling them replace them, we would do so, and we are more so willing now than ever, but we cannot concede nor agree to give you any claim against the Commercial Bank, whether we have legal right or not. It would certainly be admitting, on our part, that if we assign claim against Commercial Bank, that you certainly have likewise claim against Donaldson & Fraley, and also right to assign, which we really cannot admit, as we positively do not believe so. We are ready at any time to testify to the facts as they are and were, and should the law declare us wrong, we feel confident that Newman & Havens and Commercial Bank will abide by same; but under no circumstances will they

Page 94 U. S. 38

refund without action, as they firmly believe, as we do, that your claim is not just under the circumstances."

"If you were right in your demands, tell us, in the name of the law, justice, or common custom, would we, or any dealer, receive from any stranger or honest party known to us, but not responsible, any securities to be sold on arrival in New York, and the funds to be credited upon sale and delivery in New York, and especially if sold under the conditions we sold bonds to you? How would you have proceeded in this or any case? The sum total is you have made a mistake, and we are ready to assist you all we can to defend your claim, if you have any. We now refer you to our last letter, in which we informed you that we would rather you would begin action immediately, in order to have things settled and the suspense removed. What we have written we will enter as evidence, and has been written with consent of Commercial Bank, as they are fair and honorable."

"Trusting you now plainly see our position, and we feel sanguine that, were you placed in our position, you certainly would not have acted differently,"

"Yours, friendly,"


17. Utley (plaintiff) subsequently, in September, 1871, stated to defendants, when asked, in view of defendants' letter of May 25, 1871, which he admitted having received, why he did not examine the bonds with care before paying for them, that he received similar letters from the country every day, and that he supposed defendants were cautious only because they had not handled any of these bonds before.

18. The money paid by Donaldson & Fraley by their check to the Commercial Bank, and by it to Newman & Havens, was not, according to the statement of Newman & Havens to Nichols, cashier, called for, nor paid by Newman & Havens at Leavenworth, Kansas, to the party who sold the bonds to Newman & Havens, for two or three weeks after it was received by Newman & Havens from the Commercial Bank.

19. Before writing the letter of May 25, 1871, hereinbefore set out, and transmitting the bonds to New York, the defendants, who had never seen any Central Pacific bonds, took said bonds, or some of them, to two banking establishments in the City of St. Louis and asked one of the officials of each of said banks

Page 94 U. S. 39

whether they knew about them, but was informed that they did not, as those bonds were not known or dealt in this market.

20. Both the plaintiffs and defendants were brokers and stock dealers, the former in New York and the latter in St. Louis, and were business correspondents of each other.

21. That the bonds sold by defendants to plaintiffs were spurious.

22. That the identical bonds sold by defendants to plaintiffs have been produced upon the trial by the plaintiffs, to be surrendered if they shall recover.

23. That the defendants, when they sold and delivered the bonds to plaintiffs, did not know or believe that the bonds were forged or spurious, and they did not know this until informed thereof by the plaintiffs on June 12, 1871, as hereinbefore stated; and their only knowledge of the bonds prior to the sale and delivery thereof appears from the facts hereinbefore set forth.

Upon the foregoing facts, the court found as a conclusion of law that the defendants were entitled to judgment; to which finding and conclusion of law the plaintiffs then and there excepted.

Judgment having been rendered for the defendants, the plaintiffs sued out this writ of error.

Page 94 U. S. 42

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