The controversy in this case involves the allowance in favor of
the trustee in bankruptcy of S. of liens upon certain bonds, owned
in fact by C. and D., though ostensibly belonging to C. only, as
pledged to secure, by express agreement, the general balance of
account of a New Orleans bank,
Page 130 U. S. 355
of which C. was President, and also, by implication from the
usage of the banking business in which S. was engaged, C.'s general
balance.
The Court is of opinion upon the evidence that the bonds were
pledged to secure the remittance by the bank to S. of "exchange
bought and paid for," that is, bills drawn against shipments and
purchased by advances to the shippers, and that they cannot be held
to make good a debit balance of the bank created by the nonpayment
of certain drafts drawn by it directly on Europe and unaccompanied
by documents.
A banker's lien rests upon the presumption of credit extended in
faith of securities in possession or expectancy, and does not arise
in reference to securities in possession of a bank under
circumstances, or where there is a particular mode of dealing,
inconsistent with such lien.
The pledge of these bonds to guarantee the remittance by the
bank as before stated and the circumstances under which they were
left in the possession of S., and had been made use of by C.,
preclude the allowance of the banker's lien claimed on behalf of S.
as against the ultimate indebtedness of C.
The receipt by P. and the assignee of C. of the remaining bonds
and money realized from bonds or coupons, after the satisfaction of
the amounts decreed as liens by the circuit court, did not deprive
P. and C.'s assignee of the right of appeal.
Embry v.
Palmer, 107 U. S. 3,
107 U. S. 8,
approved.
Where the objection of want of jurisdiction in equity because of
adequate remedy at law is not made until the hearing on appeal, and
the subject matter belongs to the class over which a court of
equity has jurisdiction, this Court is not necessarily obliged to
entertain such objection even though, if taken
in limine,
it might have been worthy of attention.
The case, as stated by the court in its opinion, was as
follows:
On the 14th of June, 1877, Frederick Dumont, August Henry Reine,
and John David Moekel, who composed the firm of F. Dumont &
Co., filed their bill in the Circuit Court of the United States for
the Southern District of New York against Charles M. Fry, trustee
of Schuchardt & Sons, bankrupts; Francois Laborde and E. H.
Reynes, assignees of Charles Cavaroc & Son, bankrupts; the
Louisiana National Bank of New Orleans, and N. W. Casey, receiver
of the New Orleans National Banking Association, claiming to be the
owners of 232 bonds of the City of New Orleans, each for the amount
of $1,000, which had been in the possession of Schuchardt &
Sons, and were then in the
Page 130 U. S. 356
possession of Fry, their trustee in bankruptcy, who also held
moneys received from the coupons attached to the said bonds, and by
amendment set forth that the bonds were purchased by Cavaroc &
Son with the money of Dumont & Co., for their joint account,
but not in the name of Dumont & Co., nor in the joint names of
Dumont & Co. and Cavaroc & Son; that Fry, trustee, refused
to deliver up the bonds, and claimed to hold them as security for
sums due him from Cavaroc & Son and Casey, as receiver, and
that Fry is not entitled to hold the bonds. The bill prays that he
be decreed to deliver them up, with the money received from the
sale of coupons cut therefrom, and for further relief.
Fry claimed to hold the bonds upon a banker's lien for a balance
of account due Schuchardt & Sons by Cavaroc & Son, and upon
a lien by agreement for an unsecured balance due by the New Orleans
National Banking Association, to the extent of $100,000. A decree
was rendered December 6, 1882, sustaining the liens asserted by the
defendant Fry, and directing him to account as to the amount of the
same, and of certain coupons which he had collected. March 5, 1884,
a final decree was entered adjudging the amounts due on account of
the alleged liens respectively and directing that so much of the
said bonds as might be necessary to pay the same, with interest,
should be sold under the direction of the master. This was done,
and Fry was paid the amount of said liens, and the balance was
turned over to Dumont & Co. and Reynes, surviving assignee,
Laborde having died pending the action. The master's final report
was confirmed February 11, 1885, and appeals were prosecuted by
Dumont & Co. and Reynes, surviving assignee, to this Court.
The following facts appear in evidence:
Schuchardt & Sons were bankers at the City of New York
during the period covered by the transactions in question, and
correspondents and financial agents of Cavaroc & Son, who were
engaged in the commission and banking business in the City of New
Orleans. Charles Cavaroc, the senior member of the latter firm, was
at the same time President of the New
Page 130 U. S. 357
Orleans National Banking Association, with which Schuchardt
& Sons had similar business relations. Two hundred and
seventy-five bonds of the City of New Orleans -- a large part of
them belonging to Dumont & Co., though it is not shown that
Schuchardt & Sons had notice of this -- were left by Cavaroc
& Son with Schuchardt & Sons in September, 1870, the number
having been subsequently reduced to 232.
The bonds were purchased in 1870 with the proceeds of drafts on
Dumont & Co. to the amount of about 1,000,000 francs, which had
been renewed from time to time until after the failure of Cavaroc
& Son, when Dumont & Co. paid them to the amount of 484,000
francs. Cavaroc & Son had negotiated drafts for 200,000 francs
on Dumont & Co., with Schuchardt & Sons, shortly before the
failure, growing out of the original purchase of bonds, and these,
not having been paid, were charged back to Cavaroc & Son by
Schuchardt & Sons, thereby contributing to produce a debit
balance of $7,454.22 on January 12, 1874, although protested drafts
on Maxquelier Fils for $6,562.23 were also included.
These drafts for 200,000 francs had been accepted by Dumont
& Co., and were protested, not for nonacceptance, but for
nonpayment, and an action was commenced January 3, 1874, by
Schuchardt & Sons against Dumont & Co. on their acceptances
in the Supreme Court of New York, and an attachment levied on the
bonds in question here in the hands of Schuchardt & Sons.
Satisfaction of recovery in this suit would more than pay the debit
balance of Cavaroc & Son as finally stated in these
proceedings.
It was stipulated between the attorney for Dumont & Co. and
the attorneys for the assignee of Cavaroc & Son that the
balance of the bonds and moneys to be paid over after the liens
awarded by the court were satisfied should be divided in the
proportion of seventy-four percent to Dumont & Co. and
twenty-six percent to Cavaroc & Son.
Both the Cavarocs testify that the bonds were left with
Schuchardt & Sons for safekeeping, Cavaroc, Jr., referring to a
particular loan on them in the fall of 1870, which led to their
Page 130 U. S. 358
being sent to New York, where they then remained on account of
the heavy express charge and the fact that New York was a better
market in which to dispose of them, but Wells, a member of
Schuchardt & Sons, testifies:
"On the 20th of September, 1870, we deposited with M. Morgan's
Sons the above $275,000 New Orleans bonds against a loan made by
them of $200,000 to the Bank of New Orleans, and $110,000 to C.
Cavaroc as part collateral for those loans. On the 21st December,
1870, M. Morgan's Sons returned us the above bonds against the
payment of the two loans. On the 6th of March, 1871, we delivered
$5,000 of the above bonds to Henry Beers by order of C. Cavaroc. On
the 1st of April, 1871, we delivered $160,000 of above bonds to
Marks & Febre by order of C. Cavaroc. On the 29th of May, 1871,
we delivered $110,000 of above bonds to M. Morgan's Sons against a
loan of $100,000. On the 30th May, 1871, Marks & Febre returned
us above $160,000 bonds, against which we loaned Cavaroc $100,000,
falling due 2d of October, 1871. On the second of October, 1871, M.
Morgan's Sons returned us the $110,000 bonds on payment of their
loan. On the 27th of February, 1872, we forwarded to Cavaroc at New
Orleans, $8,000 of above bonds as per his order. On the 13th of
April, 1872, we delivered $160,000 of above bonds to Importers'
& Traders' National Bank of this city by order of Cavaroc. On
the 28th of June, 1872, the Importers' & Traders' National Bank
returned us the above $160,000 bonds. On the 31st of August, 1872,
we delivered $30,000 of above bonds to Spofford Bros. & Co. by
order of Cavaroc. On the 27th of May, 1873, we delivered $50,000 of
the above bonds to the Importers' & Traders' National Bank of
New York by order of Cavaroc. On the 3d of September, 1873, the
Importers' & Traders' National Bank returned the above $50,000
bonds."
He considers that the bonds were held by his firm for any
balances that the New Orleans National Banking Association might
owe, and says that Schuchardt & Sons held them up to the time
they were pledged to the bank as security for "whatever Cavaroc
& Son might be indebted for," but that they had no written
authority to hold the bonds collaterally for the bank's
Page 130 U. S. 359
indebtedness, that he knew of, other than the letter of Cavaroc,
Sr., of February 15, 1873, hereinafter set forth. He testifies,
however, that there was
"a general understanding to that effect arrived at with [in]
conversations with C. Cavaroc, Jr., at different times when he was
in New York -- among others, in August or September, 1873,"
although in another portion of his evidence he says: "I think
they were alluded to in 1873, during his visit to New York in the
fall of 1873. I feel quite confident they were alluded to in 1873,"
which is "as positive" as he "can be upon the subject." Any such
understanding is specifically denied by Cavaroc, Jr., who asserts
that he
"Never made any agreement, verbal or otherwise, in reference to
the bonds, with Mr. Wells or anyone else, and never made with Mr.
Wells or anyone living any agreement or arrangement about the bonds
or any other bonds to be held as general security in matters with
the New Orleans National Banking Association, or even C. Cavaroc
& Son; never had any conversation with Mr. Wells about the
bonds in any manner whatever, outside of a remark, as above stated,
in the summer of 1873, to know if our trust was all right in their
vault, which any merchant would pass upon in conversation, to be
certain that no accident happened to the trust or deposit for
safekeeping."
The New Orleans National Banking Association dealt largely in
foreign bills of exchange, which it negotiated through Schuchardt
& Sons. By the course of business, the amount of the foreign
bills it remitted from time to time to Schuchardt & Sons was
credited by the latter to the former, and the latter drew upon the
former from time to time, as funds were required. According to the
custom of business at New Orleans, advances are made by bankers to
shippers in anticipation of the actual delivery of drafts with
accompanying documents, and the New Orleans Bank consequently
advanced funds before it could remit drafts, so as to be credited
by Schuchardt & Sons with their amount. For the mutual profit
of both concerns, the bank had at times been permitted by
Schuchardt & Sons to draw in advance of remittances. Cavaroc
& Son were not
Page 130 U. S. 360
only bankers, but large shippers of cotton abroad, and drew
against the proceeds of their bills of exchange, which were
accompanied by bills of lading. On the 4th of December, 1871,
Schuchardt & Sons wrote the cashier of the New Orleans National
Banking Association the following letter:
"New York, Dec. 4th, 1871"
"N. Augustine, Esq., Cashier New Orleans Banking Association,
New Orleans, Louisiana."
"Dear Sir: In reply to your inquiry about drawing in advance
against purchases of exchange we beg to say that we granted that
facility at a time when your foreign exchange business with us was
much more extensive, and consequently more remunerative, than at
present, and when we held as security a deposit of N. O. city
bonds. We were, moreover, induced to make these advances (although,
as we explained at the time, we could make a much more lucrative
use of the money by using it here) on the assurance of Mr. Cavaroc
that you would only temporarily require such facilities, and that
your business would increase to such an extent that the future
would largely compensate us for any present sacrifices. To our
regret, however, such has not been the case, and your business,
instead of increasing, has greatly diminished. However, in order to
evince our desire of doing all in our power to contribute to the
development of our correspondence, we hereby authorize you to draw
upon us in advance of remittances to the extent of $100,000 (one
hundred thousand dollars), with the understanding that such drafts
are to represent exchange bought and paid for. We presume also that
when the loan of the Trust Co., which falls due on the 21st inst.,
will be paid the securities will be replaced in our
possession."
February 6, 1873, the cashier of the bank wrote Schuchardt &
Sons:
Page 130 U. S. 361
"New Orleans, Feb'y 6, 1873"
"Mess. F. Schuchardt & Sons, New York:"
"Are we still authorized to draw,
a decouvert, $100,000
(one hundred thousand dollars) against purchases of exchange
advised by wire?"
"H. T. BLACHE, Cashier"
To which Schuchardt & Sons replied:
"New York, Feb'y 11, 1873"
"Henry Blache, Esq., Cashier of the N. O. National Banking
Association, New Orleans:"
"The credit of $100,000 (one hundred thousand dollars)
a
decouvert was predicated upon the deposit of New Orleans city
bonds, and on their withdrawal we, of course, supposed the
agreement cancelled."
"F. SCHUCHARDT & SONS"
Whereupon the cashier answered:
"New Orleans, February 15th, 1873"
"Messrs. Schuchardt & Sons, New York:"
"Your letter of December 4th, 1871, authorized us to draw, in
advance of remittance, to the extent of $100,000 (one hundred
thousand dollars), represented by purchases of exchange, advised by
telegraph. There was no mention of a deposit of city bonds to
guaranty such overdraft, and we have been acting ever since under
the impression that the credit was still in force. We now note that
it is cancelled, and beg leave to refer you to the private letter
of the President on the subject."
"H. T. BLACHE, Cashier"
And on the same day, the President, Cavaroc, wrote Schuchardt
& Sons a letter, which he gives thus:
"New Orleans, February 15th, 1873"
"Mess. Schuchardt & Sons, New York:"
"In your letter of the 11th instant, you say: 'The credit of
$100,000 (one hundred thousand dollars)
a decouvert was
predicated
Page 130 U. S. 362
upon the deposit of New Orleans city bonds, and on their
withdrawal we, of course, supposed the agreement cancelled.' You
know that exchange at New Orleans is purchased by making advances
until such time as the drafts are delivered, and it was with view
of making our mutual transactions more active that we asked this
credit, '
a decouvert' at the time. In view of your remark,
I have nothing to say except to authorize you to consider a portion
of the bonds belonging to my firm, which you have in your
possession, as collateral security in case you should not be
covered (
en cas de decouvert)."
"C. CAVAROC,
Pres't"
On behalf of Fry the following was introduced as the
original:
"New Orleans, the 15 Fevrier, 1873"
"Messieurs F. Schuchardt & Sons, New York:"
"Messieurs & Amis: Dans votre lettre du 11 ct. vous dites:
'The credit of $100 M
a decouvert was predicated upon the
deposit of New Orleans city bonds, and on their withdrawal we, of
course, supposed the agreement cancelled.'"
"Vous savez que le change a New Orleans est achete en faisant
des advances jusqu'a ce que les traites soient livrees & c'est
afin d'activer nos rapports que nous vous avions demande, a
l'epoque, ce decouvert."
"Devant votre observation, il n'y a rien a dire si ce n'est de
vous authoriser a considerer comme securite collaterale une parties
des 'bonds' que vous avez a ma maison, en cas de decouvert."
"Votre devoue,"
"C. CAVAROC"
And which is translated by Mr. Wells as follows:
"New Orleans, 15 February, 1873"
"Messrs. F. Schuchardt & Sons, New York: Dear Sirs: In your
letter of 11th inst. you say:"
"The credit of $100 M
a decouvert was predicated upon
the deposit of New Orleans city bonds, and on their withdrawal we,
of course, supposed the agreement cancelled. "
Page 130 U. S. 363
"You are aware that exchange is purchased at New Orleans by
making advances until the delivery of the drafts, and it was for
the purpose of giving activity to our correspondence that we at the
time requested this
decouvert. In the face of your
observation, there is nothing to say except to authorize you to
consider a part of my firm's bonds which you have as collateral
security in case of (unsecured -- uncovered) balance of
account."
"Yours truly,"
"C. CAVAROC"
Schuchardt & Sons replied:
"New York, Feb. 27, 1873"
"To the Cashier of the New Orleans Banking Association, New
Orleans:"
"In reply to your worthy President's letter of the 15th inst.,
we take pleasure in authorizing you, in accordance with the terms
therein stated, to value on us 'a decouvert' for a sum not
exceeding as maximum $100,000 (one hundred thousand dollars)
against exchange purchases."
"F. SCHUCHARDT & SONS"
In the summer of 1873, Cavaroc, Jr., had two interviews with
Wells, in New York, on his way to and from Europe at which nothing
was said about these bonds "outside of a possible remark, to be
positive that nothing had happened to our trust in their hands,"
but the subject of the amount of exchange Schuchardt & Sons
would be willing to negotiate for the firm or the bank was
mentioned, an agreement arrived at to limit certain lines of
credit, and a memorandum drawn up by Wells, in French, or partly in
French and partly in English, as follows:
"Not more than 10 | M per week on Hambro."
"Not more than fr. 200 | M on first bankers of Paris."
"As much business paper [in French,
effects de
commerce] as shall be desired, we reserving the right (as much
in the interest of the bank as in our own) to limit the amounts on
any one house."
"When the bank sends the drafts of the bank on third parties
Page 130 U. S. 364
(Havre, Bordeaux, Marseilles &c. &c.), it must put in
the hands of Messrs. C. C. & Son, in trust, a deposit of
securities, there to remain until the acceptance or the payment if
we deem proper to await the payment."
"Seignouret's line, fr. 500 | M (for bank and C. C. &
Son.)"
This must have been, Wells says, the latter part of August or
the early part of September, 1873, and this is confirmed by the
evidence of Cavaroc, Jr., that he arrived in New Orleans "the first
part of September." Mr. Wells thinks he received a letter from Mr.
Cavaroc dated on or about September 15th, and that he answered
under date of September 19, 1873, and Cavaroc produces a letter, as
follows:
"New York, Sept. 19, 1873"
"My Dear Mr. Cavaroc:"
"I have sufficiently explained to you on your last visit here
that we should prefer receiving from the bank only such paper as it
should have purchased, and, after mature consideration and
consultation with Mr. Schuchardt, who has returned some days since,
we have determined to request the bank to limit its exchange
business with us to the forwarding of such drafts made by third
parties as it shall deem proper to purchase, and we beg you so to
inform the bank. . . . We hope that the bank shall give great
activity to its operations on the above basis, and in order to
assist it as much as possible, we still authorize it to draw
against purchases of exchange, and in advance of the remittances,
to the extent of $100,000, on the conditions specified in the
letter of Mr. Cavaroc of 15th February last."
"Believe me, my dear sir and friend, yours most devotedly,"
"LAWRENCE WELLS"
"Money was loaned until tomorrow at 1 1/2 percent, and you will
readily understand that it is no fun to be out of money, as we are
now. The system which I propose to you above will in a measure
remedy this, because we can draw as soon as we shall receive your
telegram advising purchases."
An extract from the minute book of the bank, September 20, 1873,
reads as follows:
Page 130 U. S. 365
"
CALLED MEETING"
"NEW ORLEANS NAT. BANKING ASS'N"
"NEW ORLEANS, Sept. 20th, 1873"
"Present: C. Cavaroc, Pres't; A. Tertrou, J. Aldige, John
Rocchi, H. A. Mouton, P. S. Wiltz, L. Haas, Jr."
"The President stated that the object of the meeting was to
inform the board of the unpleasant state of affairs in general, and
particularly of the panic then prevailing in New York."
"The suspension of Jay Cooke & Co., which was already
announced, and which no doubt would be followed by many others,
would surely tend to increase the present uneasiness and render our
money market still more stringent. He would therefore ask the board
to suggest or adopt such measures as in their judgment they would
think expedient to avert the impending crisis; whereupon it was
unanimously--"
"
Resolved that all precautionary measures to be taken
be left entirely to the discretion of the president, the board
hereby ratifying all that may be done by him. It is further"
"
Resolved that with a view of securing the president
against any eventual loss of the 232 7 percent City of New Orleans
bonds belonging to the firm of C. Cavaroc & Son, and actually
pledged to F. Schuchardt & Sons, agents of the bank at New
York, as collateral security for the payment of all foreign
exchange bills sent them for negotiation and by them endorsed, that
he be, and is hereby, authorized to select as guaranty from the
portfolio of the bank such papers as he may think proper, to the
extent of ($100,000) one hundred thousand dollars. "
"On motion, it is further"
"
Resolved that the board hereby tender their thanks for
the aid he is individually lending by leaving undisturbed a large
cash balance ($80,000) eighty thousand dollars, standing to the
credit of C. Cavaroc & Son on the books of the bank."
"And the board adjourned."
October 4, 1873, the bank and Cavaroc & Son failed. N. W.
Casey was appointed receiver of the bank, and Francois Laborde and
Edward H. Reynes assignees of Cavaroc &
Page 130 U. S. 366
Son. Schuchardt & Sons were adjudicated bankrupts February
19, 1876, and Charles M. Fry was appointed their trustee in
bankruptcy. The balance due from the New Orleans bank to Schuchardt
& Sons on October 4, 1873, the date of the failure, adding
$3.20 interest, from October 1st, was $4,125.12, which was
increased, by charging back protested drafts or acceptances and
some minor items, to $197,501.35, as per the following account:
Dr. N. W. Casey, Receiver New Orleans Nat'l Banking Assoc.
1873 Charles M. Fry, trustee
Oct'r 1. To balance . . . . . . . . . . . . . . . . . . . .
$4,121.92
4. " days' interest on $4,121.92 at 7 percent. . . . 3.20
7. " unpaid rem. on Nat'l Park Bank. . . . . . . . . 353.86
9. " protest charges on rem. on Phila., $156,75. . . 2.06
14. " protest charges on rem. on Phila., $100 . . . . 2.06
24. " protest charges on rem. $230.47 & $130. . . . .
4.12
28. " protested drafts on G. Honorat & Co.
at Marseilles . . . . . f'cs 150,000
10 percent damages. . . . . 15,000
------------
f'cs 165,000-487 1/2 33,846.15
Nov'r 17. " unpaid acceptances of S. Frank & Co. . . . . .
12,500.00
" protest charges on same . . . . . . . . . . . . 1.31
Dec'r 29. " protested drafts on Seignouret Freres
& Co., Bordeaux, p'able
per Paris . . . . . . . f'cs 250,000
10 percent damages . . . 25,000
------------
f'cs 275,000-487 1/2 56,410.26
1874
Jan'y 12. " protested drafts on A. Dutfoy
& Co. at Paris f'cs 200,000 29 Nov'r, 73
155,000 10 Dec., "
35,000 13 " "
10,000 19 " "
10 percent damages 40,000
-------------
f'cs 440,000 - 487 1/2 . . 90,256.41
-----------
$197,501.35
===========
From this debt, certain amounts collected being deducted, a
balance of $180,624.58 was left, making, with $14,691.05 due on
gold account, a total indebtedness from the bank to Schuchardt
Page 130 U. S. 367
& Sons of $195,315.63, for which a certificate was issued by
the receiver April 8, 1879. Schuchardt's cashier testified:
"The drafts on Dutfoy, Seignouret, and Honorat were foreign
exchange bills known as 'clean' -- that is, unaccompanied by
documents -- drawn by the New Orleans Banking Association on those
parties. The one on the National Park Bank was drawn by the New
Orleans National Banking Association to settle a collection made.
The bills of exchange that figure up on the gold account were
mainly cotton shippers' exchange, accompanied by bills of
lading."
The debit balance of the bank on the gold account, October 1,
1873, was $68,231.17, afterwards reduced to $14,691.05.
It appears from the evidence of Casey that Schuchardt &
Sons, or Fry, their assignee, claimed about $38,000 in the Union
Bank of London belonging to the New Orleans bank, and other funds
in the hands of Dutfoy & Co. of Paris, amounting to 40,000
francs, and that at the time of the failure of the bank,
"certain assets belonging to the bank were in the hands of
parties claiming to hold them as collateral security for the
endorsement of certain bills of exchange which had been negotiated
through Schuchardt & Sons, said bills being drawn by the bank
upon Seignoutet Freres of Bordeaux, France. Suit was brought for
the recovery of these assets, which resulted in my favor, as will
appear by the decision of the Supreme Court of the United States in
the case of
Casey v. Schuchardt, 96 U. S.
494."
In that case, MR. JUSTICE BRADLEY, delivering the opinion of the
Court, said:
"Schuchardt & Sons were bankers, in New York, through whom
the New Orleans National Banking Association was in the habit of
drawing on foreign houses, and who endorsed and disposed of the
drafts, or transmitted them for collection, and made advances
thereon. They were thus in the habit of endorsing and advancing on
bills drawn by the bank on Seignouret Freres, of Bordeaux. In
August and September, they became uneasy and required security, and
it was agreed
Page 130 U. S. 368
between them and the bank that they would receive and endorse
drafts on Seignouret Freres, and accept the drafts of the bank on
themselves to a certain limited amount, upon being secured by a
pledge of commercial securities, to be deposited in the hands of
Charles Cavaroc & Son. In pursuance of this arrangement, on the
17th of September, the bank transmitted to Schuchardt & Sons
its drafts on Seignouret Freres to the amount of 250,000 frances,
and at the same time drew on Schuchardt & Sons against said
drafts for the sum of $50,000. On the same day or the day
following, securities of the bank to the amount of $60,000 were
selected by the note clerk, by direction of Charles Cavaroc,
president of the bank, put into an envelope endorsed with the name
of Schuchardt & Sons, and handed to Cavaroc, who handed them to
the cashier, and thereafter they were treated in precisely the same
manner as the securities which were selected for the Credit
Mobilier and the Park Bank, as shown in the cases which have just
been decided."
October 9, 1873, Cavaroc & Son telegraphed Schuchardt &
Sons:
"New Orleans, Oct. 9, 1873"
"F. Schuchardt & Sons, New York: Please deliver to L.
Monrose two hundred and thirty bonds, one thousand dollars each,
City of New Orleans seven percent, held in trust for us."
"C. CAVAROC & SON"
Monrose replied:
"New York, Oct. 9, 1873"
"C. Cavaroc & Son, New Orleans:"
"Schuchardt refuses delivering; says you pledged as security for
bank."
"L. MONROSE"
And Schuchardt & Sons telegraphed:
"N ew York, Oct. 9th, 1873"
"C. Cavaroc & Son, New Orleans"
"According to your written authority, we hold New Orleans city
bonds as collateral security against Bank of New Orleans.
Page 130 U. S. 369
We insist on your delivering to Reynes the bills receivable held
by you in trust. Answer. Also reply about bill lading per
Queenstown."
"F. SCHUCHARDT & SONS"
October 11th, Cavaroc & Son wrote Schuchardt & Sons:
"New Orleans, Oct. 11, 1873"
"Mess. F. Schuchardt & Sons, New York:"
"Gentlemen: 'According to your written authority, we hold New
Orleans city bonds as collateral security against Bank of New
Orleans.'"
"By this phrase, you seem to imply that our 232 bonds ought to
serve as a guarantee to you for the reimbursement of all kinds of
debts and of all sums due by the bank."
"In response, we refer you to the letter of our senior partner,
C. Cavaroc, February 15th last, which you yourselves invoke as the
authority on which you base your rights ('according to your written
authority')."
"Our authority is contained in the following terms: "In your
letter of the 11th inst., you say:
The credit of $100,000 a
decouvert was predicated upon the deposit of New Orleans city
bonds, and on their withdrawal we, of course, supposed the
agreement cancelled.' You know that exchange at New Orleans is
purchased by making advances until such time as the drafts are
delivered, and it was with a view of making our mutual transactions
more active that we asked this credit a decouvert at the
time. In view of your remark, I have nothing to say except to
authorize you to consider a portion of the bonds belonging to my
firm, which you have in your possession, as collateral security, in
case you should not be covered.""
"You see that according to the authority which you invoke, you
have no right to cover yourself by means of these bonds, except
those uncovered sums for which you might not have received the
paper against which they were drawn at the moment of the demand for
the restitution of the bonds. According to the books of the bank,
which correspond
Page 130 U. S. 370
within a few cents with the account current rendered by you
under date of Oct. 1st, it appears that all the drafts which the
bank has made on you up to this day have been properly covered, and
that is all we guaranteed by the deposit of our bonds. These bonds
are then at this moment released, and we renew the order that you
deliver them to L. Monrose, who is requested to receive them."
"Yours &c.,"
"C. CAVAROC & SON"
The following definitions of "
a decouvert," with
translations, were furnished by counsel for Dumont & Co:
"
Credit a decouvert: Avances faites par acceptations ou par
debours de caisse, sans etre granties par connaissements des
marchandises consignees ou des contre-valeurs."
"Larousse, Grand Dictionnaire Universel"
"
Translation: Advances made by acceptances or cash
disbursements, which (advances) are not covered by bills of lading,
consigned goods, or other securities."
So Littre, dictionnarie de la Langue Francaise:
"
A decouvert. Terme de commerce:
Etre a decouvert,
etre en advance, n'avoir aucune garantie des advances faites.
(
A decouvert. Commercial expression: To be '
a
decouvert' is to be in advance, to have no guarantee of the
advances made.)"
So in the Dictionnaire de 1'Academie:
"
A decouvert. Etre a decouvert signifie en terme de
commerce, n'avoir aucun gage, 'aucune garantie par sa creance.' (To
be '
decouvert' signifies to have no pledge, no security,
for one's claim.)"
So, too, Bescherelle, Dictionnaire Nationale:
"Commerce.
Etre a decouvert: N'avoir aucun gage de sa
creance. (Commerce; to be '
a decouvert;' to have no
security or pledge for one's claim.)"
Mr. Wells gives this as from the French Dictionary of A. Spiers,
19th ed., Bamard, Bandry & Co., 12 Rue Bonaparte, Paris,
1866:
"
Decouvert, n. m. 1 (com.) (of accounts) uncovered
balance."
Cavaroc, Senior, testifies:
"There is a usage and meaning. The words '
a
decouvert'
Page 130 U. S. 371
we use more frequently in French than 'credit.' If I write in
French to ask an open credit to a banker I will merely ask him:
'Let me draw on you
a decouvert for one or two hundred
thousand dollars.' If I say to the banker, 'I will cover you with
exchange to that amount,' as soon as I cover to that amount, it is
finished. I don't owe a cent to that amount;
a decouvert
is closed, and I have a right to go on again. It is a revolving
credit. For instance, with Schuchardt, suppose I draw today
$100,000 on Schuchardt, and it was
a decouvert, and the
next morning or day after I sent to Schuchardt $100,000 of exchange
bought from different houses here, my
a decouvert is
finished -- it is closed. As soon as I have remitted exchange for
the $100,000 draft of the day preceding, the
a decouvert
is closed. Schuchardt is covered then. On the same day or next
morning, I have a right to draw $100,000, and cover again. As soon
as I have remitted $100,000 exchange, I have a right to draw again.
Therefore, when the bank remitted exchange to cover what the bank
had drawn under that credit,
a decouvert, the guarantee
made by me, C. Cavaroc, ceased, and the right to hold these bonds
ceased under that guaranty. . . . I desire to say, in explanation
of the '
a decouvert' spoken of in my testimony, that it
had no relation to guaranty and to payment of the exchange remitted
by the bank, nor of the solvency of the drawers or endorsers or
acceptors, but merely embraced remittance of exchange by the bank.
This is the signification of the words '
a decouvert' here
and in France, and in the letters sent and received by me, extracts
of which are annexed, the words are so understood."
The balance of account claimed by Schuchardt & Sons as due
from Cavaroc & Son January 12, 1874, was $7,454.22, to which
certain costs, disbursements, and counsel fees, and a payment in
settlement of a judgment on a $20,000 draft drawn on them by
Cavaroc & Son, were added, with interest, making the amount
December 19, 1882, some $25,715.22. The amount proved up by
Schuchardt & Sons against the New Orleans Bank was $195,315.63,
as has been stated. Upon this amount dividends had been paid before
final decree to the amount of $117,189.38.
Page 130 U. S. 372
The circuit court held that the bonds were pledged to secure
Schuchardt & Sons for any overdrafts of the bank which might
from time to time arise, to the extent of $100,000, and that
Schuchardt & Sons were entitled to hold the bonds subject to
the pledge to the bank as security for the indebtedness of Caravoc
& Son, by virtue of a banker's lien, 13 F. 423, and further,
that Caravoc & Son had pledged the bonds to secure the whole
indebtedness of the bank to Schuchardt & Sons, with a
limitation on the extent of the liability, and had not pledged them
to secure a limited part of the indebtedness, and that therefore
the dividends were not to be applied ratably, but the bonds could
only receive the benefit of any receipts from dividends after the
indebtedness had been paid down to $100,000, 14 F. 293.
The original bill was ordered dismissed by the court
sua
sponte on the ground of want of jurisdiction in equity, 12 F.
21, but retained upon amendment. No objection on this ground
appears to have been raised by defendants until upon hearing here.
As to allowance of interest,
see 18 F. 578.
Page 130 U. S. 381
MR. CHIEF JUSTICE FULLER, after stating the facts as above,
delivered the opinion of the Court.
The circuit court held that Cavaroc & Son had pledged the
bonds to Schuchardt & Sons as security for any unpaid balance
of account due from the New Orleans Bank, with a limitation to
$100,000 on the amount for which the bonds should be held liable.
The unpaid balance was ultimately placed at $195,315.63. The larger
part of this balance resulted from charging back the drafts on
Seignouret Freres & Co., Honorat & Co., and Dutfoy &
Co., which amounted, damages included, to over $180,000. The
inquiry therefore presents itself, on this branch of the case,
whether Schuchardt & Sons had a lien upon the bonds to secure
these drafts in virtue of an agreement to that effect with Cavaroc
& Son.
Page 130 U. S. 382
When Schuchardt & Sons, on the 9th of October, 1873, refused
to deliver the bonds on the order of Cavaroc & Son, they placed
their refusal upon the ground that "according to your written
authority, we hold New Orleans city bonds as collateral security
against Bank of New Orleans," and Wells, a member of the firm,
testifies that the only written authority was the letter of Cavaroc
of February 15, 1873. The letter thus appealed to as embodying the
authority relied on must be examined in the light of the
correspondence of which it forms so important a part. As early as
December, 1871, Schuchardt & Sons had by letter authorized the
bank to draw upon them
"in advance of remittances to the extent of $100,000 (one
hundred thousand dollars), with the understanding that such drafts
are to represent exchange bought and paid for,"
and in February, 1873, when the bank asked "are we still
authorized to draw, a decouvert, $100,000 (one hundred thousand
dollars) against purchases of exchange advised by wire?" the answer
was,
"The credit of $100,000 (one hundred thousand dollars)
a
decouvert was predicated upon the deposit of New Orleans city
bonds, and on their withdrawal we, of course, supposed the
agreement cancelled."
This assertion as to the deposit of bonds was denied by the
cashier, and he then referred Schuchardt & Sons to a letter
from the president, and that letter is the one in question. After
quoting from Schuchardts' letter of February 11th, their statement
that the $100,000 credit was predicated on the deposit of New
Orleans city bonds, Cavaroc thus proceeds:
"You know that exchange at New Orleans is purchased by making
advances until the drafts are delivered, and it was in order to
accelerate our transactions that we requested that credit of you at
that time. In view of your suggestion, there is nothing to be said,
except to authorize you, in case you are uncovered, to treat as
collateral security a portion of the bonds in your possession
belonging to my firm.
*"
And
Page 130 U. S. 383
to this Schuchardt & Sons responded to the bank that, "in
accordance with the terms therein stated" (
i.e., in
Cavaroc's letter), the bank might value on them "
a
decouvert," for a sum not exceeding as maximum $100,000 (one
hundred thousand dollars) against exchange purchases.
Thus, the written authority relied on was in no respect
different from the understanding in the beginning, as shown by the
letter of 1871, that the drafts to be drawn by the bank on the
Schuchardts were "to represent exchange bought and paid for," and
the bonds were to be held under the letters of February, 1873, as
collateral to advances by the Schuchardts before remittances of the
exchange. And as late as September 19, 1873, Wells wrote that
Schuchardt & Sons still authorized the bank
"to draw against purchases of exchange, and in advance of the
remittances, to the extent of $100,000, on the conditions specified
in the letter of Mr. Cavaroc of 15th February last."
"Exchange bought and paid for" meant bills drawn against
shipments, and purchased by advances made to the shippers upon the
strength of documents to be furnished by them with the bills, to
repay the advances so made. It was to enable the bank to make such
advances in New Orleans that Schuchardt & Sons on their part
advanced to the bank, and to assist the bank Cavaroc & Son were
willing to, and did, pledge the bonds as collateral, to a maximum
of $100,000. The understanding was that the bonds should be held as
collateral while Schuchardt & Sons were uncovered -- that is to
say, not covered by the remittance of exchange purchased -- the
bonds thus being used to bridge the interval between making the
advances and the receipt of the drafts with bills of lading
attached by Schuchardt & Sons.
The transactions between Schuchardt & Sons and the bank were
very large, reaching, it is true, only about $700,000 during the
month of September, but amounting to millions during the year; in
fact, Wells testifies that sometimes the bank sent "over a million
in one day."
Page 130 U. S. 384
The parties were dealing in exchange to their mutual profit, and
all that Schuchardt & Sons stipulated for, and all that Cavaroc
& Son agreed to, was that the bonds should be held as security
while the merchandise was being purchased and shipped, and drafts
against the shipments transmitted to Schuchardt & Sons in
liquidation of their advances. We do not understand that Schuchardt
& Sons were doing business absolutely without risk, nor that
Cavaroc & Son, in view of the course of business, were regarded
as called upon to guaranty Schuchardt & Sons at all events. The
latter had the drawers, the drawees, the endorsers, and the
merchandise itself to rely on, and there is nothing in the letters
or the testimony to indicate that, in addition to all this, they
demanded, as to such drafts, other security. If a draft had gone
forward with bill of lading attached, and the drawees refused to
receive the consignment and accept the draft, and were otherwise
under no obligation to do so, and the proceeds of the shipment sold
for less than the amount of the draft, or if the acceptors became
insolvent, and loss was thereby occasioned, Schuchardt & Sons,
though they might, if such was the course of business, charge back
the difference to the bank, could not, upon this evidence, claim
that these bonds were security to make good a deficiency so
created, and, even if they could, no such deficiency is shown to
have occurred.
Upon what basis, then, can it be held that drafts drawn by the
bank directly on Seignouret Freres & Co., Bordeaux, Honorat
& Co., Marseilles, and Dutfoy & Co., Paris, "unaccompanied
by documents," were secured by the bonds of Cavaroc & Son and
Dumont & Co. by "written authority"?
The drafts on Seignouret Freres & Co. appear to have been
drawn September 17, 1873, for, with damages, $56,410.26; but the
dates of the other drafts are not given, and the account between
the bank and Schuchardt & Sons, prior to the 1st of October,
1873, is not before us. The drafts on Dutfoy & Co., amounting,
with damages, to $90,256.41, were protested November 29th, December
10th, 13th, and 19th. The drafts on Honorat & Co. were
protested October 28th. No evidence is adduced on behalf of
Schuchardt & Sons' trustee in bankruptcy
Page 130 U. S. 385
as to the length of time on which these drafts were drawn. We
believe we are justified, then, in assuming that it was after the
interview between Cavaroc, Jr., and Wells, placed by the latter as
transpiring the last of August or first of September, when it was
agreed that the amounts of business paper -- that is, according to
Wells, "bills of exchange drawn against shipments" -- which they
would take, Schuchardt & Sons might limit, and the limitation
was directly imposed of "not more than 10 | M per week on Hambro,"
and "not more than fr. 200 | M on first bankers of Paris," and
further that when the bank sent
"the drafts of the bank on third parties (Havre, Bordeaux,
Marseilles &c. &c.), it must put in the hands of Messrs. C.
C. & Son, in trust, a deposit of securities, there to remain
until the acceptance or the payment, if we deem proper to await the
payment."
This was an arrangement made by Schuchardt & Sons, and
evidenced by a memorandum prepared not by Cavaroc, but by Wells. It
was not Cavaroc & Son acting with reference to the bonds who
sought this agreement, but Schuchardt & Sons acting for their
own protection in reference to transactions other than those with
which the bonds were connected. The drafts of the bank on third
parties were not exchange bought and paid for, nor were drafts
drawn by the bank on Schuchardt & Sons against these bills
drawn by it directly on Europe, advances made by Schuchardt &
Sons against "purchases of exchange advised by telegraph."
Schuchardt & Sons could have had no expectation of receiving
another set of bills drawn against shipments to repay advances made
to the bank on these "clean" bills already in their hands. They
must have relied, as to these bills, upon the credit of the bank,
the endorsers, and the drawees, and other securities deposited in
the hands of Cavaroc & Son, and when Schuchardt, who appears to
have been out of town, returned, and it was concluded to limit
their operations, Wells writes to Cavaroc that they had
"determined to request the bank to limit its exchange business
with us to the forwarding of such drafts made by third parties as
it shall deem proper to purchase."
There is no intimation up to the 19th of September that
Schuchardt & Sons regarded the
Page 130 U. S. 386
bonds as pledged for anything except the remittance of exchange
created by drafts against shipments. The transactions in purchasing
such exchange, and transactions in the way of accommodation to the
bank, or of the purchase of its own drafts on Europe, were kept
perfectly distinct, so far as appears. Cavaroc, Jr., testifies that
in his interview with Wells, late in August or the first of
September, when it was agreed that if the bank sent its own drafts,
there must be a deposit of securities to insure their acceptance or
payment, no agreement was made, verbal or otherwise, in reference
to these bonds, and nothing said about them other than perhaps a
casual remark. Wells does not deny this, although he says he feels
"quite confident they were alluded to." But for a resolution
purporting to have been passed by the directors of the bank on the
20th of September, there would be absolutely no evidence in this
record that the bonds were to be or had ever been held as security
for drafts drawn by the bank directly. These bonds did not belong
to the bank. They were largely owned by Dumont & Co. They had
never been used except upon a direct order from Cavaroc & Son.
A distinct agreement with the latter that they should be held for
the debts of the bank must be shown in order to the maintenance of
a lien upon them. The resolution does say that the bank, in order
to secure its president against "any eventual loss" of the
bonds
"belonging to the firm of C. Cavaroc & Son, and actually
pledged to F. Schuchardt & Sons, agents of the bank at New
York, as collateral security for the payment of all foreign
exchange bills sent them for negotiation, and by them
endorsed,"
thereby authorizes him "to select as guarantee from the
portfolio of the bank such papers as he may think proper, to the
extent of ($100,000) one hundred thousand dollars," and that
statement may be inconsistent with the theory that all the bonds
were pledged for was simply until remittances of exchange actually
bought and paid for were made; but when we consider the
circumstances under which Cavaroc was situated, that resolution,
under which securities to the amount of $100,000 were to be put
into his hands, which might be held to secure drafts drawn by the
bank itself, in accordance with
Page 130 U. S. 387
the agreement with Schuchardt & Sons of the last of August
or first of September, does not appear to us to overcome the
written and other evidence as to the actual transaction.
There is no element of estoppel about it, and it is a mere
question whether a resolution of that kind passed when both Cavaroc
& Son and the bank were on the brink of bankruptcy, should be
taken as evidence of such cogency as to overthrow all the
correspondence and testimony to the contrary. It may go to the
credibility of Cavaroc, it is true. He may have told one story on
the stand under oath, and may told his directors another story in
the bank, although it does not appear that he drew the resolution
or was consulted as to the particular language in which it should
be couched. The facts, as we hold them to be, were that the bonds
had been pledged to the extent of $100,000, as collateral to the
remittance of exchange, and that it had been agreed with Schuchardt
& Sons, by Cavaroc, on behalf of the bank, that in relation to
drafts drawn by the bank directly, other securities should be put
in the hands of Cavaroc & Son to secure such last-named drafts.
Cavaroc therefore needed to have a resolution of the bank that he
might take from its portfolio those additional securities, and the
fact that the language of the resolution is broader than the terms
of the pledge, or that it was inartificially drawn, or that it
misrepresented the ownership of the bonds, does not entitle it to
the weight attributed to it on the argument. As against third
parties, the terms of a resolution of the directors of a national
banking association, when the exigencies of a financial crisis are
upon them, in the attempt to prefer one of the bank's officers
cannot properly be regarded as decisive upon the question of the
facts actually existing in respect to such third parties in a given
case, and Dumont & Co. and the general creditors of Cavaroc
& Son ought not to be foreclosed by Cavaroc's presence when
this resolution was passed. Besides, it is not inconsistent with
the terms of the resolution, to confine the reference to foreign
bills to all exchange actually purchased, in which view the
resolution would simply assert that the pledge was designed to
secure not only the remittance, but the ultimate payment of such
exchange,
Page 130 U. S. 388
but could not be stretched to cover "clean" bills drawn by the
bank itself.
The learned judge of the circuit court says:
"In short, it is evident from the relations of the parties,
their course of business, the correspondence between them, and the
construction placed upon the transaction by Cavaroc himself that
the bonds were pledged to secure Schuchardt & Sons for any
overdrafts of the banking association to the extent of $100,000,
which might from time to time arise. Such overdrafts were the
credit '
a decouvert' contemplated by the parties, and
constitute the unpaid balance of account due from the banking
association to Schuchardt & Sons."
The relations of the parties were that both were dealers in
exchange and making money out of it. The course of business was:
advances by the bank to shippers, advances by Schuchardt & Sons
to the bank to enable it to make those advances to the shippers,
the use of the money by the shippers in the purchase of
merchandise, and the remittance of drafts drawn against shipments
to Schuchardt & Sons in return for their advances. The
correspondence between the parties from the first limited the
transactions with which the bonds were concerned to exchange
actually bought and paid for. This was the construction placed upon
those transactions by both of the parties, unless this resolution
of the directors of the bank is to be held as conclusive to the
contrary. The indebtedness of the bank was not the result of losses
upon any drafts purchased in the regular course of business, but
was the result of charging back unpaid drafts, which had been drawn
by the bank directly upon parties in Europe, without any
accompanying bills of lading. These drafts were discounted by
Schuchardt & Sons, apparently in reliance not simply upon the
credit of the bank and the credit of Cavaroc & Son, if they
endorsed such drafts, but upon the deposit of securities, as
against them, in the hands of Cavaroc & Son at New Orleans, and
the evidence of Casey shows that Cavaroc did undertake to get and
hold securities for Schuchardt & Sons, as against drafts so
situated. And this explains the telegram of Schuchardt & Sons
to Cavaroc & Son of October 9th: "We insist on your delivering
to Reynes the bills receivable held by you in trust."
Page 130 U. S. 389
This drawing by the bank directly on Europe was either a recent
course of proceeding or it was not. If not, it is clear that the
bonds had no relation to such prior action. If of recent
occurrence, it is equally clear that it was independent of the
regular dealings in exchange, in respect to which the bonds were
held as security to the extent and under the circumstances defined
in the correspondence.
As the bonds in large part did not belong to Cavaroc & Son,
it is due to the latter to suppose that they had no intention of
subjecting them to the risks now insisted upon, and the intimacy
between Cavaroc & Son and Schuchardt & Sons, and the fact
that the bonds were paid for by drafts on Dumont & Co., whose
acceptances for a considerable part of the cost were held by
Schuchardt & Sons, render the inference a not unreasonable one
that Schuchardt & Sons knew that Cavaroc & Son had peculiar
reasons for not treating the bonds with the same freedom as other
securities, and this is confirmed by their levy of an attachment
against Dumont & Co. upon the bonds, as belonging in whole or
in part to the latter.
We do not concur, therefore, in the view that Schuchardt &
Sons had, by special agreement, a lien upon these bonds to secure
the drafts drawn on Seignouret Freres & Co., Honorat & Co.,
and Dutfoy & Co.
The bonds were, however, pledged to secure the remittance by the
bank of exchange actually bought and paid for. The letter of
February 15th authorizes Schuchardt & Sons to treat "a portion"
of the bonds as such security, to a maximum of $100,000, but what
portion is not defined, and it is evident that Schuchardt &
Sons considered all of them as so pledged. There is nothing
unreasonable in this, for although the bonds had cost $189,360,
yet, in the fluctuations of the market, all of them might not have
been represented a reliable guaranty for more than $100,000.
The answer of Fry sets up that they
"were deposited with the said Frederick Schuchardt & Sons as
security for any indebtedness or balances of account which at any
time might or could arise in the course of their aforesaid dealings
in their
Page 130 U. S. 390
aforesaid character with the said Charles Cavaroc & Son and
the said New Orleans Banking Association."
The decree adjudges that Schuchardt & Sons had a lien upon
the bonds for the balance of the account of Cavaroc & Son with
them, and "also" that they held them, to the extent of $100,000,
"by virtue of a pledge or hypothecation" to secure the indebtedness
of the bank.
The circuit court said, 13 F. 428:
"The bonds having been left by Cavaroc & Son with Schuchardt
& Sons, without any special agreement except the pledge of a
portion of them for the New Orleans Banking Association, those not
thus pledged are subject to the bankers' lien of Schuchardt &
Sons."
And again, 18 F. 578
"The terms of the pledge were that the bonds then in the
possession of the Schuchardts should be held by them as security
for any advance or overdraft which might ultimately exist in the
dealings of the parties, to the extent of $100,000."
But if the bonds were liable by express contract for the
obligations of the bank, could they also be made to respond to the
indebtedness of Cavaroc & Son, in the absence of express
agreement, by force of a lien implied from the usage of the
business?
In our judgment, the bonds, being in effect all pledged to
guaranty the remittance by the bank of exchange purchased, could
not be held by implication as security for the indebtedness of
Cavaroc & Son on a balance of account. The specific pledge
withdrew them from the operation of the alleged bankers' lien, for
it was inconsistent with the presumed intention of the parties.
And, applying the principles upon which such a lien rests, it is
doubtful whether it ever existed in favor of Schuchardit &
Sons. Undoubtedly, while
"a general lien for a balance of accounts is founded on custom,
and is not favored, and it requires strong evidence of a settled
and uniform usage or of a particular mode of dealing between the
parties to establish it,"
and
"general liens are looked at with jealousy, because they
encroach upon the common law and destroy the equal distribution of
the debtor's estate among his creditors,"
2 Kent, Com. *636, yet a general lien does arise in favor
Page 130 U. S. 391
of a bank or banker out of contract expressed or implied from
the usage of the business in the absence of anything to show a
contrary intention. It does not arise upon securities accidentally
in the possession of the bank, or not in its possession in the
course of its business as such, nor where the securities are in its
hands under circumstances, or where there is a particular mode of
dealing inconsistent with such general lien.
Brandao v.
Barnett (Common Pleas), 1 Man. & Gr. 908 (Exch.Chamb. In
error) 6 Man. & Gr. 630; same case, House of Lords, 3. C.B.
519, 532, and also 12 Cl. & Fin. 787, 806;
Bock v.
Gorrissen, 2 De G., F. & J. 434, 443. In this latter case
the foreign correspondents of a London firm directed the firm to
purchase for them Mexican bonds to a specified amount at a
specified price, and to hold the bonds at the disposal of the
correspondents. The London firm made the purchase, and wrote the
correspondents that they would, until further order, retain the
bonds for safe custody, and it was held that the letters
constituted a special contract sufficient to exclude a general lien
on the part of the London firm, if they would otherwise have been
entitled to any.
It was held in
In re Medewe, 26 Beavan 588, that where
a customer's security was specifically stated to "be for the amount
which shall or may be found due on the balance of his account," it
could not be held for a subsequent floating balance, but only for
the then existing balance, and in
Vanderzee v. Willis, 3
Bro.Ch. 21, that a security specifically given for a
contemporaneous advance of �1,000 by the banker was not applicable
against an independent indebtedness of �500 afterwards arising upon
an ordinary running account.
"A banker's lien," said MR. JUSTICE MATTHEWS, speaking for the
Court in
National Bank v. Insurance Co., 104 U. S.
54,
104 U. S.
71,
"ordinarily attaches in favor of the bank upon the securities
and moneys of the customer deposited in the usual course of
business, for advances which are supposed to be made upon their
credit. It attaches to such securities and funds not only against
the depositor, but against the unknown equities of all others in
interest, unless modified or waived by some agreement, express or
implied, or by conduct inconsistent with its assertion. "
Page 130 U. S. 392
In
Bank of the Metropolis v. New
England Bank, 1 How. 234,
42 U. S. 239,
Mr. Chief Justice Taney, in delivering the opinion, referring to
the general principle that a banker who has advanced money to
another has a lien on all paper securities in his hands for the
amount of his general balance, says:
"We do not perceive any difference in principle between an
advance of money and a balance suffered to remain upon the faith of
these mutual dealings. In the one case as well as the other, credit
is given upon the paper deposited or expected to be transmitted in
the usual course of the transactions between the parties."
"'Here, then,' said Caton, J., in
Russell v. Hadduck, 3
Gilman, 233, 238,"
"is the true principle upon which this, as well as all other
bankers' liens, must be sustained, if at all. There must be a
credit given upon the securities, either in possession or in
expectancy."
Fourth National Bank v. City National Bank, 68 Ill.
398.
In
Duncan v. Brennan, 83 N.Y. 487, 491, the language of
the court is:
"The general lien which bankers hold upon bills, notes, and
other securities deposited with them for a balance due on general
account cannot, we think, exist where the pledge of property is for
a specific sum, and not a general pledge,"
and in
Naponset Bank v. Leland, 5 Met. 259:
"The notes were deposited under special circumstances. They were
not pledged generally, but specifically, and this negatives any
inference of any general lien if, in the absence of such special
agreement, the law would imply one,"
and in
Wyckoff v. Anthony, 90 N.Y. 442, that
"where securities are pledged to a banker or broker for the
payment of a particular loan or debt, he has no lien upon the
securities for a general balance or for the payment of other
claims."
See also Masonic Savings Bank v. Bang's Administrator,
84 Ky. 135;
Bank of the United States v. Macalester, 9
Penn.St. 475;
Hathaway v. Fall River Nat. Bank, 131 Mass.
14. The facts in
Biebinger v. Continental Bank,
99 U. S. 143, were
that a customer of a bank had deposited with it, as collateral
security for his current indebtedness on discounts, a note secured
by mortgage, which he withdrew for foreclosure at the sale under
which he
Page 130 U. S. 393
purchased the property, and left the deed he received with the
bank at its request. His indebtedness to the bank was then fully
paid, but after a temporary suspension of his dealings, he again
incurred debts to it. It was held that as it did not appear that
money was loaned or debt created on the faith of possession of the
deed, the bank could not claim against the debtor's assignee an
equitable mortgage by the deposit of the conveyance. There are
instances of an express pledge of securities for a specific loan,
where the surplus realized from them has been directed to be
applied to satisfy a general debt,
In re General Provident
Assurance Company, ex parte National Bank, L.R. 14 Eq. 507,
but there is no pretense in the case at bar of any ground for the
application of the principle of tacking.
Subjected to the tests of these well settled rules, the facts do
not admit of serious doubt as to the correct result.
The bonds were not lodged in the hands of the Schuchardts in the
ordinary course of banking business. They were sent to New York for
a specific purpose, and when that purpose was accomplished,
permitted to remain for "safekeeping," and because New York was a
better market than New Orleans, and the express charges for their
return very heavy, as is said on one side, and for convenience in
procuring loans, as is asserted on the other. But the loans made
were always specific loans, and the bonds were always otherwise
subject to Cavaroc & Son's call, and when the Schuchardts
themselves loaned, as they did once or twice, it was upon an
express pledge of a designated number of the bonds as security.
Cavaroc & Son were bankers, as well as Schuchardt & Sons,
and the latter appear to have reposed implicit confidence in them;
yet there is no satisfactory evidence that they extended to Cavaroc
& Son any special indulgence in the way of general
accommodation. Their cashier thinks he can specify a case in which
the bills of exchange sent by Cavaroc to Schuchardt were not
accompanied by bills of lading, but he does not do so, and the
acceptances of Dumont & Co. were on account of the purchase
price of the bonds. If, as argued by counsel, there is a
presumption, as between customer and banker, that the
securities
Page 130 U. S. 394
or property of the customer found in the possession of the
banker have been left with him to secure him generally against
loss, this is not an irrebuttable presumption, and each case stands
upon its own circumstances.
And since Schuchardt & Sons did not claim at the time of the
failure that they had a general lien, but simply that they held the
bonds by "written authority . . . as collateral security against
the Bank of New Orleans," we can arrive at no other conclusion than
that Schuchardt & Sons were not entitled to maintain a bankers'
lien against the bonds for the ultimate debit balance of Cavaroc
& Son.
We are asked to dispose of the case adversely to appellants upon
the ground that they received the remaining bonds and money after
the liens decreed in Fry's favor were satisfied; but such receipt
does not oust the jurisdiction. The acceptance by appellants of
what was confessedly theirs cannot be construed into an admission
that the decree they seek to reverse was not erroneous, nor does it
take from appellees anything, on the reversal of the decree, to
which they would otherwise be entitled.
Embry v. Palmer,
107 U. S. 3,
107 U. S. 8. Nor
can the objection be sustained that there was an absence of
jurisdiction in equity because of the adequacy of the remedy at
law. The Schuchardts had collected many thousands of dollars on
coupons cut from the bonds after October 4, 1873, and before their
own failure. Fry, their assignee, had made similar collections. Fry
claimed to hold the moneys and the bonds to secure a balance of
account due to the Schuchardts from the Cavarocs, and also as
collateral to the indebtedness of the New Orleans bank. Dumont
& Co. claimed a large part of the bonds as against the general
creditors of the Cavarocs, and as against Schuchardt & Sons,
and Cavaroc's general creditors claimed the residuum. As to the
amount due to Fry, controversy over some thousands of pounds in the
Union Bank of London was involved. An accounting was necessary
between the parties, and a multiplicity of suits was inevitable
unless the determination of the conflicting rights set up could be
arrived at in a proceeding in equity. And in addition to these
considerations, we think we ought not to regard with
Page 130 U. S. 395
favor the raising of this objection, for the first time at this
stage of the cause.
The rule as stated in Daniell's Chancery Practice 555, 4th Amer.
ed., is that if the objection of want of jurisdiction in equity is
not taken in proper time -- namely, before the defendant enters
into his defense at large -- the court having the general
jurisdiction will exercise it, and in a note on page 550, many
cases are cited to establish that
"if a defendant in a suit in equity answers and submits to the
jurisdiction of the court, it is too late for him to object that
the plaintiff has a plain and adequate remedy at law. This
objection should be taken at the earliest opportunity. The above
rule must be taken with the qualification that it is competent for
the court to grant the relief sought, and that it has jurisdiction
of the subject matter."
In
Wylie v. Coxe,
15 How. 415,
56 U. S. 420,
it is said:
"The want of jurisdiction, if relied on by the defendants,
should have been alleged by plea or answer. It is too late to raise
such an objection on the hearing in the appellate court unless the
want of jurisdiction is apparent on the face of the bill."
It was held in
Lewis v.
Cocks, 23 Wall. 466, that if the court, upon
looking at the proofs, found none at all of the matters which would
make a proper case for equity, it would be the duty of the court to
recognize the fact and give it effect, though not raised by the
pleadings nor suggested by counsel. To the same effect is
Oelrichs v.
Spain, 15 Wall. 211. The doctrine of these and
similar cases is that the court, for its own protection, may
prevent matters purely cognizable at law from being drawn into
chancery at the pleasure of the parties interested; but it by no
means follows, where the subject matter belongs to the class over
which a court of equity has jurisdiction, and the objection that
the complainant has an adequate remedy at law is not made until the
hearing in the appellate tribunal, that the latter can exercise no
discretion in the disposition of such objection. Under the
circumstances of this case, it comes altogether too late, even
though, if taken
in limine, it might have been worthy of
attention.
The decrees are reversed at the costs of Fry, trustee, in
this and the circuit court, and the cause remanded for further
proceedings in conformity with this opinion.
*
"Vous savez que le change a New Orleans est achete en faisant
des advances jusqu'a ce que les traites soient livrees et c'est
afin d'activer nos rapports que nous vous avions demande a
l'epoque, ce decouvert."
"Devant votre observation, il n'y a rien a dire si ce n'est de
vous authoriser a considerer comme securite collaterale une parties
des 'bonds' que vous avez a ma maison, en cas de decouvert."