H. H. Mears & Son v. Waples

9 Del. 62

• Court: Supreme Court of Delaware
• Decided: June 5, 1869
• Status: Published

Opinion

Bates, Chancellor,

delivered the opinion of the Court.

The proof and the points of controversy are fully set forth in the charge of the Court below, and need not be here restated. We, therefore, proceed immediately to consider the exceptions. They are five in number. The first exception, being to the admission ,of Montgomery Hunt as a witness, was abandoned during the argument in this Court. The second exception is to the refusal of the Court below to charge in accordance with the plaintiffs’ first prayer for instructions to the jury. By that prayer the Court was requested to submit to the jury the. question whether or not the sale of corn by H. H. Mears & Son to M. Hunt & Co. was a cash sale,—a sale by the terms of which property in the corn and possession of the bill of lading was not to pass to M. Hunt & Co. until payment of the draft for the price. It was one branch of the plaintiffs’ case that the sale was for cash and not on the personal credit of M. Hunt & Co., that payment of the draft and delivery of the hill of lading were to be contemporaneous, and that it was in order to effectuate this arrangement that the bill of lading and the draft were attached to each other when the latter was forwarded for acceptance and collection. It was, therefore, insisted that the separation of the bill of lading from the draft upon its acceptance only and before its payment, was contrary to the terms of sale, without right, and that it passed no property in the corn,—that M. Hunt & Go., as they had acquired no'title to the corn, could pass none by their indorsement of the bill of lading to T. D. Quincy & Co., even though the latter were innocent purchasers for value. To support this branch of their case the. court was requested to charge the jury as to the legal effect of a cash sale, and to instruct them that should they find this to have been such, and that the bill of lading was attached to the draft as security for its payment at maturity that then M. Hunt & Co. took no property in the corn and could convey none. The Court below refused the instruction prayed for ; not that it questioned the legal proposition that if a bill of lading be obtained by fraud, or other wise than under a voluntary delivery by the owner of goods, its indorsement can pass no title even to an innocent purchaser; but the court considered the evidence adduced by the plaintiffs insufficient to support a verdict finding that there had been no delivery of this bill of lading to M. Hunt & Co., or in other words, finding that the bill was attached to the draft to secure" its payment ánd was unlawfully detached upon its acceptance only. We are of the same opinion. Let us advert to the evidence on this point. The assumption that this was a cash sale rests upon the single fact that the bill of lading was attached to the draft instead of being forwarded to M. Hunt & Co. separately. All the other circumstances present the ordinary case of a sale upon personal credit. The corn is shipped to the order of M. Hunt & Co.; bills of lading are made out in their names, as for a cargo “ Shipped by M. Hunt & Co.,” to be delivered to their “ order or assigns;” the schooner with the cargo is permitted to depart; the price is drawn for at one day after sight, and the draft is discounted for the drawers, Hears & Sou, at the Philadelphia Bank. How, it must be obvious, that had the draft gone on without the bill of lading attached to it the case would not afford even color to an argument that this was a cash sale. Then the material question is whether there was sufficient evidence to go to a jury in support of the plaintiffs’ hypothesis that the bill of lading was attached to the draft as a pledge for its payment at maturity.

Examining the bill of exceptions to this point we observe, in the first place, that there was no evidence of any express agreement between H. Hears & Son and H. Hunt & Co. that the bill of lading should remain with the draft until its payment, or be held in any way as a security for the draft. Hor was there evidence of any instruction given either by H. Hears & Son to the Philadelphia Bank, where the draft was discounted, or by that Bank to the Hational Union Bank of Baltimore, to which it was sent for collection, to the effect that the bill of lading should remain with the draft until its payment. In or, again, can any such agreement, understanding or instruction be implied from the previous course of dealing between these parties; but the contrary—for throughout a series of like sales of corn running through a period of four years and amounting to an aggregate of $150,000 to $200,000, in the course of which the purchases were paid for by drafts at one or three days’ sight, M. Hunt & Co. had uniformly, upon accepting a draft for the price of a cargo, detached and kept the bill of lading: and this was done without objection ever made on the part of H. Hears & Son. In a single instance the collection clerk of the Baltimore Bank did, on presenting a draft for acceptance, object to the separation from it of the bill of lading, but he withdrew the objection upon being informed by Mr. Hunt that such had been their previous practice. There is in this circumstance nothing to rebut the presumption arising from the uniform course of business between these parties, that Hears & Son relied upon the credit of Hunt & Co. and permitted the bills of lading to be delivered upon acceptance of the drafts. Then, in the absence of express agreement pledging the bill of lading, of any understanding implied from previous course of dealings, even of instructions from H. Hears & Son, upon what grounds was the right of M. Hunt & Go. to detach the draft impeached ? Two grounds were taken in argument. First, and chiefly, was the ground of usage,—that according to the custom of this trade, a bill of lading, when attached to a draft for the price of the cargo, stands as security for payment of the draft. Was the evidence relied on to prove such usage sufficient to carry this question to the jury ? We think not. Waiving any inquiry as to the sufficiency of the evidence adduced to show the existence of a usage in Philadelphia, there was no evidence whatever of such usage in Baltimore, where M. Hunt & Co., the parties to be affected, resided and transacted their business, and to which place the draft was sent for collection. This was a fatal defect, such as the court could not over look. For it is indisputable that any usage of a particular trade carried on between two different seats of the trade, like Philadelphia and Baltimore, in order to bind parties to a transaction between the two places, must be a usage recognized and acted on in both ; for otherwise there can be no fair presumption that the ¡parties,—both parties, dealt with reference to it. It should be observed that the usage in question is not asserted as one of those general commercial usages which, having become a part of the law merchant, are recognized by the courts without proof, such as are many of the rules relating to bills of exchange, promissory notes and insurance; but this is claimed to be the usage of a particular trade, and in that trade, if existing at all, it is local. It must, therefore, be proved to have been recognized and acted on at the places embraced by the transaction as well as to have had the usual requisites, such as certainty, reasonableness and uniformity. As to the nature and requisites of such a usage we adopt entire the instruction of the court below.

It was, however, earnestly argued that whether or not a sufficient usage had been proved was a question of fact which should have been left wholly to the jury. But the proof of a usage of trade involves questions both of law and of fact. It is a question of law what is a sufficient usage to bind the parties, i. e., for how long a time, at what places and with what degree of uniformity it must have been observed; whether, therefore, a given state of facts establishes the usage claimed to exist is a question for the Court;—whether such a state of facts has been proved is a question for the jury. If, as in the case presented by this record, taking all the evidence relied on by the plaintiffs to be true, it is not, in the judgment of the Court,sufficient in law to establish the usage contended for, it becomes the duty of the Court so to instruct the jury. Such has been the uniform practice of the Courts upon these questions. One case out of the many may serve as an illustration. In Wood v. Wood, 11 E. C. L. R., 312, the defendant had sent to a trader in cloths certain cloths for inspection. The trader becoming bankrupt, in a suit between his assignees and the owner of the cloths, the owner attempted to prove a usage of the cloth trade that when cloths were sent for inspection, if within three days the trader did not give notice of his willingness to buy them, they should be returned. According to the testimony the time allowed the buyer varied Some of the witnesses stated it to be three days, some a week and one a mouth. The Court instructed the jury that such a usage to be binding must be uniform, and that the usage, taking it as proved, was not so. Parsons on Contracts, 2d Vol. 543, draws very clearly the line of distinction between the province of th,e Court and that of the jury as to the proof of usage.

The other ground upon which the plaintiffs’ counsel sought to impeach the right of M. Hunt & Co. to detach the bill of lading upon accepting the draft was, that even in the absence of express agreement or of usage, the bare fact that the bill of.lading was forwarded attached to the draft, and not separately by mail, was demonstrative of an intention to make the bill of lading a security for the payment of the draft.' The argument was pressed so far as to hold the draft and the bill of lading to have been made one instrument in law. On the latter point it must be clear that the mere connection of the two papers by a pin could not alter the legal operation of either instrument. The operation of each depended only upon its own terms; nor could they be made in any sense one instrument, or the operation of one be qualified by the other, except by some reference in the one to the other; as if in the bill of lading for example, it had been provided that the title under it to the cargo should not pass until payment of the draft. Then, again, with respect to the supposed conclusiveness of this fact (the connection .of. the two papers) in itself as evidence of an intention to pledge the bill of lading for payment, while it is doubtless true that the papers were connected for some purpose, it is not to be assumed that this purpose was to make the bill a security for payment of the draft; for the object may as well have been to make the delivery of the bill and the acceptance of the draft contení])oraneous, so as on the one hand to secure to the vendor an acceptance of the draft before delivery of the hill of lading, and on the other hand to assure the acceptor that the goods had gone forward. So that the bare fact that the two papers were sent attached to each other proves nothing; its meaning must be interpreted by the other circumstances of the case ; all which,as we have seen, point to a sale upon the personal credit of M. Hunt & Co. and not for cash to be secured by the bill of lading. We are therefore of opinion that the Court did not err in refusing the first prayer for instructions.

We next proceed to the 3d. Exception. This is to the omission of the Court below to instruct the jury according to the 2d prayer. The plaintiffs claimed that the sale,if not a cash sale,was at least a conditional sale,—that the bill of lading, if delivered at all, was delivered conditionally, so as not to pass property in the corn until payment of the draft;—that consequently, as the vendee took by such a delivery no title until payment, his indorsement of the bill could, as against his vendor, pass none. By the 2d prayer the Court was requested to charge that in order to pass a title to M. Hunt & Co. which they could convey, “ the delivery of the goods, or of the documentary title to the same must be an unconditional one, and that a delivery of a bill of lading may be so explained that its true intent may appear.” The prayer is imperfectly expressed, but its connection with the first prayer and the scope of the argument show its meaning to be that under a conditional sale of the corn and delivery of the bill of lading, M. Hunt & Co. took no property in the corn which in the event of their failure to pay the draft they could pass, even to an innocent indorsee for value.

The Court instructed the jury to the contrary; “that a bona fide purchaser without notice of the condition upon which his vendor had acquired possession of the goods will be protected against the claim of the original vendor.” The Court treated such a purchaser as being entitled to the same protection which is universally accorded to an innocent purchaser of goods obtained by fraud from the original vendor. We are unable to distinguish between the two cases. Both are alike within the principle established as far back as in Lickbarrow v. Mason, that “wherever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.” But it was urged upon us that this principle of protecti on to innocent purchasers is qualified by another rule of law, viz : that he who has no title in himself can pass none; as, for example, a bailee of goods hired or loaned; that a conditional sale and delivery of goods pass no title, no more than does an ordinary bailment ; that nothing passes but a bare possession until performance of the condition. That one having no title to goods can pass none (except anciently by sale in market overt) is unquestionable. But that rule does not govern the present case, and this for two reasons. First, then, in our judgment the delivery of goods by a vendor pursuant to a sale, though it may have been a conditional sale, is more than a bailment of them. The delivery might be so expressly qualified as to pass only a bare possession until performance of the condition. Upon this ground stands Copeland v. Bosquet, 4 Wash. C. C. 588, one of the two cases relied on by the plaintiffs. But in the absence of any stipulation to the contrary the fair presumption is that the vendor, by delivering the goods before the condition is performed, waives the condition and trusts to the responsibility of his vendee. Cogill vs. The Hartf. & New Raven R. R. Co. 3 Gray 545, holds the contrary; but we cannot follow the reasoning of that case. The conclusion of the Court in Hall vs. Hinks et al., 21 Md. Repts. 406, seems to us better sustained, and we accept it as the true rule. It results, that under a conditional sale followed by a delivery of the goods, not expressly qualified, the vendee does take a title to them,—which though it may be defeasible between the original parties, like title fraudulently obtained, will in like manner be protected in an innocent purchaser from the vendee. But, second, the other reason, more conclusive and the one more appropriate to the facts of the case, springs from the use of a bill of lading. It is an exception, universally admitted, to the doctrine that one having no title to goods can by a sale pass none, that when the owner in the language of Ld. Ellenborough ( 9 East.) “has given the external indicia of the right of disposing of his property,” a bona fide purchaser, for value from the person holding such evidence of title will be protected against the original owner although no title in fact was in the person who committed the wrong. This principle is fully acknowledged in Saltus vs. Everett, 20 Wendell 267,-280,cited for the plaintiffs; also in 2 Smith’s L. C. Am. note, 1096,-7. How the delivery of a bill of lading, consigning goods “to order or assigns” confers all the external indicia of the right of disposal. It is a declaration to the commercial world that the person receiving it may dispose of the goods. To allow the vendor who has delivered such a bill of lading to set up against a bona fide indorsee for value any private condition between him and his vendee, woxild be a fraud on the indorsee and must unsettle confidence in this class of commercial securities. Let it be observed that we are not dealing with the question whether bills of lading are so far negotiable, like bills of exchange and promissory notes, that the.indorsement of one by a person who obtained it, not by a voluntary delivery, but by fraud, force or theft, will pass title to an innocent indorsee. The question here raised is whether a voluntary delivery of a bill of lading for goods sold expressly consigning them to the vendee’s order, can be qualified by any private condition to the prejudice of a bona fide indorsee for valúe.

We proceed to the 4th exception, which is taken to the refusal of the Court below to charge in accordance with the 3d. prayer. It was one of the grounds of the plaintiffs’ claim that even had there been an absolute delivery of the bill of lading, such as to vest a title in M. Hunt & Co., yet that the purchase of the corn was obtained fraudulently, and that consequently their title was revocable by the plaintiffs; and that too even as against T. D. Quincy & Co., the indorsees, unless they were purchasers for value and without notice or knowledge of the fraud ; and the character of bona fide purchasers was denied to them. 'To sustain this denial was the object of the 3d prayer. This prayer is twofold:—(1st.) that the Court would submit to the jury the question whether or not the hill of lading was taken under suspicious circumstances, without reasonable caution on the part of T. D. Quincy & Co.; and (2d) that the Court would instruct the jury that supposing fraud in M. Hunt & Co. to be shown, the onus was on T. D. Quincy & Co., to prove affirmatively that they bought “ bona fide, for value and without notice of any defect in the title of M. Hunt & Co. The Court refused to submit to the jury whether the bill of lading was taken under suspicious circumstances, and held the indorsees to be bona fide purchasers within the sense of the rule, if they took the bill for value aud without notice or knowledge of any fraud. In this instruction the Court followed the rule settled by the later English and American decisions touching the rights of an indorsee of negotiable paper which has been fraudulently put into circulation, stolen, or lost. Raphael vs. The Bank of England, 84 E. C. L. R. 160, decided in 1855, may be taken as the exponent of this rule, which is that a bona fide indorsee for value, without notice or knowledge of any defect of title, is not put to diligence. The question is one, not of diligence, hut of bona fides. Therefore negligence in the indorsee, if not so gross as to prove mala fides, does not defeat his right. It has been by several gradations and after much discussion that the English Courts have reached this conclusion. The doctrine first held in any decision upon the direct question by the court in banc, was that known as Ld. Tenterden’s rule in Gill vs. Cubitt, 10 E. C. L. R. 154, in 1824, that the title of the holder of negotiable paper, though a holder bona fide and for value, would not be protected, if acquired “ under circumstances which ought to have excited the suspicions of an ordinarily prudent and careful man,” and, accordingly, in that case the question of negligence was left to the jury. Ld. Tenterden’s rule was followed until the year 1836, when in Crooks vs. Jadis, 10 E. C. L. R. 234, and in Backhouse vs. Harrison, lb. 276, under Ld. Denman, the strictness of the former rule was so far relaxed that only gross negligence, and not mere want of caution on the part of the indorsee, was held sufficient to defeat him. A still further relaxation was yielded in Goodman vs. Harvey, 31 E. C. L. R. 212, where Ld. Denman says, “ we are all of opinion that gross negligence only would not be a sufficient answer where the party has given consideration for the bill.” “ Gross negligence,” he proceeds to say, •“ may" be evidence of mala fides, but is not the same thing. We have shaken off the last remnant of the contrary doctrine. When the bill has passed to the plaintiff without any proof of bad faith in him, there is no objection to his title.” Following this decision was Uther vs. Rich, 37 E. C. L. R. 232; also the Bank of Bengal vs. Fagan, before the Judicial Committee of the Privy Council, 7 Moore’s P. C. Cases 72, and finally Raphael vs. the Bank of England. In the privy Council case, Ld. Brougham said, “ It may be taken as established that whatever may have been the law laid down in Gill vs. Cubitt and one or two other cases is now law no longer; and that the negligence of the party taking a negotiable instrument does not fix him with the defective title of the party passing it to him.” The American decisions on this point have taken a somewhat similar course. The earlier rulings were in accordance with Ld. Tenterden’s doctrine, A few of the later cases, decided since that doctrine was abandoned in England (1836) still adhere to it. Pringle vs. Phillips, 5 Sandf. 157; Holbrook vs. Mix, 1 E. D. Smith 154 ; Sandford vs. Norton, 14 Vermt. 228 and 17 ib. 285. But the weight of American authority is now with the present English rule. Worcester Co. Bank vs. Dorchester & Milton Bank, 10 Cush. 488. Brush vs. Scribner, 11 Conn. 388. Hall vs. Wilson, 16 Barb. 548. Magee vs. Badger, 30 Barb. 246. Mathews vs. Poythress, 4 Ga. 287. Goodman vs. Simonds, 20 How. 343.

This course of adjudication was a necessary concession to the demands of commerce. What are “ circumstances which ought to excite suspicion,” or what is “ reasonable diligence,” are questions answered by no legal definition that may guide either commercial dealers or juries. To subject commercial transactions entered into bona fide to the hazards of a jury trial upon questions so indefinite would seriously embarrass, if not paralyze commerce. These considerations, we think, apply with equal force to bills of lading, as to bills of exchange and promissory notes, and the court below did not err in treating bills of lading as within the same rule. In this case it was not controverted that the indorsees took the bill of lading in the course of their trade and for value. Then, according to the rule, the question whether there was negligence in taking the bill under suspicious circumstances was not proper to be left with the jury, unless there had been evidence tending to fix them with gross fraud, such as proves mala fides, in which case that question, the question of mala fides, should have been submitted to the jury. But after carefully weighing all the evidence relied on for the plaintiffs we are clearly of opinion that it does not in any degree tend to show gross negligence, or indeed, any negligence on the part of Quincy & Co. ih taking the bill of lading', and that the Court would have erred in leaving that question to the jury upon such evidence.

We pass now to the other question raised under the 3d prayer for instructions, i. e., supposing it to have been shown that M. Hunt & Co. obtained the corn fraudulently, to what extent the onus was thereby thrown upon the defendant to prove the bona fides of T. D. Quincy & Co. as indorsees of the bill of lading. We take the rule to be this; after evidence has been adduced that a bill of exchange, promissory note, or bill of lading has been obtained by fraud or duress, or has been lost or stolen, a party claiming as indorsee, in order to maintain his title must show that he took the paper for a valuable consideration, and in the case of a stolen or lost bill or note, he must also show how he came by it, that he took it in the course of trade; but having made such proof he is not required further to show affirmatively his want of notice or knowledge. The payment of value for a bill or note taken in the course of trade raises a fair presumption that the holder took it bona fide and without knowledge of any defect of title; for men do not pay their money for titles known to be defective. Besides, the want of notice is a negative fact, not susceptible of affirmative proof; and it would be unreasonable to exact this of a party after he has shown himself to be a purchaser for value in the course of trade. 2 Parsons on Notes & Bills 280. Raphael v. the Bank of England, 84 E. C. L. R. 160. Dows v. Green. 16 Barb. 72. Hart v. Potter, 4 Duer 458, cited in 1 Parsons 188 note n. and Ross v. Bedell, 5 Duer 462, cited ib. We conclude then that the Court below did not err in refusing to charge according to the 3d prayer for instructions.

It only remains to consider briefly the last exception. It is taken to the phraseology in which, when the jury returned to the bar, the court re-stated that part of the charge which referred to the onus of proof as to T. D. Quincy & Co’s, knowledge of fraud on the part of M. Hunt & Co. We find nothing in the re-statement differing in substance from the original instruction, and nothing in its language calling for observation except the use of the phrase “ guilty knowledge,” which it is insisted was calculated to mislead the jury as implying that the indorsees would be affected only by such knowledge as arises from privity with fraud in M. Hunt & Co. On this point the original instruction was explicit, that any knowledge of an antecedent defect of title would defeat an indorsee, though such for value paid. There was nothing said suggestive even of the idea that only participation in the fraud of their vendor would defeat the claim of these indorsees. How, what fell from the court upon the return of the jury for further instruction was intended only as a re-statement of the charge on that point; and so it must have been understood; for the Court, expressing anxiety to guard against possible misapprehension, read again to the jury that part of the charge referred to. The phrase “ guilty knowledge” was manifestly used as an antithesis to "the terms “ innocent purchaser” just before employed. It would, we think, have, been so understood even had not the charge on the point referred to been read in connection; but any erroneous impression which the phrase standing alone might have made must have been corrected by the charge as read. We should presume in favor of the common sense of the jury.

The judgment of the court is that all the exceptions be overruled and that the judgment of the Court below be affirmed.