Source: https://supreme.justia.com/cases/federal/us/63/96/
Timestamp: 2019-04-19 04:31:33+00:00

Document:
A commercial house sent to a correspondent eight bills of exchange, four purporting to be the first and the other four the second of exchange, and the whole eight accepted on their face by that commercial house, and each of the four made payable to the order of their correspondent, but in blank as to the names of the drawers, and the address of the drawers, and as to date and amount and time and place of payment.
The correspondent filled up and had discounted the four which were the first of exchange, which were not involved in the present suit.
Two of the four of the second of exchange were filled up, varying from the others, not only in dates and amounts, but also as to time and place of payment.
These bills were discounted by a bank without any knowledge whatever that either had been perfected and filled up by the prayee without authority, or of the circumstances under which they had been entrusted to his care, unless the words "second of exchange, first unpaid" can be held to have that import.
The effect of these words was a question of law, and not of fact for the jury.
The bills described above were not parts of sets of bills of exchange. They were perfected, filled up, and negotiated, by the correspondent of the defendants, to whom the blank acceptances had been entrusted as single bills of exchange, and for the acts of their correspondent, in that behalf, the defendants are responsible to a bona fide holder for value without notice that the acts were performed without authority.
The case falls within the rule that where one of two innocent parties must suffer through the fraud or negligence of a third party, the loss shall fall upon him who gave the credit.
This was an action brought by the bank upon two bills of exchange, one dated on the 18th of August, 1857, at Pittsburgh, drawn by L. O. Reynolds & Son upon J. S. & R. E. Neal, at Madison, Indiana, requesting them to pay, four months after date of this second of exchange, first unpaid, to the order of L. O. Reynolds, at the Ohio Life Insurance and Trust Company, at Cincinnati, in the State of Ohio, two thousand one hundred and sixty-eight dollars. Reynolds endorsed this bill to L. Wilmarth & Co., who endorsed it to the bank. The bill was accepted by J. S. & R. E. Neal.
The other bill sued upon was similar in all its circumstances except that it was dated on the 1st of August, 1857, payable four months after the date of this second of exchange, first unpaid, for thirteen hundred and fifty dollars. It was endorsed and accepted like the other.
In order to present a distinct view of the transactions which led to this suit and the nature of the defense, it seems necessary to state particularly all the bills mentioned in the proceedings, designating each bill by a letter, which is the reporter's mark, and used for easy reference.
"_____ after _____ of this first of exchange, second unpaid, pay to the order of L. O. Reynolds _____ dollars, value received, without any relief from valuation or appraisement laws."
"Accepted: J. S. & R. E. NEAL."
"_____ after _____ of this second of exchange, first unpaid, pay to the order of L. O. Reynolds _____ dollars, value received, without any relief from valuation or appraisement laws."
With these bills, instructions were sent to Reynolds to have them filled up for sums not less than $1,500, nor more than $3,000 each, to have them discounted at Pittsburgh, and remit the proceeds to J. S. & R. E. Neal, at Madison, Indiana.
request, and intended for his use, as accommodation acceptances of the Neals.
These bills we will call E, F, G, H.
A was filled up by Reynolds as follows: Date, July 1; amount, $1,965; time, four months; drawers, L. O. Reynolds & Son; drawees, J. S. & R. E. Neal. Thus filled up, it was negotiated by Reynolds to the Mechanics' Bank of Pittsburgh. Reynolds failed to remit the proceeds according to instructions. When the paper matured, the defendants, as acceptors, paid it.
B was filled up as follows: Date, July 10; time, four months; amount, $2,035; drawers, L. O. Reynolds & Son; drawees, J. S. & R. E. Neal. Thus filled up, it was negotiated by Reynolds to the Merchants and Manufacturers' Bank of Pittsburgh. The proceeds of this bill were remitted by Reynolds to the defendants. Before the commencement of this suit, the Merchants and Manufacturers' Bank, as holder and owner of the bill, recovered judgment on it against the acceptor in the Jefferson Circuit Court of the State of Indiana. C and D were for the present retained by Reynolds in his own possession.
E, being similar to A, was filled up as follows: Date, July 30; time, four months; amount, $2,450; drawers, L. O. Reynolds & Son; drawees, J. S. & R. E. Neal. Thus filled up, it was negotiated by Reynolds to the Merchants and Manufacturers' Bank of Pittsburgh, Reynolds retaining the proceeds. The holders of this bill brought suit against the defendants, as acceptors, in the Jefferson Circuit Court, Indiana, which action was still pending when the pleas in this case were filed.
F, being similar to B, was filled up by Reynolds as follows: Date, July 24; time, four months; amount, $2,750; drawers, L. O. Reynolds & Son; drawees, J. S. & R. E. Neal. Thus filled up, it was negotiated by Reynolds to the Citizens' Bank of Pittsburgh, Reynolds retaining the proceeds. John Black & Co. became the holders, and after its maturity, and before the commencement of this suit, they recovered judgment against the acceptors of the bill for its full amount in the Jefferson Circuit Court of Indiana.
Thus, the bills A, B, E, F, being the first of exchange, second unpaid, are accounted for. What became of G and H, the record did not show. Let us now account for C and D.
C was filled up as follows: Date, August 1st; time, four months; amount, $1,350; drawers and drawees, as above.
D was filled up as follows: Date, August 18; time, four months; amount, $2,168; same drawers and drawees. These bills were both negotiated to the Bank of Pittsburgh, and were the ones sued on in this case. It will be observed that they were both second of exchange, first unpaid, and that the sums of money did not correspond in amount with any of those for which the first of exchange had been filled up, nor in date, time, or place of payment.
There were four counts in the declaration, and eight pleas, which were all demurred to except the plea of the general issue. It is not necessary to state these pleadings, because they were only intended to raise the questions of law which arise from the statement of facts given above. The court overruled the plaintiffs' demurrers, so that judgment went for the defendant; and upon this ruling upon the demurrers, the case was brought up by the plaintiff to this Court.
the corresponding form the words, "second of exchange, first unpaid," but in all other respects they were alike. All of the first class were perfected by the correspondent as bills of exchange of the first part, and were sold and negotiated by him at certain other banks in the City of Pittsburgh. He perfected them by procuring L. O. Reynolds & Son to become the drawers, addressed them to the defendants, endorsed them himself in blank, and procured another individual or firm to become the second endorser. They were filled up by him for sums varying from about two thousand to three thousand dollars, with dates corresponding to the times when they were negotiated, and were respectively made payable in four months from date. Contrary to his instructions, he retained the proceeds of the one first negotiated, which he had been directed to remit, and he also retained in his possession, but without inquiry or complaint on the part of the defendants, the other four acceptances, constituting the second class. On the first day of August, 1857, he perfected and filled up as a separate bill of exchange one of the last-named acceptances, and sold and negotiated it to the plaintiff for his own use and benefit. He also perfected and filled up, on the eighteenth day of the same month, another of the same class in the same manner and for the same purpose, and on the same day sold and negotiated it to the plaintiff. Both of these last-mentioned bills of exchange vary from those of the first class not only in dates and amounts, but also as to time and place of payment, and are in all respects single bills of exchange. They were each received and discounted by the plaintiff, without any knowledge whatever that either had been perfected and filled up by the payee without authority, or of the circumstances under which they had been entrusted to his care, unless the words, "second of exchange, first unpaid," can be held to have that import.
entrusts it to the custody of another with blanks not filled up, whether it be for the purpose to accommodate the person to whom it was entrusted or to be used for his own benefit, such negotiable instrument carries on its face an implied authority to fill up the blanks and perfect the instrument, and as between such party and innocent third parties, the person to whom it was so entrusted must be deemed the agent of the party who committed such instrument to his custody -- or, in other words, it is the act of the principal, and he is bound by it. Goodman v. Simonds, 20 How. 361; Violet v. Patton, 5 Cranch 142.
Secondly. Because a bona fide holder of a negotiable instrument, for a valuable consideration, without notice of the facts which impeach its validity between the antecedent parties, if he takes it under an endorsement made before the same becomes due, holds the title unaffected by these facts, and may recover thereon although, as between the antecedent parties, the transaction may be without any legal validity. Swift v. Tyson, 16 Pet. 15; Goodman v. Simonds, 20 How. 363.
Applying these principles, it is obvious that the only question that arises on this branch of the case is as to the effect of the words "second of exchange, first unpaid" which appear on the face of the bills. That question, under the circumstances of this case, is a question of law, and not of fact for the jury. Three decisions of this Court sustain that proposition, and in view of that fact, we think it unnecessary to do more than refer to those decisions, without further comment in its support. Andrews v. Pond, 13 Pet. 5; Fowler v. Brantly, 14 Pet. 318; Goodman v. Simonds, 20 How. 366.
Court, it is by no means necessary that all the parts should be presented for acceptance before a right of action accrues to the holder.
"Unless the drawee has accepted another part of a bill, he may safely pay any part that is presented to him, and that a payment of that part will annul the effect of the others; but if one of the parts has been accepted, the payment of another unaccepted part will not liberate the acceptor from liability to pay the holder of the accepted part, and such acceptor may therefore refuse to pay the bearer of the unaccepted part,"
from which he deduces the rule that a drawee of a bill drawn in sets should only accept one of the set. Chitty on Bills, 10 Am. ed., by Barb. 155.
"The drawee should accept only one part, for if two accepted parts should come into the hands of different holders and the acceptor should pay one, it is possible that he may be obliged to pay the other part also,"
which could not be, unless it was competent for the holder of a second part to negotiate it in the market. Byles on Bills 310.
Where the drawee accepted and endorsed one part to a creditor, as a security, and afterwards accepted and endorsed another part for value to a third person, but subsequently substituted another security for the part first accepted, it was held in Holdsworth v. Hunter, 10 Barn. & Cress. 449, that under these circumstances the holder of the part secondly accepted was entitled to recover on the bill, and Lord Tenterden and Baron Parke held that the acceptor would have been liable on the part secondly accepted, even if the first part had been endorsed and circulated unconditionally.
bona fide holder of anyone of the set, if accepted, may recover the amount from the acceptor, who would not be bound to pay any other of the set which was held by another person, although he might be the first holder. Story on Bills, sec. 226.
No authority is cited for the defendant to impair the force of those already referred to, but it is not necessary to express any decided opinion upon the point at the present time. Suffice it to say that in the absence of any authority to the contrary, we are strongly inclined to think that the correct rule is stated by Mr. Chitty, and that such is the general understanding among mercantile men.
But another answer may be given to the argument for the defendant which is entirely conclusive against it, and that is that the bills described in the first and second counts were not parts of sets of bills of exchange. They were perfected, filled up, and negotiated by the correspondent of the defendants to whom the blank acceptances had been entrusted as single bills of exchange, and for the acts of their correspondent in that behalf the defendants are responsible to a bona fide holder for value, without notice that the acts were performed without authority.
When the transaction is thus viewed, as it must be in contemplation of law, it is clearly brought within the operation of the same rule as it would be if the defendant himself had improvidently accepted two bills for the same debt. In such cases it is held that the acceptor is liable to pay both in the hands of innocent holders for value. Davidson v. Robertson, 3 Dow.P.C. 228.
"Here were two bills for the same account, and supposed to be for the same sums; they who were to pay them had a right to complain that there were two, and yet they were bound to pay both, in the hands of bona fide holders, if accepted by them or by others for them, having authority to accept."
contrary to the admitted fact that they were not so drawn, and for those reasons the theory cannot be sustained.
In view of all the facts as disclosed in the pleadings, we think the case clearly falls within the operation of the rule generally applicable in cases of agency that where one of two innocent parties must suffer through the fraud or negligence of a third party, the loss shall fall upon him who gave the credit. Fitzherbert v. Mathen, 1 Term. 16, per Buller; Androscoggin Bank v. Kimball, 10 Cush. 373; Montague v. Perkins, 22 Eng.L. & Eq. 516.
Businessmen who place their signatures to blanks suitable for negotiable bills of exchange or promissory notes and entrust them to their correspondents to raise money at their discretion ought to understand the operation and effect of this rule, and not to expect that courts of justice will fail in such cases to give it due application.
According to the views of this Court, the demurrers to the several pleas filed to the first and second counts of the declaration should have been sustained. Having come to that conclusion, it is unnecessary to examine the other propositions submitted on behalf of the defendants.
The judgment of the circuit court is therefore reversed, with costs, and the cause remanded, with directions to enter judgment for the plaintiff as upon demurrer on the first and second counts of the declaration.

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