Source: https://supreme.justia.com/cases/federal/us/79/181/
Timestamp: 2019-04-23 04:19:09+00:00

Document:
A consignor who had been in the habit of drawing bills of exchange on his consignee with bills of lading attached to the drafts drawn (it being part of the agreement between the parties that such bills should always attend the drafts) drew bills on him with forged bills of lading attached to the drafts, and had the drafts with the forged bills of lading so attached discounted in the ordinary course of business by a bank ignorant of the fraud. The consignee, not knowing of the forgery of the bills of lading, paid the drafts. Held that there was no recourse by the consignee against the bank.
Chapin & Miles, a forwarding and commission firm in Milwaukee, were engaged in moving produce to Hoffman & Co., of Philadelphia, for sale there. The course of their business was thus: They first shipped the produce, obtaining a bill of lading therefor, to which they attached a draft drawn by them on their consignee for about the value of the grain and then negotiated the draft with bill of lading attached to some bank in Milwaukee and obtained the money.
It was understood that the draft was drawn upon the credit of the property called for by the bill of lading, and would be paid by the consignee upon receipt of the bill of lading, and -- with perhaps a single exception where the bills of lading, not being obtained during bank hours, was sent otherwise than with the draft -- the drafts were accompanied by such bills. The Philadelphia firm, however, rarely knew what flour belonged to any particular bill of lading, not being obliged by the railroad clerks at Philadelphia, where they were known, to exhibit any bill of lading in order to get the flour, and their custom being, on getting notice from the railroad office that flour had arrived for them, to pay the charges, give receipts and send their drayman for it and bring it away. It was the practice of the Milwaukee firm to advise their Philadelphia correspondents by letter of shipments made and drafts drawn, which advisements were acknowledged with a promise "to honor the drafts." When flour was "slow" in going forward, they corresponded with the Milwaukee house about it, but did not on that account refuse acceptance or payment of any bill.
Having been thus dealing for about sixteen months, Chapin & Miles drew three drafts on Hoffman & Co. in the ordinary way, and, attaching to them bills of lading which they had forged, negotiated, in the ordinary course of business, the drafts, with the forged bills of lading attached, to the City Bank of Milwaukee, getting the money for them. The bank knew nothing of the forgery of the bills of lading. The ordinary correspondence between the two houses took place. That in regard to one draft will exhibit its character.
"MESSRS. HOFFMAN & CO., PHILADELPHIA."
"DEAR SIRS: We ship to you today 200 bbls. 'Prairie Flour,' and draw at s't for $1,100, which please honor. Will draw for $5 only when we can, but must crowd $5 l/2 part of the time."
"GENTLEMEN: Yours 26th ult. here. Your draft $1,100, will be paid, but we think you should try to keep them down to $5 per barrel. We advise sale of 100 Prairie at $7 and 54 at $7.25."
No flour was forwarded. The Milwaukee bank forwarded the drafts, however, with the forged bills of lading attached, to their correspondent, the Park Bank in New York, for collection. The Park Bank forwarded the same to its correspondent, the Commonwealth Bank of Philadelphia, for the same purpose, and the latter bank presented the draft and bill of lading to the drawees, Hoffman & Co., who, knowing the drafts to be genuine and not supposing that the bills of lading were otherwise, paid the drafts to the Philadelphia bank, which remitted the money back to the Park Bank to the credit of the Bank of Milwaukee.
No flour coming forward, Hoffman & Co. discovered that the bills of lading were forged, and Miles & Chapin being insolvent, they sued the Bank of Milwaukee to recover the amount paid, as above stated.
"that the action was brought to recover $3,100, money paid by the plaintiff under mistake of fact upon drafts and bills of lading (of which copies were annexed), the mistake being that the plaintiffs paid the money upon the belief that the said bills of lading were genuine instruments, whereas in fact they were forged, the amount of money paid being the amount called for by the drafts, which was paid upon the credit and inducement of the bills of lading."
lead any dealings or correspondence of any kind with the Philadelphia house, relative to the shipments of flour by Chapin & Miles, or relative to the drafts drawn by them.
On this case, the court below directed the jury to find for the hank, defendant in the case, and the plaintiff's brought the case here.
liable to the holder, under such circumstances, until it appears that the bill was duly presented, and that the acceptor refused or neglected to pay the same according to the tenor of the instrument, as their liability is contingent and subject to those conditions precedent.
and that they demanded of the defendants, at the same time, the respective amounts so paid by them to the Commonwealth Bank. Payment as demanded being refused, the plaintiff brought an action of assumpsit against the defendants for money had and received, claiming to recover back the several amounts so paid as money paid by mistake, but the verdict and judgment were for the defendants, and the plaintiffs sued out a writ of error, and removed the cause into this Court. Testimony was also introduced by the defendants tending to show that the shippers were millers; that they made an arrangement with the plaintiffs to ship flour to them at Philadelphia for sale in that market, the plaintiffs agreeing that they, the shippers, might draw on them for advances on the flour, to be reimbursed out of the proceeds of the sales; that for more than a year, they had been in the habit of shipping flour to the plaintiffs under that arrangement and of negotiating drafts on the plaintiffs to the banks in that city, accompanied by bills of lading in form like those given in evidence in this case; that the drafts, with the bills of lading attached, were sent forward by the banks, where the same were discounted, and that the salve were paid by the plaintiffs; that the drawers of the drafts in every case notified the plaintiffs of the same, and that the plaintiffs, as in this case, answered the letter of advice and promised to pay the amount. They also proved that the drawers of the drafts in this case informed their cashier that the same would always be drawn upon property, and that the bills of lading would accompany the drafts, and that they bad no knowledge or intimation that the bills of lading were not genuine. Instructions were requested by the plaintiff's, that if the jury found that the respective bills of lading were not genuine, that they were entitled to recover the several amounts paid to the Commonwealth Bank, with interest; but the court refused to give the instruction as prayed, and instructed the jury that if they found the facts as shown by the defendants, the plaintiffs could not recover in the case, even though they should find that the several bills of lading were a forgery.
Such an instrument, as between the payee and the acceptor, imports a sufficient consideration, and in a suit by the former against the latter the defense of prior equities, as between the acceptor and the drawer, is not open unless it be shown that the payee, at the time he became the holder of the instrument, had knowledge of those facts and circumstances.
even suggested that any act of the defendants, except the endorsement of the bills of exchange in the usual course of their business, operated to the prejudice of the plaintiff's or prevented them from making an earlier discovery of the true character of the transaction. On the contrary, it distinctly appears that the drawers of the bills of exchange were the regular correspondents of the plaintiffs, and that they became the acceptors of the bills of exchange at the request of the drawers of the same and upon their representations that the flour mentioned in the bills of lading had been shipped to their firm for sale under the arrangement before described.
Beyond doubt, the bills of lading gave some credit to the bills of exchange beyond what was created by the pecuniary standing of the parties to the same, but it is clear that they are not a part of those instruments, nor are they referred to either in the body of the bills or in the acceptance, and they cannot be regarded in any more favorable light for the plaintiff's than as collateral security accompanying the bills of exchange.
was privy to the fraud. Evidence was introduced in that case showing that the payee knew what the terms of the arrangement between the drawer and the payee were, but the court held that mere knowledge of that fact was not sufficient to constitute a defense, as the payee was not a party to the arrangement and was not in any respect a surety for the good faith and fair dealing of the shipper.
Forgery of the bills of lading would be a good defense to an action on the bills if the defendants in this case had been the drawers, but they were payees and holders for value in the regular course of business, and the case last referred to, which was decided in the Exchequer Chamber, shows that such an acceptance binds the acceptor conclusively as between them and every bona fide holder for value.
Certain other defenses, such as that the payments were voluntarily made, and that the title to the bills at the time the payments were made was in the National Park Bank, were also set up by the defendants, but the court does not find it necessary to examine those matters, as they are of the opinion that the payments, if made to the payees of the bills, as contended by the plaintiffs, were made in pursuance of a legal obligation and that the money cannot be recovered back.
Fitch v. Jones, 5 Ellis & Blackburn 238; Arbouin v. Anderson, 1 Adolphus & Ellis N.S. 498; Smith v. Braine, 16 id. N.S. 244; Hall v. Featherstone, 3 Hurlstone & Norman 287.
Leather v. Simpson, Law Reports, 11 Equity 398.
Robinson v. Reynolds, 2 Q.B. 202; Same v. Same, in error, ib., 210; Byles on Bills (5th Am. Ed.) 124; Thiedemann v. Goldschmidt, 1 De Gex, Fisher & Jones, Ch.App. 10.
Hunter v. Wilson, 4 Exchequer 489; Boyd v. McCann, 10 Md. 118; Howell v. Crane, 12 La.Ann. 126; Watson v. Flanagan, 14 Tex. 354.
Craig v. Sibbett, 15 Pa. 240.
<|15 Pet. 393|>United States v. Bank of Metropolis, 15 Pet. 393.
Thiedemann v. Goldschmidt, 1 De Gex, Fisher & Jones, Ch.App. 10; Robinson v. Reynolds, 2 Q.B. 211.
Goddard v. Merchants' Bank, 4 Comstock 149; Bank of Commerce v. Union Bank, 3 id. 234; <|10 Wheat. 348|>Bank of the United States v. Bank of Georgia, 10 Wheat. 348; Price v. Neal, 3 Burrow 1355.
Parsons on Bills 179; Munroe v. Bordier, 8 C.B. 862.

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