John Phelps & Co. v. Farmers' & Merchants' Bank ( 1884 )

Concurring Opinion,

McGloin, J,

The facts of this case are fully stated by my learned colleague, and while I agree with him in the legal propositions he has announced, there are others which have had an influence upon my mind, and which I deem it proper to state briefly.

The Section 2484, Revised Statutes of Louisiana, makes bills of lading “ negotiable by endorsement in blank, or special endorsement in the same manner and to the same extent as bills of exchange and promissory notes.” Even conceding that the inscriptions set up in this case constitute an endorsement, as the same is known in law, it does not follow, from this provision, that the defendant is liable as contended for by plaintiff. The commercial law, or mercantile usage, which makes paper of a particular kind negotiable¡ and those which do more than simply conclude the question of title, as by excluding equities, such as the one in question, or making an endorser a guarantor of previous signatures, or those requiring protest, notice, etc., are not one and the same thing. It, therefore, does not result, that, because for certain purposes, the legislature has extended the first mentioned of these rules, to cover bills of lading, that the others all accompany it. These laws are all exceptional, and are not to be extended by implication.

Furthermore, if the law holding an endorser as guarantor of previous signatures, is applicable in this case, equally so are all the rules of the commercial law governing bills of exchange and promissory notes. Hence, as strictly commercial paper must receive timely presentation and due protest in event of non-acceptance or payment, With immediate notice of protest to the endorser; all in order to hold such endorser; it follows, that to fix the liability of an endorser upon a bill of lading, there should be due demand with protest and notice, in case of non-delivery of the property covered. In this instance, the bill of lading was repudiated by the railroad company, and there was neither protest nor notice of protest, and none is alleged. Hence, plaintifls evidently could have no remaining cause of action upon the endorsement as such.

When a party who has endorsed papers is released from his obligation, for failure to protest or notify, the release is complete. The effect is the same as though the signature had been stricken from the paper. Now, the guarantee of the genuineness of a bill forms a portion of the obligation of the endorser, as such; and when his contract is discharged by the laches of the holder of the bill, or otherwise, it perishes as to him in toto, and liability of every character is gone. It is difficult to comprehend upon what principle the responsibility of an endorsee should, in one respect, survive the discharge, while in all others it expires. The law, holding endorsers to a broad liability, compensates them for its exactions by throwing around their interests the most jealous safeguards. The fate of the bill must be determined without delay; and if it go wrong, due protest must be entered, and immediate notioe be given to the endorser. The object of these requirements is to afford the latter early knowledge of the dishonor, in order that he may protect himself, if possible. Whether the note or bill be rejected for lack of funds, or for fraud or forgery in its execution, protest is essential; and early notice is as necessary to the endorser in one case as in the other. It would be poor comfort to him who had been carelessly suffered to remain in ignorance, while the forger escaped ip person and property, to say that he was released only as an actual party to the bill, but still held as guarantor of the verity of the forged paper.

The plaintiffs have evidently foreseen these difficulties and endeavored to elude them; for the petition is most carefully framed, and charges the defendant, not strictly as an endorser, but for the reimbursement of money paid in error. The allegations are that McCuiston was without general power to draw the draft in this case, having been paid solely upon the credit of the bill of lading, which was covered by defendant’s guarantee; and said .bill of lading, being a forgery, was paid in error, and that the amount so paid should be refunded by defendant, by reason of said guarantee. The positions plaintiffs thus attempt to assume are incongruous. If defendant is responsible as guarantor, its liability is to make good the bill of lading; and when plaintiffs seek to enforce such liability, the process has for its practical purpose the validating of that contract, and the upholding of the draft and of the payment made thereunder. The demand, however, for the reimbursement of the sum paid upon the draft, (and henee, constituting, as it were, the price by plaintiff given for the bill of lading) is an impeachment of the draft and its payment, and a repudiation pf the bill of lading. This difficulty arises from the attempt to hold defendant, in any manner, upon the draft itself. If the agreement evidenced by this particular paper is to be annulled, directly or indirectly, there is a matter presented that does not concern the defendant, but McCuiston. The drawing of the draft was a proposition or request, from the drawee to plaintiffs, for the payment of a certain sum for account of the latter. The payment by Phelps & Co., was their acceptance of this proposal, made upon the representation of McCuiston that, he had shipped cotton to cover, and completed the contract. If this agreement was null for fraud, forgery or misrepresentation, on the part of McCuiston, the demand for nullity and reclamation' should not be directed against the payee, but against the dishonest drawer, with whom alone complainant had contracted. As to the holder of the paper, payment, which is the most emphatic of acceptances, admitted the genuineness of the bill, and operated as an estoppel.

It' is evident, therefore, that plaintifls’ only recourse against defendant, if any existed, was upon the bill of lading, either to hold it (defendant) upon the endorsement, if any such there were; or, perchance, for damages.

Not having sued upon the said contract of shipment, Phelps & Co. should not recover; for, upon the draft in any shape, there is no cause of action against the- Farmers’ and Merchants’ Bank

Another difficulty presents itself in plaintiffs’ path. If they can set up against defendant the guarantee of the bill of lading, there is opposed to this the guarantee and consequent estoppel, chargeable upon Phelps & Co., resulting from the payment of the-draft, and covering the right of McCuiston to draw. The Bank was not held to know that the drawee honored the draft solely upon the credit of the shipment of cotton, and plaintiffs did not so inform them at the time of payment. In fact the shipper, in delivering the bill of lading, by writing thereon, required the Farmers’ and Merchants’ Bank to notify plaintiffs; and, as said McCuiston would have to have had some representative in this City to handle the cotton for him, had it been really shipped, the said Bank had a right to consider Phelps & Co. as simply such agent of McCuiston, and it was not bound to know or ascertain the rights of that firm or the nature of the contract it had made with its principal. The annexing of the bill of lading was demanded by the Farmers’ and Merchants’ Bank to secure itself upon its own advance; but it was not compelled to suppose that Mc-Cuiston was without funds or other credit in the hands of the drawee. Under such circumstances the estoppel or guarantee against plaintiffs may well be considered the stronger; or, if they be of equal strength, then “ in pari passu, potior est conditio possedSnlis (vel defendentis)."

Finally, an examination of what is set up as an endorsement of the bill of lading, is no endorsement at all. The forged document purports to evidence a shipment of cotton to “ order Farmers’ and Merchants’ Bank, notify John Phelps & Go., New Orleans.” The consignee, thus constituted, placed upon the reverse of the paper the following inscription: “ Pay to the State Nat’l Bank N. 0., or order, for collection, on acc’t of Farmers’ and Merchants’ Bank, Paris, Texas, C. W. Hertz, Cashier.” This was not an absolute endorsement of the document, but a mere power of attorney to the State National Bank, or such as it might put in its place for that purpose, to collect or realize upon the bill. It was not intended to, and did notin fact, transfer title to the last named Bank or its order; and the latter, though in possession, had no standing as endorsee. Neither did it authorize the said Bank to place the name of its principal, by endorsement, upon the paper, or to transfer the title to any one, as endorsee. It authorized the agent to claim the cotton, at the port of destination, for account of its principal, or to surrender the bill of lading to the shipper, his agent or assignee, upon the discharge of the claim secured by the shipment. Let us suppose the collateral to have been a mortgage note, instead of the document in question in this case, which mortgage note was endorsed either in blank,or to the pledgee, at the time of the loan or advance. Let us suppose, further, that at the maturity of the principal obligation, the creditor sends it, with the accompanying collateral, to another city for collection, inscribing the said mortgage note to an agent in the same manner as has been done with the bill of lading in this case. The debtor, his agent or assign, in satisfying the principal debt, would be entitled to the collateral; but, would it be contended that the representative of the creditor, in making the surrender, could bind his principal as an endorsee upon the paper delivered up ? Certainly not.

The State National Bank, however, in this instance, made no attempt to so bind its principal, the Farmers’ and Merchants’ Bank, when the draft was paid; it simply stamped draft and bill of lading, as follows: “ State National Bank, New Orleans. Paid.” This inscription was not in fact or intendment an endorsement, and the transaction was no more than & delivery of said forged paper to the party named therein, as one to be notified by the holder; such delivery being made when the claims of the holder were satisfied by the person thus indicated by the pretended shipper.

Surely there is no lack of reasons for reversing the judgment appealed from, and for rejecting plaintiffs’ demand.