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U.S. Supreme Court

Vermilye & Co. v. Adams Express Company, 88 U.S. 21 Wall. 138 138 (1874)

Vermilye & Co. v. Adams Express Company

88 U.S. (21 Wall.) 138




1. The bonds and Treasury notes of the United States payable to holder or bearer at a definite future time are negotiable commercial paper, and their transferability is subject to the commercial law of other paper of that character.

2. Where such paper is overdue, a purchaser takes subject to the rights of

Page 88 U. S. 139

antecedent holders to the same extent as in other paper bought after its maturity.

3. No usage or custom among bankers and brokers dealing in such paper can be proved in contravention of this rule of law. They cannot in their own interest by violations of the law change it.

4. It is their duty when served with notice of the loss of such paper by the rightful owner after maturity to make memoranda or lists, or adopt some other reasonable mode of reference, where the notice identifies the paper, to enable them to recall the service of notice.

5. Hence, Treasury notes of the United States stolen from an express company and sold for value after due in the regular course of business may be recovered of the purchaser by the express company, which had succeeded to the right of the original owner.

Vermilye & Co., bankers of New York, having presented to the Treasury of the United States for payment some time after their maturity eight Treasury notes issued under the authority of the Act of March 5, 1865, were informed that the Adams Express Company asserted an ownership of the notes, and that they could not be paid until the question of the rightful ownership was settled.

The matter resulted in a bill of interpleader, filed by the United States in the Circuit Court for the Southern District of New York, against both the express company and Vermilye & Co., to which they filed their respective answers, the notes being deposited with the clerk of the court of abide the event of the suit.

The notes in controversy, to-wit, five of $1,000 each, and three of $100 each, came to the possession of the express company to be forwarded for conversion into bonds of the United States, and were started on their way from Louisville in custody of their messenger on the 22d of May, 1868. Shortly after leaving Louisville, the car on which were the messenger and the notes, was stopped and entered by robbers, who, after knocking the messenger down and leaving him for dead, carried off the safe containing these notes, which was found the next day broken open and without the notes in it. The express company, as soon as it could obtain

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the numbers and other description of the stolen notes, advertised extensively the loss in the newspapers, gave notice at the Treasury Department, and entered there a caveat against their payment or conversion into bonds to anyone else, and gave notice to the principal bankers and brokers of the City of New York of the loss and their claim on the notes. On the 29th of May and the 5th of June, respectively, the express company delivered notices to persons behind the counter of Vermilye & Co., at their place of business, which notice sufficiently described the lost notes, cautioned all persons from receiving or negotiating them, and asserted the claim of the express company to the notes. The company paid the owner of the notes, who had delivered them to the company for transportation, and appeared to have done all that could be done to assert their rights in the premises.

On the 9th and 12th days of April, 1869, Vermilye & Co. purchased these notes over their counter at fair prices in the regular course of business and forwarded them to the Treasury Department for redemption, where they were met by the caveat of the express company.

As already stated, these notes were issued under the Act of March 3, 1865. [Footnote 1] That statute authorized the Secretary of the Treasury to borrow on the credit of the United States any sums of money not exceeding six hundred millions of dollars, for which he should issue bonds or Treasury notes in such form as he might prescribe. It also authorized him to make the notes convertible into bonds and payable or redeemable at such periods as he might think best. Under this statute, the notes in controversy were issued, payable to the holder three years after date, and dated July 15, 1865, bearing interest payable semiannually, for which coupons were attached, except for the interest of the last six months. That was to be paid with the principal when the notes were presented. On the back of the note was a statement, thus:

"At maturity, convertible at the option of the holder into

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bonds, redeemable at the pleasure of the government at any time after five years, and payable twenty years from June 15, 1868, with interest at six percent per annum, payable semiannually, in coin."

At the time of the purchase of the notes by Vermilye & Co. more than three years had elapsed from the date of their issue, and the Secretary of the Treasury had given notice that the notes would be paid or converted into bonds at the option of the holder on presentation to the department, and that they had ceased to bear interest.

On the hearing, Vermilye & Co. brought several witnesses, bankers and brokers, to show that notes of the sort here under consideration continued to be bought and sold after they had become due and interest had ceased thereon; that it was not customary for dealers in government securities to keep records or lists of the numbers or description of bonds alleged to have been lost, stolen, or altered, or to refer to such lists before purchasing such securities; that, in their judgment, it would be impracticable to carry on the business of dealing in government securities if it were necessary to resort to such lists and make such examination previous to purchase; and that the purchase of the notes in controversy by Vermilye & Co. was made in the ordinary and usual mode in which such transactions are conducted.

Some testimony was given on the part of the express company to show an endorsement by the owner on certain of the notes, existing when they were stolen -- "Pay to the order of the Secretary of the Treasury for conversion" -- but this endorsement, if then existing, was not now visible on ordinary inspection. And on their face the notes remained payable "to bearer."

The court below held

1st. That there was nothing in the evidence about endorsement which could restrict the negotiability.

2d. That the notes were on their face overdue, and that the ordinary rule applicable to such notes -- viz., that the person taking them took them with all the infirmities belonging to them -- applied, though the notes were securities issued

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by the United States; this point being, as the court considered, settled in Texas v. White [Footnote 2] and Texas v. Hardenberg. [Footnote 3]

3d. That a sufficient title to sue existed in the express company.

Decree being accordingly given for the express company, Vermilye & Co. took this appeal.

Page 88 U. S. 143

MR. JUSTICE MILLER delivered the opinion of the Court.

1. The first thing which presents itself on the facts of this case is to determine the character of the notes as it affects the law of their transferability at the time they were purchased by the appellants, for notwithstanding some testimony about the erasure of an endorsement on some of the notes, we are

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of opinion that it was so skillfully done as not to attract attention with the usual care in examining such notes given by bankers.

They had the ordinary form of negotiable instruments, payable at a definite time, and that time had passed and they were unpaid. This was obvious on the face of the paper. The fact that the holder had an option to convert them into other bonds does not change their character.

That this option was to be exercised by the holder, and not by the United States, is all that saves them from losing their character as negotiable paper, for if they had been absolutely payable in other bonds or in bonds or money at the option of the maker, they would not, according to all the authorities, be promissory notes, and they can lay claim to no other form of negotiable instrument. As it is, they were negotiable promissory notes nine months overdue when purchased by the appellants. They were not legal tenders, made to circulate as money, which must, from the nature of the functions they are to perform, remain free from the liability attaching to ordinary promises to pay after maturity. Nor were they bonds of the class which, having long time to run, payable to holder, have become by the necessities of modern usage negotiable paper, with all the protection that belongs to that class of obligations. These were simply notes, negotiable, it is true, having when issued three years to run, which three years had long expired, and the notes were due and unpaid.

We cannot agree with counsel for the appellants that the simple fact that they were the obligations of the government takes them out of the rule which subjects the purchaser of overdue paper to an inquiry into the circumstances under which it was made as regards the rights of antecedent holders. The government pays its obligations according to their terms with far more punctuality than the average class of businessmen. The very fact that when one of its notes is due, the money can certainly be had for it, if payable in money, should be a warning to the purchaser of such an obligation after its maturity to look to the source from which

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it comes, and to be cautious in paying his money for it. In the case of Texas v. White, [Footnote 4] the bonds of the government issued to the State of Texas were dated July 1, 1851, and were redeemable after the 31st day of December, 1864. This Court held that after that date, they were to be considered as overdue paper in regard to their negotiability, observing that in strictness, it is true, they were not payable on the day when they became redeemable, but the known usage of the United States to pay all bonds as soon as the right of payment accrues, except when a distinction between redeemability and payability is made by law and shown on the face of the bonds, requires the application of the rule respecting overdue obligations to bonds of the United States which have become redeemable, and in respect to which no such distinction is made.

Mr. Justice Grier was the only member of the Court who dissented from the proposition, and he based it on the ground that the government had exercised its option of continuing to pay interest instead of redeeming the bonds.

We have not quoted the language from the opinion in that case with any view of affirming it. It may admit of grave doubt whether such bonds, redeemable but not payable at a certain day except at the option of the government, do become overdue in the sense of being dishonored if not paid or redeemed on that day.

But the notes in the case before us have no such feature. They are absolutely payable at a certain time, and we think the case is authority for holding that such an obligation overdue ceases to be negotiable in the sense which frees the transaction from all inquiry into the rights of antecedent holders. This ground is sufficient of itself to justify the decree in favor of the express company.

2. When these notes were offered to the appellants for sale, they carried upon their face the fact that the period for their payment or conversion into bonds had come nine months before; that for that time they had ceased to bear

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interest; and this would very naturally suggest the inquiry which the law of negotiable paper implies, as to the reason why they had not been paid or converted into bonds.

Bankers, brokers, and others cannot, as was attempted in this case, establish by proof a usage or custom in dealing in such paper which, in their own interest, contravenes the established commercial law. If they have been in the habit of disregarding that law, this does not relieve them from the consequences nor establish a different law. Nor sitting here as chancellors can we say that the testimony offered of the impossibility of men in that business bearing in mind the notices of loss or theft of bonds or notes well described, with which they have been served, satisfies us of the soundness of the proposition. By the well settled law of the case, they may purchase such paper before due without cumbering their minds or their offices with the memoranda of such notices. But we apprehend that the amount of overdue paper presented for negotiation is not so large as that bankers receiving notice of loss cannot make or keep a book or other form of reference which will enable them with a very little trouble to ascertain when overdue paper is presented whether they have been served with notice of a claim adverse to the party presenting it.

The fact that the notes were at once recognized at the Treasury by reason of the notices served there proves that no unreasonable amount of care and prudence was necessary to enable bankers and brokers to do the same.

There are other rights in cases of overdue paper besides the right to purchase it, which require that care should be exercised, especially by parties who have fair notice of these rights.

Bankers and brokers cannot, more than others, when warned of possible or probable danger in their business, shut their eyes and plead a want of knowledge which is willful. In this matter also, the appellants were in fault.

We attach no importance to the denial of the title of the express company. Either as bailees or as equitable owners of

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the notes for which they had paid the parties who entrusted them to their custody, they are entitled to recover them, and the decree of the circuit court to that effect is


[Footnote 1]

13 Stat. at Large 468.

[Footnote 2]

74 U. S. 7 Wall. 735.

[Footnote 3]

77 U. S. 10 Wall. 90.

[Footnote 4]

74 U. S. 7 Wall. 700.

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