Atlantic Ins. Co. v. Conard

charging jury. The single question to be decided is, had the plaintiffs such a property in the goods in question on the 19th of November, 1825, when • Edward Thomson made a general assignment of all his effects for the benefit of his creditors, as protected the goods on which the execution, at the suit of the United States, was levied, against the preference of the United States which accrued on that day? If they had, they will be entitled to your verdict; otherwise, not. The plaintiffs’ title to this property commences with the respondentia bonds on the cargoes of the Addison and Superior, which have been laid before the court and jury. The claim of the plaintiffs, resting entirely upon the validity of those bonds, and the papers connected with them; their validity has been denied by the defendant’s counsel on the following grounds:

1. Because they were given for money lent by the plaintiffs after the ships had sailed; of course the money was not lent for the purpose of enabling the borrower to make the voyage, nor was the money lent ever at risk, not having been put on board in specie, nor a cargo which it contributed to procure. It is insisted, that this security, when given for a loan after the vessel has sailed, and the risk has begun, is inconsistent with the nature, character, and design of this species of security. Let it be admitted, for the sake of the argument, that, strictly and correctly speaking, a loan upon the security of a cargo already at sea, is not a loan upon responden-tia; and that the design of those securities in their origin, was to enable the borrower to engage in the contemplated enterprise. It may further be admitted, that loans like the present are unlike the pecunia trajectitia of the Romans; from whom it is quite likely this species of security was derived. But how does it follow from these concessions that the security is invalid as a marine contract, in cases where the vessel has sailed before the loan is made? There is no case, nor is there even the dictum of any respectable jurist, to my knowledge, which pronounces it to be so. Marshall, in his second volume on Insurance, page 747, states it to be a question upon which Valin and Emeri-gon had differed, whether money may be lent on a ship or goods already exposed to the perils of the sea; and this learned writer expresses his own opinion to coincide with that of Valin, who holds the affirmative of the proposition. And even Emerigon does not allude to this subject in reference to any *163general principle of maritime law; but speaks of the lien created by a respondentia bond, under those circumstances, according to certain articles of the ordinances of France. 1 Emerig. 136, 137, 157. Marshall, (volume 2, p. 738,) states what are the essential requisites of this species of marine contract, be its form what it may. It must contain, he observes, 1. The names of the lender and borrower. 2. The names of the ship and master. 3. The sum lent, and the marine interest. 4. The voyage proposed, and duration of the risk. And lastly, the subject on which the loan is made, whether goods or both.

If it could be made out that the contract is usurious or gambling, where the sailing of the vessel precedes the loan, there might then be weight in the objection; but there is no case, nor is there any writer, who has attempted to maintain this proposition. “It is,” says Marshall, (volume 2, p. 742,) “of the essence of this contract, that the money lent, or something equivalent to it, be exposed to the perils of the sea, at the risk of the lender.” “If the borrower have no effects on board, or he borrow much beyond their value, and agree to pay high marine interest, this affords a strong ground to suspect fraud, and that the voyage will have an unfavorable end.” The true test of its being a gambling contract is, there being no goods on board to the value of the loan, and at the risk of the lender; as fully appears by the French ordinances, and by the English statute of 19 Geo. II. c. 37, to prevent gambling marine contracts. 2. Marsh. 743. These quotations are sufficient to show what is, and what is not a gambling marine contract. Is the loan usurious, if it be made subsequent to the sailing of the vessel? “The marine interest,” says Marshall, (2 Marsh. 749,) “however high it may seem, cannot be deemed usurious if the money lent be bona fide at risk.” “If indeed the form of a bot-tomry or respondentia loan to be used as a cloak to an usurious contract; that, no doubt, would be usurious and void.” The same principle governs contracts made on land, and without reference to maritime enterprises; as is abundantly shown by the cases of Roberts v. Trenayne, Cro. Jac. 507, and Chesterfield v. Janssen, 1 Atk. 301. If then this contract stands clear of the objection of fraud, gambling, or usury, upon what other ground can it be avoided? Is it contrary to good policy? This has not been shown in argument, nor is it maintained by any elementary writer. If the lender need not see to the application of the money lent, which it is admitted by all he is not bound to do; what difference can there be in sound reason between a loan made after the departure of the vessel and one made before; when, in the latter case, the borrower is at liberty to dispose of the money borrowed in payment of his debts, or in any other way he may think proper, without having employed one cent of it in the purchase of the cargo, on which the loan is made? The truth is, that in many instances, a loan made after the risk has commenced, and on the anticipated capacity which it will give to the borrower to pay for the cargo at risk, and purchased on credit,, may be as beneficial to commerce, as if, in the strictest sense of the Roman law, it were pecunia trajectitia; as if the identical money lent, or goods purchased with it, had been put on board, and at the risk of the lender.

2. This contract is asserted to be invalid, because it is not founded on a real transaction; not on the precise voyage and cargo mentioned in it. The voyage described is at and from Philadelphia to Canton, and back to Philadelphia; and she is “to proceed and sail on said voyage;” which expressions plainly describe as well a voyage in progress as one which had not then commenced. There is no expression in the instrument which represents the vessel to be then in port, or that the voyage was to commence on or after the 21st of June. The voyage described then, and the real voyage were the same. As to the cargo, the loan is made on the goods laden, or to be laden, or which at any time during the voyage might be laden. It is in vain to contend that these expressions do not accurately describe the property mentioned in the outward bill of lading, as well as the proceeds of it in the homeward bill of lading.

3. The charge of usury is reiterated against this contract, because the marine interest, it is said, is allowed upon the loan from the sailing of the vessel, and consequently for about two months before any real risk was assumed by the lenders. The cargo was known to be safe at the time of the departure of the vessel. It is true, the property was not at the risk of the lenders until this contract was entered into. But the effect of it was to place it in that predicament, by an express stipulation, whilst the vessel was at Philadelphia, and from the instant of her departure. What influence her known safety at these periods had in diminishing the marine interest can only be conjectured; but it is certainly no objection to the contract, upon the ground of usury, that the property was known to be in safety at any particular period of the assumed risk by the lender. The real question for the decision of the jury is, whether, under all the circumstances of the case, the loan was bottomed upon a fair marine contract, the repayment of which was to depend upon the perils which the lender assumed to bear; or whether the contract was merely a device to cover an usurious loan? If the risk be inconsiderable, and for a small part only of the voyage, and the interest be high, these circumstances may justify a presumption of unfair or illegal conduct, sufficient to avoid the contract. But the mere circumstance of the known safety of the cargo at any particular period of the *164voyage, or of the assumed risk, is not, per se, an objection to the contract on the ground of usury.

If Edward Thomson was to pay interest from a period antecedent to the loan, and this was the sum covered by the respon-dentia, there can be no question but that the contract was usurious; and it would be so, although the legal rate of interest only be reserved. How the fact is in relation to this point I know not, but leave it for the decision of the jury upon the evidence which has been laid before them. Some papers and parol evidence -upon this part of the case were laid before the jury, from which they will draw their own conclusions. I allude to the papers annexed to Mr. Grade’s affidavit. Another reason assigned by the defendant’s counsel why this loan was not at the risk of the lender during the whole voyage is, that the words “lost or not lost” not being inserted in the bond, if the vessel had been actually lost at the time this contract was entered into, the loss would not have been at the risk of the plaintiffs. The answer given to this position by the plaintiffs’ counsel is conclusive. The words in the bond “if in the said voyage there be loss” are precisely equivalent to the expressions “lost or not lost” in ordinary policies of insurance. If this contract has been relieved from the objections which have been urged against its validity, the next inquiry is, what title to the property in question did it confer upon the plaintiffs?

There is no doubt that it gave a lien on the homeward cargo, being the produce of that on which the loan was made, but it conferred no other right. The loan is stipulated by the bond to be made upon the goods to the amount of the loan, laden, or to be laden on board the vessel, or which may be laden on board at any time during the voyage, on account of Edward Thomson. These latter expressions, which were not inserted in the bond in the case of U. S. v. Delaware Ins. Co., decided by this court, October, 1823, [Case No. 14,942,] operate to the extent mentioned. And if this case turned solely upon the right of the plaintiffs to a lien, it would present the question whether such a right could be opposed to the right of preference vested by law in the United States, which would seem to be decided by the case of Thelusson v. Smith, [2 Wheat. (15 U. S.) 396.] Our inquiries, therefore, must be extended to the memorandum and outward bill of lading, and the indorsement thereon; to see whether they apply to, and include the homeward cargo, and if they do, what influence they have on the plaintiffs’ rights. There is no doubt but that those instruments, together with the respondentia bond, are to be construed and treated as if they all constituted one instrument. Considering' them then in this light, the question is, whether they cover that part of the homeward cargo which was the investment of the outward cargo on which the loan was secured. The difficulty in solving the question arises from the expressions in the memorandum, “being the proceeds of the said loan.” Now, the argument is, that since the loan was made after the departure of the vessel, the return cargo was not, and could not possibly be the proceeds of that loan; and consequently the memorandum could vest in the plaintiffs no right of any kind to the homeward cargo.

I must acknowledge that I was at first much struck by this objection. But it loses much, if not the whole of its weight, when those words'in the memorandum are construed in connection with other parts of the same instrument, as well as with the other instruments of which it is only a part. Our object should be to discover from those papers what was the intention of the parties, and when this is accomplished, we must give effect to it. If there be an incongruity in one part of an instrument, it may be explained by others, so as to enable the court to give a consistent construction of the whole. Now, it appears by the condition of the bond that the loan was made on the 21st of June, after the Addison had sailed, and that it was made on the goods and specie laden, or to be laden, then or at any time during the voyage. The outward bill of lading, referred to in the memorandum, which was agreed to be indorsed to the plaintiffs as a collateral security for the loan, bears date the 21st of April, two months prior to the loan, and the assignment indorsed on that paper is of the bill itself, and of the specie, goods, &c. to be procured thereon or thereby, and any return cargo to be obtained by the outward cargo and specie mentioned therein, or the proceeds thereof; and all the return cargo to be taken on board the said ship, by or for the account of Edward Thomson, as collateral security, according to an agreement duly executed and adjoined to a respondentia bond, given, &e. Now there is no ambiguity in this assignment, which most clearly refers to a homeward cargo, -the proceeds, not, as in the memorandum, of the loan, but of the outward cargo mentioned in the bill of lading. Since then, the homeward cargo might be the proceeds of the outward cargo, and could not possibly be so of the loan, those expressions in the memorandum ought to be construed to mean “the proceeds of the outward cargo on which the loan was made,” in order to give effect to the obvious intention of the parties, and ut res magis valeat quam pereat. This difficulty being removed, the next question is, what was the nature and effect of the contract between the plaintiffs and Thomson, upon the above instruments taken together? The obvious answer is, that the bond, as has been before stated, created a lien on the homeward cargo and no more. But the memorandum and assignment on the bill of lading amount to an agreement. 1. That *165the outward and homeward cargoes should he a collateral security for the loan. 2. That the outward bill of lading should be assigned to the plaintiffs for that purpose. And lastly, that the homeward bills of lading should be to order, with blank indorse-ments, and should be delivered to the plaintiffs as a security for the loan. The legal operation of this agreement was unquestionably to vest in the plaintiffs, an equitable title to the property in question, being the proceeds of the outward cargo. Edward Thomson, for whose account, and at whose risk the homeward cargo was to be shipped, and who had the sole management and possession of the property, was, for this j)ur-pose, a trustee for the plaintiffs; and nothing remained to be done, in order to vest in the plaintiffs the legal right to this property, but the delivery of the homeward bills of lading to order with a blank indorsement thereon. This delivery took place upon the return of those vessels, which perfected the plaintiffs’ title to the property But it is contended that there was no consideration given for this security, the debt for which it was given being merely contingent. But surely $21,000, which were paid to Edward Thomson, must be considered as a very substantial consideration; and although the repayment was to depend upon a contingency, no sufficient reason has been assigned, why a valid security may not be legally taken for a contingent debt.

AVkat then were the relative rights of the plaintiffs and of the United States, on the 19th of November, 1825, when the right of preference accrued to the latter by the insolvency of Edward Thomson? The answer is, that the former had an equitable title to the homeward cargo, and a right, by their agreement with Thomson, to call upon him for the legal interest, by delivering to them the bills of lading of that cargo. If this delivery had actually been made before the above period, as happened in the case of U. S. v. Delaware Ins. Co., [Case No. 14,942,] no question, as I apprehend, could exist, as to the superior title of the plaintiffs over the right of preference of the United States, upon the principles decided in the case of Thelusson v. Smith, 2 Wheat. [15 U. S.] 396. But do not the principles of that case apply as well to one where the equitable title has been parted with by the insolvent, as where the legal title has been? The right of property, was, by the agreement, divested out of Thomson, and vested in the plaintiffs, so as to leave the former a bare trustee to deliver over the evidences of the legal title to the latter. The great principle laid down in the case above referred to is, that the privilege of the United States to be first paid their debt is confined to a satisfaction out of the property of the insolvent. But surely it cannot be said that a trustee has any property in the subject matter of his trust. Equity considers the cestui que trust as the exclusive owner of the property. In this, as well as in some other respects, this case differs from that of U. S. v. Delaware Ins. Co., [supra.] In that, the legal title was in the lender before the insolvency of the debtor of the United States. In this, the equitable title only had been parted with. In that, the actual possession of the master was constructively the possession of the lender upon respondentia; in this, the possession was in Edward Thomson, but there it was the possession of a trustee, and a sale of the property by him to a third person without notice would have prevailed against the title of the plaintiffs. But in this, the delivery of the homeward bills of lading to the plaintiffs in pursuance of the agreement, no matter by whom, perfected their legal title. No creditor whatever, intervening before the agreement was specifically executed, can prevail against the plaintiffs.

It was asked by the defendant’s counsel, how it was possible that an absolute right of property could co-exist in two persons? To which I feel no hesitation in answering, that it cannot, if the right of both be of the same nature. But an absolute legal right of property may exist in one person, and an absolute equitable right in another, at the same time; and the possession need be only in the trustee or legal owner. Again, it has been insisted, that where the property is in one person the possession being permitted to remain with another, is a fraud as well in respect to creditors as to purchasers. I admit the rule, that an absolute transfer of a chattel is fraudulent against creditors, unless possession accompanies and follows the deed. The reason is, that the separation of the possession from the title is incompatible with such a transfer. But if the sale or transfer is on a condition, or on trust as a security for a debt, or for any purpose which does not entitle the vendee to the immediate possession; the possession of the vendor until the said condition is performed, or the objects of the trust are fulfilled, is consistent with the transfer or deed, and is therefore no badge of fraud. This is precisely the present case.

It has been asked by the defendant’s counsel, whether the plaintiffs could have insisted upon the possession of these goods at Canton, or at any other time or place previous to the insolvency of Edward Thomson? I answer that they certainly could not, because, by their agreement with Edward Thomson, he was to have the cargo brought to Philadelphia, and was there to deliver to the plaintiffs the muniments of title. But after the arrival of the cargo, the plaintiffs were at liberty to take possession of the property, or to recover it by suit, subject only to the claim of the United States for the duties on the same.

*166Much has been said at the bar, as to the real design and intention of the parties to this contract; as to which I would observe, that their intention can best be discovered from their agreement, all of which is in writing; and from their acts. That a loan was made; that it was at the risk of the lenders, on a real cargo to its value on board, and on a real voyage, and was intended to be secured by an outward and homeward bill of lading, the latter to be to order, and to be delivered with a blank in-dorsement to the plaintiffs, is perfectly manifest. Why it was agreed to be to order, and to be indorsed in blank, we know not. But this is clear, that the delivery of the homeward bill of lading to the plaintiffs, was equivalent to a direct consignment to the plaintiffs.

The last subject to be noticed is the loan on the cargo of the Superior. The only differences between this loan, and that on the cargo of the Addison, are, 1. That in this, the sum secured by the respondentia bond, and accompanying papers, was for a preexisting debt, and not for money actually lent at the time. And 2. That in this case, the homeward bills of lading ..were filled up to Peter Mackie and Barclay Arny. As to the first difference, it is immaterial; if the principles already laid down in relation to the security on the cargo of the Addison be correct. If the lender is not bound to see to the application of the money lent, and if a valid security may be given on the cargo in a case where the loan is made after the departure of the vessel, it cannot be material whether the security be given for money actually lent and advanced at the time, or for a debt previously due; provided the essential requisites to constitute a valid re-spondentia contract, which have already been noticed, exist in both cases. As to the second matter of difference, there can be no doubt but that the filling up the bills of lading in the manner these are, was a violation of the agreement between the plaintiffs and Thomson, which was precisely the same with that which was made in relation to the cargoes of the Addison. But can this affect the right of the plaintiffs? If Edward Thomson, or his agent at Canton, thought proper to depart from the terms of his agreement with the plaintiffs as to the form of the homeward bills of lading, this cannot prevent the.latter from opposing their equitable title to this property to the preference claimed by the United States. Mackie and Arny had no real title to those goods, and claimed none. They received the bills of lading as trustees for the plaintiffs; and as such, they assigned them to the plaintiffs.

As to the question whether the return cargoes of these vessels are the proceeds of the outer cargoes, you must decide upon the evidence which has been given to you. As to the charge of fraud, which it is insisted by the defendant’s counsel taints this transaction throughout, I leave that for your decision, after an impartial and attentive consideration of the whole of the evidence. All that my duty requires of me is to state those legal principles which should accompany your inquiries upon that subject. These are, 1. That actual fraud must be proved, and ought never to be presumed. And 2. That no fraud which may have been practiced or attempted, by Edward Thomson, his captains or agents, can affect the validity of these contracts: unless it has been proved that the plaintiffs, in some way or other, have participated in it.

The jury found a verdict for the plaintiffs.

During the trial of this cause, the following points arose, and were ruled upon objections taken to evidence.

1. An objection was made by the plaintiffs’ counsel to the admissibility of a letter from one of' Edward Thomson’s general assignees to the captain of the Addison, directing him to make his manifest to conform to th'e bill of lading.

WASHINGTON, Circuit Justice. This objection is made by the counsel, as they allege, for the sake of the principle involved in it, rather than on account of any importance which they attach to the particular paper offered in evidence. This cause turns upon a question of property, which the plaintiffs affirm and must maintain to be in them.

(After stating the plaintiffs’ title as beforeset forth in the charge, the judge proceeded as follows:) The United States claim no right of lien to the goods in question, but claim as creditors of Edward Thomson, and as preferred creditors. They assert that the title to these goods was in Edward Thomson at the time their execution was levied on them. The question upon these facts then is, can the United States, or could Edward Thomson or his assignees, if they were now the defendants, set up his or their orders, or his or their acts, or those of their agents, fraudulent or otherwise; the plaintiffs not having participated in them, to defeat, or in any manner to affect the prior title of the plaintiffs, assumed for the present to have been fairly acquired. We feel no hesitation in giving a negative to this question. The evidence offered, is not to explain the original contract as in the case of Hibbert v. Carter, [1 Term R. 745.] Nor is it offered to taint that contract with fraud. It is not offered even to affect the homeward bills of lading and invoice, for they are in strict conformity with the contracts, except in the part as to the consignment of the cargo of the Superior. It merely respects the alteration of the manifest, so as to make it correspond with the bill of lading and invoice. But if the evidence were *167applicable to the bills of lading, it would be improper to admit it to aifeet the plaintiffs’ title, unless their participation were first proved. The evidence is rejected.

*1672. An objection was made by the defendant’s counsel to the reading of the responden-tia bond, until the plaintiffs should prove themselves to be a corporate body, by giving in evidence the act of their incorporation.

WASHINGTON, Circuit Justice. The written agreement of the real parties to this cause to try a particular questio,n, viz. the right of property in these goods on the 19th of November 1S25, and the acceptance by the district attorney of the plaintiffs’ bond, executed under their corporate seal, to restore the property in case of a decision of that point against them, amount to an acknowledgement of the corporate capacity of the plaintiffs. and to a waiver of the usual evidence to prove that fact. Overruled.

3. To the following question by the defendant’s counsel to Hidelius, the captain of the Addison, and now under examination, “did Mackie and Nicoll make out a new manifest, altering the destination of the Addison, and direct you to enter by it as the true manifest?” an objection was made and sustained by the court, upon the principle before laid down upon the first objection.

4. Similar objections were made to the following questions, asked by the defendant’s counsel of the same witness, viz. “did you see Mackie pay money to the pilot for being the first to board the Addison?” “Whether part of a letter from Mackie to the witness was drafted by C. J. Ingersoll, signed by Edward Thomson, and countersigned by his assignees.” The objections to these questions were sustained by the court.

5. The following questions put to Arny, another of the witnesses, by the defendant’s counsel, were also objected to. “Do you know how the moneys lent by the plaintiffs on the cargoes of the Addison and Superior were applied by Edward Thomson?” “What did Edward Thomson do with the general homeward bill of lading by the Addison?” “Was the transaction with the plaintiffs in respect to the Scattergood (another vessel of Edward Thomson’s, on the cargo of which security by respondentia had been given for other loans to him) negotiated in the same manner as that of the Addison?” The objections were all sustained upon the principles before laid down.

6. A question asked of Jones, another witness, by the plaintiffs’ counsel, “whether Edward H. Nicoll, (one of the obligors in these bonds, and one of the directors in the Atlantic Insurance Company) ever took any part in the affairs of the company as a director?” was objected to, and the objection overruled.

7. The court refused to let the defendant’s counsel give in evidence the correspondence between Edward H. Nicoll and Edward Thomson, respecting these bonds; as the plaintiffs ought not to be affected by it.