Cavaroc. On the 1st of April, 1871, we deliv-| latter to the former, and the latter drew up- bonds." On the 4th of December, 1871, Schuchardt & "NEW YORK, Dec. 4th, 1871. "Dear Sir: In reply to your inquiry about He considers that the bonds were held by his firm for any balances that the New Orleans National Banking Association might owe, and says that Schuchardt & Sons held them up to time they were pledged to the bank as security for "whatever Cavaroc & Son might be induced to make these advances (although, as we debted for," but that they had no written au- explained at the time, we could make a much thority to hold the bonds collaterally for the more lucrative use of the money by using it [359] bank's indebtedness, that he knew of, other than here) on the assurance of Mr. Cavaroc that you the letter of Cavaroc, Senior, of February 15, would only temporarily require such facilities, 1873, hereinafter set forth. He testifies, how- and that your business would increase to such ever, that there was "a general understanding an extent that the future would largely comto that effect arrived at with (in) conversations pensate us for any present sacrifices. To our with C. Cavaroc, Jr., at different times when regret, however, such has not been the case, he was in New York; among others, in August and your business, instead of increasing, has or September, 1873," although in another por- greatly diminished. However, in order to tion of his evidence he says: "I think they evince our desire of doing all in our power to were alluded to in 1873, during his visit to New contribute to the development of our corresYork, in the fall of 1873. I feel quite confi-pondence, we hereby authorize you to draw dent they were alluded to in 1873," which is upon us in advance of remittances to the extent "as positive" as he "can be upon the subject." of $100,000 (one hundred thousand dollars), Any such understanding is specifically denied with the understanding that such drafts are to by Cavaroc, Jr., who asserts that he represent exchange bought and paid for. resume also that when the loan of the Trust Co., which falls due on the 21st inst., will be paid the securities will be replaced in our pos "Never made any agreement, verbal or otherwise, in reference to the bonds, with Mr. Wells or anyone else, and never made with Mr. Wells, or any one living, any agreement or arrangement about the bonds or any other bonds to be held as general security in matters with the New Orleans National Banking Association, or even C. Cavaroc & Son; never had any conversation with Mr. Wells about the bonds in any manner whatever, outside of a remark, as above stated, in the summer of 1873, to know if our trust was all right in their vault, which any merchant would pass upon in conversation to be certain that no accident happened to the trust or deposit for safe keeping." The New Orleans National Banking Association dealt largely in foreign bills of exchange, which is negotiated through Schuchardt & Sons. By the course of business the amount of the foreign bills it remitted from time to time to Schuchardt & Sons was credited by the session." We February 6, 1873, the cashier of the bank "NEW ORLEANS, Feb'y 6, 1873. H. T. BLACHE, Cashier. To which Schuchardt & Sons replied: "NEW YORK, Feb'y 11, 1873. "The credit of $100,000 (one hundred thou- [361] their withdrawal we, of course, supposed the delivery of the drafts, and it was for the puragreement canceled. F. SCHUCHARDT & SONS." Whereupon the cashier answered: "NEW ORLEANS, February 15th, 1873. "Messrs. SCHUCHARDT & SONS, New York: "Your letter of December 4th, 1871, authorized us to draw, in advance of remittance, to the extent of $100,000 (one hundred thousand dollars), represented by purchases of exchange, advised by telegraph. There was no mention of a deposit of city bonds to guarantee such overdraft, and we have been acting ever since under the impression that the credit was still in force. We now note that it is canceled, and beg leave to refer you to the private letter of the president on the subject. H. T. BLACHE, Cashier." And on the same day, the president, Cavaroc, wrote Schuchardt & Sons a letter which he gives thus: "NEW ORLEANS, February 15th, 1873. "Mess. SCHUCHARDT & SONS, New York: "In your letter of the 11th instant you say: "The credit of $100,000 (one hundred thousand [362] dollars), à découvert, was predicated upon the deposit of New Orleans City bonds, and on their withdrawal we, of course, supposed the agreement canceled.' You know that exchange at New Orleans is purchased by making advances until such time as the drafts are delivered, and it was with view of making our mutual transactions more active that we asked this credit, à découvert,' at the time. In view of your remark I have nothing to say, except to authorize you to consider a portion of the bonds belonging to my firm, which you have in your possession, as collateral security in case you should not be covered (en cas de découvert.) [363 C. CAVAROC, Pres't." On behalf of Fry the following was introduced as the original: "NEW ORLEANS, the 15 Fevrier, 1873. "Messieurs F. SCHUCHARDT & SONS, New York: "Messieurs & Amis: Dans votre lettre du 11 ct. vous dites: The credit of $100 M à découvert was predicated upon the deposit of New Orleans City bonds, and on their withdrawal we, of course, supposed the agreement canceled. "Vous savez que le change à New Orleans est acheté en faisant des avances jusqu'à ce que les traites soient livrées & c'est afin d'activer nos rapports que nous vous avions demandé, à l'époque, ce découvert. "Devant votre observation, il n'y a rien à dire si ce n'est de vous autoriser à considérer comme sécurité collatérale une partie des 'bonds' que vous avez à ma maison, en cas de découvert. "Votre dévoué, C. CAVAROC." And which is translated by Mr Wells as follows: pose of giving activity to our correspondence that we at the time requested this découvert. "In the face of your observation there is nothing to say except to authorize you to consider a part of my firm's bonds which you have uncovered) balance of account. as collateral security in case of (unsecured― "Yours Truly, Schuchardt & Sons replied: C. CAVAROC." In the summer of 1873, Cavaroc, Jr., had two interviews with Wells, in New York, on his way to and from Europe, at which nothing was said about these bonds "outside of a possible remark, to be positive that nothing had happened to our trust in their hands;" but the subject of the amount of exchange Schuchardt & Sons would be willing to negotiate for the firm or the bank was mentioned, an agreement arrived at to limit certain lines of credit, and a memorandum drawn up by Wells, in French, or partly in French and partly in English, as follows: "Not more than £10 | M per week on Hambro. "Not more than fr. 200 | M on first bankers of Paris. "When the bank sends the drafts of the bank on third parties (Havre, Bordeaux, Marseilles, [364] etc., etc.) it must put in the hands of Messrs. C. C. & Son, in trust a deposit of securities, there to remain until the acceptance or the payment, if we deem proper to await the payment. "Seignouret's line, fr. 500 | M (for bank and C. C. & Son)." This must have been, Wells says, the latter part of August or the early part of September, 1873; and this is confirmed by the evidence of Cavaroc, Jr., that he arrived in New Orleans the first part of September." Mr. Wells thinks he received a letter from Mr. Cavaroc dated on or about September 15, and that he answered under date of September 19, 1873, and Cavaroc produces a letter, as follows: "NEW YORK, Sept. 19, 1873. 'My Dear Mr. CAVAROC: "I have sufficiently explained to you, on your "NEW ORLEANS, 15 February, 1873. last visit here, that we should prefer receiving "Messrs. F. SCHUCHARDT & SONS, New York: from the bank only such paper as it should "Dear Sirs: In your letter of 11th inst. you have purchased, and, after mature considerasay 'the credit of $100 | Md découvert was pred-tion and consultation with Mr. Schuchardt, who icated upon the deposit of New Orleans City bonds, and on their withdrawal we, of course, supposed the agreement canceled.' "You are aware that exchange is purchased at New Orleans by making advances until the has returned some days since, we have determined to request the bank to limit its exchange business with us to the forwarding of such drafts made by third parties as it shall deem proper to purchase; and we beg you so to in [365] form the bank We hope that the bank | "Resolved, That all precautionary measures shall give great activity to its operations on the 66 Believe me, my dear sir and friend, yours An extract from the minute book of the "NEW ORLEANS NAT. BANKING ASS'N, NEW ORLEANS, Sept. 20th, 1873. Resolved, That with a view of securing the president against any eventual loss of the 232 7 per cent City of New Orleans bonds belonging to the firm of C. Cavaroc & Son, and actually pledged to F. Schuchardt & Sons, agents of the bank at New York, as collateral security for the payment of all foreign exchange bills sent them for negotiation and by them indorsed, that he be, and is hereby, authorized to select as guarantee from the portfolio of the bank such papers as he may think proper, to the extent of ($100,000) one hundred thousand dollars. "On motion, it is further "Resolved, That the board hereby tender their thanks for the aid he is individually lending by leaving undisturbed a large cash balance ($80,000), eighty thousand dollars, standing to the credit of C. Cavaroc & Son on the books of the bank. "And the board adjourned.” October 4, 1873, the bank and Cavaroc & Son The president stated that the object of the failed. N. W. Casey was appointed receiver meeting was to inform the board of the un- of the bank, and François Laborde and Edward pleasant state of affairs in general, and particu-H. Reynes assignees of Cavaroc & Son. Schu- [366 larly of the panic then prevailing in New York. chardt & Sons were adjudicated_bankrupts The suspension of Jay Cooke & Co., which February 19, 1876, and Charles M. Fry was ap was already announced, and which no doubt pointed their trustee in bankruptcy. would be followed by many others, would surely tend to increase the present uneasiness and render our money market still more stringent. He would therefore, ask the board to suggest or adopt such measures as in their judgment they would think expedient to avert the impending crisis; whereupon it was unanimously— DR. 1873. Oct'r 1. To balance. The balance due from the New Orleans bank to Schuchardt & Sons on October 4, 1873, the date of the failure, adding $3.20 interest, from October 1, was $4,125.12, which was increased, by charging back protested drafts of acceptances and some minor items, to $197,501.35, as per the following account; N. W. Casey, Receiver New Orleans Nat'l Banking As80C. $4,121 82 3 20 353 58 2.06 f'cs 150,000 f'cs 165,000-487% 33,846 15 12,500 00 1 31 f'cs 250,000 25.000 f'cs 275,000-487 56,410 28 protested drafts on A. Dutfoy & Co., at Paris......... f'cs 200,000 29 Nov'r, 73 10 per cent damages..... 155,000 10 Dec., f'cs 440,000-4871⁄2.. 90,256 41 $197,501 35 [367] From this debt, certain amounts collected "The drafts on Dutfoy, Seignouret and Hon being deducted, a balance of $180,624.58 was orat were foreign exchange bills known as left, making, with $14,691.05 due on gold ac- 'clean'-that is unaccompanied by documents count, a total indebtedness from the bank to-drawn by the New Orleans Banking Associa Schuchardt & Sons of $195,315.63, for which a certificate was issued by the receiver April 8, 1879. Schuchardt's cashier testified: tion on those parties. The one on the National Park Bank was drawn by the New Orleans National Banking Association to settle a collection made. The bills of exchange that figure up on the gold account were mainly cotton ship- The debit balance of the bank on the gold account, October 1, 1873, was $68,231.17, afterwards reduced to $14,691.05. It appears from the evidence of Casey that Schuchardt & Sons, or Fry their assignee, claimed about $38,000 in the Union Bank of London belonging to the New Orleans bank, and other funds in the hands of Dutfoy Co. of Paris, amounting to forty thousand francs, and that at the time of the failure of the bank "certain assets belonging to the bank were in the hands of parties claiming to hold them as collateral security for the indorsement of certain bills of exchange which had been negotiated through Schuchardt & Sons, said bills being drawn by the bank upon Seignouret Frères of Bordeaux, France. Suit was brought for the recovery of these assets, which resulted in my favor, as will appear by the decision of the Supreme Court of the United States in the case of Casey v. Schuchardt, 96 U. S. (6 Otto) 494 [24:790]." In that case, Mr. Justice Bradley, delivering the opinion of the court, said: Monrose replied: "NEW YORK, Oct. 9, 1873. According to your written authority we "NEW ORLEANS, Oct. 11, 1873. "In response we refer you to the letter of our senior partner, C. Cavaroc, February 15th last, which you yourselves invoke as the authority on which you base your rights (according to your written authority.') "Our authority is contained in the following terms: 66 6 You know that exchange at New Orleans is purchased by making advances until such time as the drafts are delivered, and it was with a view of making our mutual transactions more active that we asked this credit à découvert at the time. "Schuchardt & Sons were bankers, in New York, through whom the New Orleans National Banking Association was in the habit of drawing on foreign houses, and who indorsed and disposed of the drafts, or transmitted them for collection, and made advances thereon. They were thus in the habit of indorsing and advancing on bills drawn In your letter of the 11th inst. you say: by the bank on Seignouret Frères, of Bor-"The credit of $100,000 à découvert was predeaux. In August and September they be dicated upon the deposit of New Orleans City came uneasy, and required security; and it was bonds, and on their withdrawal we, of course, [368] agreed between them and the bank that they supposed the agreement canceled." would receive and indorse drafts on Seignouret Frères, and accept the drafts of the bank on themselves to a certain limited amount, upon being secured by a pledge of commercial securities, to be deposited in the hands of Charles Cavaroc & Son. In pursuance of this arrangement, on the 17th of September the bank transmitted to Schuchardt & Sons its drafts on Seignouret Frères to the amount of 250,000 francs, at the same time, drew on Schuchardt & Sons against said drafts for the sum of $50,000. On the same day, or the day following, securities of the bank to the amount of $60,000 were selected by the note clerk, by direction of Charles Cavaroc, president of the bank, put into an envelope indorsed with the name of Schuchardt & Sons, and handed to Cavaroc, who handed them to the cashier; and thereafter they were treated in precisely the same manner as the securities which were selected for the Crédit Mobilier and the Park Bank, as shown in the cases which have just been decided." October 9, 1873, Cavaroc & Son telegraphed "NEW ORLEANS, Oct. 9, 1873. "C. CAVAROC & SON." "In view of your remark, I have nothing to say except to authorize you to consider a portion of the bonds belonging to my firm, which you have in your possession, as collateral security in case you should not be cov ered.' "You see that according to the authority which you invoke you have no right to cover yourself by means of these bonds, except those uncovered sums for which you might not have received the paper against which they were drawn at the moment of the demand for the restitution of the bonds. "According to the books of the bank, which "These bonds are, then, at this moment re- C. CAVAROC & SON." [369] [370] with translations, were furnished by counsel "Crédit à découvert: Avances faites par ac- 、་ Larousse, Grand Dictionnaire Universel. So Littré, Dictionnaire de la Langue Fran çaise: "À découvert. Terme de commerce: Être à So in the Dictionnaire de l'Académie: So, too, Bescherelle, Dictionnaire Nationale: Commerce. Être à découvert: N'avoir aucun gage de sa créance. (Commerce; to be 'à découvert:' to have no security or pledge for one's claim.)" Mr. Wells gives this as from the French dictionary of A. Spiers, 19th ed., Bamard, Bandry & Co., 12 Rue Bonaparte, Paris, 1866: by the bank. This is the signification of the The balance of account claimed by Schuc- The circuit court held that the bonds were pledged to secure Schuchardt & Sons for any overdrafts of the bank which might from time to time arise, to the extent of $100,000, and that Schuchart & Sons were entitled to hold the bonds subject to the pledge to the bank, as security for the indebtedness of Cavaroc & Son, by virtue of a banker's lien, 13 Fed. Rep. 423; and, further, that Cavaroc & Son had pledged the bonds to secure the whole indebtedness of the bank to Schuchardt & Sons, with a limitapledged them to secure a limited part of the tion on the extent of the liability, and had not indebtedness, and that therefore the dividends were not to be applied ratably, but the bonds could only receive the benefit of any receipts from dividends after the indebtedness had been "Découvert, n. m. 1 (com.) (of accounts), un-paid down to $100,000, 14 Fed. Rep. 293. covered balance." Cavaroc, Senior, testifies: "There is a usage and meaning. The words [371] 'à découvert' we use more frequently in French than 'credit.' If I write in French to ask an open credit to a banker I will merely ask him: Let me draw on you à découvert for one or two hundred thousand dollars.' If I say to the banker, I will cover you with exchange to that amount,' as soon as I cover to that amount it is finished. I don't owe a cent to that amount, à découvert is closed, and I have a right to go on again. It is a revolving credit. For instance, with Schuchardt, suppose I draw to-day $100,000 on Schuchardt and it was à découvert, and the next morning or day after I sent to Schuchardt $100,000 of exchange bought from different houses here, my à découvert is finished -it is closed. As soon as I have remitted exchange for the $100,000 draft of the day preceding the à découvert is closed. Schuchardt is covered then. On the same day or next morning I have a right to draw $100,000 and cover again. As soon as I have remitted $100,000 exchange I have a right to draw again. Therefore, when the bank remitted exchange to cover what the bank had drawn under that credit, d découvert, the guarantee made by me, C. Cavaroc, ceased, and the right to hold these bonds ceased under that guarantee." "I desire to say, in explanation of the 'à découvert' spoken of in my testimony, that it had no relation to guarantee and to payment of the exchange remitted by the bank, nor of the solvency of the drawers or indorsers or acceptors, but merely embraced remittance of exchange 910 The original bill was ordered dismissed by the court sua sponte on the ground of want of jurisdiction in equity, Dumont v. Fry, 12 Fed. Rep. 21, but retained upon amendment. No objection on this ground appears to have been raised by the defendants until upon hearing here. As to allowance of interest, see 18 Fed. Rep. 578. Mr. Jno. E. Parsons, for Reynes, assignee: The bonds were not subject to a banker's lien. The lien does not exist where an agreement, express or implied, or the conduct of the parties, is inconsistent with its assertion. Cent. Nat. Bank v. Conn. Mut. L. Ins. Co. 104 U. S. 54, 71 (26:693, 700); Duncan v. Brennan, 83 N. Y. 487; Neponset Bank v. Leland, 5 Met. 259: Story, Agency, § 381; Vanderzee v. Willis, 3 Bro. Ch. 21; Brandao v. Barnett, 3 Man. G. & S. 519; Grant v. Taylor, 3 Jones & S. 338, affirmed in 52 N. Y. 627; Wyckoff v Anthony, 9 Daly, 417; Zelle v. German Sav. Inst. 4 Mo. App. 401. The pledge became discharged. Action by a party secured which increases the hazard of the surety, discharges the security. Chitty, Cont. 461. Messrs. James C. Carter and John M. A banker has a lien upon all funds and se- 130 U. S. [372] |