Story Case

Because of the stress in finance brought on by the Great European War, the ten banks of Springfield decided to settle their own financial balances by issuing certificates among themselves and to those customers who were willing to take these, in lieu of cash money. These certificates were as follows:

"$100. January 1,1915.

The Springfield...........Bank agrees to pay bearer one hundred dollars. (Signed)

Springfield......Bank."

By custom established among the banks, these were passed by mere delivery. Henry Counselman became the owner of some of this scrip. It was later stolen from him and sold by the thief to the Springfield Third Bank; this bank maintained that it had title to the property as against Counselman, on the ground that these instruments were negotiable by custom among the bankers. If these are not negotiable and are merely common law personal property, the Springfield Third Bank could not take title and right of possession from the thief, and is liable for converting the property of Counselman to its own use.

Ruling Court Case. Goodwin Vs. Bobarts, Volume 10 Exchequer Beports, Page 337

Rothschild and Sons of London were employed by the Russian government to borrow money in England. In raising the money, scrip was issued which acknowledged receipt of installments paid, and promised a Russian government bond when the full amount had been paid. Goodwin engaged Clayton, a stockholder, to purchase scrip for a bond. He allowed the scrip to remain in the hands of Clayton, who unlawfully pledged it with Robarts, who thought that Clayton was owner of it. Clayton became bankrupt and absconded. Robarts sold the scrip for the market price. Goodwin then sues to recover the amount realized on the sale, on the ground that Robarts had sold his personal property.

By way of defense, it was insisted that the scrip was negotiable, because it had been and continued to be the usage of bankers, money dealers, and stock exchanges to buy and sell such scrip, and to advance loans of money upon the security of it before the bonds were issued, and to pass the scrip upon such dealings by mere delivery as a negotiable instrument, transferable by delivery. By counsel for Goodwin it was contended that negotiability could not be given the instrument or scrip, because it did not correspond with any of the forms of the securities for money which had heretofore been held to be negotiable by the law of merchants. It was contended that this scrip was personal property and the title of the rightful owner could not be defeated.

Decision: When an instrument, by the usages and customs among merchants, bankers, and business men, has been transferred by delivery, and this custom among them is well known, such an instrument passes by delivery to a bona fide holder. In answer to this argument for Goodwin, that such an instrument had never before been negotiable, Mr. Chief Justice Coburn said: "Having given the fullest consideration to this argument, we are of opinion that it cannot prevail. It is founded upon the view that the Law Merchant, thus referred to, is fixed and stereotyped, and incapable of being expanded and enlarged so as to meet the wants and requirements of trade in varying circumstances of commerce. It is true that the Law Merchant is sometimes spoken of as a fixed body of law, forming part of the Common Law, and as if it were coevil with it. But as a matter of legal history, this view is altogether incorrect. The Law Merchant, thus spoken of with reference to bills of exchange and other negotiable securities, though forming part of the general body of the Law Merchant, is of comparatively recent origin. It is neither more nor less than the usages of merchants and traders in the different departments of trade, ratified by the decisions of courts of law, which, when such usage was proved to them, have adopted them as settled law with a view to the interests of trade and public convenience. The court proceeded, herein, on the well-known principle of law that, with reference to transactions in the different departments of trade, courts of law, in giving effect to the contracts and dealings of the parties, will assume that the latter have dealt with one another on the footing of any custom or usage prevailing generally in that department." Judgment was given for Robarts.

Ruling Law. Story Case Answer

The Law Merchant, or Commercial Law regarding negotiable papers, is a system of law separate and distinct from the Common Law in origin and in substance. It originated, as the name indicates, among traders and merchants. The rules of the Common Law were inadequate and inconvenient for business purposes among the merchants, and consequently they gradually drifted away from the Common Law rules, and dealt with each other on the basis of rules which were unknown to the Common Law. These commercial customs or rules were enforced among the merchants by special courts which sat at certain trading points at certain times of the year. When business relations became more general in England, cases involving commercial customs eventually came before the Common Law courts. Recognition of these customs met with most hostile opposition at first; at length, under the guidance of Lord Mansfield, the Law Merchant was firmly established, as a system of law. Enforced no longer by special courts, but by the Common Law courts themselves, the Law Merchant became a very important branch of English and at the same time of American Law.

Certificates of deposit are now generally recognized as negotiable. The custom of the banks, in the Story Case, would be recognized by the courts and the scrip would be considered as negotiable. Therefore, the Springfield Third Bank received a clear title to the scrip, since it is a purchaser, innocent of the thief's conduct, and thereby acted in good faith.