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Browsing: Legal Papers of John Adams, Volume 1

Docno: ADMS-05-01-02-0005-0001-0001

Editorial Note

In June 1765 at Boston, James Warden endorsed two bills of exchange drawn on a New York mercantile house and delivered them to Joseph Alcock of Portsmouth, New Hampshire. In September the bills were presented on Alcock's behalf to the drawee in New York, who refused to accept or pay them. Alcock's New York correspondent immediately procured a “protest,” the affidavit of a notary public to the presentment and refusal. At the April 1766 term of the Inferior Court at Boston Alcock sued Warden in an action of assumpsit on the bills. The court ruled for Warden on a sham demurrer to the defendant's plea of the general issue.1
Alcock appealed to the Superior Court, where, at the August term 1766, the case was tried to a jury, with James Otis and Jeremy Gridley as counsel for Alcock, and Robert Auchmuty arguing for Warden. Adams was not involved, but was present to make what amounts to a report of the { 169 } argument and decision on an interesting point of law which the case raised. Alcock had asked for damages beyond the face amount of the bills. In England, upon protest special damages could be awarded in an action against a drawer or indorser for nonpayment of a “foreign” bill, that is, one drawn on a merchant or banker outside the realm. No such recovery was allowed on an “inland” bill (one drawn on an English house), at least at common law. The damages on a foreign bill were not very clearly defined in the authorities, but they consisted principally of interest and what was called “re-exchange,” the cost to the holder of procuring a new bill for the same amount in the drawee's country.2
In the colonies a practice had developed of allowing the plaintiff on a foreign bill an additional flat percentage of its face value in lieu of re-exchange,3 and this had been the custom in Massachusetts. Although there were no written reports of decisions to rely on, the court in Alcock's case was able to follow its own precedents on this point. Samuel Fitch, whose role in the case is unclear, because he was not counsel of record for either party, pointed out that the local practice had been approved in a case on a New York bill argued in 1755. Samuel Winthrop, Clerk of the Superior Court, Ezekiel Price, a notary public, who had been Clerk pro tem in 1755, and Ezekiel Goldthwait, also a notary and Clerk of the Inferior Court, confirmed the custom.4
Argument followed on the question whether the percentage should be allowed in this case. It was urged by Otis and Gridley that no distinction was made in England between foreign and inland bills as to damages, or that in the alternative a bill drawn on New York should be treated as a foreign bill, the same considerations of distance and difference in practice being present. Auchmuty contended that there was a distinction at common law but does not seem to have argued directly on the question whether New York bills were to be regarded as foreign.
The court decided that 10 percent should be allowed, and the jury brought in a verdict which complied with this ruling.5 According to Adams' note, Justice Benjamin Lynde found that the bills involved were not inland bills. It is not clear whether he was articulating the opinion of the court on this point, or whether the majority held that damages were available regardless of the nature of the bill. This would have been the { 170 } result by statute in England, but it was doubtful that the Acts in question applied in the colonies, and the issue does not seem to have been raised in argument.6
Alcock v. Warden was consistent with later developments in the American law of negotiable instruments. In 1809 the Massachusetts Supreme Judicial Court, in an opinion by Chief Justice Theophilus Parsons, recognized the rule of damages followed here as “a part of the law-merchant of the commonwealth,” and applied it in the case of a protested bill payable in England.7 A similar rule, awarding percentage damages on bills drawn or endorsed within the Commonwealth and payable outside the United States, was adopted by statute in 1826, and many other states followed suit.8 The question of damages on a protested bill drawn in one state and payable in another was rendered doubtful in the first years of the 19th century by a split of authority as to whether such a bill was “foreign” or “inland.” No early decision on this point has been found in the Massachusetts Reports, but in view of Alcock v. Warden an ambiguous passage in Dane's Abridgment should probably be read to mean that damages could be had, whatever the label applied to the bill.9 An Act { 171 } of 1819 settled the matter, providing that on bills drawn in Massachusetts and payable in another state a percentage varying according to the distance of the state from Massachusetts should be awarded as damages. Similar rules were adopted by statute and at common law in other states.10
Although somewhat atrophied in use, the Massachusetts statutes just referred to remained in force until 1958, when they were repealed in the adoption of the Uniform Commercial Code.11 The Code does not deal expressly with the question of damages raised here, but it does provide that “Unless displaced by the particular provisions of this chapter, the principles of law and equity, including the law merchant ... shall supplement its provisions.”12 Perhaps Alcock v. Warden is again good law in Massachusetts.
1. See the bills, protest, writ, and Inferior Court judgment in SF 100780. The bills were in identical amounts, payable to James Warden or order, one at 32, the other at 33, days after sight. The declaration contained a count on each bill, setting forth the instrument and alleging that on the
“8th day of June A.D. 1765 at Boston aforesaid the said James Warden before the payment of the said sum or any part of it, made his Indorsement on the said Second Bill of Exchange [i.e. second copy of this bill] and thereby for value received ordered and directed the said sum of one hundred and ninety three pounds six shillings and eight pence New York currency to be paid to the said Joseph Alcock, and afterwards, viz, on the Sixteenth day of September A.D. 1765, at New York aforesaid, the said Second Bill of Exchange was presented to the said John Alexander & Company [the drawee] and they were then and there requested to accept the said Second Bill of Exchange and to pay the said sum ... to the said Joseph Alcock according to the tenour of the said Bill of Exchange and indorsement, and the said John Alexander & Company then and there refused to accept the said Second Bill of Exchange or to pay the said sum ... tho the said first Bill [i.e. the first copy] was not accepted or paid, wherefore afterwards, that is to say on the same sixteenth day of September A.D. 1765 the said Second Bill of Exchange was for want of acceptance and payment at New York aforesaid in due form protested, and of all this the said James Warden at Boston aforesaid by the same Joseph Alcock had notice and thereupon became chargeable to the said Joseph Alcock for the said sum ... equal to the sum of one hundred forty five pounds lawful money with all damages costs interest and charges whatever amounting with the principal to the sum of two hundred pounds lawful money, and in consideration thereof the said James Warden then at Boston aforesaid promised the said Joseph Alcock to pay him the same sum ... on demand.” Ibid.
 The form is very similar to that given in Joseph Chitty, A Treatise on the Law of Bills of Exchange 239–241 (London, 1799).
2. As to the common law rule, see note 18 6 below. For interest and re-exchange see Chitty, Bills of Exchange 213–218; Brannan's Negotiable Instruments Law 1263–1264 (Cincinnati, 7th edn., F. K. Beutel, 1948); John W. Daniel, Treatise on the Law of Negotiable Instruments, 3:1749–1762 (N.Y., 7th edn., T. H. Calvert, 1933).
3. For the rule in other colonies, see note 17 5 below. The practice was not followed in England, except for bills returned from India. See Chitty, Bills of Exchange 217.
4. See note 14 2 below.
5. Min. Bk. 81, SCJ Suffolk, Aug. 1766, N–4; SCJ Rec. 1766–1767, fols. 93–94. The verdict was for £336 17s. 6d. and costs of £7. This figure was the sum of the face value of the bills, £290; 10 percent of the sum, £29; and interest at 6 percent from the date of protest, £17 17s. 6d.
6. For the statutes, see note 18 6 below. Although damages could be had on an inland bill under these Acts in England, re-exchange would not have been included, because there was no currency exchange factor in the transaction. See John Bayley, A Short Treatise on the Law of Bills of Exchange 45–46 (London, 1789). The flat percentage used in Massachusetts was not tied to re-exchange, however, so that on a broad reading it could have been awarded as damages even on an inland bill. But compare note 9 below. Since there was a difference between the currencies involved, when the bill was payable in another province, such a rule was not inequitable in this case, whether the bill was called “inland” or “foreign.”
7. See Grimshaw v. Bender, 6 Mass. 157, 161 (1809):
“But the rule of damages, established by the law-merchant [i.e. interest, charges, and re-exchange], is in our opinion absolutely controuled by the immemorial usage in this state. Here the usage is, to allow the holder of the bill the money for which it was drawn, reduced to our currency at par, and also the charges of protest, with American interest on those sums from the time when the bill should have been paid; and the further sum of one tenth of the money for which the bill was drawn, with interest upon it from the time payment of the dishonoured bill was demanded of the drawer. But nothing has been allowed for re-exchange, whether it is below or at par. This usage is so ancient, that we cannot trace its origin; and it forms a part of the law-merchant of the commonwealth. Courts of law have always recognized it, and juries have been instructed to govern themselves by it in finding their verdicts.”
8. The statute provided 5 percent damages if the bill was drawn on a country not in Asia or Africa, otherwise 20 percent. See Act of 4 March 1826, c. 177, §1, Mass. Laws, 1826, p. 315–316. For the practice in other states, see Brannan's Negotiable Instruments Law 150, 200–201, 1263–1264; Theophilus Parsons, A Treatise on the Law of Promissory Notes and Bills of Exchange, 1:655–661 note (Phila., 2d edn., 1876); Annotation, 27 A.L.R. 1189 (1923).
9. See 1 Dane, Abridgment 420 (1823): “The amount recovered on a protested bill.... This sum in Massachusetts [before the 1819 Act, note 10 below] was principal, interest, ten per cent, damages, and costs on foreign bills generally, and interest and costs on inland bills, and this rule extends to bills drawn in one State on merchants and others in another State.” The split of authority was finally resolved by Buckner v. Finley, 27 U.S. (2 Peters) 586 (1829), holding an interstate bill “foreign” for purposes of a statute limiting federal circuit court jurisdiction of choses in action to foreign bills. See also 3 Kent, Commentaries 63 note (N.Y., 1828). Massachusetts soon followed Buckner. Phoenix Bank v. Hussey, 12 Pick. (Mass.) 483 (1832) (Interstate bill is “foreign” and drawers could not be charged without a protest). The rule was expressly adopted in the Uniform Negotiable Instruments Law. NIL, §129; Mass. G.L. (Ter. edn., 1932), c. 107, §152. See William E. Britton, Handbook of the Law of Bills and Notes 583–585 (St. Paul, 2d edn., 1961).
10. The Massachusetts Act of 1819, ch. 166, Mass. Laws, 1819, p. 263–264, was entitled “An Act regulating Damages on Inland Bills of Exchange.” Its terms embraced “any Bill of Exchange drawn or endorsed within this Commonwealth” and payable in another state, which had been “regularly protested.” For practice in other states, see sources in note 8 above.
11. See Mass. G.L., c. 107, §§9, 11, repealed effective 1 Oct. 1958 by Acts, 1957, c. 765, §2. No case has been found construing or applying c. 107, §11, the interstate bills provision. As to §9, the overseas provision, see Foreign Trade Banking Corp. v. Cosmopolitan Trust Co., 240 Mass. 413, 134 N.E. 403 (1922).
12. Uniform Commercial Code, §1–103, Mass. G.L., c. 106, §1–103 (as amended, 1957) The Code shows an intent to abandon distinctions between interstate and intrastate instruments by requiring protest only for bills drawn or payable outside the United States. The holder of other kinds of instruments may protest at his option, however. UCC, §3–501(3). There would thus seem to be no obstacle to an award of damages on an interstate bill if some rule of law expressly provided for it. The Code provisions limiting the drawer's and endorser's undertakings to the face of the instrument merely adopt prior provisions of the NIL, which in Massachusetts, at least, had existed side by side with the damages provisions until 1958. See UCC, §§3–413, 3–414; NIL, §§61, 66, Mass. G.L. c. 107, §§84, 89. See also Carmen v. Higginson, 245 Mass. 511, 140 N.E. 246 (1923). According to a leading commentator, the question of damages on foreign bills of exchange was relegated to the Law Merchant by NIL, §196 (Mass. G.L. c. 107, §22), the predecessor of UCC, §1–103. Brannan's Negotiable Instruments Law 1263.
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