International Finance Corp. v. Calvert Drug Co.

³⁰⁴ Offutt, J., delivered the opinion of the Court. The .appeal in this case was taken from a judgment of the Baltimore City Court in favor of the defendant in an action brought by the appellant .against the appellee on two “customer’s acceptances,” and the sole question which it presents for the consideration of this Court is whether the words “as per Reolo Contract” qualify the words “Accepted for Payment,” which they immediately follow, SO' as to destroy the negotiability of the acceptances, .and that question grows out of the following facts: Reoh>, Incorporated, is an Ohio corporation with offices in Cleveland, Ohio, engaged in the sale of certain medicinal preparations. The Internatianal Finance Company is a Virginia corporation, with offices in the City of Washington, apparently engaged in the business of buying and discounting commercial paper. The Calvert Drug Company is a corporation with offices in Baltimore, Maryland, engaged in the wholesale drug business.

In May, 1921, a Mr. A. B. Smith, representing the Reolo, Incorporated, company, approached Mr. R. E. Lee Williamson, general manager of the Calvert Drag Company, and proposed to'deliver to that company $4,800 of its products, which at that time were unadvertised and unknown in Baltimore. The result of the negotiation between them was that, on May 10th, 1921, a contract was executed by the two companies which in part provided: “The Calvert Drag Company, of Baltimore, Maryland, undertakes the distribution of the products of the Reolo, Inc., of Cleveland, 'Ohio, under the following conditions: * * * “In consideration for the shipment to the Calvert Drag Co., by Reolo, Inc., of 50 Gross Reolo at $96.00 per Gross 25 Gross Reoláx at $24.00 per Gross 25 Gross Honest John at $24.00 per Gross “All charges for transportation prepaid by Reolo, ³⁰⁵ Inc. Above prices subject to a trade discount of 20 °f0 from above list prices. “Of guaranteeing to the Calvert Drug Co., the exclusive wholesale distribution of the products of Reolo, Inc., in the territory above named — of acceptance by Reolo, Inc., of all invoices rendered by the Calvert Drug Co., for all shipments made, except as above provided for — and the prompt payment to the Calvert Drug Co., by Reolo, Inc., for all such invoices rendered as above provided — the Calvert Drug Co., agrees to issue to Reolo, Inc., a non-negotiable acceptance in the amount of $4,800, payable in four months from the date of such acceptance — provided all the agreements made by Reolo, Inc., with the Calvert Drug Co., have been faithfully executed by Reolo, Inc., to the satisfaction of the Calvert Drug Co. “.If such agreements have not been met to the satisfaction of the Calvert Drug Co., then the above named non-negotiable acceptance becomes null and void — and it is not to be considered a claim by Reolo, Inc., against the Calvert Drug Co. “If at any time an acceptance becomes due and there remain on hand in the possession of the Calvert Drug Co. any unsold portion of the products of the Reolo, Inc., it is understood that the acceptance will be renewed for that unsold portion for another four months period or until the Calvert Drug C'o. has received full payment from Reolo, Inc., for all goods covered by such acceptance. In other words — the Calvert Drug Co. assumes no responsibility, financial or otherwise, for any unsold products of Reolo, Inc., that remain in fheir possession. “It is agreed by Reolo, Inc., and the Calvert Drug Co., that the above agreement is supplemental to and becomes a part of the contract entered into this 10th day of May, 1921, between Reolo, Inc., and the Calvert Drug Co., of Baltimore, Md., and that same shall apply to and govern all transactions of similar character ³⁰⁶ during the life of said contract — viz: one year from date, Jfay 10th, 1921.” On the same day certain other papers in the form of letters which formed a part of the contract were .also1 executed. The first, addressed to the Oalvert Drug Company by Reolo Incorporated, contained these statements: “In consideration of your accepting our wholesale distributor contract, if you will send out one dozen Reolo to each of your accounts in Baltimore and nearby surrounding territory, on memo, we will run a four months schedule in the Baltimore News, comprising one medium sized £Ad’ every week day, and a large ad every Sunday — this schedule to be followed by another one of equal lineage at its expiration, covering a total of twelve months.

We will also agree to run some small copy in the other papers. “The Baltimore Sun will agree to send a letter to each of these accounts, advising them of this extra large schedule for the first four months, and enclosing them a proof of a full-page £Ad’ that will run in their paper for them to hang in their window. We will also write a special letter to each druggist, thanking them for accepting this quantity, advising them of our P. M. allowance, and enclosing P. M. pamphlets and envelopes, so their clerks can return the P. HI. slips for redemption. We will also have a salesman call on these accounts at the expiration of from four to six weeks, after the advertising starts, and check up on their sales, getting counter displays, window displays and talking the merits of our products and seeking further co-operation — agreeing, of course, to keep a representative in your territory constantly.” The second was addressed to Reolo1, Incorporated, and in part read as follows: “Enclosed please find our Customer’s Acceptance for $4,800.00, in consideration of which you hereby ap ³⁰⁷ point us your 'Wholesale Distributor to the local distributors you now have or may acquire in the following States: Maryland, Delaware and West Virginia. * * * If at any time, the acceptances become due and wc have not made full shipment of all goods on hand covered by our acceptances, it is understood that same will be renewed for the unsold portion thereof for another four-month period, or until we have received full payment from you covering this entire order and acceptances. “It is also understood that your products will be advertised in the above named territory to the best of your ability and judgment consistently for the term of this agreement, to wit, ono year.” These two letters were signed both by the Calvert Drug Company and by the Reolo Company, The first of the customer’s acceptances referred to in the last paper was in the following form: “Customer’s Acceptance, 12329 Superior Avenue, Cleveland, Ohio. “May 10, 1921. “Pour months after date, pay to Reolo, Inc., of Cleveland, Ohio, or order, three thousand ($3,000.00) 00/100 dollars. “The obligation of the acceptor hereof arises out of the purchase of goods from the drawer. “Value received and charge to account of: “To The Calvert Drug Co., “106 W. Redwood St., “.Baltimore, Md. “Reolo, Ine. “By J. P. Spinnler, Manager. “By L. J. Rothenbecker, Treasurer. "‘Please write name of your bank here: “PTational Exchange Bank of Baltimore, Maryland. ³⁰⁸ “Accepted for payment as per Reolo contract for amount and date shown hereon. “Calvert Drug Co. “R. E. Lee Williamson, General Manager. “(Endorsed on the back is the following) : “Reolo, Inc., “G. F. Eelger, Asst.

Treas., “L. J. Rothenbecker, “J. P. Spinnler, “Albert B. Smith. “International Finance Corp., “David P. Smith, Asst. Treasurer. “(Revenue stamps) “Customer’s Acceptance. “Cleveland, O., May 10, 1921. “Four months after date, pay to Reolo, Inc., of Cleveland, Ohio, or order, three thousand dollars ($3,-000.00). “The obligation of the acceptor hereof arises out of the purchase of goods from the drawer. “Value received and charge to the account of: “The Calvert Drug Co., “106 W. Redwood St., “City. “Reolo, Inc., “By J. P. Spinnler, L. J. Rothenbecker. “Accepted for payment as per Reolo, Inc., contract for amount and date as shown here. “Calvert Drug Co., “R. E. Lee Williams, “General Manager.” And the second was identical with it except that the amount named- was $1,800. After these papers were executed, Reolo’, Incorporated, sold the two .acceptances to the International Finance Corpo ³⁰⁹ ration for $3,744, under the terms of an agreement entered into between them on Roveanber 8th, 1920. In that contract Reolo, Incorporated, was named as the first party and the finance company as the second party, and its purpose may b© gathered from these extracts from its contents: “Whereas, first party is desirous of selling to second party Open Accounts Receivable, Rotes, Acceptances, Leases, Mortgages, Contracts and Ohoses in Action, hereinafter designated as ‘Accounts/ evidencing sales and deliveries of personal property usually dealt in by first party * * *. “Second party will from time to time, during the continuance of this agreement, buy such accounts belonging to first party as may he acceptable to second party, and will pay therefor One Hundred Per Cent.

(100%) of the face value thereof, less a charge equal to the legal rate of interest on the money outstanding thereon of which 78 per cent, of the face value thereof shall he paid in cash upon acceptance thereof by second party, and the remaining 22 per cent, less any deductions and plus any over-payments by the debtors and less total charges, as shown in lines 41 to 46 hereof, to he paid to the first party immediately upon payment of any such accounts to second party; provided, that no payments of any such remainder need he made so long as any accounts purchased hereunder are affected by any breach or violation of warranty hereunder, but such remainder and any moneys, accounts or property of first party which may come into possession of second party may be held and later applied to the payment of any accounts or any indebtedness. * * * “The total compensation to he paid by first party for all services and other. considerations specified in lines 19 and 41 hereof, and for the charge as mentioned in lines 11 and 12 hereof, it is hereby agreed shall be one-twenty-fifth of one per cent. (1/25 of 1%) of the face value of accounts for each day from ³¹⁰ date of purchase by and until paid to second party, plus $5 per $1,000 of accounts purchased. * * * “In consideration of the prompt purchase and remittance by second party for accounts acceptable to second party, without waiting to make a complete credit investigation thereof, first party hereby warrants that: (a) Hirst party and each debtor named in an account is solvent and will remain so until maturity thereof, (b) There will be no suspension of business, request for general extension, bankruptcy petition, or any act amounting to a business failure by or against first party or any debtor, (c) Every account purchased hereunder and any settlement received thereon will be paid in full at maturity in cash or Washington par funds, (d) Prompt payment will be made to second party of any allowance or credit upon any account sold to second party, (e) Each account offered for sale to second party shall represent a bona fide sale and delivery of property usually dealt in by first party, and shall be for a certain, undisputed, liquidated claim or demand, which is due or to become due on the dates set forth, (f) Hirst party will not sell or assign any of its own accounts elsewhere without first giving ten days1’ written notice to second party of such intention. * * * “Contemporaneously with the purchase of accounts hereunder, first party will, by proper instrument in writing, assign and set over to second party such accounts purchased by it as aforesaid, to the end that second party may be and become subrogated to all of the rights, securities or guaranties possessed by the first party in respect thereto, including the right of stoppage in transit should the latter right be exercised, or should the debtor named in any account fail or refuse to accept, receive or retain, or return the property evidenced by such account, or should said, property be rerouted or reconsigned, then said property or property exchanged therefor, and any new account created ³¹¹ through, the resale thereof with or without consent of second party, shall he treated as having been sold hereunder by first party to second party, with all the rights of absolute ownership thereof, and first party will deliver said property and assign said account to second party, or will hold same in trust for and subject to the orders of second party, and upon request of second party will purchase and pay for said property, at the net invoice value thereof. Immediately upon consummation of the purchase of accounts hereunder, the first party will make upon its hooks suitable and proper entries disclosing the absolute sale of said accounts to second party. First party further will execute and deliver to second party any instrument necessary, proper or convenient to' carry into effect the terms, provisions and conditions of this agreement, or to facilitate the collection of accounts purchased hereunder1.” Accompanying that contract was a “guaranty and waiver,” to which it is not necessary to refer in detail.

After ihe Oalvert Drug Company had delivered to Reolo, Incorporated, these two acceptances, a part of the merchandise to he delivered under the contract between those two corporations was shipped, but Reolo, Incorporated, did nothing further to carry out -the terms of that contract, and none of the goods so delivered were sold by the Oalvert Drug Company. Notwithstanding that the contract referred to stipulated that the acceptances should he non-negotiable, six days after receiving them Reolo, Incorporated, sold them to the International Finance Company at the price stated above and, being unpaid at maturity, they were in due course protested. On September 13th, 1921, and following the protest, suit was brought on them in the Raltimore City Court on February 19th, 1922. At the trial of that suit the court, over plaintiff’s objection, allowed the defendant to offer evidence showing the execution of the contract between the appellee ³¹² and Reolo, Incorporated, the giving of the acceptances, and the contract itself, and that ruling is the subject of the first exception.

At the conclusion of the whole case the plaintiff offered three prayers and the defendant six. The court granted the plaintiff’s first prayer in connection with the defendant’s third and fourth prayers (which it granted), granted the defendant’s fifth prayer and refused all the others, and those rulings are the subject of the second exception. These rulings on -the evidence and the prayers together raise the single question to which we have referred, and that question we will now consider. In dealing with that question we will assume without deciding that the appellant was a holder in due course of the acceptances and not merely a collection agent for the ReoR, Incorporated, company.

The court below dealt with the case upon that assumption and nio point as to it was made in this court by counsel for the appellee, and as it could only relate to the plaintiff’s right to recover, if the defendant’s acceptance was unconditional, we will not further refer to it in connection with the question immediately before us. In approaching that question it should be remembered that it involves the construction of words used by the parties to a commercial transaction to express their common intention, according to the meaning and value given those words in common business usage, and that to give those words any forced or unusual meaning, different from that which would be given them by persons engaged in commerce and business and familiar with its terminology and usage, would be to defeat the intention of the parties to the transaction, and no such consequence should be permitted unless as the result of the peremptory mandate of some statute or arbitrary rule of law. The Negotiable Instruments Act, the only statute which is applicable to the facts before us, does not deal with.this precise point. It defines negotiable instruments, such as bills ³¹³ of exchange, promissory notes, acceptances and the like, and distinguishes conditional from unconditional acceptances, but it, does not attempt to supply any formula or rule which could guide us in determining whether given words do or do not raise a condition and, in deciding whether such words should bp construed as creating a condition, we are remitted to the same rules of construction which controlled us prior to the adoption of that statute.

That is, while the statute announces that a conditional acceptance is one which makes payment depend upon the fulfillment of a condition, it does not furnish us with any rule of construction which will enable us to determine whether given words state a condition or are mere words of identification. Those sections of the act -which relate to this question are as follows: Section 22, article 13, O. P. G. L. of Md.: “An unqualified order or promise to pay is unconditional within the meaning of this act, though coupled with : “1. An indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount; or “2. A statement of the transaction which gives rise to the instrument. “Bnt an order or promise to pay out of a particular fund is not- unconditional”; Section 145, article 13, C. P. G. L. of Md.: “A bill of exchange is an unconditional order in writing- addressed by one person to another, signed by the person giving- it, requiring the person to- whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order of bearer; Section 151, Ibid: “The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer.

The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money”; ³¹⁴ Section 158, Ibid: “An acceptance* is either general or qualified. A general acceptance assents without qualification to the order of the drawer. A qualified acceptance in express terms varies the effect of the bill as drawn”; Section 160, Ibid: “An acceptance is qualified, which is: “1.

Conditional — that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition therein stated.” From these provisions of the statute two conclusions are inevitable, one, that an acceptance is qualified which is dependent upon the fulfillment of a condition therein stated, and two, that a mere reference to, or statement of, the transaction in connection with which the acceptance is given, is not per se the* statement of a condition; and the difficulty in particular cases lies in determining whether given words amount to the statement of a condition -or merely identify and earmark the transaction in connection with which the acceptance is given, and that question has been dealt with in a number of cases, to som-e of which we will presently refer. But before referring to the oases dealing with facts substantially similar to those involved here, we will' revert to the form-of the acceptance which is the subject of this suit. Following the words “accepted for payment,” which