RUSSO-CHINESE BANK v. NATIONAL BANK OF COMMERCE OF SEATTLE, WASHINGTON.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE NINTH CIRCUIT.

No. 244. Argued April 13, 14, 1916.-Decided June 5, 1916.

In an action by a bank in Port Arthur to recover money, remitted by it to a bank in Seattle for a draft secured by shipping documents sent to it for collection by the Seattle Bank, and which the Port Arthur Bank declared had not been paid, but for which it remitted on agreement of the Seattle bank to refund in case non-payment was proved, the jury found a general verdict in favor of the Seattle Bank and also a special finding to the effect that the Port Arthur Bank did receive payment for the draft in question; such special finding was based on testimony to effect that the Port Arthur Bank permitted the consignee to take possession of the goods covered by the documents attached to the draft on his agreeing to deposit the proceeds thereof as sold, and an instruction to the effect that such action on the part of a bank receiving a draft for collection constituted a payment in law; judgment being entered thereon and affirmed by the Circuit Court of Appeals, this court reviewing on certorari held that:

The fair import of the instructions of the trial judge in their entirety, being that the finding of payment was to be reached only in case the value of the goods was not less than the amount of the draft, there was no error therein.

Where a bank, holding a draft for collection with documents annexed and with instructions to deliver the documents only on payment, allows the drawee to take the goods covered by the documents on his promises to sell and account for proceeds, it amounts to a misappropriation of the property and liability to account for its value immediately arises.

There was no error in charging that the collecting bank became invested with the ownership of the goods and could not be excused from obligation to account by declaring that the goods had disappeared without its knowledge, the charge not being to effect that the relation of vendor and vendee did exist, but that the relation of principal and agent did exist, and, as such agent, the col

lecting bank was obligated to act in good faith to protect the rights of the owner of the draft.

The special finding being supported by adequate evidence is controlling.

Even if a bank, sending a draft for collection, suffers no loss on account of its guaranty from the original owner, it may, in view of its relation to commercial paper, demand, as principal, an accounting from its correspondent, and resist an action to recover back the money which it received upon the draft.

206 Fed. Rep. 646, affirmed.

THE facts, which involve questions relating to a transaction between two banks, regarding drafts and documents annexed thereto, are stated in the opinion.

Mr. Warren Gregory, with whom Mr. W. H. Chickering and Mr. George H. Whipple were on the brief, for petitioner: The instruction that permission given Clarkson & Co. to take the flour constituted a payment of the draft is manifestly erroneous.

The court in declaring that certain acts would constitute payment of the draft practically directed a special verdict.

The trial court proceeded upon the assumption that there was a novation; and the pleadings do not count on a novation nor was the case tried on the theory of novation. The conduct of the parties is inconsistent with such theory.

If the Port Arthur branch did, contrary to instructions, permit Clarkson to take over the flour, it may have been responsible to the extent of the security released, but the jury is entitled to pass upon the question as to the value of the flour taken and there is no evidence that any of the flour was actually taken.

The only fair intendment of the instruction leads to an absurdity.

The trial court had in mind that it was not the release of the security that would pay the debt pro tanto, but the application of the proceeds.

The error of the trial court was only emphasized by another instruction given and the special verdict did not cure the error, but was authority for the special verdict.

The instruction that the collecting bank became invested with title and ownership of the flour, and its obligation in this regard, is erroneous. The refusal to charge that the duty of collecting bank was one of agent was error.

The Port Arthur branch was not the owner of the flour but its relationship was principal and agent, as is shown by the documents.

The instructions of the trial court placed on the Port Arthur bank the same obligations as if it had agreed to buy the flour from the Seattle bank.

The instructions of the trial court would place on the Port Arthur branch a responsibility foreign to banks handling documents for collection.

The draft in question was accepted by Clarkson & Co., and they became the principal debtors.

The court erred in permitting evidence of a so-called custom concerning the duties of a collecting bank.

Usage or custom cannot be invoked in contradiction of an express contract.

Certain of the testimony of witnesses Davidson and Short was prejudicial to petitioner.

The respondent has not been damaged by any acts of negligence on the part of petitioner.

In support of these contentions see Alden v. Camden Anchor-Rockland Mach., 78 Atl. Rep. 977; American Thresherman v. Motor Co., 141 N. W. Rep. 210; Armour & Co. v. Russell, 144 Fed. Rep. 614-616; Atchison, T. & S. F. Ry. v. McClurg, 59 Fed. Rep. 860; Balbach v. Frelinghuysen, 15 Fed. Rep. 675; Bancroft v. Bancroft, 110 California, 374; Bank v. Monongahela Bank, 126 Fed. Rep. 436; Barton Seed Co. v. Mercantile Bank, 160 S. W. Rep. 848; Boston & Albany R. R. v. O'Reilly, 158 U. S. 334; Charles v. Carter, 36 S. W. Rep. 396; Commercial Bank v.

First State Bank, 153 S. W. Rep. 1175; Commercial Nat. Bank v. Armstrong, 39 Fed. Rep. 684; Deery v. Cray, 5 Wall. 795; Dickerson v. Wason, 47 N. Y. 439; Elm Lumber Co. v. Childerhose, 83 S. E. Rep. 22; Gregg v. Bank of Columbia, 52 S. E. Rep. 195; Hambro v. Casey, 110 U. S. 216; Hunt v. Nevers, 32 Massachusetts, 504; Hyde v. Booraem, 16 Pet. 169; Ladd Bank v. Commercial Bank, 130 Pac. Rep. 975; LeCoux v. Eden, 2 Doug. 594; Midland Nat. Bank v. Brightwell, 49 S. W. Rep. 994; Nat. Bank v. Merchants' Bank, 91 U. S. 92; Nebraska &c. v. First Nat. Bank, 110 N. W. Rep. 1019; Pac. Brokerage Co. v. Rushfeldt, 171 S. W. Rep. 976; Scott v. Ocean Bank, 23 N. Y. 289; Second Nat. Bank v. Bank of Alma, 138 S. W. Rep. 472; Smith v. Nat. Bank, 191 Fed. Rep. 226; Tyson v. Western Nat. Bank, 26 Atl. Rep. 520; Union Bank v. Stafford, 12 How. 327; Warren v. Suffolk Bank, 10 Cushing, 582; Wharton v. Walker, 4 B. & C. 164; Wisconsin Bank v. Bank of North America, 21 Upper Canada Rep. 284; 21 Amer. & Eng. Enc. of Law, p. 661; Grant on Banking, 6th ed., p. 53; Morse on Banking, 4th ed., §§ 217, 223; Randolph on Commercial Paper, 2d ed., § 795; Cal. Civil Code, § 1531.

Mr. E. S. McCord, with whom Mr. J. A. Kerr was on the brief, for respondent.

MR. JUSTICE HUGHES delivered the opinion of the court.

The Russo-Chinese Bank brought this action to recover back money which it had paid to the National Bank of Commerce of Seattle. Judgment of non-suit was entered on the first trial and was reversed by the Circuit Court of Appeals. 187 Fed. Rep. 80. On the second trial, there was a verdict for the defendant and the judgment. entered accordingly was affirmed. 206 Fed. Rep. 646. The case comes here on certiorari.

The facts are these: In December, 1903, the Centennial Mill Company, of Seattle, shipped by the steamship 'Hyades' of the 'Puget Sound-Oriental Line' 35,312 quarter sacks of flour to be transported to Port Arthur, or Dalny, and to be there delivered "unto shipper's order or to his or their assigns (Notify Clarkson & Co.)." In accordance with the usual course of business the Centennial Mill Company drew its draft, dated December 11, 1903, on Clarkson & Co., for $36,194.80, payable ninety days after sight, to the order of the National Bank of Commerce (with exchange and collection charges) and, attaching thereto the original and duplicate of the bill of lading for the shipment above described, (which was endorsed in blank) the policy of insurance, and bill of sale to Clarkson & Co., delivered the draft of the National Bank of Commerce, of Seattle, which paid the amount of the draft to the Mill Company. This bank then forwarded the draft, with the documents, to the Port Arthur branch of the Russo-Chinese Bank for collection, stating in the letter of transmittal: "Documents are to be delivered on payment." The letter, with the draft and documents, was received on January 22, 1904.1 In acknowledging receipt, the Russo-Chinese Bank used the usual form of letter which stated that specific instructions must be given concerning disposition of bills and documents, and storage of goods, in case the draft were dishonored. No such instructions were given. The draft was presented for acceptance on January 23, 1904, and was accepted on January 30, 1904 by Clarkson & Co., and the Seattle bank was notified accordingly. The acceptance fixed April 30, 1904, as the due date, according to the tenor of the draft, and on the expiration of two days' grace allowed by the Russian law it was protested on May 3, 1904. There was evidence that the draft with

1 For convenience, we give the dates 'New Style.'