« ForrigeFortsett »
(146 N.E.) The facts set out in defendant's answer and corresponded to the description contained in in the affidavits used by it in opposition to the documents. The letter of credit did not the motion are not a defense to the action. so provide. All that the letter of credit pro
 The bank issued to plaintiff's assignor vided was that documents be presented an irrevocable letter of credit, a contract which described the paper shipped as of a solely between the bank and plaintiff's ascertain size, weight, and tensile strength. signor, in and by which the bank agreed to To hold otherwise is to read into the letter pay sight drafts to a certain amount on pres- of credit something which is not there, and entation to it of the documents specified in this the court ought not to do, since it would the letter of credit. This contract was in no impose upon a bank a duty which in many way involved in or connected with, other cases would defeat the primary purpose of than the presentation of the documents, the such letters of credit. This primary purpose contract for the purchase and sale of the pa- is an assurance to the seller of merchandise per mentioned. That was a contract be- of prompt payment against documents. tween buyer and seller, which in no way  It has never been held, so far as I am concerned the bank. The bank's obligation able to discover, that a bank has the right or was to pay sight drafts when presented if is under an obligation to see that the deaccompanied by genuine documents specified scription of the merchandise contained in in the letter of credit. If the paper when the documents presented is correct. A prodelivered did not correspond to what had vision giving it such right, or imposing such been purchased, either in weight, kind or obligation, might, of course, be provided for quality, then the purchaser had his remedy in the letter of credit. The letter under conagainst the seller for damages. Whether the sideration contains no such provision. If paper was what the purchaser contracted to the bank had the right to determine whether purchase did not concern the bank and in no the paper was of the tensile strength státed, way affected its liability. It was under no then it might be pertinent to inquire how obligation to ascertain, either by a personal much of the paper must it subject to the examination or otherwise, whether the paper test. If it had to make a test as to tensile conformed to the contract between the buyer strength, then it was equally obligated to and seller. The bank was concerned only in measure and weigh the paper. No such the drafts and the documents accompanying thing was intended by the parties and there them. This was the extent of its interest. was no such obligation upon the bank. The If the drafts, when presented, were accom- documents presented were sufficient. The panied by the proper documents, then it was only reason stated by defendant in its letter absolutely bound to make the payment under of December 18, 1920, for refusing to pay the the letter of credit, irrespective of whether draft, was that, it knew, or had reason to believe, that the “There has arisen a reasonable doubt repaper was not of the tensile strength con- garding the quality of the newsprint paper. tracted for. This view, I think, is the one
* Until such time as we can have a test
made by an impartial and unprejudiced expert generally entertained with reference to a
we shall be obliged to defer payment." bank's liability under an irrevocable letter of credit of the character of the one here This being the sole objection, the only inunder consideration. See Commercial Let- ference to be drawn therefrom is that otherters of Credit, 35 Harvard Law Review, 730, wise the documents presented conformed to 734, 735, and authorities there cited; Na- the requirements of the letter of credit. All tional City Bank v. Seattle Nat. Bank, 121 other objections were thereby waived, InWash. 476, 209 P. 705, 30 A. L. R. 347; Bank ternational Banking Corporation v. Irving of Plant City v. Canal-Commercial Trust & Nat. Bank, supra. Savings Bank (C. C. A.) 270 F. 477; Inter-  It is also suggested that the dock denational Banking Corporation v. Irving Nat. | livery order upon the presentation of the Bank (D. C.) 274 F. 122, 125, affirmed (C. C. second draft was insufficient because it reA.) 283 F. 103; Harper v. IIochstim (C. c. quired that the paper be removed from the A.) 278 F. 102, 20 A. L. R. 1232; E. Clemens dock within four days from the date of the Horst Co. v. Biddell Brothers  App. order. No objection was made this Cas. 18, reversing (1911] 1 K. B. 934; Brown ground by the bank at the time the docu1. Raritan Chemical Works, Inc., 188 App. ments were tendered and such objection, it Div. 578, 584, 177 N. Y. S. 309.
valid, was thereby waived. Littlejohn v. The defendant had no right to insist that Shaw, 159 N. Y, 188, 53 N. E. 810. If the a test of the tensile strength of the paper be time were insufficient, further time might made before paying the drafts; nor did it, have been obtained. This claim was first reeven have a right to inspect the paper before ferred to in defendant's letter of January payment, to determine whether it in fact 12, 1921, addressed, not to the plaintiff, but
to the National City Bank of New York, | these cases is distinguishable from the preswhich is not a party to this action, and the ent case. In Bank of Montreal v. Recknaletter was not sent until the day after the gel, supra, the letter of credit expressly re time limit had expired.
quired that the description of the goods It is not suggested that the dock delivery should be contained in the bills of lading order did not carry control of the goods dur- and this court said: ing the four days mentioned, or that the pa "It was an integral part of the agreement of per could not have been removed within that the parties that the bills of lading should contime. Then, too, if defendant required more tain a statement that manila hemp was shiptime for the removal of the goods, it should ped.” have requested it when the documents were
As the bill of lading did not contain this tendered on the 7th of January and doubt- statement, the court held that the bank was less any further time required could have not justified in paying the drafts. been arranged for.
In Portuguese American Bank of San [5, 6] Some criticism is made as to the Franscisco v. Atlantic Nat. Bank, supra, the statement contained in the documents when letter of credit did not call for any docuthe second draft was presented. The criti-ments whatever. The defendant guaranteed cism, really, is directed towards the expres- payment of a draft drawn to cover the pursions “in test 11/12, 32#" and "paper equal chase price of certain specified merchandise to original sample in test 11/12, 32 pounds.” to be shipped by the drawers to the drawees, It is claimed that these expressions are not and it was held that the bank was not liable eqaivalent to "rolls to test 11-12, 32 lbs." I on the guaranty where it appeared that neithink they are. I do not see how any one ther the draft nor the express company's recould have been misled by them or misun- ceipt described the merchandise specified in derstood them. The general rule is that an the guaranty. obligation to present documents is complied (9, 10] Finally, it is claimed that the plainwith if any of the documents attached to tiff was not entitled to a summary judgment the draft contain the required description. since there was an issue raised as to the The purpose, obviously, was to enable de- amount of mages. It appears from the affendant to know that dock delivery orders fidavits in support of the motion that after had been issued for the paper. Border Nat. the defendant had refused to pay the drafts, Bank of Eagle Pass, Tex., v. American Na- due notice was given to it by the plaintiff of tional Bank of San Francisco, Cal. (C. C. A.) | its intention to sell the paper for the best 282 F. 73, 80.
price possible, although no notice of such re [7,8] The alleged oral agreement for a test sale was necessary. Personal Property Law was unenforceable against plaintiff. It is not (Cons. Laws, c. 41) $ 141, subd. 4. No attenalleged that Ronconi & Millar, the beneficia- tion was paid to the notice and the paper ries of the letter of credit, were parties to was sold as soon as practicable thereafter this alleged modification of it. They did not and for the best price obtainable, which repassign it to the plaintiff until May 25, 921, resented the fair market value at the time five months after the agreement is alleged to of the sale. The plaintiff's damages were, have been made. The letter of credit could primarily, the face amount of the drafts. not have been modified in this way by parol. Plaintiff, of course, was bound to minimize Seitz v. Brewer's Refrigerating Mach. Co., such damage so far as it reasonably could. 141 U. S. 510, 12 S. Ct. 46, 35 L. Ed. 837; This it undertook to do by reselling the paGilbert v. Moline Plow Co., 119 U. S. 491, 7 per, and for the amount received, less er S. Ct. 305, 30 L. Ed. 476. Since the defend- penses connected with the sale, it was bound ant was already bound by its letter of credit to give the defendant credit. There was abto pay the drafts on presentation of the doc-solutely no statement in defendant's affidauments, without any inspection of the goods, vits to the effect that the plaintiff did not there was no consideration for the alleged act in the utmost go faith or with reason: new promise and the same, even if made, able care and diligence in making the resale. was invalid. 1 Williston on Contracts, 8 The only reference thereto is that defendant 130; Vanderbilt v. Schreyer, 91 N. Y. 392; | did not get the best price possible. The de Sawyer v. Dean, 114 N. Y. 469, 21 N. E. fendant gave no evidence, however, of a mar1012; Arend v. Smith, 151 N. Y. 502, 45 N. ket value at the time and the plaintiff subE. 872; Weed v. Spears, 193 N. Y. 289, 86 mitted the affidavits of three dealers in paN. E. 100.
per that the paper was sold at the fair marDefendant largely relies upon Bank of ket value at the time of the sale. Plaintiff's Montreal v. Recknagel, 109 N. Y. 482, 492, damages were therefore liquidated by a re17 N. E. 217, and Portuguese American Bank sale on notice. Second Nat. Bank of Hobo
San Francisco v. Atlantic Nat. Bank, 200 ken v. Columbia Trust Co. (C. C. A.) 288 F. App. Div. 575, 193 N. Y. S. 423. Each of 17, 26, 30 A. L. R. 1299. This is the rule
(146 N.E.) which has long prevailed between seller and ( are demanded. Between parties so situated buyer. The only requirement is that the re- payment may be resisted if the documents sale must be a fair one. Pollen v. Le Roy, are false. 30 N. Y. 549; Dustan v. McAndrew, 44 N. I think we lose sight of the true nature of Y. 72; Smith v. Pettee, 70 N. Y. 13; Gen-| the transaction when we view the bank as eral Electric Co. v. National Contracting Co., acting upon the credit of its customer to the 178 N. Y. 369, 70 N. E. 928; Jardine, Mathe-exclusion of all else. It acts not merely upson & Co. v. Huguet Silk Co., 203 N. Y. 273, on the credit of its customer, but upon the 96 N. E. 449.
credit also of the merchandise which is to In Dustan v. McAndrew, supra, the goods be tendered as security. The letter of credit were tendered on November 30th and sold by is explicit in its provision that documents plaintiff on December 26th. This court held sufficient to give control of the goods shall that the trial court did not err in charging be lodged with the bank when drafts are the jury that the plaintiff was entitled to represented. I cannot accept the statement of cover the difference between the contract the majority opinion that the bank was not price and the price he obtained on the re- concerned with any question as to the charsale, and in refusing the defendant's request acter of the paper. If that is so, the bales that the court leave to the jury the question tendered have been rags instead of paas to the market value of the goods at the er, and still the bank would have been helptime of the breach. Earl, C., who delivered less, though it had knowledge of the truth, the opinion of the court, said:
if the documents tendered by the seller were “In such case the vendor is treated as the sufficient on their face. A different question agent of the vendee to make the sale, and all would be here if the defects had no relation that is required of him is that he should act with to the description in the documents. In such reasonable care and diligence, and in good faith. circumstances it would be proper to say that He should make the sale without unnecessary a departure from the terms of the contract delay, but he must be the judge as to the time between the vendor and the vendee was of and place of sale, provided he act in good faith
no moment to the bank. That is not the and with reasonable care and diligence.
case before us. If the paper was of the We are therefore of the opinion that the court did not err as to the rule of damages." (Page
quality stated in the defendant's answer the 79).
documents were false.
I think the conclusion is inevitable that a There was a loss on the resale of the pa- bank which pays a draft upon a bill of ladper called for under the first draft of $5,- ing misrepresenting the character of the 447.26, and under the second draft of $14,- merchandise may recover the payment when 617.53, making a total loss of $20,064.79, for the misrepresentation is discovered, or at the which amount judgment should be directed very least, the difference between the valin favor of the plaintiff.
ue of the thing described and the value of The orders appealed from should therefore the thing received. If payment might have be reversed and the motion granted, with been recovered the moment after it was costs in all courts. The question certified is made, the seller cannot coerce payment if answered in the affirmative.
the truth is earlier revealed.
We may find persuasive analogies in conCARDOZO, J. (dissenting). I am unable nection with the law of sales. One who to concur in the opinion of the court.
promises to make payment in advance of deI assume that no duty is owing from the livery and inspection may be technically in bank to its depositor which requires it to in- default if he refuses the promised payment vestigate the quality of the merchandise. before inspection has been made. None the Laudisi v. American Exchange Nat. Bank, | less, if the result of the inspection is to 239 N. Y. 234, 146 N. E. 347. I dissent from prove that the merchandise is defective, the the view that, if it chooses to investigate seller must fail in an action for the recovery and discovers thereby that the merchandise of the price. The reason is that "the buyer tendered is not in truth the merchandise would have been entitled to recover back the which the documents describe, it may be price if he had paid it without inspection of forced by the delinquent seller to make pay- the goods" 2 Williston on Sales (20 Ed.) 88 ment of the price irrespective of its knowl. 479, 576. edge. We are to bear in mind that this con- I think the defendant's answer and the troversy is not one between the bank on the affidavits submitted in support of it are sufone side and on the other a holder of the ficient to permit a finding that the plaintiff's drafts who has taken them without notice assignors misrepresented the nature of the and for value. The controversy arises be shipment. The misrepresentation does not tween the bank and a seller who has misrep cease to be a defense, partial if not comresented the security upon which advances plete, though it was innocently made.
Bloomquist v. Farson, 222 N. Y. 375, 118 N., Wegman Page, deceased, against Paul R. E. 855; 2 Williston on Sales (2d Ed.) 8 632. Clark and others. From a judgment of the
The order should be affirmed and the Appellate Division (208 App. Div. 827, 203 N. question answered "No."
Y. S. 918), affirming a judgment of the Trial
Term on a verdict for plaintiff, defendant HISCOCK, C. J., and POUND and AN- Clark and another appeal. Reversed, and DREWS, JJ., concur with MCLAUGHLIN, J. new trial granted.
CARDOZO, J., reads dissenting opinion, in See, also, 119 Misc. Rep. 110, 195 N. Y. S. which CRANE, J., concurs.
529. LEHMAN, J., not sitting.'
Arthur E. Sutherland, of Rochester, and Orders reversed, etc.
Paul R. Clark, of Auburn, for appellants.
William J. Baker, and Grace F. Cramp
ton, both of Rochester, for respondent. (239 N. Y. 403)
POUND, J. The action is based on a con: ADAMS V. CLARK et al.
spiracy to defraud. Plaintiff's testator, Mrs. (Court of Appeals of New York, Jan. 27, Page (formerly Wegman), was the owner of 1925.)
a majority of the stock of the Wegman Piano 1. Corporations w204-One whose corporate Company, herein mentioned, which was a stock becomes valueless because of fraud by once prosperous concern in the city of Auwhich consent to act of bankruptcy was ob- burn, but was at the time of the transaction, tained may recover damages.
although claiming to be solvent, in need of One whose stock in corporation becomes ready money and available working capital. valueless, because of joint fraud of others in The alleged purpose of the conspiracy was obtaining her consent to act of bankruptcy by to destroy the value of her stock. The alfalse statements as to arrangement for reor- leged plan of the conspiracy was that the ganization of company, suffers injury for which Cayuga County National Bank should squeeze tort-feasors are liable to her personally.
the piano company by discontinuing financial 2. Bankruptcy Om6l-Solvency no defense to accommodations; that defendant Knapp proceedings based on mere act of bankruptcy. should falsely and fraudulently represent
Solvency is no defense to bankruptcy pro- that he would furnish necessary money to ceedings based merely on act of bankruptcy, carry on the business, if the company were such as resolution of board of directors that reorganized; that defendant Clark should corporation was unable to meet immediate ob- falsely and fraudulently represent to Mrs. ligations.
Page that reorganization through the formal3. Fraud Cu52—Bankruptcy proceedings held ity of friendly bankruptcy proceedings was admissible on issue of fraud in obtaining the only proper method; and that in order stockholder's consent to act of bankruptcy to make the proceeding possible it was nec. and damage thereby. While parties obtaining principal stock- rectors be passed reciting that the corpora
essary that a resolution of the board of diholder's consent to act of bankruptcy, whereby her stock was rendered valueless, by fraudu- tion was unable to meet its immediate oblilent representations as to arrangement for gations, this admission being an act of bank. reorganization of company, cannot negative ruptcy, although not an admission of infraud by proof of company's insolvency, the solvency. Matter of Russell Wheel & Foundproceedings in bankruptcy are material on is- ry Co. (D. C.) 222 F. 569. sues as to whether false promises were made It is alleged that Mrs. Page, believing and without intent to perform and whether dam- relying on the representations, consented to age resulted therefrom.
the adoption of the resolution, although it 4. Fraud On 25—Injury essential.
was against the interests of the corporation Fraud and deceit do not warrant recovery and her own interests, and that thereupon of damages, unless injury concurs.
the corporation was put into bankruptcy, its 5. Fraud Eww12-Mere promise 'not actionable. assets dissipated, and the value of plaintiff's
Though false representation as to state of stock destroyed; that defendants had no inmind may be false representation of material tention of furnishing the necessary funds to fact, mere unkept promise to do something in carry on the business, and did not furnish future is not actionable, unless made with in- such funds; that their purpose was to obtent not to perform.
tain control of the corporation.
Of the original defendants, William R. Appeal from Supreme Court, Appellate Di
Payne, who was vice president of the bank, vision, Fourth Department.
and a partner of Clark, and the defendant Action by Lillian Wegman Adams, as exec- bank, were eliminated from the conspiracy utrix of the last will and testament of Julia on the trial, leaving Paul R. Clark and Alice
(146 N.E.) Swaby Knapp, executrix of James M. Knapp, rupt. The fraud, he held, was in the obtaindeceased, against whom plaintiff has obtained, ing of Mrs. Page's consent to an act of bank. judgment. Knapp, it is said, was the pre- ruptcy; the fruit of the fraud was the bank. tendedly friendly capitalist who was to fur- ruptcy, and defendants could not take advannish the money, and Clark was acting as the tage of their own fraud. The nonexistence of attorney for the Wegman Piano Company on insolvency would have been no defense to the recommendation of the bank officials, the bankruptcy proceedings which were based but, it is charged, in bad faith and to bring on an act of bankruptcy merely (West Co. about its destruction.
v. Lea, 174 U. S. 590, 19 S. Ct. 836, 43 L. Ed.  The case was tried on the theory that, 1098). if Clark and Knapp made specific false af- [3,4] The principal question of law to be firmations to Mrs. Page of the arrangement considered is whether it was error to exclude under which the reorganization of the com- the evidence offered to show the condition of pany was to occur, knowing that it was not the bankrupt estate. Undoubtedly the theory so to occur, and damages resulted, the repre- of the learned trial justice was correct that sentations were actionable. Ritzwoller v. the fraud, if established, set in motion a Lurie, 225 N. Y. 464, 122 N. E. 634. We may train of disaster, and that defendants cannot assume for the purpose of this appeal that negative the fraud by proving the disaster, the evidence was sufficient to go to the jury But the solution of the problem of the adto the effect that the Wegman Piano Com- missibility of evidence depends upon the cirpany was solvent, that the act of bankruptcy cumstances of the rejected proof in relation was obtained by the joint fraud of appel- to the whole case. lants, and that Mrs. Page was damaged On the undisputed evidence it appears that thereby. If by reason of such fraud Mrs. the piano company, while claiming to have Wegman's stock became valueless, she suf-assets largely in excess of its liabilities, was fered an injury for which the tort-feasors | far from prosperous; that it was troubled in were liable to her personally. General Rub-obtaining extensions of credit; that it needber Co. v. Benedict, 215 N. Y. 18, 109 N. E. ed and was seeking a large amount of new 96, L. R. A. 1915F, 617. Mrs. Page alleges capital. Although the complaint alleges that that the value of her stock was $700,000, and the conspiracy had for its object the acquisithat the same was rendered valueless by the tion of the business of the Wegman Company fraud of defendants; the verdict of the jury by defendants, it does not appear that this was for $25,000.
purpose was accomplished or sought. Knapp  It is contended by appellants that the was appointed first receiver and then trusbankruptcy proceedings were res adjudicata tee of the property of the bankrupt company. on the question of solvency (Gratiot Co. St. As such he received his fees. Clark was Bk. v. Johnson, 249 U. S. 246, 39 S. Ct. 263, employed as attorney and also received fees, 63 L. Ed. 587), or at least competent as bear- but the alleged purpose of the conspiracy did ing on the questions at issue. The learned not otherwise fructify. It was a closely distrial justice held in effect that the regularity puted question of fact whether the company of the bankruptcy proceedings was not on was in a position to meet its outstanding trial; that their regularity might be as obligations when the act of bankruptcy was sumed; that the question was merely wheth- committed, or, indeed, whether it was solvent er the bankruptcy proceedings were initiated at the time. It might be inferred that, unin fraud; that, while there was no attack on less it could get new capital or make new the regularity of the proceedings themselves, loans to take up old ones, the company could they were not res adjudicata on the question not long continue to meet its outstanding of the solvency of the company, because that obligations when they became due, or remain question was not litigated. He therefore ex- in business, or keep out of bankruptcy. cluded as irrelevant the schedules, reports,
We thus come down to the substantial and other proceedings in bankruptcy, which questions: (a) Did Clark and Knapp falsely established for the purposes of the adminis- and fraudulently say that the bankruptcy tration of the estate in bankruptcy that the would be a mere formality to go through company was insolvent, and that its assets with in order to effectuate a reorganization? were insufficient to pay creditors more than (b) Did Knapp, acting with Clark, falsely 10 cents on the dollar. He properly drew a and fraudulently say that, if the corporadistinction on the question of value between tion was put through bankruptcy, he would a live, going concern and the same concern furnish the necessary funds to rehabilitate in bankruptcy; but he further held that the it? Was there a false representation as to adjudication in bankruptcy merely estab- an existing fact; i. e., the mental state of lished the status of the corporation as a the promisors, coupled with a false promise bankrupt, and gave the court jurisdiction with regard to the future? Adams v. Gillig, to administer the estate as that of a bank- 199 N. Y. 314, 92 N. E. 670, 32 L. R. A. (N. S.)