Russo-Chinese Bank v. National Bank of Commerce of Seattle

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 Russo-Japanese War was formally declared on February 10, 1904. From February 9 there was a stringent water blockade of Port Arthur and about May 3 the investment was made complete by the Japanese land forces. Port Arthur fell on January 2, 1905, and thereupon the Japanese authorities took possession of all the books and documents of the Russo-Chinese Bank at Port Arthur; these were rqtained until March, 1906, when they were returned to the bank and taken to its home office at St. Petersburg.

Clarkson & Co., an importing firm having its principal place of business at Vladivostok and a branch office at Port Arthur, were also the agents at the latter place of the steamship company which carried the flour. On April 29, 1904, the Port Arthur branch of the Russo-Chinese Bank wrote to the Shanghai branch of the bank (in answer to an inquiry requested by a representative of the Centennial Mill Company) that the bank had “all shipping documents” and added: “The flour relative to the first three bills” (including the one in question) “is in the hands of Clarkson & Co. and has been sold by them. They promised to take up the bills as soon as they get the money of their sale . . . Bill No. 1559/7035 ” (that is, the draft here involved) “is due tomorrow and shall be protested if not paid.” It was further stated that the fact that Clarkson & Co. had obtained possession of the goods, although the bill of lading was held by the bank, was due to their being the steamship agents, and could not be prevented. On July 7, 1904,. the Seattle bank wrote to the Russo-Chinese Bank at St. Petersburg that Clarkson had advised the drawer that this draft,- and others, had been paid before maturity. The Russo-Chinese Bank replied, in substance, that it was not in a

When the Russo-Chinese Bank obtained from the Japanese authorities the books and documents, it ascertained that the draft in question had been protested for non

It was alleged in the complaint that the payment to the Seattle bank had been made upon condition that “if it should thereafter be ascertained that said draft had not been paid,” the money should be refunded, and that there had been no payment in fact. The defendant denied that the condition was as stated and alleged that it had agreed to reimburse the plaintiff upon the return 'of both sets of bills’ and a showing that the draft 'had not been paid,’ provided the defendant was in no wise injured by the negligence of the plaintiff in the performance of its duties. It was further averred, among other things, that the draft had been paid in full by Clarkson & Co.; that it was the duty of the plaintiff not to permit the flour represented by the bill of lading to be appropriated by Clarkson & Co.; and that if the proceeds of the sale of the flour were not applied to the payment of the draft the failure was due to the plaintiff’s carelessness and breach of duty. The plaintiff in its reply denied these averments and alleged affirmatively that Clarkson & Co. were the agents of the steamship company and that it was well known to the defendant that upon arrival the flour would be delivered into their keeping as such.agents whether the draft was paid or not, and that the appropriation of the flour by them before payment was a matter not within plaintiff’s control.

The judgment of non-suit on the first trial, because of a failure to show the return of the draft and accompanying documents and thus to prove the breach of an express promise, was reversed upon the ground that the complaint stated a cause of action upon an implied agreement to restore money paid under mistake of fact. 187 Fed. Rep., p. 86.

“We . . . find that the Port Arthur Branch of the Russo-Chinese Bank did receive the payment of the draft dated December 11, 1903, on account of which the plaintiff made the remittance to the defendant alleged in the complaint.”

The Court of Appeals 'held that, notwithstanding the protest of the draft and the other evidence introduced by the plaintiff to show that it had not been paid, this special finding had sufficient support. In its succinct review of the evidence the court said, 206 Fed. Rep. 651 :

“The flour in question was carried to Port Arthur by the ship Hyades, which reached there about the middle of January, 1904. The evidence also shows that Clarkson &- Co. were large customers of the bank. The succeeding ship of the steamship company, also carrying flour among other things, reached Port Arthur about the 7th of February, 1904. Short” (assistant manager of Clarkson & Co. until, as he said, February 4, 1904) “testified, among other things, that when' the Hyades arrived with the 35,312 quarter sacks of flour in question, there were but from 6,000 to 8,000 sacks in Clarkson & Co.’s warehouse, and that when that shipment arrived he went to the Port Arthur bank on behalf of Clarkson & Co. to accept the draft drawn for the purchase price of it, and did so; that when he accepted the draft Mr. Ofsiankin,” (manager of the Russo-Chinese Bank at Port Arthur) “on behalf of the bank, authorized Clarkson & Co. to .take immediate possession of the flour and sell it, and that he (Short) on behalf of that firm gave the bank what he designates as a Tetter of guaranty,’ and what Davidson” (then, as he testified, manager of Clarkson & Co. at Port Arthur) “in his deposition designates as one of 'hypothecation,’ recognizing the flour as the property of the bank until paid for, and

agreeing to pay over to the bank the proceeds thereof until full payment was made; that the letter was 'the regular form of bank guaranty; it was a printed form,’ said the witness. And both Short and Davidson testified that what was done in the matter of the shipment here in question was in accordance with a long-established custom between the Port Arthur bank and Clarkson & Co.; Short testifying that: 'From the year 1900 the same rule existed. We always gave the bank a letter of guaranty against — a letter of guaranty to take delivery of the cargo, and the cargo belonged to them until it was paid for, and we sold it out and deposited the money in the bank from time to time as Clarkson & Co. got it in.’ — Davidson in his deposition corroborates the testimony of Short in that regard,— ... . Short testified that upon the acceptance by Clarkson & Co. of the draft in question, and the delivery by that firm to the Port Arthur bank of the documents mentioned, Clarkson & Co. took possession of the 35,312 quarter sacks of flour, and that they thereupon commenced selling it, and paying into the bank the proceeds thereof, is a fair inference from his testimony, as well as that of Davidson. — It appears from the latter’s testimony that by reason of orders of the Russian military authorities he was compelled to leave Port Arthur, and did so on the 17th of February, 1904.” After referring to the fact that Davidson was evidently confident that the steamer that brought the flour was the ‘Pleiades’ (the steamer that arrived in February after the 'Hyades’) the court continued, p. 652: — “but the flour itself, the witness distinctly testified, was sold by him before leaving Port Arthur to the firm of Ginsburg & Co., which he testified was a large Russian firm doing an extensive business with the Port Arthur bank, and with its principal place of business at that place, and which sale he testified he had to make in order to protect Clarkson & Co. against the war conditions then prevailing. His testimony is, in

part, that he arranged with Ginsburg & Co. to pay a part of the money for which he sold the flour into the Port Arthur bank, and to take a draft from that company on Shanghai in his favor, which he intended to pay into Clarkson & Co.’s branch at that place, and that he took the head of the firm, Ginsburg, to the Port Arthur bank, and explained to. the manager of that bank the terms of the sale, to which he agreed. — Short testified that the Pleiades arrived at Port Arthur about the 7th of February, and that he himself left there on board of that vessel, and that not more than 1,500 or 2,000 sacks of flour were landed at Port Arthur from that ship, so that the jury might well have concluded that the 35,000 or 40,000 sacks of flour which Davidson thought were brought by the Pleiades was the consignment of flour that the Hyades carried to that port a few weeks before. As a matter of course that, and all other inconsistencies in the testimony of the various witnesses, as well as their veracity, were matters for the determination of the jury, in the light of all of the facts and circumstances of the case. Moreover, there was testimony tending to show that from the 1st of January, 1904, to November 23d of the same year, Clarkson & Co. paid into the Port Arthur bank 126,928 rubles and 97 kopeks.” 206 Fed. Rep., pp. 651-653.

We agree with the Court of Appeals that the special finding of the jury was adequately supported. Error is assigned with respect to the following instruction to the jury:

“If you find from the evidence in this case that plaintiff permitted Clarkson Company to take over the flour under such an arrangement as the defendant claims with the stipulation that the plaintiff was the owner of the flour and with the agreement that Clarkson & Company would account to the plaintiff for the proceeds of the sale of the flour, then I instruct you that such action on the part of the plaintiff constitutes in law a payment of the draft in ques

tion and the plaintiff cannot recover and your verdict must be for the defendant.”

It is said by the petitioner that “if we assume that the Port Arthur branch did, contrary to its instructions, permit Clarkson to take over the flour, then to the extent of the value of the security that was thereby released it may have been responsible.” But, it is argued that “although the bank did without warrant release the security,” still . no damage resulted to the Seattle bank if Clarkson & Co. were in fact able to pay their draft, and that there was abundant evidence that Clarkson’s financial standing in Port Arthur at this time was good; and that in any event the debt could not be deemed to be paid to a greater extent than the value of the property. The trial court, it is insisted, in effect, directed a finding of payment, if the jury found that the agreement was made as described, regardless of this value.

This criticism of the instruction fails, we think, to take proper account of its context. Immediately following the words quoted, the court said: ■

“It is a general rule of law that.where collateral security is received for a debt with power to convert the security into money, this is specifically applicable to the payment of such debt; the same person being the party to pay and receive, no act is necessary and the law makes the application. If the proceeds equal or exceed the amount of the debt it is de facto paid; no action would lie for it, and proof of these facts would support the defense of payment. And if you find from the evidence in this case that the plaintiff did consent to Clarkson taking over the flour in question and consented to the sale of the same by Clarkson & Company, and then Clarkson & Company sold the flour in question and paid over the proceeds thereof to the plaintiff, then such payment of the proceeds of the sale of such flour to the plaintiff operated as a payment of the draft in question, — provided the proceeds

of the sale of the flour equaled the amount of the draft; and if such proceeds did not equal or exceed the amount of the debt then it was a payment pro tanto — that is a payment of so much of the said draft as the proceeds of the sale of the flour would pay of the same; and this is the law, notwithstanding the fact that plaintiff may have received the proceeds of the sale of said flour and placed the same to the credit of Clarkson & Company in its bank, and permitted Clarksop & Company to use said funds 'for other purposes.”

In this,' the trial judge made his meaning sufficiently clear. If the proceeds of the sale under the agreement were to be payment only if they 'equaled the amount of the draft’ and otherwise were to be 'payment pro tanto,’ plainly the agreement itself was not to be treated as constituting payment regardless of the value of the flour. Taking the instructions on this point in their entirety we think that their fair import was that the finding of payment in consequence of the stated arrangement was to be reached only in case the value of the flour was not less than the amount of the draft.

Moreover, the record does not disclose a controversy as to the value of the flour. The evidence as to this amply supported a finding that the flour was at least worth the amount of the draft, and' indeed it could not. be said that a different conclusion would have had adequate support in the proof. Mr. Friedburg, officer of the Russo-Chinese Bank, testified that he did mot know ‘the price of the flour,’ but that so far as he knew “during the Siege of Port Arthur the price of'flour was a little higher than before the outbreak of the war, but there was a lot of flour iñ the go-downs of the Government and no scarcity was felt of it.” Mr. Clarkson testified, referring to the Ginsburg sale: “The first I heard was that the flour had been sold at two roubles a sack. I firmly believe at that time, that as war had.broken out, the flour that

The Russo-Chinese Bank received the draft, with documents attached, for collection. It was instructed that “Documents are to be delivered on payment.” It was on these terms that it was entrusted with the bill of lading, endorsed in blank, which represented the flour. It .was its plain duty not to permit Clarkson & Co., upon whom the draft was drawn, to have the control and disposition of the flour until the draft was paid. See National Bank v. City Bank, 103 U. S. 668 , 670, 671. It is no answer to say that Clarkson & Co. were the agents of the steamship

Error' is also assigned with respect to the instruction to the jury that the Russo-Chinese Bank became invested with the title and ownership of the flour and that it could

Complaint is also made with respect to certain requests for instructions and rulings on the admission of evidence, but they are wholly without merit and it is unnecessary' to review them. It is said that the Seattle bank suffered no loss because it had a guaranty from the Centennial Mill Company, but the Seattle bank in view of its relation to the commercial paper involved was entitled to demand an accounting from its correspondent, and on the same ground to resist this action for the recovery back of the money which it had received upon the draft.

As we discover no error in the record, the judgment must be affirmed.

Judgment affirmed.