Bown Brothers, Inc. v. Merchants Bank

Six actions were brought, each involving defendant's liability on a draft drawn by plaintiff and delivered to and accepted by defendant for collection. They were tried together, and argued together at the Appellate Division and in this court. They will be so considered in this opinion.

At the trial a jury, by stipulation made in open court, was waived, and the trial then proceeded before the judge as though he were sitting at Special Term. There was substantially no dispute as to the facts.

The trial court reported in favor of the plaintiff and upon the decision rendered by him judgment was entered, and an appeal was taken from the judgment to the Appellate Division where the same was affirmed, one of the justices dissenting. An appeal was then taken to this court.

In 1916, during the World War, the plaintiff consigned to certain consignees in the Kingdom of Sweden a quantity of dried fruit, and on the first of May of that year it delivered to the defendant certain drafts for the purchase price of such fruit, with documents attached, with direction to present the same to the consignees and collect the amount called for. The defendant accepted the drafts for the purposes stated and forwarded the same, with documents attached, to its correspondent, Brown Bros. Co., in New York city and that firm, in turn, forwarded them to its correspondent in London — Brown, Shipley Co. The drafts were never collected and the actions were brought to recover from the defendant the amount of them, upon the ground that the bank's failure to collect was due to its negligence and made it liable.

At the time the drafts and documents were forwarded, England and other European countries were at war with Germany. The British government was endeavoring to exercise control over foreign trade to the end that food products should not reach its enemies through neutral countries. The British fleet was seizing some vessels carrying such goods to neutral ports. To insure freedom from such seizure, it was necessary for the purchaser to declare that the goods consigned to it would not be re-exported to countries at war with Great Britain. To accomplish the purpose sought, the British government had formulated a certificate known as the "British form" which purchasers were required to sign, and which British bankers were required to use in making collection of drafts representing foreign shipments.

Some time in March, 1916, the defendant, through its New York correspondent, was advised that before undertaking items for collection drawn upon European countries, the London bank desired to receive confirmation that documents were only to be delivered to the consignees upon their signing and delivering the "British form." This fact was called to the attention of the plaintiff and it agreed that collections were to be made in this way.

On the 17th of April, 1916, a law was passed by the Kingdom of Sweden providing for a form of neutrality declaration and providing that the form prepared by it — and no other — should be used by Swedish subjects. The Swedish form differed somewhat from the British form but, in the main, provided that the goods were exclusively for consumption in Sweden and would not be re-exported. Neither the plaintiff nor the defendant had any knowledge of this law at the time the drafts in suit were made in May, 1916.

Shipments were made from New York in different vessels during the month of May, 1916, and there is no dispute between the parties but what the purchasers became legally obligated for the purchase price at the time the goods were shipped. All that remained for the plaintiff to do was to cause the drafts, with bill of lading and documents attached, to be presented to the consignees and receive the amount called for in the drafts. It was this obligation which the defendant undertook to perform when it accepted the drafts for collection.

The fact is not disputed but what the drafts in the regular course of business were presented to the consignees and accompanying them was the British form of neutrality declaration. The buyers refused to sign this form on the ground that they were prohibited from so doing by the Swedish law. They did, however, offer to sign the Swedish form and, according to the findings, they were then ready, able and willing to accept and pay the drafts and take the bill of lading if they could sign such form. The representative of the defendant refused to deliver the drafts and documents upon those terms.

The defendant, upon receiving notice that the consignees refused to pay the drafts, called the plaintiff's attention to it, and asked for plaintiff's instructions. The plaintiff had no information as to the cause of the non-acceptance but immediately notified defendant that it was cabling its brokers in Sweden in connection with the refusal of the consignees to pay. It was not until some time thereafter that the defendant notified the plaintiff that it was the Swedish law which prevented the consignees from signing the British form and paying the drafts, and asked for further instruction. In response to this inquiry the plaintiff advised defendant that the consignees could not be required to break the laws of the Kingdom of Sweden and that, therefore, the signing of the British form should be waived.

The drafts some time thereafter, just when does not clearly appear, were protested for non-payment and the plaintiff notified, and it asked to have them returned.

But, in the meantime, vessels containing the fruit had been seized by the British government and the goods were subsequently sold in the Prize Court for a small amount, and the proceeds paid to the plaintiff were much less than the price agreed to be paid. The difference between what was realized and the amount of the drafts does not seem to be in dispute, nor is there any dispute but what this difference was the plaintiff's loss. Whether the defendant is liable for this loss is seriously disputed, and that presents the main question on this appeal.

The difficulty arose by reason of the fact that on the presentation of the drafts, the buyers could not sign the British form because of the law of the Kingdom of Sweden. This being so, what was the defendant's duty, acting through its agent? I am clearly of the opinion that it could not rightfully insist that the British form should be signed. The agent knew that was legally impossible, and prompt notice of that fact should have been given. It was a negligent act on its part that it did not do so.

In answer to this suggestion, the defendant contends that the contract contemplated that the British form was to be used and that it had no right to surrender the documents and collect the drafts unless that form was used, and no other. The fact that the Swedish consignees could not sign that form, it is urged, was no concern of the defendant. Defendant claims that its duty was discharged when it presented the drafts and documents with the British form. I do not think this follows. The bank acted as the agent of the plaintiff. As such agent it was bound to exercise a high degree of fidelity and diligence in the performance of its duties. (First NationalBank of Meadville v. Fourth National Bank, 77 N.Y. 320;Isham v. Post, 141 N.Y. 100, p. 106.) An agent is bound to a high degree of loyalty to his principal, and in carrying out the duties imposed on him he is bound to act in the interest of his principal.

When the agent ascertained that the Swedish consignees could not sign the British form, it should have adopted some other course which would result in accomplishing the purpose for which the agent had been selected. The purpose was to present the drafts with documents and collect the amount called for. This it could very easily have done if it had permitted the Swedish form to be signed. The bank, acting through its agent, was certainly obligated, immediately upon discovering that the British form could not be signed, to notify the plaintiff. This it did not do. The knowledge which the agent had was the knowledge of the defendant. The only thing which the plaintiff was interested in was the collection, and for that purpose it employed the bank. The method adopted by the bank in making the collection was no concern of the plaintiff. It was not a material part of the arrangement between the plaintiff and the bank, but was a mere detail in the execution of such arrangement. The performance of the details of the arrangement between the plaintiff and the bank as to the certificate of neutrality was to be in Sweden and was regulated by the law there in force. (Hall v. Cordell,142 U.S. 116; Union National Bank v. Chapman, 169 N.Y. 538.)

When the Swedish law became operative, then the parties were relieved from performance in the manner contemplated and it was the duty of the bank's agent to do what it could to save its principal from loss or lessen its damage. (Williams v.Vanderbilt, 28 N.Y. 217, p. 223; Van Buskirk v. Roberts,31 N.Y. 661; Hart v. Myers, 59 Hun, 420; affd., 128 N.Y. 578; Exchange National Bank v. ThirdNational Bank, 112 U.S. 276, p. 291.)

It was the duty of Brown, Shipley Co., who knew that a collection of the drafts could not be made if the British form was insisted upon, but that it could be made if the Swedish form was used, to have promptly so notified the plaintiff, through its correspondents. This certainly was an obligation imposed upon the defendant. (Shipsey v. Bowery National Bank, 59 N.Y. 485, p. 491; Second National Bank v. Merchants' National Bank,111 Ky. 930.) Its failure in this respect, in my opinion, constituted a negligent act which made it liable to the plaintiff for the loss sustained. The trial court so found, and its findings were affirmed by the Appellate Division.

The judgment appealed from should be affirmed, with costs.

HISCOCK, Ch. J., CARDOZO, POUND, CRANE and LEHMAN, JJ., concur; ANDREWS, J., absent.

Judgment affirmed.