International Firearms Co. v. Kingston Trust Co.

Bergan, J. The plaintiff is a Canadian corporation and is the successor in interest to the Sportmen’s Wholesale Supply, the payee of a check drawn by the defendant Kingston Trust Company on the Federal Reserve Bank of New York for $1,000. Payment was stopped by the defendant; and this action is for the recovery of the amount of the check. The court at Special Term, after a trial, has granted judgment for defendant dismissing the complaint. The check was bought from the defendant bank by Martin B. Retting, one of defendant’s depositors, and made out in the name of the plaintiff’s predecessor as payee, for use by Retting in connection with a purchase by him of merchandise in Canada from the payee. Retting sent the draft to the Royal Bank of Canada with a restrictive condition to which the payee had expressly agreed: that the check was to be held by the Royal Bank “ until the shipment has been cleared through the United States Customs ”. It is adequately established that the goods contemplated by the parties as the subject of the contract for which the draft was delivered to the stakeholder Royal Bank did not clear the customs. Retting, after a reasonable time, demanded from the Royal Bank the return of the draft; this was not complied with; and the plaintiff, having succeeded to the payee’s interest, brought an action in rem in Canada and obtained a judgment in pursuance of which the draft was seized and came into plaintiff’s possession. Thus possessed of the draft, plaintiff presented it for payment at the drawer bank; payment was refused because defendant had stopped payment and this action against the defendant followed. It is conceded that the payment was stopped by mutual agreement of the defendant and Retting as the purchaser of the draft. [173] Although a bank draft, purchased for a good consideration, is treated as a purchase of credit and of the bank’s promise to pay, and is thus regarded to be contractually complete as between the purchaser and the bank and not revocable unilaterally by the bank as drawer, the party asserting a liability against the bank on the draft is required, at least, to show a valid legal title to it and a right to enforce the contractual obligation. The authorities relied upon by the appellant do not deal with the title of the payee to the draft; but rather with the general rule that after a bank draft is issued the transaction is complete and in this respect is similar to a cashier’s check. (Bobrick v. Second Nat. Bank, 175 App. Div. 550.) The decisions cited by appellant in Kerr S. S. Co. v. Chartered Bank of India, Australia & China (292 N. Y. 253, 266) and in Munn v. Boasberg (292 N. Y. 5, 9) turned on other issues, but by way of comparison the general rule affecting the irrevocable nature of bank drafts was discussed in the opinions and both made reference in this connection to Armstrong v. American Exch. Bank (133 U. S. 433, 453). That case does not hold that the drawer of such a bank draft is not entitled to any defense; it holds that a want of consideration cannot be shown by the issuing bank; but this applies to a case where the payee is a bona fide holder for value (p. 453). It certainly does not hold that the party suing on the draft need not show he has a good title. Here it could be found that the plaintiff is not a bona fide holder; that it has obtained possession of the draft in violation of the specific conditions, to which its predecessor in title had agreed, under which it was delivered to the Royal Bank as stakeholder. The in rem judgment to which defendant was not a party is not an adjudication which, as against defendant, converts plaintiff’s wrong into a good faith possession of the paper. On the trial here the court found the plaintiff’s title to the instrument is defective; and this, certainly, is a defense available to the drawer, even though its obligation is deemed generally irrevocable as against a holder in due course or even as against a possessor not a holder in due course showing a good title. The judgment is consistent with the decision in this court in Hurley v. Union Trust Co. (244 App. Div. 590). There the defendant bank issued three checks drawn upon another bank payable to a named payee for a good consideration given [174] by a purchaser of the draft and delivered by the purchaser to the payee. The invalidity of the transaction between the purchaser of the draft and the payee was held a defense available to the bank, i.e., that the payee did not have an enforcible title. Decisions such as Schweitzer v. Fargo (255 N. Y. 60) and Gravenhorst v. Zimmerman (236 N. Y. 22), relied upon, decided other questions; but they did not decide this one. Nor is it entirely clear that the contract by which the credit was purchased, which the courts treat as “irrevocable” and “ complete ” in the sense it cannot be rescinded by one of them, is a contract which cannot be cancelled by mutual consent. The payee of the draft is not a party to the contract in pursuance of which the draft was issued. What he has is commercial paper which gives him well-understood rights; and he looks for his remedy to the paper he holds and not to the agreement between purchaser and drawer which is no part of the paper or of any instrument accompanying the paper and to which he is not a party. On the other side of the case, touching on the liability of the bank as drawer, its responsibility is fixed by statute; it must pay a holder in due course and for value; and it cannot show an absence of consideration in the issuance of the draft; and where the party seeking to collect it is not a holder in due course, the bank may show other defenses, one of which is, at least, the holder’s title to the draft is defective. Plaintiff is certainly not a holder in due course; and the court at the trial was justified in holding that it had not established such a title as would justify recovery. The general rule has been stated to be that a bank draft ‘ ‘ may be rescinded by mutual agreement of the purchaser and seller ” (9 C. J. S., Banks & Banking, § 173, p. 381); but it is added, “not ordinarily at the behest of one party alone ”, citing Moe v. Bank of United States (211 App. Div. 519). The decision of the Iowa Supreme Court (Runge v. Benton, 205 Iowa 845) is consistent with our view on this aspect of the case. The judgment should be affirmed, with costs.