American Sur. Co. of New York v. Philippine Nat. Bank

• Decision Date: 03 May 1927
• Citation: 245 N.Y. 116,156 N.E. 634
• Parties: AMERICAN SURETY CO. OF NEW YORK v. PHILIPPINE NAT. BANK.
• Court: New York Court of Appeals Court of Appeals

245 N.Y. 116

156 N.E. 634

AMERICAN SURETY CO. OF NEW YORK

v.PHILIPPINE NAT. BANK.

Court of Appeals of New York.

May 3, 1927.

Action by the American Surety Company of New York against the Philippine National Bank. Judgment for defendant was affirmed by the Appellate Division, First Department (217 App. Div. 732, 216 N. Y. S. 793) upon a verdict directed by court, and plaintiff appeals.

Reversed and rendered.

Cardozo, C. J., and Lehman, J., dissenting.Appeal from Supreme Court, Appellate Division, First Department.

Henry C. Willcox, Frank C. Laughlin, and Joseph W. Kirkpatrick, all of New York City, for appellant.

John W. Hannon and John T. Loughran, both of New York City, for respondent.

CRANE, J.

The defendant, Philippine National Bank, is a foreign banking corporation duly created and existing under an act of the Legislature of the government of the Philippine Islands.

The Philippine Vegetable Oil Company, Inc., was a foreign corporation, duly organized under the laws of the Philippine Islands, having its principal office at Manila, and a branch office in the city of New York, in charge of one Herbert Hellis as its general manager. The business of the corporation was trading in, and exporting, vegetable oils to the United States and elsewhere. The company had a plant in San Francisco, Tacoma, and New York; it had its own ships and tank cars and tank receiving stations, and did a banking business not only with the defendant, but with the Hong-Kong & Shanghai Banking Corporation, the Chartered Bank of India, Australia and China, and the International Bank, and the Bank of the Philippine Islands. It was one of the defendant's largest customers, transacting business with it in two ways: On its exports, it cashed drafts at the defendant bank, turning over to it the bill of lading which the defendant in turn transferred to the consignee when the drafts were paid; the other way of doing business was to borrow money from the defendant by overdrawing its account. It had the privilege, or was given credit by the defendant, to overdraw its account up to about 1,000,000 pesos, or $500,000. This was a running account in which deposits were made nearly every day, and credited to the oil company, and moneys drawn out daily generally in excess of the deposits. Interest was charged on the daily balances, which were always in favor of the bank. In other words, during the times here in question, the oil company was always in debt to the bank, having continually exercised the privilege of overdrawing its account. Its credit was kept good by the daily payments on account; that is, by the deposits made to its credit. The bank was loaning its money to the oil company in this way, receiving every day payments on the loan, or deposits, which kept down the total of the indebtedness to somewhere within the limit of the oral arrangement. While the moneys advanced by the bank amounted to millions, the payment and deposits made by the oil company kept the balance of the debt, or advance, to $500,000, or thereabouts. The bank kept but one account with the oil company, and this was the account, copies of which were received in evidence, showing the moneys drawn out by the oil company, the moneys deposited, and the daily and monthly balance. The account is in the form of a debit and credit account, so that the balance due can be ascertained for any one day. On June 30, 1918, the debt due the defendant was 751,612 pesos; on July 31 it was 752, 189 pesos; on August 5, 1918, the oil company had overdrawn to the extent of 1,107,746.37 pesos, or $553,873.18. As shown by the books, the balance on July 31 was the figure above given, 752,189.63 pesos; on the next day, August 1, the oil company had drawn out five separate items aggregating 533,362.04 pesos, and had deposited 227,849.78 pesos. On August 2 it drew out 30,000 pesos, and deposited 1,409.02 pesos. On August 3 it drew out four items aggregating 206,585.54 pesos, and deposited two items, 186,221.78 pesos. On August 5 it drew out 99,009.90 pesos, and deposited four items aggregating 351,920.16 pesos, one of which items was a deposit of 254,000 pesos. This item we must bear in mind, as it is all-important to this case. Thus we see that the daily balance of the depositor continually fluctuated.Its credit necessarily depended upon its payments. It was always in debt, but kept the balance of its debt down by making daily payments, as above indicated. It drew out and paid back, the bank receiving as above stated, the interest on the daily balance. If the debtor, the oil company, had paid the balance due in full, the amount would have been entered as a credit, balancingthe account the same as was entered this item of 254,000 pesos. Every deposit, therefore, to the account of the oil company was a reduction of its debt; money received by the bank in part payment of the balance due. Delaney, the bank's manager in Manila, testified that all the deposits operated to reduce the oil company's indebtedness and the daily interest charges. This item of 254,000 pesos he said was applied by the bank no differently than any other item of deposit. At no time was the bank obliged to loan the oil company any more money. The overdrafts were an extension of credit voluntarily given.

On the 5th day of August, as the above account shows, and as I have stated, the oil company owed the bank 1,107,746.37 pesos, or $553,873.18. On that day it received, with other deposits, this item of 254,000 pesos, or $127,000. If the bank had shut down the loan account on that day, and stopped further credit, the balance due would have been reduced by this amount deposited. The fact is that on that day the bank only loaned out to the defendant 99,009 pesos, or $45,500. As the interest stopped on the $127,000. or on the balance deposited over and above the amount paid out this day, the deposit must have been considered a payment. However we look at this account, all the deposits made by the oil company were in part payment of its debt, and applied by the bank on the indebtedness.

This amount of 254,000 pesos, or $127,000, deposited to the credit of the oil company on August 5, 1918, was money received by the bank from the oil company, and applied by it, as I have just stated, to the oil company's indebtedness. It received this money in the same way in which it would have received the entire balance due, if it were to close out the account. Such a final payment would have been credited in the same way. Therefore, this deposit was received by the bank and credited as payment on its debit and credit account in the same way as any other creditor would receive payment for money loaned or goods sold and delivered on an open and running account. People do not have to stop all business transactions and end all relations in order to make payments received on open and running accounts payments in fact. The continuance of business either by loaning more money or selling more goods does not take from previous payments their nature as real payments. The money thereafter loaned is the creditor's money, and not the mere handing back to the debtor of his payment. The credit is the thing, and this is kept alive by payments in whole or in part. Every credit, however, is a new transaction the same as every sale is a new transaction.

This rather lengthy, and perhaps unnecessary, explanation of the relationship between the Philippine National Bank and the Philippine Vegetable Oil Company, Inc., is due to the view which the bank has presented through counsel and counsel only, regarding this payment of 254,000 pesos, or $127,000, on August 5, 1918. As this case centers around this deposit, it is necessary to understand the facts and circumstances which enabled the bank to get it.

Prior to July 27, 1917, a cargo of vegetable oil had been shipped by the Philippine Vegetable Oil Company, Inc., to New York City and was there attached by virtue of a writ of attachment in an action in the Supreme Court, New York county, brought by Fels & Co. against the oil company. Thereafter, the oil company, in order to release the oil and vacate the attachment, deposited with the sheriff of Richmond county the sum of $127,000, which remained in his hands until the giving of the undertaking hereinafter mentioned. In June and July of 1918 the oil company had heavily overdrawn its account with the Philippine National Bank. Whether the deposits were not coming in fast enough to suit the bank we do not know, as the officers of the bank have kept silent upon this matter. However, we do know that the oil company, or the bank, or both of them, wanted this cash deposit lying idle with the sheriff of Richmond county. The first one to propose getting it was the Philippine National Bank. In June of 1918 it communicated with the plaintiff, the American Surety Company of New York, a bonding company, and attempted to get that company to give a bond to the sheriff of Richmond county in place of the money. Naturally, the bonding company wanted security for such an undertaking, and the defendant bank offered the bond of the Philippine Vegetable Oil Company, Inc. This the American Surety Company refused to take, but stated that it would accept the undertaking or guaranty of the oil company and the Philippine National Bank. C. C. Robinson was vice president of the bank and general manager of its New York City Branch. He was the one who started and finished all negotiations with the American Surety Company. The transactions were with the bank throught Robinson, and not with the surety company. Robinson stated that the bank had loaned the Philippine Vegetable Oil Company, Inc., $1,400,000, and thought very well of the company. However, he could not furnish the security required without communicating with the home office at Manila.Thereupon, he cabled to the defendant, the Philippine National Bank, at its home office, for instructions, in the following words:

‘Relative Fels...