Bunge v. FIRST NAT. BANK OF MOUNT HOLLY SPRINGS, PA.

• Decision Date: 27 February 1941
• Docket Number: No. 7595.,7595.
• Citation: 118 F.2d 427
• Parties: BUNGE v. FIRST NAT. BANK OF MOUNT HOLLY SPRINGS, PA.
• Court: U.S. Court of Appeals — Third Circuit

118 F.2d 427 (1941)

BUNGE v. FIRST NAT. BANK OF MOUNT HOLLY SPRINGS, PA.

No. 7595.

Circuit Court of Appeals, Third Circuit.

February 27, 1941.

Douglass D. Storey, of Harrisburg, Pa. (John B. Pearson, of Harrisburg, Pa., Tanzer & Mullaney, of New York City, and Hause, Storey & Lick, of Harrisburg, Pa., on the brief), for appellant.

Mark E. Garber, of Carlisle, Pa., for appellee.

Before MARIS, JONES, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

This case involves the responsibility of a bank to which a sight draft with bill of lading attached is sent for collection. The plaintiff is a resident of New York engaged in the business of selling wood pulp. In September, 1937, the plaintiff made an agreement for the sale of a quantity of wood pulp to the Mount Holly Paper Company of Mount Holly Springs, Pennsylvania. The pulp was to be shipped to the purchaser with sight draft attached to the bill of lading. Plaintiff shipped the wood pulp, consigned to himself, upon a uniform order bill of lading.¹ This he endorsed in blank and deposited, together with invoices for the pulp and a sight draft on the paper company to his order for $3,881.43, with the Irving Trust Company of New York City. On October 5, 1937, the Irving Trust Company sent the draft, invoices and bill of lading for collection to the defendant, a national bank located in Mount Holly Springs, Pennsylvania. Accompanying the documents was a collection sheet with the following instructions printed thereon: "If not paid when due please return notes and clean drafts but hold documentary items informing us immediately of reason for nonpayment. Deliver documents only on payment of draft, unless otherwise instructed by us."

Upon receipt of the documents the Mount Holly Springs bank notified the purchaser of their arrival. Shortly thereafter a representative of the purchaser came to the bank and delivered to it the purchaser's check drawn on the Farmers Trust Company of Carlisle, Pennsylvania, for the amount of the draft. Defendant's officer perforated the draft with the word "Paid" and surrendered it, the bill of lading and the invoices to the purchaser who thereupon delivered the bill to the railroad company and received possession of the pulp. Later the same day, an officer of the paper company notified the bank that it would not accept the pulp and would not make good its check upon the Carlisle bank which had been given in payment of the draft. The paper company did not have, at the time the check was given, sufficient funds in that bank to cover the check. The next day was a holiday. On the following day the paper company obtained possession of the bill of lading from the local agent of the railroad company and gave it back, together with the cancelled draft and invoices, to the defendant bank. The bank thereupon returned the check to the paper company and returned to the Irving Trust Company the bill of lading, cancelled draft and invoices, and the Irving Trust Company charged the seller's account with the amount of this draft. This action was brought by the seller against the Mount Holly Springs bank for the amount of the draft. It was tried below by the court without a jury and findings of fact and conclusions of law were made. Judgment was for the defendant.

Plaintiff's theory is that when the defendant bank accepted the purchaser's check and delivered therefor the bill of lading, invoices and draft, the latter duly cancelled, this became a closed transaction with defendant bank becoming personal debtor. Subsequent events, plaintiff argues, do not change the nature of the transaction nor can they lessen plaintiff's rights.

Unless the Bank Collection Act of June 12, 1931, P.L. 568, 7 P.S. § 212 et seq., has changed the law, plaintiff's position is right under the law of Pennsylvania. "* * * except where there is a custom to the contrary, a direction to collect a debt does not of itself include an authorization to receive anything but money in payment thereof." Restatement, Agency § 426, Comment e. The Pennsylvania law governing the consequences of such deviation from authority on the part of an agent is stated in Pennsylvania annotations to the Restatement of Agency, § 426. "It appears to be the law in Pennsylvania, at least in bank collection cases, that if an agent receives something other than money the agent becomes immediately liable to the principal for the full amount of the indebtedness, the burden being on the agent to recover whatever he can from the debtor." An examination of the following authorities supports the rule thus stated: Fifth National Bank v. Ashworth, 1889, 123 Pa. 212, 16 A. 596, 2 L.R.A. 491; Farmers' & Mechanics' National Bank v. Cuyler, 1901, 18 Pa.Super. 434; Bank of Wesleyville v. Rose, 1925, 85 Pa.Super. 52. See also Pepperday v. Citizens' Nat. Bank of Latrobe, 1898, 183 Pa. 519, 38 A. 1030, 39 L.R.A. 529, 63 Am.St.Rep. 769. The Pennsylvania rule in these cases is thus somewhat more severe than that in some other states where recovery against the agent is limited to the loss caused by his negligence. Mechem on Agency, 2d Ed., § 1320. Even under this rule, however, in a collection case prima facie the measure of damages is the amount of the claim. Mogul v. Lavine, Inc., 247 N.Y. 20, 159 N. E. 708, 57 A.L.R. 934; Mechem § 1320. The defendant, then, became liable as debtor when it took the paper company's check and surrendered the draft and the document of title. Once that liability attached the defendant could not unilaterally discharge it by an attempt to retrace its steps. Hamburger Bros. & Co., Inc., v. Third Nat. Bank & Trust Co. of Scranton, 1938, 132...