Charavay & Bodvin v. York Silk Mfg. Co.

• Decision Date: 01 March 1909
• Citation: 170 F. 819
• Parties: CHARAVAY & BODVIN v. YORK SILK MFG. CO.
• Court: U.S. District Court — Southern District of New York

170 F. 819

CHARAVAY & BODVIN v. YORK SILK MFG. CO.

United States Circuit Court, S.D. New York.

March, 1909

This proceeding is brought to determine the right to a certain fund deposited in bank pursuant to order by the receivers of the York Silk Manufacturing Company. The German Bank of London claims the fund, and the claim is disputed by the receivers.

The receivers were appointed in an action brought in this circuit, entitled 'Charavay & Bodvin, Complainant, v York Silk Manufacturing Company, Defendant. ' This cause was ancillary to one in the court of common pleas for York county, Pa., in which the Western National Bank and others were the complainants and the York Silk Manufacturing Company the defendant.

The facts which give rise to the dispute are these: The York Silk Manufacturing Company imported raw silk from China, its agents in Hongkong being Arnhold, Karberg & Co. For this purpose the silk company had applied to the German Bank of London (through the latter's agent, the Bank of New York N.B.A.) in New York, and obtained from it a letter of credit in favor of Arnhold, Karberg & Co. for account of the silk company, amounting to . . .5,000, 'for the cost of raw silk to be shipped from Hongkong to New York. ' This letter of credit provided that the bills of lading should be made out to the order of the German Bank of London, and that the bill of lading used for forwarding to the bank's agent in New York should be accompanied by an invoice properly certified. At the same time the silk company signed an agreement, of which the following provisions are material:

'We will place your bank, previously to the maturity of the bills that may be drawn under the credit, in possession of sufficient funds in cash or in bankers' bills of exchange at not exceeding sixty (60) days' sight indorsed by us and approved of by you to meet the payment of the said bills,' etc.

'Upon receipt from you of the possession of the said merchandise shipped under such credit or the bills of lading or other documents of title thereto, we will sign and deliver a receipt therefor in such form as you may require and will give such security as you may demand, and the said merchandise, after delivery of the custody thereof to us, and the proceeds thereof, if sold by us, shall be held subject to your order on demand as your property, with authority to take possession of and dispose of the same at any time by public sale or otherwise, for your reimbursement or protection and to charge all expenses, including commissions for sale and guaranty, the bank being free from all responsibility whatever in respect of such sale. Said merchandise shall be covered by insurance at our expense, loss, if any, payable to the German Bank of London, Limited.

'All questions arising under this agreement or the credit issued in connection herewith shall be determined according to the law of the State of New York.'

The agreement also provides that, in the event of a decline in the market of such merchandise, additional security shall be deposited.

The letter of credit and agreement in question are dated July 5, 1907. Thereafter, from time to time, silk was bought and drafts were drawn under this credit. The drafts were accepted and paid by the bank. The bills of lading for the silk were duly made out to the bank's order. The invoices stated the value of the silk as $4 per pound. As it arrived, the bank permitted the silk company to take and hold it upon signing what are known as 'trust receipts.' By these trust receipts the York Silk Manufacturing Company agreed to hold the merchandise on storage as the property of the German Bank of London, Limited, with liberty, however, to manufacture it and to sell it, accounting for the proceeds to the Bank of New York, as the attorney of the German Bank of London, Limited, until all of the said bills of exchange should have been paid or provided for, 'the intention of this agreement being to protect and preserve unimpaired the ownership and rights of the said bank in and to said property in whatever form or condition it may be, and the proceeds thereof, and to give said bank all rights in respect to said property and proceeds as provided in the agreement signed by us in connection with the credit under which said property was imported. ' The silk company failed to place the bank in funds to meet the drafts, and thereupon, under the credit agreement, all the obligations of the silk company immediately became due. The silk company having gone into the hands of receivers, the bank tried to recover from them the silk which had been obtained by the company in the way described, and it made petition to the court of common pleas of York county, Pa., where the receivers had been appointed and where the silk, or some of it, was, to be permitted to retake such silk as had been taken under the trust receipts and could be identified. A certain amount was so identified. The court then made an order, upon consent of the receivers, directing them to deliver to the petitioner such merchandise, and ordering also that the receivers have authority to purchase the silk at $3 per pound. The order also contained this provision: 'This order is made without prejudice to any existing right of the petitioners to present any additional claim or claims which they may have against the York Silk Manufacturing Company, defendant, or its receivers. ' From a receipt annexed to the order it appears that the silk was sold to the receivers for the sum of $5,207.05, which amount, less a charge of $500 of the attorneys for the petitioner in that proceeding, was received by the bank. At that time the bank had accepted or paid drafts amounting to a sum which, together with interest to July 1, 1908, aggregated . . . 4,507 18s. 8d. Against this is to be credited the proceeds of the silk mentioned (less the attorney's fees), amounting to . . . 966 10s. 10d., leaving a balance due and unpaid on July 1, 1908, of . . . 3,541 7s. 10d., with interest from July 1st to September 1st; this amounts to . . . 3,577 9s. 7d., or $17,458.10. In the proceedings in this circuit $15,222.40 was admitted by the receivers to be due to the bank, and, in accordance with the resumption agreement executed by the silk company and its creditors, the bank received satisfaction for that amount. It now claims the difference, amounting to $2,235.70, as of September 1, 1908.

Counsel for the receivers show that this is the difference between the invoice value (at $4 per pound) of the silk which was retaken in Pennsylvania and the amount (at $3 per pound, plus attorney's fees) which it actually realized, and they assert that the bank is not entitled to this difference, it having, by the retaking of the property, elected to satisfy itself from this source, and thereby abandoned the right to recover the full amount advanced by it for the purchase of the silk in China. This is on the theory that the transaction between the bank and the silk company constituted a conditional sale, and they invoke the familiar doctrine of election of remedies which obtains in connection with such transactions. Unless this applies, the bank must prevail, because it has admittedly advanced (with interest) the full amount of $17,458.10, and has only received satisfaction to the extent of $15,222.40. It is not necessary to consider the claim made against the receivers otherwise than as a claim against the silk company itself, nor do I understand it to be asserted by either side that the receivership introduces any distinguishing element.

In considering the nature of the relation between the parties, it must first be determined under what law the case is to be decided. The credit agreement provides that all questions under it shall be decided according to the laws of New York. The retaking of the property under the order of the York county court took place in the state of Pennsylvania. In the proceeding in Pennsylvania the credit agreement was before the court, and the silk must be presumed to have been surrendered in consequence of this credit agreement. The court made a special proviso that the order was made without prejudice to any existing right of the petitioners to present any additional claims which they might have against the York Silk Manufacturing Company or its receivers, and this, I think, must be construed as including the right to sue in this case upon the agreement as construed by the New York law. If this case were not to be decided by New York law, the result would, however, be the same, according to the view which I take of the Pennsylvania law and which I shall later briefly consider.

The first important decision in New York as to the relation of an importer of merchandise to the bank which makes advances to pay for the goods in his behalf is First National Bank of Cincinnati v. Kelly, 57 N.Y. 34. There the question was whether a bank holding the possession of goods under a bill of lading was required to file the papers as a chattel mortgage. The court, while holding the filing of papers unnecessary, refused to define the relation of the parties more accurately than to say that the bank, if not the absolute owner, stood in the position of mortgagee in possession; and added, 'It is not of particular consequence what name is given to the transaction.'

The next case was that of Farmers' & Mechanics' Bank v. Logan, 74 N.Y. 568. In that case the bank permitted the purchaser of wheat to obtain possession, the bill of lading being indorsed by the bank, with a direction that the goods were not to be diverted until payment of the draft. It was held that the bank, notwithstanding the surrender of the goods, retained its stipulated rights in them. The court did not explicitly define the relation of the parties ...