Foreign Trade Banking Corp. v. Gerseta Corp.

• Decision Date: 27 December 1923
• Citation: 142 N.E. 607,237 N.Y. 265
• Parties: FOREIGN TRADE BANKING CORPORATION v. GERSETA CORPORATION.
• Court: New York Court of Appeals Court of Appeals

237 N.Y. 265

142 N.E. 607

FOREIGN TRADE BANKING CORPORATION

v.GERSETA CORPORATION.

Court of Appeals of New York.

Dec. 27, 1923.

Action by the Foreign Trade Banking Corporation against the Gerseta Corporation. From a judgment of the Appellate Division, First Department (204 App. Div. 875,197 N. Y. Supp. 912) unanimously affirming a judgment of the Trial Term for the plaintiff, defendant appeals by permission.

Reversed, and new trial granted.Appeal from Supreme Court, Appellate Division, First Department.

Herman Shulman and Mortimer Hays, both of New York City, for appellant.

Frank M. Patterson and Franklin H. Mills, both of New York City, for respondent.

POUND, J.

The plaintiff is a banking corporation. The defendant is a manufacturer of silk. The complaint alleges that plaintiff sold and delivered raw silk to defendant of the value of $18,453.34 as follows: Plaintiff delivered the silk to the Raw Silk Trading Company under a trust receipt whereby that company agreed to deliver the silk to the purchasers thereof for the account of plaintiff and to deliver the proceeds to plaintiff; that the trading company, ‘as agent and on behalf of plaintiff’ under said trust receipt, sold and delivered the silk to defendant ‘as the property of plaintiff;’ that defendant agreed to pay therefor by cash or trade acceptances; that defendant knew when the silk was delivered that it was the property of plaintiff and delivered to defendant under the trust receipt; that it ‘thereafter’ notified defendant that the silk was its property, delivered under the trust receipt, and demanded payment, which was refused.

Defendant alleges in substance, as its defense, that it bought the silk from the Raw Silk Trading Company as a principal without knowledge or notice that it belonged to plaintiff or that the Raw Silk Trading Company was acting as agent on behalf of plaintiff under the trust receipts, and that it is entitled to set off certain claims and demands against the Raw Silk Trading Company, although they were not due and payable at the time the silk was delivered.

For convenience the plaintiff will hereafter be referred to as the ‘bank,’ the defendant as the ‘purchaser,’ and the Raw Silk Trading Company as the ‘importer.’

The facts developed on the trial are in substance as follows: On October 21, 1919, the purchaser entered into a contract with the importer for the purchase of 250 bales of raw silk at $8.65 per pound, to be delivered on the arrival of the shipment from Canton during March, April, May, June, and July, 1920. To finance the importation of the silk, the Raw Silk Trading Company applied to the bank for a letter of credit which was in due course issued, and the raw silk was shipped from Ckina to this country under bills of lading made out in the name of the bank. At the time of the issuance of the letter of credit, the importer signed an agreement which provided that the title to and in the silk should remain in the bank until the amount of the letters advanced had been paid and that the raw silk should not be released to the importer until the advances of the bank had been paid or a sufficient security lodged with it to secure their payment. The silk arrived consigned to the bank. It was released to the importer by it under so-called trust receipts, reciting that the merchandise was delivered to the importer in trust for the bank, to enable the importer to deliver it to purchasers, and to collect the proceeds of the sale thereunder, and that the said proceeds of sale will be immediately delivered to the bank upon receipt of the same from customers. The title to the property was to remain in the bank, which should have the right at any time to cancel the trust and retake possession of the merchandise.

On July 29, 1920, the importer delivered 20 bales of raw silk to the purchaser and the purchaser receipted for the same as the property of the importer. On the same day the bank wrote a letter to the purchaser inclosing trade acceptances and with them sent invoices of the importer. These invoices recited that the merchandise was bought from the importer and contained the statement, ‘Trade acceptances to be presented by Foreign Trade Banking Corporation and returned to them.’ The purchaser refused to sign these acceptances and finally returned them to the bank. Its reason was that the importer was indebted to it on other accounts for an amount in excess of the amount due on this raw silk transaction. The purchaser endeavored to prove an agreement between it and the importer with regard to the acceptance of merchandise and the setting off of claims owed by it to the purchaser, but this evidence was not received. It did show, however, indebtedness from the importer to it in excess of the amount due on the same. It also offered evidence to the effect that it had no notice of the bank's rights in and to the raw silk in question at the time the same was delivered to it. The merchandise was delivered to it by the trucks of the importer, delivery receipts were presented reciting that it was received from the importer, and the invoices showed that the merchandise was bought from it.

The court directed a verdict for the bank and refused to permit purchaser to go to the jury on the questions whether purchaser knew that title was in the bank, and whether or not it was entitled to set off its claims against the importer.

We are not dealing with a case where it is alleged that, because the agent had no authority from its principal to pass title, title did not pass, nor a case where the principal has disaffirmed the contract and sought to regain the goods. Moors v. Kidder, 106 N. Y. 32, 12 N. E. 818.

The bank asserts that the silk was its property under the trust receipts, and that the importer ‘as agent and on behalf of plaintiff under said trust receipts sold and delivered’ the same. Under the construction that the bank has placed on the trust receipts, by proceeding by this action to enforce the contract between the importer, as its agent and the purchaser, the bank takes the position that the importer sold and delivered the silk to the purchaser as its agent.

While it may be contended that, as between the importer and the bank, under the terms of the trust receipt, the importer had no authority to...