Legniti v. Mechanics & Metals Nat. Bank of New York

• Decision Date: 01 March 1921
• Citation: 230 N.Y. 415,130 N.E. 597
• Court: New York Court of Appeals Court of Appeals
• Parties: LEGNITI v. MECHANICS & METALS NAT. BANK OF NEW YORK et al.

230 N.Y. 415

130 N.E. 597

LEGNITI

v.MECHANICS & METALS NAT. BANK OF NEW YORK et al.

Court of Appeals of New York.

March 1, 1921.

Action by Angelo Legniti against the Mechanics & Metals National Bank of New York and others. From a judgment of the Appellate Division (186 App. Div. 105,173 N. Y. Supp. 814), reversing a judgment of the Special Term dismissing the complaint upon its merits, the Appellate Division, having made new findings, reversed the dismissal, and given judgment to the plaintiff for the full amount demanded against the defendant named, it appeals.

Judgment of the Appellate Division reversed, and that of the trial court affirmed, with costs in this court and in the Appellate Division.

Appeal from Supreme Court, Appellate Division, First Department.

Frank M. Patterson, of New York City, for appellant.

Weschler & Kohn, of New York City (J. Charles Weschler, of New York City, of counsel), for respondent.

Murray, Prentice & Aldrich, of New York City(Winthrop W. Aldrich, of New York City, of counsel), for intervener Equitable Trust Co. of New York.

Rounds, Hatch, Dillingham & Debevoise, of New York City (Ralph S. Rounds, Eugene Congleton, and Adolph A. Berle, Jr., all of New York City, of counsel), for intervener William Schall & Co.

CRANE, J.

[1] It has long been an established custom among banks and financial institutions to sell credit usually represented by draft or check. Thus a bank having a credit with a correspondent in a foreign country will sell its draft or check, drawn upon such correspondent, to a purchaser who desires to make a foreign payment. The draft is not the credit, but represents the credit, or, in other words, it is a notification to the correspondent or foreign representative to pay the money as directed. The draft is a direction to pay. It is not, itself, money or credit. It is simply used as such. The money paid the bank by the purchaser of the draft becomes the bank's money. The transaction is that of purchase and sale. No trust relationship is established. Taussig v. Carnegie Trust Co., 213 N. Y. 627, 107 N. E. 1086.

This practice of selling credit by means of drafts or checks grew up among merchants and bankers with the expansion of trade and the necessities of commerce. With the increase of foreign trade and the development of international relationships, communication by cable and wireless met the insistent demands for haste and dispatch. Thus the custom has developed of selling credit to be established by cable or wireless. A purchaser does not receive a draft or check which is to be transmitted by mail, but pays for a credit, which will be given him in the foreign country by an immediate cable or wireless from the seller to his correspondent at the foreign point. The thing sold is the same in the case of the cable or wireless transaction as in the case of the draft or check. It is the credit of the bank or seller. The means of establishing or transmitting the credit is simply an incident of the transaction. In the one case, it is a formal paper drawn up and signed by the seller directing his foreign correspondent to make payment of the amount and to the person therein stated. In the other case, it is a similar direction transmitted by cable or wireless. Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transactions are matters of purchase and sale and create no trust relationships. Strohmeyer & Arpe Co. v. Guaranty Trust Co., 172 App. Div. 16,157 N. Y. Supp. 955;Katcher v. American Express Co. (N. J.) 109 Atl. 741; A. C. Whitaker on Foreign Exchange, § 26, p. 89.

In some of the cases this purchase of a cable transfer is referred to as a contract. Bank of British North America v. Cooper, 137 U. S. 473, 11 Sup. Ct. 160, 34 L. Ed. 759; Bank of China, Japan, and the Straits, Limited, v. American Trading Company, [1894] Law Reports A. C. p. 266; Atlantic Communication Co. v. Zimmermann, 182 App. Div. 862,170 N. Y. Supp. 275. The terms of the contract are in such a case that the banker agrees to send a cablegram establishing a credit with his foreign correspondent. The contract, it is said, is executory until the credit has been established and that upon failure to send the message the customer may rescind the contract and sue to get back his money or else sue for breach of contract. Whether the transaction be considered a purchase or an executory contract, we need not now determine. So far as this case is concerned, it is a mere matter of nomenclature. In either case, the money paid by the customer to the banker becomes the latter's property and does not establish a trust relationship; the banker does not hold the money as agent or trustee until the foreign credit is established.

[2] There is a marked distinction between these transactions which I have just described and a direction to a bank or other person to transmit a certain specific sum of money to a person abroad. In such cases the bank or transmitter is the agent of the person paying the money, and until the money is sent holds it as agent or trustee for the owner. Such were the cases of Musco v. United Surety Co., 132 App. Div. 300,117 N. Y. Supp. 21, and People ex rel. Zotti v. Flynn, 135 App. Div. 276,120 N. Y. Supp. 511. In these latter transactions the intention of the payer is that the money he gives to his agent shall be sent abroad. It is the amount which he gives that is to be transmitted. How it is sent may be immaterial to him. If there be time, currency might be purchased and sent. If not, it may be transmitted in any form recognized in financial circles. It is not at all necessary that the sender or agent have credit in the place to which the money is to be sent. On the other hand, in the contract for credit it is not a specific sum which is to be sent, but rather a specific credit which is to be purchased. The amount paid varies with the market. The actual thing that is done by the sender in both of these cases may or may not be the same, but the practice of the merchants and banks has recognized a difference; so have the courts. In the case now before us was the transaction between Angelo Legniti and A. Bolognesi & Co. a purchase of credit or the direction to transmit, as the plaintiff's agent, a specific sum of money? It is frankly conceded by the attorney for the respondent that if it be the former, the plaintiff has no right of recovery. The facts, therefore, must be briefly stated to determine this question.

[3] In February of 1914 Alessandro Bolognesi and Aldo Bolognesi were copartners doing business in the city of New York under the firm name of A. Bolognesi & Co. The plaintiff was a banker at 64 Mulberry street in the city of New York, who was in arrears in Naples on account of the failure of one Caesari Conti, and needed to transfer some money to that place at once. He applied to several banking houses in New York to obtain the best rate for the transfer of 18,000 lire to Naples, Italy. On the afternoon of February 10, 1914, be made his...