#### Richard A. Springs and Others, Appellants, *v.*The Hanover National Bank of the City of New York, Respondent.

First Department,

June 2, 1911.

Banking — bills and notes — draft with false bill of lading • attached— acceptance by drawer — liability of bank presenting draft — agency — guaranty.

"Where a southern firm having made an agreement with a New York firm to ship cotton and draw on them for part of its value, drew a draft to which it attached bills of lading for certain cotton and discounted the same at a local bank, by which it was indorsed and forwarded for collection to a New York bank, which presented -it for payment to the drawee, by whom it was accepted and paid, and it appears that neither of the banks in any way indorsed or stamped the bills of lading; that the draft contained no reference to them and that no representations as to then* genuineness were made to the drawee by either bank, but it. does appear that the draft was accepted solely upon the representation of the drawer that the cotton mentioned in the bills of lading had been shipped, the New York firm on discovering that the bills of lading were forgeries cannot recover the amount of the draft from the New York bank on the ground that the money was paid under a mistake of fact.

Neither the local bank in discounting the draft .nor the defendant in presenting it fot payment guaranteed the genuineness of the bills of lading attached to it as collateral security.

The New York bank in presenting the draft for payment acted merely as the agent of the local bank which was a *bona fide*holder for value, and as it received the proceeds and paid them over to'the local bank before it had knowledge that the bills of lading were spurious it was thereby freed from any liability to the drawee.

Appeal by the plaintiffs, Richard A. Springs and others, from an order of the Supreme Court, made at the New York Trial Term and entered in the office of the clerk of the county of New York on the 8th day of February, 1911, setting aside, the verdict of a jury in favor of the plaintiffs and granting a new trial of the action.

*John JR. Abney,*for the appellants.

*Charles F. Brown,*for the respondent.

McLaughlin, J.:

Action to recover $39,000 paid by the plaintiffs to defendant ■under an alleged mistake of fact. At the conclusion of the *189trial the court directed'a verdict for the plaintiffs, which, on motion of the defendant, he subsequently set aside and ordered a new trial. The plaintiffs appeal.

At the trial it appeared that the plaintiffs were engaged in business in the city of New York; that the defendant is a national bank located in such city;' that the First National Bank of Decatur is also a national bank located at Decatur, Ala.; that^ Knight, Yancey & Co. was a firm which, prior to being adjudicated a bankrupt, carried on business in buying and selling cotton in the State of Alabama; that prior to the transaction hereafter referred to,, they had done business with the Bank of Decatur and also with the plaintiffs; that in January, 1910, they inquired of the plaintiffs upon what terms they could handle cotton shipped to them at New York, to which the plaintiffs replied, giving terms. Nothing further, however, seems to have been done until March 29, 1910, when they telegraphed the plaintiffs that they were consigning cotton to them for delivery and asked advice as to shipping and drawing instructions. The plaintiffs replied by telegraph that they could ship as they thought best, and could draw for eighty-five per cent of the value of the cotton, insuring until it was warehoused. On- the same day Knight, Yancey & Co. telegraphed the plaintiffs, “ Have shipped you to-day six hundred bales care Independent Stores. Drew thirty-nine thousand,” and then drew the following draft upon them:

> “Knight, Yancey <& Co.,

> “ Cotton,

> “ Decatur, Ala., U. S. A.

> *“Mar.*29, 1910, 19.No. 4059.

> “ Pay to the order of

> “ W. B. Shackelford, Cashier ($39,000),

> “Thirty-nine thousand Dollars for value received and charge same to account of

> “ KNIGHT, YANCEY & CO.”

> “To Springs & Co.,

> “New York,

> . “N. Y.”

This draft, on the same day, they presented for'discount to the Decatur bank, with what purported to be bills of lading and *190certificates of insurance for 600 balds of cotton attached. The draft was discounted by the Decatur bank; and the amount of it, less the usual , rate of exchange, credited to the account of Knight, Yancey & Co. The Decatur bank indorsed the draft on the same day and sent it, with' the papers attached, to the defendant for collection and credit, with a letter which gave the names of the drawees and the amount of the draft. The only reference to the papers attached were “P/A.” The let-' ter, with the inclosures as stated therein, was received, by the defendant on the thirty-first of March. It indorsed upon the draff “Hanover National Bank, paid March 31, 1910, New York,” and then presented it to the plaintiffs, who accepted the same and gave the defendant a check for the amount, of it, retaining the draft.and papers attached. The check was paid and the .amount of it credited by the Hanover Bank to the Decatur bank, and the same was drawn out by or in the ■ ordinary course of business on or before April fourth following. Some time thereafter plaintiffs ascertained that the bills of lading were .forgeries. They then demanded of the' defendant the repayment of the $39,000, oh the ground that the money had been paid under a mistake of fact. The demand was not complied with and thereupon this action was brought to recover such sum.

Upon the foregoing facts I am clearly of the opinion that the plaintiffs were not entitled to recover. The draft was ccin-cededly drawn by Knight, Yancey & Co. The amount was-correct, and under' the previous arrangement with Knight, Yancey & Co. the plaintiffs'accepted and paid it. It,Was not a payment. under a mistake of fact. Neither the Decatur bank nor the Hanover Bank indorsed or in any way stamped, the bills of lading which were drawn to the order of Knight, Yancey & Co. and indorsed by them in blank. The draft itself. contained no reference to the bills of lading and it is not claimed that either the Decatur bank or the defendant had any knowledge that the bills of lading were not genuine or that either bank made any representation upon the subject to induce the plaintiffs to make.the payment. The Decatur bank received the draft in the usual course of business as a bank of discount and paid the full amount of it, less the exchange, to Knight, Yan-*191cey & Co., and it is not even suggested that any act of it or the defendant (except the indorsement of the draft in the usual course of business) operated to the prejudice of the plaintiffs or prevented them from making an earlier discovery of the-forgeries; on the contrary, it appears that Knight, Yancey & Co. had arranged with the plaintiffs to accept the draft and that they did accept it upon the representation of Knight, Yancey & Co. that the cotton mentioned in the bills of lading had been shipped to their firm for sale under the previous arrangement.

It may well be that the hills of lading gave some credit to the draft beyond what was created by the supposed pecuniary standing of Knight, Yancey & Co., hut they were not a part of the draft, were not referred to in it or in the acceptance, and so far as the plaintiffs were concerned they were nothing more or less than ■ collateral security accompanying the draft. It was for the plaintiffs alone to determine before they accepted the draft the validity and value of such security. There was no obligation upon either the Decatur bank or the defendant to do this. The Decatur hank in discounting the draft and the defendant in presenting it for payment did not guarantee the genuineness of the bills of lading attached to it as collateral security.

The case in principle cannot be distinguished from *Goetz*v. *Bank of Kansas City*(119 U. S. 551); *Hoffman & Co.*v. *Bank of Milwaukee*(79 id. 181); *Robinson*v. *Reynolds*(2 Q. B. 196); *Thiedemann*v. *Goldschmidt*(1 DeGex, F. & J. 4); *Woods*v. *Thiedemann*(1 Hurl. & C. 478); *Leather*v. *Simpson*(11 L. R. Eq. 398); *First National Bank of Detroit*v. *Burkham*(32 Mich. 328); *Alton*v. *First National Bank of Webster*(157 Mass. 341); *Craig*v. *Sibbett*(15 Penn. St. 238); 2 Daniels Neg. Inst. § 1734d.

In the *Hoffman*case the hank had discounted drafts drawn by parties at Milwaukee on Hoffman & Co., commission merchants of Philadelphia, to which were attached hills of lading purporting to represent shipments of flour. Hoffman & Co. accepted and paid the drafts. The hills of lading turned out to be forgeries and Hoffman & Co. sued the bank to recover the money paid, claiming such payment was made under a mis*192take of fact. It was held 'that the money paid was not a payment by mistake, the court saying: - “Money paid under a mistake of facts, it is said, may be recovered hack as having been paid without consideration, hut the decisive answer to that suggestion, as applied to the case before the court, is that 'money paid as in this case by the acceptor of a bill of exchange to the payee of the same, or to a subsequent indorsee, in discharge of his legal obligation as such, is not a payment by mistake nor without consideration, unless it be shown that the instrument was fraudulent in its inception, of that the consideration was illegal, or that the facts and circumstances which impeach the transaction, as between the acceptor and the drawer, were known to the payee or subsequent indorsee at the time he became the holder of the instrument. 7⁄8 3⁄8 3⁄8 Attempt is made in argument to show that the plaintiffs accepted the bills of exchange upon the faith and security of the bills of lading attached to the same at the time the bills of exchange were discounted by the defendants. Suppose it was so, which is not satisfactorily proved, still, it is not perceived that the concession, if made, would benefit the plaintiffs, -as the bills of exchange are in the usual form and contain no reference whatever to the bills of lading, and it is not pretended that the defendants had any knowledge or intimation, that the bills of lading were not genuine, nor is it pretended that they made any representation upon the subject to induce the plaintiffs to contract any such liability.”

In the *Goetz*case, Goetz and another were engaged in the business of buying and selling, hides at Milwaukee, Wis. One Dubois was a dealer in hides at Kansas City, Mo. Dubois telegraphed Goetz asking for what they could sell 400 hides and how much they would advance on a bill of lading of the shipment. ( Goetz replied giving the market price and* stating they would pay a draft for two-thirds value, bill of lading attached. This was followed by a letter in which Goetz said that he would sell all the hides Dubois might ship to the market at Milwaukee. On this' understanding-Dubois drew five drafts, to each of which bills of lading and invoices were attached. The bills of lading purported to be issued by the Chicago and Alton Railroad Company, stating it had received the- hides. *193giving the numbers and estimated weight, and marked: “To shippers’ order. Notify Goetz & Lnening, Milwaukee, Wis.” The notice purported to give the weight of the hides and their price. The drafts were made payable to the cashier of the Bank of Kansas City and were cashed as drawn, the bank paying the full value, less rate of exchange, and the amount of the discount was passed to the credit of Dubois and checked out by him in the ordinary course of business. The drafts, after they were discounted, were sent by the bank to its correspondent, indorsed by it for collection, and the invoices were indorsed in the same way. The bills of lading were indorsed by Dubois, per his clerk. The signatures to the bills of lading proved to be forgeries and Goetz refused to pay the fifth draft, upon which suit was brought, Goetz counterclaiming for the amount of the four previous drafts paid, alleging the same were paid by mistake of fact. It was held the bank was entitled to recover, the court saying: *“*Under these circumstances it is not surprising that when the drafts on the merchants in Milwaukee were presented for discount the bank made no inquiry as to the genuineness of tlie bills of lading attached to them. A bank in discounting commercial paper does not guarantee the genuineness of a document attached to it as collateral security. Bills of lading attached to drafts drawn, as in the present case, are merely security for the payment of the drafts. ' The indorsement by the bank on the invoices accompanying some of the bills, *‘*for collection, ’ created no responsibility on the part of the bank; it implied no guarantee that the bills of. lading were genuine; it imported nothing more than that the goods which the bills of lading stated had been shipped were to be held for payment of the drafts if the drafts were not paid by the drawees, and that the bank transferred them only for that purpose. If the drafts should be paid, the drawees were to take the goods. To hold such endorsement to be a warranty would create great embarrassment in the use of bills of lading as collateral to commercial paper against which they are drawn. ”

It would make this opinion too long to quote from the other authorities, but it is sufficient to say they are equally as strong as the two quoted from, that money paid under facts similar to *194those here involved cannot he recovered. (But see *Hannay*v. *Guaranty Trust Company of New York,*recently decided by the Circuit Court of the United States for the Southern District of New York, not yet reported.)

The draft in question, as we have already seen, made no reference to the bills of lading. When the plaintiffs accepted it they thereby became obligated to pay according to the acceptance. The acceptance admitted the existence of Knight, Yancey & Co., the genuineness of their signatures, as well as their capacity and authority to draw-the instrument. (Neg. Inst. Law [Consol. Laws, chap. 38; Laws of 1909, chap. 43], § 112.)

There is another view which it seems to me prevents plaintiffs from recovering. The defendant, in presenting the draft for payment, acted as the agent of the’ Decatur bank, which was a *bona fide*holder for value. When the defendant received payment of the draft it had no knowledge that the bills of lading attached were spurious, or that the bills did not represent aotual cotton delivered. Having received the payment and, paid the same over to the. Decatur bank before it had any knowledge that the bills of lading were spurious, freed it from liability. *(Bank of America*v. *Waydell,*187 N. Y. 115; *National Park Bank*v. *Seaboard Bank,*114 id. 28.)

If the foregoing views be correct then it follows that the court did. not err in. setting aside the verdict in favor of the plaintiffs and granting a new trial, because on the facts presented a verdict should have been directed for the defendant.

■ The order appealed from, therefore, is affirmed, with costs .and disbursements.

Ingraham, P. J., Laughlin, . Clarke and Scott, JJ:, concurred.

Order affirmed, with costs.