Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-07-11
STATUS OF BANKER
BILL IS DEFINED
New York Court Rules on 49,.
ceptance Matter Involving
Contract. ~.
BY C. b. UPHAM.

One OF the few court decisions deal
ing with the problem which arises with
the failure of bank which has ac-
ceptnaces outstanding was handed
down this week by the appellate di-
vision OF the Supreme Court in New
York. Because of the scarcity OF such
decisions, 1t Is of unusual interest
The business of creating bankers ac-
ceptances. or bankers bills, as they are
commonly called in the New York mar
ket, has been largely concentrated In
the larger banks Of the country In the
l7la years which have elapsed since
the Federal reserve act gave to Ameri-
can banks the power to accent time
drafts. Consequently the problem has
not been an acute one. since few fall
ures have occurred among the larger
banks.
Origin Of Case.
The present case grew OFT of the fail
ure of the Bank of United States in
New York City A New York silk house
had bought silk from japanese seller
and had arranged with the Bank OF
United States to accept the sellers 90
day draft. Between the time of ac-
ceptance and maturity of the draft the
bank failed. 1t sought to collect the
amount of the draft from the New
York silk merchant under the accept
6IC6 dRTtctDetlL, DuJ IeIuSSQ u uSc ouSb
funds for the specific purpose OF re-
firing the acceptance, which it had dis
honoied, desiring rather to increase its
general assets by that amount.
The silk merchant paid the Japanese
seller for the merchandise, receiving
the dlshonored acceptance III exchange.
The attempt of the bank. in the hands
of the State Banking Department. to
compel the silk merchant to pay 1t the
81 IvAff
In the acceptance agreement. failed.
The court held that the refusal Of the
bank to honor the acceptance at ma
turity constituted failure of consider
alton under the agreement.
The suit involved only the rights OF
the bank and its customer under the
letter of the credit agreement. There
was no third party bona nde holder OF
the draft in the case. There was no
no indication in the court opinion that
the silk merchant was even Q depositor
of the Bank of United States. although
1t is not good banking practice to es-
tablish letters of credit for account OF
non -depositors.
Upon whom should the Il SIS fall In
situation of this kind? Ia discussing
this matter before the recent conven-
ton of the American Institute of Bank
-
tional City Bank of New X0k. declared
that merchants and bankers would
probably be of the opinion that the
buyer should bear, and not pass along
to the depositors. the loss attendant
upon the inability of the bank to retire
an Outstanding bill accepted for his &C
count. He should be penalized for
choosing an unsound bank, Mr.. Ward
said.
Result of Decision.
The court in the Bank Of United
States case apparently considered that
a contract was involved to which there
were only two parties. The bank, it APP
parently reasoned, agreed to do a GER
tain thing for its customer and failed
to do, IT, Therefore. such reasoning
concludes, the customer is excused from
performance of his part of the contract.
What the court failed to take into ac-
count, evidently is that now, since the
bank is not actively in operation. It's
depositorS and other creditors have an
interest in the matter. The practical
result of the decision is that one cred
itor of the failed institution. the holder
of the acceptance. RECEIVERS in full, while
other creditors take pot luck.
Copyright. 1891.