Case Name: Kerr Steamship Company, Inc., Respondent, v. Chartered Bank of India, Australia and China, Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1944-03-10
Citations: 292 N.Y. 253
Docket Number: 
Parties: Kerr Steamship Company, Inc., Respondent, v. Chartered Bank of India, Australia and China, Appellant.
Judges: Lotjghran, Rippey, Lewis, DesmoNd and JJ., concur with Lehman, Ch. J.; Conway, J., dissents in opinion.
Reporter: New York Reports
Volume: 292
Pages: 253–269

Head Matter:
Kerr Steamship Company, Inc., Respondent, v. Chartered Bank of India, Australia and China, Appellant.
Argued January 18, 1944;
decided March 10, 1944.
John W. Davis, William C. Gannon, Ewen G. MacVeagh and Harold W. Bissell for appellant.
I. Delivery of the negotiable instrument to plaintiff, consummated an executed sale; and thenceforth plaintiff could not go behind the negotiable instrument to rescind the exécuted transaction by which plaintiff had purchased the instrument. (American Express Go. v. Cosmopolitan Trust Go., 239 Mass. 249; Gravenhorst v. Zimmerman, 236 N. Y. 22; Moe v. Bank of United States, 211 App. Div. 519; Auerbach v. Barrett, 214 App. Div. 279; Carmen v. Higginson, 245 Mass. 511; Samuels v. E. F. Drew Go.', 296 F. 882; 62 A. L. R. 509.) II. The character of the initial transaction as an executed sale is not affected by the fact that drawer and drawee are the same or by any resulting option to treat the instrument as a promissory note. (Ghrzanowska v. Corn Exchange Bank, 173 App. Div. 285, 225 N. Y. 728; Mazukiewicz v. Hanover Nat. Bank, 240 N. Y. 317; 241 N. Y. 504; 270 U. S. 643; People’s Savings Bank v. Bates, 120 U. S. 556; Gierke v. Martin, 2 Ld. Raym. 757; Buller v. Crips, 6 Mod. 29; Blackstone v. Miller, 188 U. S. 189; Gravenhorst v. Zimmerman, 236 N. Y. 22; Schweitzer v. Fargo, 255 N. Y. 60; Grannis v. Stevens, 216 N. Y. 583.) III. The character and inviolability of the initial transaction as an executed sale is not affected by the war with Japan or by the Japanese invasion and occupation of the Philippines. (Neumond v. Farmers Feed Go., 244 N. Y. 202; New York Life Ins. Go. v. Statham et al., 93 IT. S. 24; Strauss v. Schweizerische Kreditanstalt, 45 F. Supp. 449; Hopkirk v. Page, 2 Brock. 20, 12 Fed. Cas. 504; Harden v. Boyce, 59 Barb. 425; Bay v. Smith, 84 U. S. 411; Bond et al. v. Moore, 93 U. S. 593; Tardy v. Boyd, 67 Va. 631; Patience y. Toivnley, 2 Smith K. B. 223; Wolcott v. Van Santvoord, 17 Johns. 248; Chrzanowsha v. Corn Exchange Banh, 173 App. Div. 285, 225 N. T. 728; Soholoff v. National City Banh, 250 N. Y. 69; 50 A. L. B. 1348-1359, 136 A. L. E. 478-497.) IV. The character of the initial transaction as an executed sale is not affected by the fact that the plaintiff purchaser was not the payee of the instrument. (Lansing v. Caine, 2 Johns. 300; Grannis v. Stevens, 216 N. Y. 583; Moore, The Eight of the Eemitter of a Bill or Note, 20 Columbia Law Bev., 748; Beutel, Eights of Remitters, 12 Minn. Law Eev. 584; Schweitzer v. Fargo, 255 N. Y. 60.)
Otey. McClellan for National City Bank of New York, amicus curiae, in support of position of appellant.
Plaintiff has no right to recover the dollars paid for a foreign money negotiable instrument. (Schweitzer v. Fargo, 255 N. Y. 60; Mazu-hiewicz v. Hanover Nat. Banh, 240 N. Y. 317, 241 N. Y. 504, 270 U. S. 643; Goeshe v. Taylor, 205 App. Div. 429; Auerbach v. Barrett, 214 App. Div. 279; Moe v. Banh of United States, 211 App. Div. 519; American Express Co. v. Cosmopolitan Trust Co., 239 Mass. 249; Foreign Trade Banhing Corp. v. Cosmopolitan Trust Co., 240 Mass. 413; Carmen v. Higginson, 245 Mass. 511; Redo y Cia. v. First Nat. Banh of Los Angeles, 200 Cal. 161; Suse v. Pompe, 8 C. B. [N. S.] 538.)
William M. Evarts for Chase National Bank of City of New York and another, amici curiae,, in support of position of ‘appel lant.
It should not he necessary for a seller (no more a bank which has sold a specialty payable in foreign currency than a shopkeeper who has sold an article of merchandise) in order successfully to defend against taking back the article sold, to prove that it had replenished its inventory after the sale or that after the sale it had been compelled to refuse another customer because of shortage of inventory occasioned by the previous sale. To compel the seller here to take back the specialty sold would be particularly unjust when there is now no current demand for the article at any price and the pride at which the article may be demanded in the future is speculative.
To permit the purchaser of a negotiable instrument to rescind his purchase, undermines the fundamental principles of the law merchant. (Gravenhorst v. Zimmerman, 236 T. 22; Pan-American Bank & Trust Go. v. National City Bank, 6 F. 2d 762; Matter of Harris, 27 F. Supp. 480; Chrmnowska v. Corn Exchange Bank, 173 App. Div. 285, 225 N. Y. 728.)
Elkan Turk, Herman M. Brauner, Raymond S. Baron, George Gaskill and Herman Goldman for respondent.
I. Appellant’s undertaking, as evidenced by and integrated in the instrument which it delivered to respondent, was and remains purely promissory and executory in character. The instrument was a promissory note, not a bill of exchange. As it was never issued, it remained abortive. (Schweitzer v. Fargo, 255 N. Y. 60; Pavenstedt v. N. ¥. Life Insurance Go., 203 N. Y. 91; Fair-child v. Ogdensburgh Clayton & Borne R. R. Go., 15 N. Y. 337; Capital & Counties Bank, Ltd., v. Gordon [1903], A. C. 240; Gravenhorst v. Zimmermwi, 236 N. Y. 22; Wilcox v. Corwin et al., 117 N. Y. 500; Converse v. Cook, 31 Hun 417; Gomperts v. Bartlett, 2 El. & Bl. 849; Suse v. Pompe, 8 C. B. [N. S.] 538; Matter of Francke & Rasch [1918] 1 Ch. D. 470; Baker v. Fifth Avenue Bank of New York, 225 App. Div. 238; Good v. Martin, 95 U. S. 90.) II. Since appellant’s undertaking was and remains promissory and executory in character and its performance by appellant has been prevented by a supervening impossibility and since appellant has not changed its position, respondent has the right to rescind the transaction and to recover the moneys paid as upon a complete failure of consideration. (Gravenhorst v. Zimmerman, 236 T. 22; Safian v. Irving Nat. Bank, 202 App. Div. 459, 236 N. Y. 513; Atlantic Communication Co. v. Zimmermann, 182 App. Div. 862; Dolan v. Rodgers, 149 N. Y. 489; Sokoloff v. National City Bank, 239 N. Y. 158, 250 N. Y. 69.) III. Appellant has suffered no change of position. (Sokoloff v. National City Bank, 250 N. Y. 69; Gravenhorst v. Zimmerman, 236 N. Y. 22.) IV. The authorities relating to true hills of exchange have no application to the case at bar. (Pavenstedt v. N. Y. Life Insurance Co., 203 N. Y. 91; Suse v. Pompe, 8 C. B. [N. S.] 538; Amsinck v. Rogers, 189 N. Y. 252.) V. The war with Japan and the Japanese invasion of the Philippines and the effects of the war and of the invasion are at the root of respondent’s right to recover. (Gravenhorst v. Zimmerman, 236 N. Y. 22.) VI. Appellant did not sell the instrument to respondent. (Wylie v. Addoms, 268 N. Y. 160; Spencer & Co. v. Brown, 143 N. Y. S. 994.)

Opinion:
LehmaN, Ch. J.
The plaintiff sues to recover the sum of $18,437.10 which it paid to the defendant hank on November 28, 1941, when it procured from the defendant bank two documents in the form of a draft " in first and second exchange " drawn by The Chartered Bank of India, Australia and China in New York upon The Chartered Bank of India, Australia and China in Manila and payable there on demand to the order of Roosevelt Steamship Agency, Inc. Claiming that war with Japan and the invasion of the Philippine Islands by Japan has made it impossible for the defendant bank to carry out its obligation in accordance with the intent of the parties, the plaintiff gave notice to the defendant that it elected to rescind the transaction and demanded the return of the moneys it paid to the bank. The bank refused to return the money, and the plaintiff then brought this action to rcover the money paid. After the defendant had interposed an answer, both parties moved for summary judgment. The court at Special Term granted the motion of the defendant to dismiss the complaint. The order was reversed by the Appellate Division and the motion of the plaintiff was granted.
The facts are not in dispute. Plaintiff's treasurer alleges in his affidavit that on November 28, 1941, the plaintiff " desired to make three remittances ' ' — one to its agent in Calcutta, another to its agent in Manila and the third to its agent in London. He asked the defendant bank for its " rates for telegraphic transfers to Calcutta and for drafts on Manila and England." He " desired to make telegraphic transfer to Calcutta because at that time mail communication to India, it being a British possession, was greatly impeded * # #. On the other hand, mail communication with the Philippines was open and in regular operation by both air mail and ordinary mail and hence remittances through the transmittal of documents for the payment of money could be rapidly made by air mail." Having received the defendant's " rates for Calcutta rupees, Philippine pesos and British sterling," plaintiff's, treasurer requested the defendant bank " to issue drafts in first and second of exchange to Roosevelt Steamship Agency, Inc. for the Philippine pesos ⅜ ⅜ * " and to another payee in London for British sterling. The defendant was informed that the plaintiff " intended to send the first of exchange of the draft payable to Roosevelt Steamship Agency, Inc. by air mail and the second of exchange by ordinary mail." Plaintiff paid the defendant its charges " for the issuance of the drafts in pesos " and in British sterling, and at the same time paid in addition the defendant's usual charge of fifty cents for " transmittal by of advices to its foreign agencies " and the person procuring the draft for the plaintiff informed the defendant that he intended to transmit the draft by air mail. (Italics throughout this opinion are ours.)
The intention of the plaintiff to make " remittances " of pesos to Manila rapidly by air mail through " transmittal of-documents for the payment of money-" has been frustrated. Though the documents were promptly mailed to Manila, the outbreak of war made delivery there impossible and they were returned to the sender. The defendant bank cannot do business in Manila so long as the Japanese are in possession of the islands. The Appellate Division has held that due to these conditions there has been a complete failure of consideration, entitling the plaintiff to rescind the transaction.
The plaintiff alleges in its complaint that the defendant in consideration of the moneys paid to it, " promised and agreed to and with the plaintiff that the defendant wonld pay to Roosevelt Steamship Agency Inc. * ⅜ * the sum of 37,000 Philippine pesos. To evidence the defendant's aforesaid agreement and to specify the manner of its performance and at its direction to its representatives in Manila to make payment as aforesaid, the defendant delivered to the plaintiff two documents ⅜ The defendant's alleged promise that it wonld pay to the Roosevelt Steamship Company in Manila the sum of 37,000 pesos is a unilateral primary promise to pay a sum of money. The plaintiff has given to the defendant the full stipulated consideration for that alleged promise. " The manner of its performance " is formulated in the documents delivered to the plaintiff. Payment is to he made only in Manila upon demand there and presentation of one of the " drafts ", the other being unpaid. During the continuance of a state of war a presentment of the draft at a point across the line of hostilities is impossible, and delay in presentment is excused. (Negotiable Instruments Law, § 141.) Performance of the contract in Manila would indeed he illegal during the continuance of hostilities. (Restatement of the Law of Contracts, § 596.) There has been, it is claimed, " supervening inpossibility " in the performance of an executory contract made as alleged in the complaint between the plaintiff and the defendant for the payment of foreign money in a foreign country which entitles the plaintiff to restitution of the consideration paid in accordance with the rules formulated in the Restatement of the Law of Restitution, section 108.
We think that upon the undisputed facts — conceded or stipulated by the parties or established by the affidavits of both parties — it appears conclusively that the defendant did not, as alleged in the complaint, assume for a stipulated consideration a primary executory obligation to pay pesos in Manila in accordance with a contract " evidenced " by the documents delivered to plaintiff. The affidavit of plaintiff's treasurer accurately describes the transaction. The plaintiff paid the defendant the agreed rate for " drafts " in Manila order to make a " remittance " to Manila through " transmittal of documents for the payment of money ". In return it received from the defendant documents executed by the plaintiff as the " first and second of exchange " of a draft drawn by the defendant on itself at Manila. Those documents did more than " evidence " the agreement. The agreement was integrated in the instruments. They were the documents " for the payment of money " which the plaintiff desired to procure and by which the remittance could be rapidly made. The question which we must decide is whether that exchange, in which the plaintiff paid its money and received in return an instrument in the form of a draft or foreign bill of exchange, may be rescinded by the plaintiff because payment in accordance with the terms of the instrument cannot be demanded or made ¿luring the continuance of a state of war. We do not decide whether war supervening after the creation of a simple contract for the payment of money in Manila or a contract for a credit in foreign exchange there would give rise to a right of rescission and restitution of the consideration paid or whether the war would merely suspend enforcement of the obligation. (See Neumond v. Farmers' Feed Co., 244 N. Y. 202, 206; Restatement of the Law of Contracts, § 596; Trotter, Law of Contract During and After War, 4th ed., London, 1940, 55 and 56.)
The distinction is clearly drawn in the opinion of this court in Gravenhorst v. Zimmerman (236 N. Y. 22, 31): " One who secures a draft obtains a written order by the drawer upon the drawee which by commercial usage and even by statutory enactment in some jurisdictions has come to be recognized as the symbol and equivalent of money and which enables the one who has obtained it without further action by the drawer to secure from the drawee the moneys which it represents. In consideration of the money paid by him he has actually obtained an instrument for the payment of money and which is regarded as its equivalent, and it is perfectly natural to speak of such a transaction as resulting in the executed purchase of a draft. A person who makes a contract for a credit in foreign exchange accomplishes no such result. He has secured nothing which will pass for money or which will enable him except through the action of the banker to obtain the exchange which he desires. It gives him no control whatever over the course of events which will lead to the establishment of the credit. The banker retains entire control of this and by his future actions causes to be set up the credit which will eventually enable the customer to obtain the exchange in money which he desires."
The rule is authoritatively established and universally recognized that the transfer of a draft in exchange for moneys paid for the delivery of the draft is an executed transaction characterized generally as a " purchase and sale " of the draft. Snch a transaction may not he rescinded by the purchaser when " supervening war " delays indefinitely presentment and payment of the draft. (American Ex. Co. v. Cosmopolitan Trust Co., 239 Mass. 249; Gravenhorst v. Zimmerman, supra; Schweitzer v. Fargo, 255 N. Y. 60.) Upon such a " purchase " or exchange the purchaser obtains exactly what he a completed instrument for the transmission of foreign exchange. The price fixed for the transfer of such an instrument depends upon the demand for " foreign exchange ", and foreign exchange is treated as " a commodity bought and sold in the market (Richard v. America Union Bank, 253 N. Y. 166, 174; see, also, Nussbaum, " Money in the Law," p. 113.) The " seller " of the draft enters into a binding engagement that " on due presentment the instrument will be accepted and paid ⅜ according to its tenor, and that if it be dishonored # * # he will pay the amount thereof to the holder ". (Negotiable Instruments Law, § 111.) The transfer or delivery of the instrument to " the purchaser " even though the purchaser is not the payee, completes the contract, integrated in the instrument and the contract is no longer revocable. (Meeker v. Shanks, 112 Ind. 207, 210.) The " price " paid to procure that engagement is the stipulated consideration both for the creation of the engagement and for its simultaneous transfer.
We are told that these rules do not apply where the bill of exchange is drawn by a bank upon its branch in a foreign country. 11 Where in a bill the drawer and drawee are the same person # the holder may treat the instrument, at his option, either as a bill of exchange or a promissory note." (Negotiable Instruments Law, § 214.) The question whether that section applies where a bank, engaged in the business of selling foreign exchange, sells a bill of exchange drawn upon its branch in a foreign country is important and is not free from doubt. We do not decide that question here nor do we decide whether a " purchaser " of such a bill who is not the payee is a " holder " within the meaning of the statute, who may exercise such an option. We assume for the purposes of this appeal that he may treat the bill as a promissory note. It still remains true that he has received the instrument for which he bargained and for which he paid the stipulated price, and that instrument, like a draft drawn by a bank upon a correspondent bank not its own branch, is the chosen means for the transfer of a foreign credit. There has been no breach of the engagement integrated in the instrument whether treated as a draft or as a promissory note.
We have pointed out in a recent case that even upon " the purchase of cashiers' checks for remittances to payees where it is desirable to use the credit standing of the in making payment by check ' ⅜ the remitter is a purchaser for value of the bank's promise to pay " (citing Armstrong v. American Exchange Bank, 133 U. S. 433, 453; Vander Ploeg v. Van Zuuk, 135 Iowa, 350, 355; Munn v. Boasberg, 292 N. Y. 5, 9, decided January 13, 1944). The documents delivered by the defendant constitute, in the aspect most favorable to the plaintiff, negotiable paper " drawn " by the bank upon itself and accepted by the bank when it delivered the instrument as its obligation to the remitter for an agreed price. The analogy to a cashier's check is in all material respects complete. (See 6 Michie, Banks and Banking, 250.) The transfer of a cashier's check for ' ' remittances ' ' to payees where it is desirable to use the credit of the maker in making payment is as truly a completed purchase and sale as the transfer similar use of a draft drawn by the maker upon a correspondent bank. (Montana-Wyoming Assn. v. Commercial Bk., 80 Montana 174, 177; Powell B. & L. Assn. v. Larabie Bros., 100 Montana 183, 194, 202.)
Until title to the instrument is transferred to the payee the " remitter " or " purchaser " remains its owner and in some circumstances may sue upon the instrument as if named as payee. No case has been found where such a person has been permitted to rescind the transaction and recover the purchase price on the ground of supervening impossibility in making presentment to the drawee in accordance with the terms of the instrument. (See Underhill Moore, The Bight of a Bemitter of a Bill or Note, 20 Columbia L. R., 749; Beutel, Bights of Bemitters and Other Owners not within the Tenor of Negotiable Instruments, 12 Minn. L. R. 584.) The plaintiff having paid to the defendant the stipulated consideration for an instrument through which it could use the credit standing of the defendant in Manila in making a payment there, received and accepted the instrument, delivered to it, and became its owner. It cannot rescind tbe transfer to it because it is impossible to use it now for tbe purpose for wbicb it was acquired.
Tbe judgment of. tbe Appellate Division should be reversed and that of tbe Special Term affirmed, with costs in this court and in tbe Appellate Division.