Court Opinion

ID: 9418607
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:33:50.808785+00
Date Added: 2024-06-11T16:49:45.297014
License: Public Domain

Mr. Justice Stone,
dissenting
The agreement of the bankrupts, on the faith of which petitioner sold its draft,, did more than stipulate that the draft should be paid on presentation. It provided specifically the method of payment; that the bankrupts should “promptly,” on notice of the draft, “provide the drawee with funds sufficient for the payment of the draft abroad, by a transfer- of credit or otherwise.” It plainly contemplated the course of business, actually followed, in which a credit, to be established with the drawee, was tp be set apart and specifically appropriated to the payment, of the draft. The draft was by its terms made payable from “ balance against this Check.”
We need not discuss what the'petitioner’s rights would have been if no such credit had been established, for here the bankrupts had performed their contract fully and to the letter. They set apart the stipulated credit. Withdrawal of it by them would have been a violation of their contract with petitioner, for the contract contained no intimation of- a right to revoke it, and if the receiver had not done what they had no right to do the draft would have been paid. Nor does it appear to me that the real question is whether the Italian bank was charged.with a trust with respect to funds lodged with it by the bankrupts. It may be assumed that it was not a trustee, but *370only a debtor to the bankrupts for the funds thus received, with power to discharge the debt pro tanto by payment of the draft when presented.
Stated with precision the question seems rather to. be whether, since the bankrupts had .performed their agreement by specifically designating and setting apart enough of their credit with the Italian bank to meet the,draft, the credit thus set apart is to be treated in equity as security'for the payment of the draft. If subject to that equitable obligation, neither the bankrupts nor the receiver could convert the credit, so set apart, into cash and turn the proceeds over to general creditors freed .of that obligation.
Since Holroyd v. Marshall, 10 H. L. Cas. 191, it has been generally accepted doctrine, the recording acts permitting, that -an agreement, to hold property which the promisor may afterward acquire as security for the payment of a debt, operates in equity once the property is acquired, to give the stipulated security to the promisee in preference to general creditors. Such is the rule in this Court. Sexton v. Kessler, 225 U. S. 90. I had supposed it to be equally well settled that the agreement need not mention the word “ security ” to accomplish that result, if its plain purpose is to provide for the satisfaction of a debt or obligation out of identifiable property. Compare Walker v. Brown, 165 U. S. 654; Ingersoll v. Coram, 211 U. S. 335; Hurley v. Atchison, Topeka & Santa Fe Ry., 213 U. S. 126; Ketchum v. St. Louis, 101 U. S. 306; Parlin & Orendorff Implement Co. v. Moulden, 228 Fed. 111; Curtis v. Walpole Tire & Rubber Co., 218 Fed. 145. There has be.en no dissent from the view that an agreement to apply a designated credit or account to the payment of a check or. draft drawn upon it creates security in the credit' en-forcible in equity as against general creditors. Fourth Street Bank v. Yardley, 165 U. S. 634; Farley v. Turner, 35 L. J. Ch. 710; Coates v. First National Bank, 91 N. Y. *37120; Muller v. Kling, 209 N. Y. 239; In re Hollins, 215 Fed. 41. Equity, in making such agreements effective, does no more. than’ it habitually- does in compelling the performance of an agreement to give a mortgage to secure advances made on the faith of the agreement.
Both parties to .this, transaction knew that American drafts drawn on European banks would bé worthless unless definite arrangement for their payment by the drawee was made in advance of their presentation, and that where, as here, a particular credit was set apart for that purpose the utility of such , drafts would be seriously impaired if the credit’, once established, could be cancelled at will. No intelligent banker would sell such drafts.if the establishment- of .such a credit were not contemplated. ’ A bank here, drawing and selling such drafts against a credit to be established abroad by others, pledges its own credit to -the payee' and is secure'd against loss and the dishonor of its drafts only in so far as it may insure the creation of the appropriate, credit and retain the benefit of it- once it is created. The stipulation that the bankrupts should promptly set apart a credit for that purpose upon receipt of advice of the draft and advise the drawee of it was" a material inducement to petitioner to pledge its own credit by the sale of its draft. Once performed, it is valuable security to both payee and drawer, if it is permitted to have the legal sanctions1 which ordinarily attach to agreements of this character.
The evidence in this case appears to me, as it did to the court below, to fall far short of establishing a practice or custom, or any rule of Italian law, permitting the depositor, while the drafts are outstanding, to cancel or control for his own purposes the credit set apart for their payment. Our own rulé is that a bank of deposit may pot, with impunity, ignore the known equitable rights'of others to the credit established by its depositor, National Bank v. Insurance Co., 104 U. S. 54, and it would seem *372that that rule should be applied here in determining the rights of the parties in the absence of proof of any other. But in any case, such control, if retained by the bankrupts as between themselves and the Italian bank, could not be rightfully exercised in violation of their contract with petitioner.
The case would therefore seem tó be a proper one for the application of the rule announced by this Court in Fourth Street Bank v. Yardley, supra, that a court of equity will lend its aid to carry into effect an agreement that an obligation shall be satisfied' out of a specified credit. Applied here that rule would, make effective the intention of the parties and give stability to a large and important class of banking transactions. The judgment should be affirmed.
Mr. Justice McReynolds joins in this dissent.