Court Opinion

ID: 3624995
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:05:48.411506+00
Date Added: 2024-06-11T12:06:52.483141
License: Public Domain

I am unable to concur in the opinion of the court.
I assume that no duty is owing from the bank to its depositor which requires it to investigate the quality of the merchandise (Laudisi v. American Ex. Nat. Bank, 239 N.Y. 234). I dissent from the view that if it chooses to investigate and discovers thereby that the merchandise tendered is not in truth the merchandise which the documents describe, it may be forced by the delinquent seller to make payment of the price irrespective of its knowledge. We are to bear in mind that this controversy is not one between the bank on the one side and on the other a holder of the drafts who has taken them without notice and for value. The controversy arises between *Page 402 
the bank and a seller who has misrepresented the security upon which advances are demanded. Between parties so situated, payment may be resisted if the documents are false.
I think we lose sight of the true nature of the transaction when we view the bank as acting upon the credit of its customer to the exclusion of all else. It acts not merely upon the credit of its customer, but upon the credit also of the merchandise which is to be tendered as security. The letter of credit is explicit in its provision that documents sufficient to give control of the goods shall be lodged with the bank when drafts are presented. I cannot accept the statement of the majority opinion that the bank was not concerned with any question as to the character of the paper. If that is so, the bales tendered might have been rags instead of paper, and still the bank would have been helpless, though it had knowledge of the truth, if the documents tendered by the seller were sufficient on their face. A different question would be here if the defects had no relation to the description in the documents. In such circumstances, it would be proper to say that a departure from the terms of the contract between the vendor and the vendee was of no moment to the bank. That is not the case before us. If the paper was of the quality stated in the defendant's answer, the documents were false.
I think the conclusion is inevitable that a bank which pays a draft upon a bill of lading misrepresenting the character of the merchandise may recover the payment when the misrepresentation is discovered, or at the very least the difference between the value of the thing described and the value of the thing received. If payment might have been recovered the moment after it was made, the seller cannot coerce payment if the truth is earlier revealed.
We may find persuasive analogies in connection with the law of sales. One who promises to make payment *Page 403 
in advance of delivery and inspection may be technically in default if he refuses the promised payment before inspection has been made. None the less, if the result of the inspection is to prove that the merchandise is defective, the seller must fail in an action for the recovery of the price. The reason is that "the buyer would have been entitled to recover back the price if he had paid it without inspection of the goods" (2 Williston on Sales [2d ed.], §§ 479, 576).
I think the defendant's answer and the affidavits submitted in support of it are sufficient to permit a finding that the plaintiff's assignors misrepresented the nature of the shipment. The misrepresentation does not cease to be a defense, partial if not complete, though it was innocently made (Bloomquist v.Farson, 222 N.Y. 375; 2 Williston on Sales [2d ed.], § 632).
The order should be affirmed and the question answered "no."
HISCOCK, Ch. J., POUND and ANDREWS, JJ., concur with McLAUGHLIN, J.; CARDOZO, J., reads dissenting opinion in which CRANE, J., concurs; LEHMAN, J., not sitting.
Orders reversed, etc.