AACHEN MUNICH FIRE INS. CO. v. GUARANTY TRUST CO. OF NEW YORK.

No. 248.Circuit Court of Appeals, Second Circuit.
March 10, 1930.

Page 579

Appeal from the District Court of the United States for the Southern District of New York.

Action by the Aachen Munich Fire Ins. Co. against the Guaranty Trust Company of New York, to recover $43,137.72 charged by the defendant, on March 27, 1917, against an account which the plaintiff had with it, as the purchase price of a wireless transfer to Germany in the amount of 250,000 marks. Judgment for plaintiff on a directed verdict after a trial before a jury of one and a motion by each side that a verdict be directed for it, and defendant appeals.

Affirmed.

See, also, 27 F.2d 674.

The plaintiff had an account with the defendant in New York City, and in March, 1917, directed the defendant to remit to it by wireless at Aachen, Germany, 250,000 marks at .69 or better and to charge the equivalent against its account. The defendant acknowledged receipt of the order, delivered to the Western Union a cable for wireless transmission so as to render the marks available to the plaintiff in Germany, and charged the plaintiff’s account with the cost of the marks at .69 and the expense of the cable. It was a part of the agreement when the order was accepted that the defendant should be under no liability for any loss or damage in consequence of any delay or mistake in transmitting the message or for any cause beyond the plaintiff’s control. The cable was intercepted so that the marks were never transmitted or rendered available to the plaintiff. The defendant learned of the interception some time after the United States had joined the Allies in the war against Germany, but the plaintiff had no knowledge that the order for the remittance had not been executed until August, 1922. On November 23, 1922, the plaintiff wrote the defendant that, “as the order to effect the transfer in question appears to be open, we beg to formally withdraw same.”

On a former trial it was held that a breach of the contract to remit marks occurred prior to the declaration of war on April 6, 1917, and that the statute of limitations had run before this action was brought on February 9, 1924. On the appeal from a judgment for the defendant, granted upon that trial, the judgment was reversed. We held that the debit by the defendant in March, 1917, of $43,137.73 for the marks agreed to be remitted was a mere temporary and tentative entry, which should as a matter of bookkeeping have been reversed when the trust company learned that no transfer had been made. We remarked that “there was never in fact a valid charge, and the account was essentially as though nothing had taken place.” We also said:

“After the trust company had failed through stoppage of its cables to make the transfer, the plaintiff was in the position of an ordinary depositor, and on learning for the first time in 1922 of the failure to establish the credit, its manager wrote to the trust company that the plaintiff wished no remittances to be made. * * *

“Up to that time there had been no breach of any contract, so that the vexed question of the statute of limitation need not be discussed. * * *” Aachen Munich Fire Ins. Co. v. Guaranty Trust Co. of New York, 27 F.2d 674 at page 677.

Before the second trial, the answer was amended so as to plead as a new defense that it is the custom of banks dealing in foreign exchange by cable or wireless transfer in the city of New York to require of purchasers payment in cash, or the equivalent thereof, in New York, on or before the specified day of payment abroad in such foreign exchange; to accept as the equivalent of cash, checks on New York banks, or, where the purchaser of said transfer has an account with the selling bank, an authorization to charge said account on such day; and to treat said charge on such day as final, whether or not said cable or wireless transfer was subsequently completed abroad.

Upon the second trial, the defendant attempted to show that the custom was as pleaded, that under the custom the debit to the plaintiff’s account was final, and that, because the latter thereafter no longer stood in the position of a depositor, the right of action to recover the consideration accrued upon the failure to transmit the marks rather than

Page 580

after a demand for payment, as in case of a bank deposit.

Judge Grubb, who conducted the second trial, was of the opinion that the legal rights of the parties were not affected by the new pleading and attempted proof of custom, and accordingly directed a verdict for the plaintiff for the recovery of the amount of the debit above referred to, with interest. He said:

“* * * The mere sending of a wireless to the Western Union which did not reach Germany and never made any money available to the insurance company in Germany was no remittance. There being no remittance, there was no authority to make the charge against the depositor. The bank by no method of bookkeeping entries could change the fact that the depositor had never authorized any moneys to be withdrawn except upon remittance, and if there was no authority to withdraw it, then it remains on deposit to his credit no matter what the book entries made by the bank may show.

“So it seems to me on that view that there can be no doubt it remained on deposit and that the plaintiff remained a depositor, in spite of the book entries of the defendant, because the plaintiff never authorized a withdrawal unless the bank remitted to the insurance company in Germany 250,000 marks, which it never did.

“Looking at it the other way, it seems to me that there is quite a difference between the application of this money to an executory contract and a failure of consideration in an executory contract whether or not it amounted to a breach of contract. Here the bank must show authority to withdraw the money from the account of the depositor. If it has not that authority, then the contract or its breach is of no consequence, because the money was not withdrawn from the depositor’s account. If that is true, the depositor is entitled to bring his cause of action within six years from the time of making demand on the bank and the refusal of the bank to pay. So if you look at it the other way, if there was an executory contract as shown by this letter which became impossible of performance by either party, it seems to me the law would restore each party to his status.”

Stetson, Jennings, Russell Davis, of New York City (William C. Cannon and Ralph M. Carson, both of New York City, of counsel), for appellant.

Hartwell Cabell, of New York City, (James M. Lown and Joseph S. Catalano, both of New York City, of counsel), for appellee.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge (after stating the facts as above).

The defendant seeks to differentiate the record before us from that on the former appeal because of proof of custom. But the evidence which was admitted by the trial court amounted to no more than saying that banks in selling foreign exchange, require money in advance, or, if a customer is a depositor, insist upon a charge against his account before the expected consummation of the transaction abroad — that is, in issuing foreign exchange, the bank acts in the same way whether cash is paid or the amount is charged against the depositor’s account. In other words, banks do not await advices that the credit has been established abroad before obtaining cash or charging their customer’s account. There is testimony that, in cases where the credit fails to be established abroad, the bank does not reverse the debit against its customer, but makes a trade with him and buys back the exchange at some mutually agreeable rate.

Questions whether there is a custom to treat the charge as final were asked. But such questions were properly excluded because they called for answers stating, not what the banks did, but what was the legal effect of their action. Moreover no proof was offered of any instance where (as in the present case) a bank learned of the failure to establish a foreign credit before the customer had become aware of it. The instances mentioned were those where the customer first learned of the failure and made some complaint to the bank because the credit which he had purchased had not been set up, and the bank then proceeded to satisfy him in a way appropriate to the particular facts involved. The instances referred to included situations where the payee could not be found or where the cable had been mutilated. An expert from the National City Bank testified that, where confirmation was received from abroad that the payment had not been made, it was the custom to pay the customer by check unless he “specially requests * * * to credit his account, in which case you do so.” Fol. 323. Such testimony failed to establish that the relation of depositor and bank was terminated by charging the depositor’s account with a payment that was never made.

Page 581

That banks on various occasions made special adjustments with their depositors instead of simply reversing the charges is no proof that the charge was ipso facto a permanent entry which as a matter of law was finally deductible from the drawing account of the depositor. Of course, it was permissible for any bank to persuade its customer to purchase exchange at a new rate or to adjust errors that might have arisen either from mistakes on the part of the customer in giving the order or mistakes of the bank in carrying it out. Transactions of this kind do not give rise to a fair inference that the direction to charge the plaintiff’s account, interpreted in the light of a custom in the business, meant as a matter of fact that the plaintiff agreed to have its status as a depositor finally cease pro tanto upon the making of a mere bookkeeping entry. To affect the status, there must, in the absence of such an agreement, at least have been some act done by the bank, at the request of the customer, which prejudiced the rights of the former. Here the bank parted with no money and did no other thing which altered its position. “There can be no rule of law that the mere bookkeeping entry in itself constitutes payment. We must always look through the form of transactions and business communications to get the exact facts.” Sokoloff v. National City Bank, 250 N.Y. 69, 164 N.E. 745, 748.

It is contended that it ought to make no difference whether the customer, in ordering the exchange, paid cash or authorized a debit to his account. In many respects it would make no difference, for in either event, if the exchange was not duly made available, the customer would be entitled to be placed in his original position. But, where he was a depositor, placing him in his original position involves restoring his rights as such depositor. In short, it means that he retains his account with his bank, that no money has ever been withdrawn from the account in spite of the premature debit against it, and that the bank is under no obligation to pay him except as he demands payment. On the other hand, if the customer had paid cash and the bank had failed to perform, the failure would give rise to an immediate obligation to return the money without the necessity of a demand, because, in that situation, there never was any relation between the parties of bank and depositor. Finch v. Parker, 49 N.Y. 1.

In our opinion, the attempted proof of custom did not show that a debit to the plaintiff’s account when unaccompanied by any performance on the part of the defendant changed the relation of depositor which the plaintiff held before the book entry was made. The statute of limitations accordingly did not begin to run until after the plaintiff demanded payment of the amount which had been prematurely charged against it (Sokoloff v. National City Bank, 250 N.Y. at page 80, 164 N.E. 745), and could therefore, upon no theory, be a bar to the cause of action asserted.

The judgment is affirmed.