The Shawmut Corporation of Boston (hereinafter called Shawmut) sued the William H. Bobrick Sales Corporation (hereinafter called Bobrick) on a draft for $4,200 drawn on the Bank of the United States (hereinafter called the Bank) by Bobrick to its own order and accepted by the Bank. After indorsement, Bobrick sold the draft to the Bank which in turn sold it to Shawmut. Before maturity the Bank was taken over for liquidation by the Superintendent of Banks of the State of New York, pursuant to section 57 of the Banking Law (Cons. Laws, ch. 2). When presented at maturity, payment of the draft was refused. Bobrick answered the suit by impleading the Bank and demanding that certain funds alleged to have been furnished to the Bank for that express purpose be applied to the payment of the draft. The Bank answered. Shawmut then moved for summary judgment against Bobrick, and Bobrick moved for summary judgment against the Bank. Both motions were *Page 503 granted. The Bank appealed to the Appellate Division which affirmed the order directing judgment against it.
On the 22d of November, 1930, Irving Schild Co., merchants in New York city, had to their credit in a general account with the Bank $19,680.10. On that day they directed the Bank to debit their account with the amount of the draft in suit plus commission and less rebate of interest. The Bank did so and at the same time credited them with the sum of $4,200 in an account entitled "Prepaid Acceptances." The decision here depends upon the nature and legal consequences of that transaction. The facts leading up to it were briefly as follows: Schild Co., desiring to purchase certain merchandise from Bobrick, requested the Bank to issue to Bobrick a commercial letter of credit. This the Bank did under date of August 15, 1930. The letter was designated and thereafter referred to as Credit No. 8853 and provided credit for account of Schild Co. up to $4,200 available on or before August 20, 1930, by draft at four months' sight when accompanied by specified documents. In consideration of the issuance thereof, Schild Co. agreed to provide one day prior to maturity of the bills drawn in virtue thereof sufficient funds in cash to meet the payment of the same, with interest, commission and all expenses; title to all property purchased and to the proceeds thereof to be in the Bank until payment of the bills, and of any and all other indebtedness of Schild Co. to the Bank. On August 16, 1930, Bobrick drew its four months' draft for $4,200 for the purchase price of the merchandise sold to Schild Co. The draft bore on its face reference to Credit No. 8853. On the same day, with documents attached, it was presented to and accepted by the Bank. On August 18, 1930, the documents were delivered to Schild Co. against a trust receipt by which they agreed to hold the merchandise and its proceeds in trust as security for the Bank and to deliver the proceeds to the Bank to be applied against its acceptance of the draft or any other indebtedness. *Page 504 Schild Co. thereafter sold the merchandise, notified Bobrick to that effect, prepaid the draft in the manner above stated, and received from the Bank notice that their account had been charged for "acceptance due re-L/C #8853." There is no evidence that Schild Co. was informed of the entry in the Bank's "Prepaid Acceptances" account.
There is no contention here that any lien on the merchandise or its proceeds remained in Bobrick after the Bank's acceptance; nor that the suspension of the Bank in any manner revived a lost lien. Neither is there any contention that in the original letter of credit transaction there was any element of a trust in favor of Bobrick or of any holder of the draft. Had the proceeds of the sale of the merchandise remained in the general account of Schild Co., Bobrick, considered here as the holder of the draft, would have ranked upon the suspension of the Bank merely as a general creditor. (Finkelstein, Legal Aspects of Commercial Letters of Credit, note 13, p. 150; note 15, p. 280, and cases cited.) The situation would then have been substantially as it was in Matterof Dever (L.R. 13 Q.B.D. 766), which is pressed to our attention by appellant as an exact parallel. There it appears (p. 770) that "in no case did he [the buyer] in making * * * payment specify the particular acceptance against which he made the payment, nor did any one payment, or the aggregate of payments made in any one day, correspond to any particular acceptance." The argument of counsel with which the court agreed was, therefore (p. 772), "that Suse Sibeth [the issuing party] were at liberty to use the money, when they received it, as they pleased, and that there was no specific appropriation to meet the acceptances."
The contrary is true here. The transaction between the buyer, Schild Co., and the Bank on November 22, 1930, seems to us to have amounted to a specific appropriation to meet the acceptance. Under the terms of the letter of credit agreement, Schild Co. owed no duty *Page 505 to the Bank to provide funds to meet the payment of the draft until December 15, 1930; nor until that date was the Bank bound to accept such provision. But Schild Co., under the evidence, were, as buyers, ultimately liable to Bobrick on the sales contract. (Bassett v. Leslie, 123 N.Y. 396; Leslie v.Bassett, 129 N.Y. 523; Greenough v. Munroe, 53 Fed. Rep. [2d] 362; Cf. 40 Harvard Law Rev. 294.) Apart from their obligation to the Bank, they thus had an interest in providing for the payment of the draft. For that express purpose, they requested the Bank to debit their general account with the amount of the draft. For that express purpose the Bank did so. Thereafter Schild Co. had no further control over the moneys so charged. When the Bank notified them in writing that their general account had been charged with $4,200 for acceptance due in connection with Letter of Credit No. 8853, they had the right to suppose either that the draft had in fact been taken up or that the amount charged had been in some form set aside and appropriated for that purpose. In fact, it was, as we think, so set aside and appropriated by putting it as a separate and unmistakably identified item of credit in its "Prepaid Acceptances" account. Short of a physical segregation of so much cash, it is difficult to see what more could have been done to put a specific sum of $4,200 into an identified fund. The facts are in no essential respect different from those in People v.City Bank of Rochester (96 N.Y. 32). The same result must follow. By a transaction outside of the terms of the letter of credit agreement, Schild Co. provided a fund for the payment of the draft. The Bank set it aside and engaged to apply it for that purpose. "As to it, the bank was bailee or trustee." (People v.City Bank of Rochester, supra, p. 37.)
The judgment should be affirmed, with costs.
POUND, Ch. J., CRANE, LEHMAN, KELLOGG, O'BRIEN and HUBBS, JJ., concur.
Judgment affirmed. *Page 506
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