Opinion
No. 5365.
October 1, 1928.
In Error to the United States Court for China; Milton D. Purdy, Judge.
Action by the Harbin Electric Joint-Stock Company, Limited, against the National City Bank of New York. Judgment for plaintiff, and defendant brings error. Reversed and remanded.
The National City Bank of New York, defendant below, seeks reversal of a judgment rendered against it in the United States Court for China, in an action containing two causes, brought by the Harbin Electric Joint-Stock Company to recover certain moneys on deposit with the bank. The court below made findings of fact in substance as follows:
Plaintiff is a Chinese corporation, and is also known in English as the Harbin Tramway Company, the Harbin Tramway Concessionaries, the Concessionaries, and the Harbin Electric Light Joint-Stock Company. Defendant, the National City Bank of New York, is a corporation existing under the laws of one of the several states of the United States, and is engaged in the banking business at Harbin, Shanghai, and other places in China. It is the successor of the International Banking Corporation, also a corporation under the laws of one of the several states of the United States, and as such successor has received all of the assets and assumed all of the liabilities of the International Banking Corporation. Prior to January 22, 1923, plaintiff secured from the Harbin town council a franchise for the construction and operation of an electric tramway, light, and power system for the city, together with the right of completing the electrical main and sub power houses, stations, and other accessories. On January 22, 1923, plaintiff entered into an agreement with the Beckman Linden Engineering Corporation, an American corporation, by the terms of which the Beckman Linden corporation undertook to construct on behalf of plaintiff an electrical tramway, light, and power system for the city of Harbin, and as compensation for its services the plaintiff was to pay to the corporation 10 per cent. of the total cost of construction. According to the agreement certain sums of money were to be deposited by plaintiff with the International Banking Corporation, or the Hongkong Shanghai Banking Corporation, at Harbin, in the name of plaintiff, with the understanding that the sums so deposited were to be withdrawn from time to time in payment for materials ordered by the Beckman Linden corporation, which sums were to be paid on presentation of vouchers to be approved by plaintiff, and with checks against said deposit, signed by plaintiff and Beckman Linden Engineering Corporation, or its representatives, jointly. Under the agreement, on February 22, 1923, Harbin $80,000 was transferred from the personal account of one Sui Pan Dze, in the International Banking Corporation, to an account with the bank which was then and there opened in the name of Beckman Linden Engineering Corporation, represented by Mr. E.W. Beardsley, and Mr. Sui Pan Dze, president, Concessionaries, Harbin Electric Joint-Stock Company, and on April 26, 1923, a further sum of Harbin $140,000 was transferred from the personal account of Sui Pan Dze in said bank into the account just described.
The court further found that the moneys constituting said deposit were at all times the moneys of the plaintiff, Harbin Electric Joint-Stock Company, and that such fact was known to the defendant bank, and that Beckman Linden corporation and Beardsley, an employee of that company, at no time had any right, title, or interest in the moneys deposited as aforesaid, other than the right to have the moneys applied in payment of materials furnished in the performance of the terms and provisions of the construction contract; that the parties to the construction contract intended that the moneys deposited in the joint account were to be used solely for the purpose of making payments for materials from time to time as they should be required for the construction of the electrical system; that thereafter at various times certain sums were withdrawn from the account for construction purposes and as advances to the engineering corporation against commissions to be earned in the future, upon checks signed by both parties to the construction agreement, or their representatives; that neither the Beckman Linden Corporation, nor Mr. Beardsley, nor Mr. Sui Pan Dze, nor Mr. Schuhl, have any interest in or right to the balance on deposit in said account as of June 25, 1927; that demand for payment, together with interest, was made by plaintiff, and that defendant has failed and refused to pay any part of the deposit on the sole ground that Beckman Linden Engineering Corporation, E.W. Beardsley, and F.J. Schuhl have not joined in such demand for payment; that under the agreement of January 22, 1923, a second account was opened by plaintiff on November 12, 1923, with a deposit of Harbin $300,000 in the Harbin branch of the International Banking Corporation, in the name of Harbin Tramway Company, and shortly thereafter the plaintiff made the account subject to withdrawals only upon checks signed by the Harbin Tramway Company and countersigned by E.W. Beardsley; that the said moneys constituting the deposit were at all times the moneys and property of the plaintiff, and that that fact was known to the defendant, and that Beardsley at no time had any right, title, or interest in the moneys, other than the right to have the moneys deposited applied to the payment of material furnished in the performance of the construction contract; that it was the intention of the parties to the contract, and the defendant bank at all times well knew, that the moneys deposited by this plaintiff in the name of the Harbin Tramway Company, checks to be countersigned by E.W. Beardsley, were to be used solely for payment of materials required for the construction of the electrical tramway, light, and power system of Harbin; that thereafter, from time to time, certain sums were withdrawn from this account as advances to Beckman Linden against commissions to be earned in the future, upon checks signed by the plaintiff and countersigned by Beardsley, aggregating approximately $85,000; that Beardsley has no interest in or right to the balance on deposit as of June 5, 1927; that plaintiff has demanded payment of the sum, together with interest, and that defendant has failed and refused to pay the same, on the ground that the engineering corporation and Beardsley and Schuhl had not joined in the demand; that, shortly after the execution of the construction contract, differences arose between plaintiff and the engineering corporation, each claiming that the other had breached the contract; that on or about July or August, 1924, the contract was terminated and abrogated by the engineering corporation, and the corporation notified plaintiff that it would hold plaintiff responsible for damages in the full amount of the fee which the corporation would have earned, had the terms of the contract been complied with; that immediately thereafter the engineering corporation closed its office at Harbin and removed from the jurisdiction of the court, and that at no time thereafter, prior to the institution of this action, did the corporation communicate either with the plaintiff or the defendant; that on September 3, 1927, after having been advised of this suit by defendant, Beardsley wrote to the Harbin branch of the National City Bank of New York, notifying the defendant that he would hold the bank personally responsible for the payment of any money out of the last-named account without his countersignature; that on the 8th of September, 1927, after having been advised of this suit by the bank, the engineering corporation wrote to the National City Bank of New York at New York City, claiming each and all of these deposits, and the debt of the defendant represented by said deposits, as belonging to the engineering corporation and as their property; that such claim or claims are unsupported by any evidence in this case, other than said letters, and that the preponderance of the evidence is against the claim of the Beckman Linden Engineering Corporation and E.W. Beardsley to any right, title, or interest to any of the moneys or the debt of the defendant represented thereby to this plaintiff.
The joint account, which was opened with the International Banking Corporation, predecessor of the National City Bank, was authorized by the following letter:
"Joint Account (To be Operated on by All Jointly)."Harbin, May 12, 1923.
"The Manager, International Banking Corporation.
"(Typewrite or Print all information.)
"Dear Sir: We, the undersigned, hereby request you to open a current account in Harbin dollars (local currency) in the books of the bank under the name and title of the Beckman Linden Engineering Corporation, represented by Mr. E.W. Beardsley, and Mr. Sui-pan-dze, president, Concessionaries Harbin Electric Light Joint-Stock Company. Cheques on this account will be signed by all of us, and in the event of the decease of any of us the balance at the credit of the account will be payable to the survivor or survivors. In the event of the account going to debit, we agree to be jointly and severally liable for the balance due to the bank.
"We agree * * *
"Please note our signatures as under.
"Yours faithfully,
"Address Signatures: [Signed] Beckman Linden Engineering Cor., Per E.W. Beardsley, 19 Tamojennaya Street, Harbin.
"Name: Beckman Linden Engineering Corporation, Represented by E.W. Beardsley. Concessionaries Harbin Electric Light Joint-Stock Co., Represented by Sui-Pan-Dze. [Signed] Signature in Russian."
With respect to the deposit described in the second cause of action the plaintiff Harbin Electric Company wrote the following letter to the International Banking Corporation:
"Harbin, Manchuria, 19 Nov., 1923.
"Messrs. International Banking Corporation, Present Dear Sirs: Harbin Tramway Accounts. With reference to deposit of $300,000 made by us on 12th November in the name of the Harbin Tramway Company, kindly note that, in accordance with our contract for the construction of the Harbin tramways, we hereby give you irrevocable authority to pay checks on this account only when they bear the signature of Mr. E.W. Beardsley as well as the authorized signature of this company.
"Mr. Beardsley must approve of these checks with his signature before any amounts can be paid from this account.
"No alterations will be made by us regarding the signature of such checks unless approved by Mr. Beardsley.
"Yours very truly, "[Chinese signature.]"
Neither the Engineering Corporation nor Beardsley is made a party to the action.
Chalaire Franklin, of Shanghai, China, and Pillsbury, Madison Sutro, of San Francisco, Cal. (Alfred Sutro and Eugene M. Prince, both of San Francisco, Cal., of counsel), for plaintiff in error.
Sidney A. Moss, of Shanghai, China, and Hiram W. Johnson, Jr., of San Francisco, Cal. (Max Mayer, of San Francisco, Cal., of counsel), for defendant in error.
Before RUDKIN, DIETRICH, and HUNT, Circuit Judges.
The main contention of the plaintiff in error is that, without the engineering corporation and Beardsley as parties, the action cannot be maintained, and that failure to make them parties cannot be excused by reason of the fact that they do not reside or do business within the territorial jurisdiction of the United States Court in China.
The general rule is that, where several persons make a deposit to their joint credit in a bank, the bank must have the signatures of all of them appended to a check against the fund, or take the risk of paying. Columbia Finance Trust Co. v. Bank, 116 Ky. 364, 76 S.W. 156, 25 Ky. Law Rep. 561; Michie on Banks and Banking, vol. 2, 133; Gish Banking Co. v. Leachman's Adm'r, 163 Ky. 720, 174 S.W. 492. In the present case we think it needs no argument to support the statement that, in the light of the explicit contents of the letter of May 12, 1923, addressed to the banking corporation, there could be no appropriation from the deposit under the name and title of the engineering corporation, represented by Beardsley and Sui-Pan-Dze, president, unless both parties signed checks.
In the controversy that arose over the construction contract the bank was not concerned. The position it occupied was much like that of an indifferent stakeholder, who has possession of funds to which two persons are asserting claims. Under such circumstances the bank naturally desired to avoid exposure to double liability to which, if the amount of the judgment were paid, it would be liable. Hamburger v. Bank of Detroit, 218 Mich. 173, 187 N.W. 535; Neiman v. Beacon Trust Co., 170 Mass. 452, 49 N.E. 748, 64 Am. St. Rep. 315; Mulcahey v. Emigrant Industrial Savings Bank, 89 N.Y. 436. But, argues the defendant company, there would be no such exposure, because the court has found that the engineering corporation's relation to the controversy, as to who was entitled to recover the deposit, was merely formal, in that it was shown that the company has no real or beneficial interest in the deposit. But how could that question be decided in this action, which related to the ownership of the debts created by the deposits referred to in the complaint, without making all the joint depositors, who are living, parties to the action? Surely as to those not sued the judgment is not conclusive. Conklin v. Guaranty Co. (C.C.A.) 266 F. 361.
The rule of the common law is well fixed. Farni v. Tesson, 1 Black, 309, 17 L. Ed. 67, was an action at law upon an injunction bond. Plaintiff brought action on a bond given upon an injunction against the enforcement of a judgment at law. He failed to make as parties three certain obligees to whom the bond had been given, and selected only two of the four who executed the bond to defendant. The complaint averred that the plaintiff was the only one interested in the judgment enjoined, and that one of the obligees was the official who held the execution enjoined, and that the others were merely the agents or trustees of Tesson. The Supreme Court invoked the elemental principle that, where a contract is joint and not several, all the joint obligees who are alive must be joined as plaintiffs. It was said:
"When there are several covenants by the obligors, as, for instance, to `pay $300 to A and B, namely, to A $100, and B $200,' no doubt each may sue alone on his several covenant. The true rule, as stated by Baron Parke, is that `a covenant may be construed to be joint or several, according to the interest of the parties appearing upon the face of the obligation, if the words are capable of such construction; but it will not be construed to be several, by reason of several interests, if it be expressly joint.'" Himes v. Schmehl (C.C.A. 3) 257 F. 69; Burkett v. Lehman, 8 Okla. 84, 56 P. 856; Barney v. Baltimore, etc., 73 U.S. 280, 18 L. Ed. 825.
Cases where the depositary has voluntarily paid one of the joint depositors are to be distinguished, for in them the bank by its action has dispensed with the necessity of joining in subsequent litigation the one to whom payment has been made. Boston Maine R. v. Portland, etc., Co., 119 Mass. 498, 20 Am. Rep. 338.
Passing to the second deposit, it seems apparent that by the letter of November 19, 1923, giving to the bank irrevocable authority to pay checks on the deposit "only" when they bore the signature of Beardsley, as well as of the company, and requiring Beardsley's approval, with his signature, before any payments from the account could be made, the plain purpose was to make Beardsley's signature necessary in order to withdraw any part of the deposit. We think his signature was necessary. If, as was found by the court, the letter was given as a security to Beardsley and the engineering corporation for the performance of the obligations of the plaintiff under the construction contract, including payment of profits or commissions of the engineering corporation, then authority so given could not be revoked without the consent of all interested parties. Hunt v. Rousmaniers, Admr., 8 Wheat. 174, 5 L. Ed. 589; Pacific Coast Co. v. Anderson (C.C.A. 9) 107 F. 973.
Citing section 50 of the Judicial Code (28 USCA § 111), it is argued that the court properly assumed jurisdiction to determine the rights of the parties before it, for the reason that the engineering corporation and Beardsley were not inhabitants of, nor were they found within, the District of China, nor did they voluntarily appear. But, if we are right in the opinion that the joint depositors were indispensable parties to the action, then the law has cast upon the defendant in error the burden of procuring the presence of all such parties. New York Life Ins. Co. v. Smith (C.C.A. 9) 67 F. 694, certiorari denied 159 U.S. 262, 15 S. Ct. 1041, 40 L. Ed. 145; Franz v. Buder (C.C.A. 8) 11 F.2d 854, certiorari denied 273 U.S. 756, 47 S. Ct. 459, 11 L. Ed. 876.
Gregory v. Stetson, 133 U.S. 579, 10 S. Ct. 422, 33 L. Ed. 792, was an action wherein a promissory note, which was involved in litigation, had been delivered to Stetson as stakeholder or bailee by the attorneys for the respective parties to the litigation. Stetson executed a receipt to the attorneys, stating that he held the note subject to their joint order, to be dealt with as they might jointly direct. Thereafter Gregory, one of the parties to the suit, sued Stetson in equity for the proceeds of the note, setting up that he was entitled to such proceeds by virtue of an arbitration award made after the delivery of the note to Stetson, defendant. The other party to the original action was not made a party to the equity suit, for the reason that she was a nonresident and beyond the jurisdiction of the court. The court held that she and the two attorneys were indispensable parties to the equity suit, and that there could be no adjudication directly upon their rights without having them actually or constructively before it; that by the terms of the contract, made subsequent to the termination of the proceedings before the referee, the note in dispute was to be held by the bailee, Stetson, subject to the joint order and direction of the respective attorneys of the parties; that it was too plain to require argument that certain persons named in the receipt given by Stetson all had such an interest in the subject-matter of the contract as to bring the case within the elemental rule, and that, notwithstanding the statute (section 737, Rev. St. U.S., now section 50, Judicial Code) and equity rule 47, as then prevailing, the trial court could make no decree in the suit in the absence of the parties whose rights were necessarily affected thereby. Shields v. Barrow, 17 How. 130, 15 L. Ed. 158; Ribon v. R.R. Co., 16 Wall. 446, 21 L. Ed. 367. The doctrine of that case is controlling of this, and our conclusion is that, without the presence of the engineering corporation and Beardsley as parties, the court below could award no judgment in the suit.
The judgment is reversed, and the cause is remanded for further proceedings.