Western National Bank v. York Silk Manufacturing Co.

Opinion by Mr. Justice Elkin,

Nothing more could be said, or better said, than has been said by the learned counsel for appellant to sustain the position taken in the court below and here on the questions involved. This position is very frankly stated to be “that by the terms of this contract no credit was authorized to be given to appellant. Silk was purchased for the appellees through the agency of the appellant and paid for by means of drafts drawn by the merchant upon the appellees. The silk so purchased immediately became the property of the appellees, and was never at any time the property of the appellant. The agreement provides for a bailment of the silk bought for the appellees to the appellant, and contemplated ultimately a sale of that silk to the appellant.” If this were a proper understanding of the contractual relations existing between the parties and a correct interpretation of the covenants entered into by them, there would be great force in the argument. But to place such a construction upon the contract, our eyes must be closed to the situation of the parties, the scope and character of their business relations, the nature of their transactions, and to the manifest intention of the contracting companies. Such a view of the case ignores the purpose for which the contract was made and places the contracting parties in a relation not intended by either of them. The intervening petitioners, the appellees here, are bankers, while the defendant company, the appellant, is a manufacturer of silk fabrics. The bankers receive moneys on deposit, discount commercial paper, negotiate loans, issue letters of credit and do a general banking business. The appellant company manufactures and sells silk products and for these purposes purchases silk materials in foreign markets. In the transaction of its business it became necessary to establish a credit and this was done through the banking company by means of a letter of credit issued to appellant upon such terms and conditions as were deemed ample to protect the bankers for moneys advanced from time to time to pay acceptances. It was clearly within the power of the contracting parties to make whatever contract they chose to make for this purpose so long as the terms thereof *447 were not unlawful or against public policy, and no such questions arise here. The bankers were not engaged in the silk business and did not need silk materials, the appellant was in that business and did need the silk. This was the situation of the parties when the bankers agreed to extend their credit and appellant agreed that the title, possession and right of possession, of the materials purchased and for which bills of exchange might be drawn, should be and remain in the bankers until the indebtedness of appellant thus created shall have been paid. It certainly cannot be said, under these circumstances, that “no credit was authorized to be given appellant;” or, that the “silk was purchased for the appellee through the agency of appellant;” or, that the parties only had in contemplation a purchase of the silk by the bankers in the first instance and the sale of it to appellant in the second place. To so hold would be to reverse the natural order of the business relations existing between the parties, and would make the bankers who issued the letter of credit and paid the acceptances of bills drawn against that credit, dealers in merchandise, while the manufacturing company, at whose instance the credit was extended, and for whose use the silk was purchased, would simply enjoy the privilege of buying silk from the bankers from time to time as its necessities might require. No such thing was ever contemplated by the parties, and it is not necessary that the writings evidencing their contract should be given such a strained and unreasonable interpretation. In such transactions the intention of the parties is the guide to correct interpretation, and when viewed in this light, it is perfectly clear that the silk materials were purchased by appellant for its own use and that the title, possession and right of possession only passed to the bankers as security for the acceptances paid upon bills of exchange drawn against the credit given. The letter of credit was issued to the silk company and was intended for its benefit. The acceptances paid by the bankers from time -to time on account of bills drawn against the credit given created an indebtedness against appellant, which it was bound to pay according to the terms of the contract. The silk was held in the nature of a collateral *448 security for the moneys thus advanced. With this view of the situation there is but little difficulty in arriving at a proper solution of the questions raised by this appeal. We fully concur in the. views expressed by the learned court below in disposing of the questions presented there and argued here. The appellant had the right to enter into the contract and is bound by its terms. It was distinctly provided therein that the bankers might at their discretion, sell any or all of the silk, and that the proceeds thus derived should be applied on account of the indebtedness. It was further provided, and this was evidently done in aid of the silk company, that the silk, the title to which was held by the bankers as a security, might be intrusted to appellant for manufacturing purposes upon a contract of bailment, but the right to retake the silk at the discretion of the bankers was expressly reserved. In the present case this is what was done, all of which was in accordance with the terms of the contract and we think this is an end of the case.

Decree affirmed at the cost of appellant.