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Colonial Cases

Hong Kong and Shanghai Bank, 1890

[banking - applicable law]

Hong Kong and Shanghai Bank

Mixed Court, Shanghai
Source: North China Herald, 31 October, 1890

MIXED COURT.
  In the Mixed Court on Friday at 2 p.m. Mr. C. Dowdall appeared on behalf of the Hongkong and Shanghai Bank in the following case:
  Last winter Mr. Su Kan-t'ing, of the Yuan Yuan Ch'ang firm, obtained from the Bank an advance of $15,000, on the understanding that when Cotton which was to be sent to Kobe arrived there to the consignment of the Yuan Yuan Ch'ang firm at that port, the draft on Kobe which he gave the Bank should be paid with interest. The draft was guaranteed by the Yuan K'ai and Ting Hwo, two native banks. When the draft reached Kobe, it was not paid on the ground that no goods had come forward; and the Hongkong Bank at Shanghai had recourse to the two native banks, and succeeded in obtaining from them promissory notes promising that if the draft were not cashed at Kobe, they would make it good.
  The H & S Bank misreading a telegraphic message, returned to the native banks these promissory notes, supposing that the draft had been cashed at Kobe; but on discovering the mistake, again applied to the native banks, but they now denied responsibility.
  Su Kan-t'ing having arrived in Shanghai, the hearing of the case, which had already been commenced, was resumed, Mr. Wilkinson appearing on behalf of the two native banks. Mr. Dzau Kit-fooh again acted as Interpreter for Mr. Dowdall and Mr. Ferris for Mr. Wilkinson.
  An English representative of the Hongkong and Shanghai Bank, its compradore, Mr. Sih Cheng-fu, and the managers of the Chinese banks Yuen K'ai and Ting Hwo were also present.
  Mr. Chu, Acting Mixed Court Magistrate, and Mr. Ayrton, British Assessor, having taken seats on the Bench, Mr. Wilkinson rose and said he would if allowed bring evidence which would show that the two native banks were not liable. Mr. Dowdall next spoke, and observed that the H & S Bank's claim was now, counting interest up to present date at 7 per cent., Tls. 11,363.95, and that as it had been understood at the former hearing that when the case came up again payment would be enforced, it was unnecessary to hear defendant's counsel, and any case between Yuan Yuan Ch'ang and Yuan K'ai and Ting Hwo might be heard separately.
  Mr. Wilkinson said that according to British law in a case like this the plaintiff would not only have no claim on the two Chinese banks, but even no right to recover from the drawer, Yuan Yuan Ch'ang, as, if the bill is accepted and a British merchant telegraphs to that effect, drawer and securer are thereby released from responsibility, and if not accepted, the bill is returned and the amount recovered from the security. As a telegram had arrived from Kobe that Yuan Yuan Ch'ang there had accepted the bill drawn on them, and as the securities' promissory notes had been in consequence returned to them, they have plainly no farther liability in the matter, whatever may be the liability of Yuan Yuan Ch'ang.
  Mr. Dowdall objected that the defendant's Counsel was speaking of English law, whereas this was a Chinese court, and not bound to follow western law.
  Mr. Wilkinson said the plaintiffs were British subjects, and according to English law would have no case. The defendants were Chinese, and he could call the evidence of Chinese merchants as to the custom in the case of drafts, showing that the plaintiffs had no right to put forward such a claim as they had done. In the 3rd Clause of the plaintiff's petition, it was stated that the Chinese Consul at Kobe had elicited from Mr. Pao Tzu-king, manager of the Yuan Yuan Ch'ang there, evidence that no goods of the Shanghai Yuan Yuan Ch'ang had arrived at Kobe, and that therefore it was impossible for him to pay at Kobe. The Chinese Consul agreed, and the bill was returned to Shanghai to be recovered from Yuan Yuan Ch'ang here. Su Kan-t'ing was not at Kobe, and it was impossible for the Chinese Consul therefore to apply to him to pay, but he merely recommended the claimants to take any proceedings before the proper authorities in Shanghai. Copy of his judgment was extant in the English language, therefore it was improper to state that the Chinese Consul had said that in Shanghai the money could certainly be recovered. As the draft had reached Kobe, been seen and stamped there by the Yuan Yuan Ch'ang when shown to them by the H & S Bank at Kobe, the responsibility of the Shanghai Yuan Yuan Ch'ang and the two banks Yuan K'ai and Ting Hwo had long ceased.
  Mr. Chu observed that at the first hearing it was decided that the hearing should be resumed when Su Kan-t'ing could appear, and that judgment had not yet been delivered.  He then asked if Su was present.  Mr. Su presented himself, and was asked whence and when he had arrived at Shanghai.  He replied from Canton, and had arrived last Saturday per English mail.
  Mr. Dowdall said according to law the money might be recovered from the two securities alone, but as the defendant's counsel said he had evidence to produce, he requested that it might be produced at once, and the case might be concluded today. Mr. Wilkinson applied that the case might be resumed on another day, when he would bring other evidence. After some further remarks from him and Mr. Dowdall, the case was adjourned till next Wednesday at 2 p.m.
Condensed from Shen Pao.
.  .  .  
The case of the Hongkong and Shanghai Banking Corporation which is now being heard at the Mixed Court was reported in the Shen Pao of Saturday, 28th September, and the following is an abridged translation of what was then published by the native newspaper:
  Yesterday (27th Sept.) at 2 p.m., Mr. T'sai being absent owing to indisposition, Mr. Chu and Mr. George Brown took their places on the Bench, and Mr. Dowdall, counsel for the plaintiffs, and Mr. Lu Cheng-fu, the Bank's compradore, were first heard. The Bank's case was stated, and the draft in question was produced, and examined. Mr. Dzau Kit-fuh, interpreting for Mr. Dowdall, was understood to say that the bank consented to advance Yuan Yuan Ch'ang the $15,000 in consequence of Yuan K'ai and Ting Hwo acting as securities in the way they did. That when, at Kobe, the Yuan Yuan Ch'angs manager Pao Tsu-k'ing was applied to to pay the draft, he replied that there was no money wherewithal to do so, as the Shanghai Yuan Yuan Ch'ang had sent no goods to Kobe. The case was brought before the Chinese Consul at Kobe, and he stated from the Bench that if the Shanghai Yuan Yuan Ch'ang had sent no goods to Kobe, it was not surprising that the firm there had not the money wherewith the draft should be met; and that the amount should therefore properly be recovered from the Shanghai Yuan Yuan Ch'ang and the two native banks Yuan K'ai and Ting Hwo.
  (Letters to the British Consul at Kobe and to the H & S Bank at Kobe were here put in.)
  That the H & S Bank were being kept out of a sum, principal and interest together amounting to over $15,000, of their own money on the ground of the misreading of a coded telegram. That therefore they now applied to Su Kan-t'ing who had borrowed the money; Yuan K'ai and Ting Hwo being also responsible for its being repaid.
  The representatives of the two last named Chinese banks said that their guarantee was only that the bill should be paid ten days after sight, and that by it they engaged to make it good, if not paid within that limit of time; but that beyond that limit of time they had no liability. That, moreover, having received from Sih Cheng-fu a letter saying the bill had been paid, (letter produced) and returning the promissory notes they had given the Bank, (on first hearing that the bill had not been paid in Kobe), they then considered they had heard the last of the matter.
  Yuan Yuan Ch'ang's employee, Tseng Shu-shan, here asked for an adjournment till his superior returned to Shanghai, the latter now being away at Canton.
  Mr. Brown said - The Hongkong Bank not having been paid the draft given to them by Su Kan-t'ing, of the Yuan Yuan Ch'ang, when he obtained from them the $15.000 are entitled to recover it from the two securities Yuan K'ai and Ting Hwo, who cannot evade their responsibility on the pretext of a telegram having been misinterpreted.
  Mr. Chu, after perusal of the various documents, said - "The H & S Bank's being kept out of their $15,000 and interest is all owing to their having lent it on the strength of the security given by your two banks. It is impossible for you to ignore It." He then asked when Su Kan-t'ing would be back; and Yuan Ch'ang's representative said he would return at the end of the month. The two native bankers here observed that as he had al00ready been written to come to Shanghai, they expected that they need not be troubled again. Mr. Chu said: "You must, as you are the securities, expect to be troubled until the money is paid, as until that time your responsibility exists. You cannot be held free from it now."
  After conferring with Vice-Consul Brown, Mr. Chu ordered Yuan Yuan Ch'ang's representative, and the two native bankers, to give a written undertaking that Su should appear when the case came before the court again. The two bankers objected that Yuan Yuan Ch'ang's representative's guarantee might alone be sufficient, and on this objection being over-ruled, asked that the guarantee given should be to the end of the month. Mr. Chu, who at first purposed to make it 14 days, agreed at Tseng Shu-shan's urgent request to extend the period to 21 days and insisted on such guarantees being given by all three persons.
  Mr. Dowdall applied for an order to the two Chinese bankers to deposit the money in court, pending the delivery of judgment when Su Kan-t'ing arrived.  Mr. Chu after conferring with Mr. Brown declined to give such an order, reserving final judgment till after Mr. Su's arrival.

 

Source: North China Herald, 19 December, 1890
 

MIXED COURT.
December 17th, 1890.
  The action brought by the Hongkong and Shanghai Bank against the Yun Yuen-chang firm and the Yun Kai and Ting Ho Chinese banks came on for further hearing before Tsai, Magistrate, and Mr. Mansfield, British Assessor.
  It will be remembered that the Yun Yuen-chang firm drew a bill of exchange on their own firm at Kobe for $15,000, which bill was endorsed by the two Chinese banks. Security notes given by the Chinese banks to the Hongkong bank were delivered up by the latter on receipt of a code telegram from their agent at Kobe stating that the bill had been paid. This, however, was not the case, the wrong code word having been telegraphed; and the Hongkong Bank having paid out $15,000 in cash to the Chinese banks, sought to recover that amount.
  Mr. C. Dowdall appeared for the Hongkong Bank, the plaintiffs, and Mr. H. S. Wilkinson for the Yun Yuen-chang firm and the Yuan Kai bank. The Ting Ho bank was not represented by counsel.
  At the opening of the proceedings, Mr. Mansfield announced that the court would hear the statements of counsel on each side and would reserve the hearing of evidence till another time.
  Mr. Dowdall, in addressing the Court for the plaintiffs, stated his case in detail (as already published), and went on to contend that there was no question about the liability of the drawer. The drawer of a bill of exchange was always liable until the money was paid. The pith and essence of the defence set up by the drawer in this case was that when a bill of exchange was accepted the drawer was discharged unless the acceptor became bankrupt before the bull was due. This, Mr. Dowdall contended, was too unreasonable a proposition to be allowed. It was the duty of the drawer to arrange with the acceptor so that the latter would pay. If the drawer failed to make the necessary arrangement and the acceptor did not pay, the drawer must pay. The drawer also said in his answer that all the Hongkong Bank had to do was to bring an action against the acceptor if he did not pay; but that action had been brought before the Chinese Consul at Kobe, and the acceptor was not ordered to pay.
  He (the learned counsel) therefore asked for judgment against the Yun Yuen-chang firm, the drawers; and he also asked for judgment against the two native banks for the following reasons. They put their chops on the bill of exchange as a guarantee that it should be paid at maturity; and it had not been paid. This particular bill of exchange had a special provision in it that when it was paid it was to be returned without fail. Notwithstanding that, the first and second parts remained unpaid in the hands of the Hongkong Bank with the two guarantee chops on them. The liability of the two Chinese banks had not been lessened by the mistake in telegraphing. The bill having been presented for payment and not having been paid, the endorsers became liable and were still liable. After the security notes had been returned the parties were in their original position, and they had then to wait for the return of the original documents to see whether payment had been made or mot. The endorsers were not justified in assuming that the bill had been paid until they had seen it returned to the drawer and he had produced it to them and let them cancel their chops. The endorsers showed by their written answer that they regarded the bill as the paper evidence whether it had been paid or not. The Chinese banks pretended that they gave up their security while the chops remained uncancelled on the bill.
  Mr. Wilkinson stated that the defences of the firm and the bank were not the same though similar in some respects. The defence of the Yun Kai bank was that the payment of the bill was conditional upon the arrival of certain cotton shipments at Kobe from Shanghai. Believing what they were told by the Hongkong bank's compradore, that the bill had been paid at Kobe, the Yun Kai bank gave up the cotton warrants they had received from the Yun Yuen-chang firm and disclaimed further liability.  He (Mr. Wilkinson) contended that, in accordance with the law of England and the custom among business men in China, if the holder of a bill takes a provisional acceptance he does so at his own risk, and the endorsers are released from all further liability. It was a principle of law in all countries that when one person made to another a statement upon which the second person acted, the first person could mot afterwards retract his statement to the prejudice of the person who believed it and acted upon it. It was not necessary for the endorsers to see the bill at all if it had been paid in Kobe, as the Hongkong Bank told them it had. The endorsers only asked to see it when the Hongkong Bank asked them to pay it. With regard to the defence of the drawer, the Yun Yuen-chang firm, what had been argued regarding the unconditional acceptance applied equally to them as to the endorsers. The Hongkong Bank took the unconditional acceptance, and the fact that they did not let the defendants know showed that the Bank took the risk themselves. Whether the acceptance was conditional or unconditional, the defendants in accordance with the usual custom would not be liable.
  After some further argument, the case was adjourned till Monday next when evidence as to Chinese custom will be heard.

 

Source: North China Herald, 13 March, 1891

MIXED COURT.
Shanghai, 11th March, 1891
Before Mr. Tsai, Magistrate, and Mr. R. W. Mansfield, British Vice-Consul and Assessor.
  Judgment was given in the action brought by the Hongkong and Shanghai Banking Corporation against the Chinese firm of Yuen Yuen-chang and the Yuen Kai and Ting Hwo banks, to recover $15,000 for non-payment of a bill of exchange.
  Mr. C. Dowdall appeared for the plaintiffs, and Mr. H. S. Wilkinson for the Yuen Yuen-chang firm and the Yuen Kai bank. The Ting-hwo bank was not represented.
  Mr. Tsai delivered his judgment, of which the following translation was read by Mr. Mansfield:
  As the question of bills of exchange is one of vital importance in commercial matters, it is necessary in regard to them: Firstly, that there be uniformity and consistency of practice; secondly that there be no want of care and vigilance;' and thirdly that there be no mutual concession or compromises in the way of exceptional or irregular proceedings.
  In the 12th moon of the year before last, the Hongkong and Shanghai Bank issued, at Shanghai, to the firm of Yuen Yuen-chang, a sum of $15,000, and received in exchange a draft of Yuen Yuen-chang of Kobe in Japan for that amount. On the bill it was stated that payment would be made ten days after sight. The draft bore the chops of the Yuen Kai and Ting Hwo banks as sureties, Hsu Kwo-chen, the head of the Yuen-chang firm, moreover gave over as security to the Yuen Kai and Ting Hwo banks certain godown orders and title deeds. On the 26th of the moon Pao Tzu-k'ing and Chang Mai-chih, the heads of the Yuen Yuen-chang firm at Kobe, endorsed their acceptance of the bill and put their chop to it.
  Then, as payment was not made at maturity, the Hongkong and Shanghai Bank at Shanghai further obtained from the Yuen Kai and Ting Hwo as security, two money orders drawn on their respective banks. On the 7th of the 1st moon of last year, the Hongkong and Shanghai Banking Corporation received from their Kobe branch a telegram in reply, to the effect that the bill was paid, and accordingly gave back their money orders to the Yuen Kai and Ting Hwo banks. On this the Yuen Kai and Ting Hwo banks returned the godown orders and title deeds to the Yuen Yuen-chang firm. To their surprise, on the 10th of the same moon the Hongkong and Shanghai Bank received back the draft from Kobe. It seems that the first telegram was erroneous, and that the Hongkong and Shanghai Bank had been ill-advised in hastily attaching credence to the statement made by the Shanghai Yuen Yuen-chang firm, that as the goods had gone forward there would be no difficulty about paying the bill of exchange. The Hongkong and Shanghai Bank sent the bill back to Kobe, and first brought an action against Pao Tze-k'ing, etc., in Kobe, and then subsequently against the Shanghai Yuen Yuen-chang, etc., in this Court.
  The above is a summary of the facts of the case.
  After consultation with Mr. Vice-Consul Mansfield, I have arrived at the following conclusion:-
If the Hongkong and Shanghai Bank considered that the chops of the Yuen Kai and Ting-Hwo Chinese banks were sufficient evidence that these two banks accepted liability on account of the bill of exchange, the Hongkong and Shanghai Bank had no satisfactory ground for desiring the two Chinese banks to hand them money orders in addition. If, on the other hand, the Hongkong and Shanghai Bank considered  that the chops of the two Chinese banks were  not  sufficient evidence, they should have raised the objection at the time.  In this action the Hongkong and Shanghai Bank has been wanting in consistency or uniformity.
After a bill of exchange has been once accepted, the rule is that it must be paid at due date, and the obligation to pay it cannot be suffered to be evaded in the slightest degree on any pretext. It was not the business of the Hongkong and Shanghai Bank to enquire if the Yuen Yuen-chang firm had goods or had not goods. The Hongkong and Shanghai Bank's compradore at Kobe says in his evidence, "Although the manager did not entirely agree to this course," etc. This indicates an exceptional concession or irregular compromise.
With a bill of exchange amounting to $15,000, it might have been expected that the greatest care would be taken. Instead of this, we find that an erroneous telegram was despatched from Kobe and herein the Bank cannot be acquitted of the want of ordinary care and vigilance.
  I am of opinion that as the Hongkong and Shanghai Bank has violated the principles necessary to be observed in dealing with bills of exchange in all these three respects, the Yuen Kai and the Ting Hwo banks should be held free of liability in this case.
  With regard to Hsu Kwo-chen, the head of the Shanghai Yuen Yuen-chang firm, as he received $15,000 from the Hongkong and Shanghai Bank and did not ship the goods to Kobe, the pretexts which he puts forward to evade his liability cannot be considered as sufficient. It would be unreasonable that the amount of the bill of exchange should not be recoverable at either end, either at Shanghai or at Kobe, either from drawer or drawee.
  In the first place, therefore, Hsu Kwo-chen is ordered to be detained and made to pay the amount of the bill. As he states that Pao Tzu-k'ing really owes him money, he is ordered, in order to try the truth of his allegation, to petition the Court to apply for the rendition of Pao Tzu-k'ing and to hold himself in readiness to be confronted with him in this Court, so that if necessary he may be empowered to recover the money due him from Pao Tzu-k'ing, to go towards the repayment to the Hongkong and Shanghai Bank of the amount due to them.  Hsu Kwo-chen is ordered to use the utmost diligence in effecting a settlement and warned of the consequences to himself of improper delay.
  Mr. Mansfield - The decision of the Magistrate in this case has been read, and I wish to add a few words on the subject.
To deal first with the case of the Chinese banks Yuen Yuen-kai and Ting Hwo.  They allege, and we have no evidence to the contrary, that they took security in the shape of certain godown orders and title deeds from the defendant Yuen Yuen-chang before affixing their chops to the bill of exchange.  On news arriving by telegram at the Hongkong and Shanghai Bank of the non-payment of the bill, the Bank, not satisfied apparently with the security of the chops on the original bill, called on the guaranteeing Chinese banks to give orders to bearer for the amount of the bill. These the Chinese bank, being held indemnified by the security deposited with them by Yuen Yuen-chang, consented to give, and in fact did give, thereby I take it substituting a security in a different form for that of their chops on the original bill. Later on a telegram in code arrived at the Bank that the bill has been paid, and the Bank, on the faith of this telegram, returns to the native banks their orders to bearer.
  The native banks in their turn considering their liability at an end, return, as they allege, his security, namely the godown orders and title deeds, to Yuen Yuen-chang. It has been argued for the plaintiffs that the native banks should not have done this until they had an opportunity of cancelling their chops on the original bill, but the expert evidence produced shows that it is not a universal custom to return bills to the endorsers for cancellation of chops, though it appears it is sometimes done.
  Banking business is carried on in  a large degree by telegram, and if the Hongkong and Shanghai Bank were willing to give up on the faith of telegram, what was practically cash to the native banks, these latter cannot be blamed for doing the same, as regarded their security from the drawer of the bill. There is no evidence before the Court throwing doubt on the bona fides of the Chinese banks in the whole transaction, and I think it is in accordance with the principles of the law and common sense, that having so to speak, paid the money for which they had made themselves responsible and having had that money returned to them, with the information from the holders of the bill that the bill was paid, they were justified in assuming that their liability was at an end.
  The native banks in this case have not attempted to deny the liability attaching to simple chops affixed as endorsements on bills of exchange, but I think it well here to remind British subjects of the opinion expressed by Prince Kung, and published in a notification, dated March 25th, 1886, by Mr. Acting Consul-General Alabaster. The opinion I speak of is to the effect that "when a third party comes in and takes upon himself the positive repayment of a loan at a future date, and distinctly undertakes in the event of any infringement of the conditions made to repay the money himself, the words [Chinese characters] tau huan pao jen - "security responsible for repayment" on behalf of the principal should be written on the document.
  The case of the drawer of the bill, Hsu Kwo-chen, of the Yuen Yuen-chang firm stands on a very different footing, and his conduct has been characterised  by a want of good faith throughout. Letters and telegrams have been put in which show that he endeavoured to persuade the drawer to meet the bill by misleading statements of goods which were being shipped. He must be held responsible until his bill of exchange is paid. I cannot believe that he ever believed the bill to have been paid by the drawee, knowing as he did that the goods had not gone forward, as he had promised they should.

Published by Centre for Comparative Law, History and Governance at Macquarie Law School