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Colonial Cases

Hong Kong and Shanghai Bank v. Ohl, 1871

[mortgage of goods]

Hong Kong and Shanghai Bank v. Ohl, Administrator in the Estate of E. Seyd & Co.

North German Consular Court, Yokohama
1871
Source: The North-China Herald, 22 September 1871

 

 

 N.-GERMAN  CONSULAR COURT.

Yokohama, Sept.

E. ZAPPE, Acting Consul.

E. PARDUN, F. GEISENHEIMER, Assessors.

HONGKONG & SHANGHAI BANK

v.

H. OHL,

Administrator in the Estate of E. Seyd & Co.

   Mr. MARKS appeared for the plaintiff.

   The Court opened the proceedings with the following statement of the case:-

   On the 16th May 1871, Otto Seyd, merchant, at that time head of the firm of Earnest Seyd and Co., mortgaged to the Hongkong and Shanghai Bank fifty-six bales of silk lying in his godowns at Ni. 149, for the sum of $28,000.  On the 6th June, after the disappearance of Otto Seyd from this place, the German Court held a meeting of his creditors at which Mr. Ohl was appointed administrator.

   In the inventory, which was immediately drawn up, 40 bales of silk were found to be in one of the godowns.  These 40 bales of silk the Hongkong and Shanghai Bank claimed as part of the mortgaged 56 bales; but, as the administrator refused to acknowledge the mortgage or to give up the bales, the Bank laid a complaint before the Consul-General, in order to obtain the silk.

   In reply to this complaint, dated August 2nd, the administrator acknowledged that 56 bales or 3,800 piculs were lawfully mortgaged to the Bank; but that the Bank had no claim on the 40 bales of silk, because the Bank could not prove that the mortgaged 56 bales and those found in the godown were one and the same parcel.

   In addition, he claimed that even if the silk could have been identified, he should have been compelled to refuse to hand over the silk, because the Bank at the time of the mortgage had not complied with the necessary legal forms.  A mortgage without actual transfer was not lawful according to par. 306 of the mercantile law.

   The Bank, in its reply of August 11th, insisted upon the validity of the mortgage on the ground that a letter of hypothecation had been received for the 56 bales, and that the 40 bales found in the godown formed a part of the 56 bales mortgaged, and also that they had received from Otto Seyd a letter, dated June 6th, in which  he acknowledged that the silk in question belongs to the Bank, whilst Mr. Abegg can prove that the silk under notice was part of that mortgaged by Otto Seyd, and besides, that they have in their possession a godown order for 3,800 bales.  In conclusion it was customary to allow silk upon which advances had been made to remain in the possession of the borrower.

   Defendant, in his reply of August 12th, insisted upon the production of proof of the identity of the silk, because the statement of Otto Seyd could not be given credence to by the Court, and Mr. Abegg could only testify to the best of his belief.  Defendant insisted that the unwarranted confidence of the Bank was not the usual custom of the port, and further that the law demanded actual transfer.  He further stated that the Bank had left the silk in the godown of the late firm without having taken proper precautionary measures to be able to dispose of the silk at any time.  He believed it was impossible to support such actions by the custom of the port, and in addition, it was not a custom of the place to give such credit to the various merchants.  The Bank had placed too much credit in the firm of W. Seyd and Co., which was an error of the Bank's and the Bank must bear the responsibility and loss.

JUDGMENT.

  1. - That the Hongkong and Shanghai Bank has no proprietary right to the forty bales of silk found in the godown of the bankrupt form of Ernest Seyd & Co., and that, consequently, the Administrator of the estate is under no obligation  to deliver the said silk to the said Bank.
  2. I.                - The Hongkong and Shanghai Bank has no lien upon the above named forty bales of silk for the satisfaction of its claim on the bill for $28,000 under date the 16th May; the silk belongs to the creditors of the estate.
  3. II.             - The Hongkong and Shanghai Bank must bear the costs of the suit.

REASONS FOR THE ABOVE JUDGMENT.

  1. - The Court cannot consider that the evidence adduced by the plaintiff to substantiate the identity of the silk is sufficient; inasmuch as his principal witness, the silk-inspector Abegg, admits that he is unable to account for the discrepancy of seven piculs in weight between the silk which he certified on behalf of the Bank on the 16th May to weigh 38 piculs, and that which he inspected later and more minutely on the 24th May.  That he did not know what had occurred meanwhile in the godown.  That in writing out his certificate of 16th May, he had simply relied on the statement of O. Seyd, an inconsiderate (leicht-fertig) proceeding which appears to the Court altogether inexplicable.  That, with regard to the hypothecation of the silk, he know nothing more positive than that which Mr. O. Seyd had told him about it on the 16th May.

   Similarly, the depositions of the second witness (O. Seyd) called by the plaintiff, who declared positively that the silk found in the godown of the firm on the 6th June, was the same which had been originally hypothecated, could not find credence with the Court, because witness is under examination upon a charge of fraudulent bankruptcy; and further, because a letter from this witness addressed to the Bank proves that he had on the 23rd June "under the greatest difficulty" paid to the plaintiff the sum of $3,300 to the disadvantage of the other creditors.  And even if the plaintiff had proved the identity of the hypothecated silk, the Court would nevertheless have had to refuse the pretended right of proprietorship, with its contingent demand for the delivery of the silk in question, because, according to the declarations made by the plaintiff, a mere agreement had been entered into between himself and E. Seyd & Co.  for the deposit of a pledge for the amount of $28,000; and, because, though having demanded a pledge in such manner, even had it been actually obtained with full inherent rights and powers as claimed by the plaintiff, this pledge has only secured for him the right to demand the satisfaction of his claim out of the substance of the property hypothecated; and, according to sec. 1, ch. 10, of the Allgemeine Land Recht, does not entitle him to the proprietorship of the property itself.

  1. I.                - The second subsidiary demand of the plaintiff, that the Court should acknowledge his claim of $28,000 to be satisfied out of the property hypothecated, has also to be refused, even had the identity of the silk been proved, because the formalities required and prescribed by the law for the legal acquisition of such advantage have not been complied with, in consequence of which the right to raise a claim as aforesaid has not been legally made out for himself by the plaintiff, nor can he demand that his claim vis-a-vis the other creditors of the estate of E. Seyd & Co. be considered a preferential one.

                   In order to render the acquisition of the privilege above mentioned legally valid, the law (Handel's Gesetz-Buch, sec. 309) demands, where moveable objects are in question, that besides an agreement, stating the act of pledging, the transfer of possession to the creditor in a formal manner by hand-pledge (Faust-pfanf), according to the rules of civil law, must be made.

   The civil law, that is to say, the common law of the country, acknowledges a mere figurative (symbolisch) transfer as legal in case of commercial transactions, but demands that such measures be adopted, that, without grave mistake on his part, no third person can be misled into the belief that the hypothecator had the full and free disposal of the property so hypothecated.  (Sec. 336 and 274 A.L.G.) As such measures, the law requires the delivery of the keys to the creditor, or that such keys be entrusted to a mutually appointed trustworthy person, who shall have been duly informed of the hypothecation; or the application of two locks of different construction, the key of one of which is to be lodged with the creditor; (Sec. 338,339, 341, 342, 343, A.L.R.), and in case the character or nature of the goods should necessitate manipulation during the time the same are pledged, that such manipulation should be effected in the presence of the creditor, or in that of a confidential person appointed by him.  In fact, the law of the country prescribed distinctly in sec. 344, that, in cases where such measures are not taken by the very parties, the act of pledging has not been consummated.

   In this instance, where the plaintiff satisfied himself with receiving from E. Seyd & Co. a godown order for 3,800 catties of silk, containing no other particulars, and accompanied by a letter of hypothecation respecting 56 bales of silk, also without further specification, and thus had given an opportunity to the debtor to dispose of the property in question at his convenience and without the plaintiff's cognizance to the act:-

      Where, furthermore, the plaintiff himself knew so little about the property hypothecated to him that he was unable to prove its identity, it was impossible for the Court to admit that the rules laid down in sec. 336, par. 24 of the A.L.R. had been complied with by the plaintiff, and it was therefore compelled to refuse his claim to the privilege which would otherwise have been accorded him.

   Plaintiff pleads that it is a usance of the place for the Banks to advance money upon silk while in preparation for shipment, that is to say, that they permit merchants to overdraw their accounts against prospective purchases of silk, a proceeding which has become a general practice, because it is impossible to buy, pack, and ship the silk in one day, and on this plea attempts to prove the sufficiency of the precautionary measures he adopted for his security vis-a-vis of the debtor.

   An usance of the place of this kind, although disputed as such by the defendant, might have been sufficient for the plaintiff to claim successfully the delivery of the silk through the instrumentality of the Court before the firm of E. Seyd & Co. had been declared bankrupt, in case E. Seyd & Co. should have refused such delivery.

   An usance of the place of this kind does not suffice, however, to constitute legally for the Bank a privilege taking precedence of the claims of other creditors of the firm of Seyd & Co. after the declaration of bankruptcy.  For it is clearly proved in the aforesaid that he has never legally secured for himself any such privilege, and, that besides, other creditors might have been in possession of titles on the strength of which they could likewise have compelled the firm of E. Seyd & Co. before their declaration of bankruptcy to place securities for their respective claims in their hands, although from the omission to take such protective steps they can likewise claim no privilege over other creditors of the estate.

   The provisions laid down in sec. 16 of the law regulations of the 29th June 1865 concerning the jurisdiction of the Consuls, according to which, - "in judging of the cases of a mercantile character the customs of the place which are known to the consular Court to be generally established as such have to be "taken into consideration," could not favour the plaintiff in this case.   For, the mere fact that Banks in Yokohama, in advancing money on silk, may sometimes demand letters of hypothecation, godown order and promissory note from certain firms, whilst the same Bank, dealing with other houses, satisfy themselves with a verbal agreement or agreement in writing, without demanding the transfer of the pledged property in such a manner and to secure for themselves actual and full power of disposal of the same,  can by no means prove the establishment of a custom of the place through which such a privilege as that demanded has in similar cases been obtained.

   For the legal establishment of such a custom of the place, it is necessary that before this Consular Court or at least before some other Consular Court of Japan several analogous cases, occurring at different times, have been judged and decided in the same way - viz.,

"that, although the Banks had left to the hypothecator the free and uncontrolled disposal of the property pledged, a privilege as aforesaid had nevertheless been obtained by them, from the fact of their having retained possession of letters of hypothecation, godown order, and promissory note, notwithstanding that these documents refer to goods of which nothing is stated but the quantity:'   -

So that, in case of bankruptcies, such a decision could be made legally applicable to the disadvantage of the other creditors of the estate.

      The existence in Yokohama of a thus generally established and acknowledged custom of the place, however, the plaintiff has not even attempted to prove.  On the contrary, from the depositions made by the merchants Bavier and Jaquemot and Bank Manager Baker, it appears evident that a transaction of this kind is a facility granted by the Banks at their discretion under totally different conditions and formalities to one firm, and refused to another.  The fact of the Bank having in this case considered it necessary to demand for its greater security the letter of hypothecation, &c., instead of following the usual mode of advancing the money on a verbal or written agreement only, shows already that it acted on its own discretion, and not strictly in accordance with the practice asserted to be customary both by the witness and the contending parties.

   It further appears, from the depositions of the witnesses, that in this case the facility granted by the Bank has been rather overextended; that the bodily delivery of the silk should have been demanded at least before the departure of the second mail of the 6th June (the silk having been already packed before the departure of the first mail of the 30th May), and that the extraordinary leniency or patience on the part of the Bank can only be explained by the unusual fact that interest was charged on the transaction.

   In conclusion, it must be remembered here that the rules of Sec. 380-387 of the 20th chap. of the A.L.R., with regard to the hypothecation to the Bank, can have no bearing on this case, the same referring exclusively to the Bank of Prussia.

  1. II.             -  The question of costs is provided for in par. 2, chap 23, of the Allgeneine processs-ordnung.

 

E. ZAPP.

F. GEISENHEIMER.

W. PARDUN.

Yokohama, 26th August, 1871.

 

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