
    MARSHALL CUTLER, et al., Appellants, v. THE AMERICAN EXCHANGE NATIONAL BANK, Respondent.
    
      Credit, letter of advice of— When credit may be withdrawn—Special credit created—Payments inferentially made on prior credits—Entire failure of consideration upon which money is furnished by one to another, effect of.
    
    A credit given by a letter advising the person to whom it is addressed that his account is credited with a certain sum received from parties therein named, for the use of a party therein designated, it appearing that the addressee had not furnished the funds for such credit, may be withdrawn before payment made by the addressee on the paper.
    The request of the party putting the writer of the letter in funds for such credit, that the money to be put to the credit of the addressee, does not make the addressee, and not the writer, the debtor, in the absence of proof tending to show that the addressee was bound to use the credit or to pay upon the paper.
    Payments made on the day of the writing of the letter by the writer on drafts of the addressee, it appearing that there was an open account between the two, and that their places of business were a long distance apart, are inferentially, in the absence of explanation, paid on earlier credits.
    The letter of credit manifesting on its face that the sum specified therein, was for the use of the party therein designated, created a special credit to be drawn against specifically; and the issuer of it has no right to use it, to discharge an indebtedness due from the addressee to him.
    The addressee (the Leadville Bank) having failed before the receipt by, or presentation to it, of the letter of advice, and having therefore refused to pay to the party for whose use the credit was established, on his demand, the parties (the plaintiffs) who procured the letter and furnished the funds for the credit, presented the letter to its issuer (the defendant), and demanded the return of the sum mentioned therein; it appeared that on the very day-of the issuance of the letter, the Leadville Bank drew generally on the defendant to an extent sufficient, if so applied, to exhaust this credit; it also appeared, that the account between the two banks, beginning at the date of the issuance of the letter and ending with the failure of the Leadville Bank, showed an indebtedness due from defendant to the Lead-ville Bank of a sum greater than the amount mentioned in the letter. ■
    
      Held, that the consideration upon which plaintiffs put defendant in funds to establish the credit had entirely failed, and that plaintiffs were entitled to recover back from defendant the funds so furnished.
    Before Sedgwick, Ch. J., and O’Gorman, J.
    
      Decided April 7, 1886.
    Appeal by plaintiffs from, judgment dismissing complaint, entered on direction of court at the trial term.
    The facts appear in the opinion.
    
      Dudley B. Horton, attorney, and of counsel for appellants.
    . L. B. Bunnell, attorney, and of counsel for respondent.
   Per Curiam.

The plaintiffs applied to an officer of the defendants for a draft upon some one in Colorado. This was refused as not according with their methods of business. The plaintiffs gave the defendants a check upon their account with defendants, and the defendants gave to the plaintiffs the following instrument:

L “New York, July 20, 1883. >
.§ “ Bank of Leadville,
5 “Leadville, Colorado.
'o 1 ‘Your account is credited this day five hundred u dollars, received from Cutler, Hall & Co., for the use 3 of I. Seymour Hall.
3 “ E. Burns,
“ “ Cashier.”

Nothing was said as to the way in which this paper was to be used for the purpose of obtaining the money from the Leadville Bank. The plaintiffs sent it by mail to the Mr. Hall named in it, and who. lived in Colorado. At the end of about ten days he presented it to the Lead-ville Bank and demanded payment of it. At that time the bank had failed in its business and refused to make the payment. Mr. Hall returned the paper to the plaintiffs. The plaintiffs, after informing the defendants of the failure of the Leadville Bank, which it knew from other sources, and of its refusing payment, presented to them the paper, and demanded the return of the $500 which the defendants refused to return. The paper was produced on the trial.

On these facts certain positions taken by defendants may be examined. One was that the money paid by plaintiffs passed beyond the reach and control of the defendants the moment the credit was given on its books, just as effectively as if it had been delivered into the manual possession of the Bank of Leadville. This does not correctly describe the fact. The money was retained by the defendants to protect themselves against the use of the credit by the Leadville Bank. They would have a right to retain the money so long as there was a possi-' bility of the Leadville Bank paying money to the holder of the paper and upon the strength of it. Excepting as to such a contingency, the defendants were under no obligation to the Leadville Bank. It was within the rights and powers of the defendants, so far as the Bank of Leadville was concerned, to withdraw the credit, before payment had been made upon the paper, although that might be a wrong to the holder of the paper.

Another position was, that as the plaintiffs had directed the defendants to place this $500 to the credit of the Leadville Bank, they made the bank the debtor and not the defendants. The Leadville Bank, however, it must be perceived, never entered into any obligation of any kind to any of the parties. There is no proof of any fact that tends to show that the Leadville Bank was bound to use the credit or to pay upon the paper. The bank was a debtor to no one.

There was an attempt on the part of the defendants to show that the Leadville Bank had drawn on this credit. There was a general account between the defendants and the bank given in evidence. It was assumed that from this it appeared that the Leadville Bank, after this particular credit to them had been placed upon the books of the defendants, had drawn upon it and exhausted it. A scrutiny of this account would give another result; for it involves charging against this credit, sums paid by the defendants on the day of the transaction in question. The inference, in the absence of explanation, is, that these-sums were paid upon earlier credits, so that the account is of a kind that would show that upon the transactions beginning with the time of this credit, and ending with the failure of the bank, the defendant was debtor to the Leadville Bank in an amount greater than $500. They had no right to reduce this indebtedness, by the application of the so-called credit of $500 (Dows v. Kidder, 84 N. Y. 121). This so-called credit was a mere entry in a book of account, which did not make or shape the rights of the parties to the transaction.

There is no proof that the Leadville Bank ever knew that the entry had been made and therefore ever drew upon the so-called credit of §500. If the defendants had informed the Leadville Bank that there was a general credit of $500, they did so contrary to their legal obligation, for the paper manifests that the $500 was paid to establish a credit “ for the use of I. Seymour Hall.” The Leadville Bank was restrained to drawing on the $500 for the same use. The intent was that if the Leadville Bank paid the paper, then' any drawing on that account should be accompanied by the paper. The defendants cannot use this special credit to discharge the indebtedness due them (Fakland Adm’r v. St. Nicholas Nat. B’k, 84 N. Y. 145).

The consideration to the plaintiffs or to I. Seymour Hall, has entirely failed. The Leadville Bank has ceased to do any business. The retention of the $500 is not necessary for the protection of the defendants, therefore, the defendants are bound to return, upon demand, the $500.

The judgment is reversed and a new trial ordered, with costs of appeal to abide the event.  