Banco Espanol de Credito v. State Street Bank & T. Co., 6938

• Decision Date: 07 November 1967
• Docket Number: 6939.,No. 6938,6938
• Citation: 385 F.2d 230
• Parties: BANCO ESPANOL de CREDITO, Plaintiff, Appellant, v. STATE STREET BANK AND TRUST COMPANY, Defendant, Appellee (two cases).
• Court: U.S. Court of Appeals — First Circuit

385 F.2d 230 (1967)

BANCO ESPANOL de CREDITO, Plaintiff, Appellant, v. STATE STREET BANK AND TRUST COMPANY, Defendant, Appellee (two cases).

Nos. 6938, 6939.

United States Court of Appeals First Circuit.

November 7, 1967.

Harold M. Willcox, Boston, Mass., with whom Charles C. Cabot, Robert E. Sullivan, and Herrick, Smith, Donald, Farley & Ketchum, Boston, Mass., were on brief, for appellant.

Charles F. Choate, Boston, Mass., with whom Mark A. Michelson and Choate, Hall & Stewart, Boston, Mass., were on brief, for appellee.

Before ALDRICH, Chief Judge, McENTEE and COFFIN, Circuit Judges.

COFFIN, Circuit Judge.

This suit began as a claim by appellant, a Spanish bank (Banco Espanol), against appellee, a domestic bank (State Street), for the latter's allegedly wrongful refusal to accept and pay two drafts drawn upon it pursuant to two irrevocable commercial letters of credit. Each letter was issued by State Street at the behest of its customer, Robert Lawrence, Inc. (Lawrence), a Boston clothing concern. Banco Espanol was designated the advising bank and two Spanish suppliers (Alcides and Longuer) were named as beneficiaries. The cases were consolidated for trial in the district court sitting without a jury and, following judgment for State Street, appellant took these appeals.

The issue is whether State Street, whose letters of credit, as amended, called for the presentation of an inspection certificate by a named firm stipulating "that the goods are in conformity with the order", was justified in refusing to honor the drafts of Banco Espanol on the ground that the inspection certificate did not meet the terms of the letters of credit.

The transaction was initiated by Lawrence to finance the purchase of raincoats, beach jackets, knit shirts, and cardigans from Alcides and Longeur. Based upon preliminary arrangements apparently worked out by an intermediary, of which more later, Lawrence obtained two irrevocable letters of credit from State Street. One letter covered Lawrence orders Nos. 101, 102, and 103 for beach jackets, outer coats and cotton garments in the revised final amount of $105,630, and the other covered Lawrence order No. 100 for wool knit shirts and cardigans in the revised final amount of $13,320. Both letters constituted Banco Espanol the correspondent bank, and required signed invoices, customs invoices, inspection certificates, and full sets of clean on board ocean bills of lading dated not later than March 31, 1963.

At the time of issuance of the letters of credit, State Street called to the attention of its customer, Lawrence, that the requirement of an inspection certificate without a named inspector left a hazardous gap in the documents. Lawrence replied that the letters would be later amended to include the name of an inspection agent.

The next three and one half months were significantly devoted to continuing efforts to resolve this problem. On November 22, 1962 one of the Spanish manufacturers (Alcides) wrote Lawrence's representative that it agreed with the idea of naming an inspection agent and suggested that Lawrence put forward a name. Lawrence's man replied shortly that since he would be in Barcelona near the time of delivery, he would be the inspector. Accordingly, State Street sought to amend the letters in January. Foreseeably, this was not acceptable to the beneficiary, as Lawrence learned in early February. Lawrence then wrote State Street (notwithstanding the hiatus in the letters of credit which State Street had noted) that it should not make payment unless inspection certificates were signed by a party acceptable to it. It further agreed to indemnify State Street for any damages resulting from carrying out these instructions, coupling this with a threat to refuse reimbursement if payment were made.

After a meeting between Lawrence and State Street, the object of which was to decide what to do about the inspection issue, a representative of Lawrence went to Spain. This trip resulted in an amendment to the letters of credit, cabled to Alcides on March 1, 1963, which required the inspection certificate to be issued by Supervigilancia Sociedad General de Control S.A. (Supervigilancia) certifying that "the goods are in conformity with the order". While it is not clear on whose initiative this firm was selected, it was apparently well regarded by the State Street official who had been closely associated with this transaction.

Identification of the underlying orders to which the letters of credit referred is not an easy task. In the first place, the record before us contains no document purporting to be an order for the shirts and cardigans (No. 100 — the Longuer order). As to the Alcides order, we face two sets of somewhat inconsistent documents, both of which Lawrence sent to the manufacturer: two unnumbered papers dated November 5, and 6, 1962, labelled "order placed by Cavendish Co." — apparently an intermediary for Lawrence; and three papers dated November 13, 1962, labelled "stock sheet", and bearing numbers 101, 102, and 103. Though the earlier set is the only one bearing the label "order" there is evidence both external and internal that it was superseded by the latter: a reference in a letter from Lawrence's representative that he had to create orders to match the numbers in the letters of credit; a reference in another letter to asterisks in the orders — which are found only in the "stock sheets", not in the "orders"; additional documentary requirements in the "stock sheets", not found in the "orders"; and a major change in half the sizes specified in one "order", from "small" to "medium". We cite such minutiae because of the difficulty of interpretation created by Lawrence and because of the assertion of appellee's counsel at trial that the inspecting agency could not determine what the orders were. Leaving aside consideration of what might be the legal effect of a buyer-created impossibility of clear identification of orders where a letter of credit required a certificate of conformity to order, we simply observe here that close scrutiny of the two sets of papers reveals that the "stock sheets" supplanted the earlier "orders".

In any event the most important notation found on the "stock sheets" — and not on the "orders" — was "Coats and jackets to be as sample inspected in Spain. Letter of credit to be cashed by presentation of bill of lading and signature of superintendent or local inspection (buyers preference) (will confirm)."

The amendment to the letters of credit — appointing Supervigilancia the inspecting agent — was accepted by the major manufacturer involved — Alcides (and presumably Longuer) — on March 12, 1963 on which date both manufacturers requested Supervigilancia to begin inspection. State Street notified Lawrence on March 13.

Then began a barrage of cabled messages from Lawrence to both Supervigilancia and the manufacturers, which was to endure for two weeks. On March 13 Supervigilancia was asked, without explanation, to delay inspection until further instructions from Lawrence. On March 14, it was told that Lawrence had cabled the manufacturers to postpone shipment to permit Supervigilancia to inspect according to samples "they air mailing you directly". On the same day another cable was sent to Supervigilancia saying that Lawrence was airmailing "our approved samples per order and instructions". On the next day Supervigilancia was told to obtain three complete sets of samples properly marked from each concern, send two to Lawrence, and await instructions. On March 18 this message was repeated.

After these two conflicting sets of instructions, Supervigilancia, on March 23, cabled Lawrence, saying in effect that it was going ahead, acting "according your own indications on credits and orders". To this Lawrence replied on March 25 that Supervigilancia should "withhold certificate until after arrival and inspection of goods by your New York correspondent * * *." This, if we read it aright, is a third position taken by Lawrence. At this point in time the latest date for completion of the bills of lading was five days away, March 31, with no alternative shipping date available within that period.

Supervigilancia, on March 26, executed its two certificates of inspection. It divided each certificate into two parts. The first part tended to the matter at hand saying that (1) it had carried out its inspection

"* * * basing ourselves on the details shown in the orders or Stock-sheets Nos. 100, 101, 102 and 103 * * * and in the samples that were handed to us by the Requirer Alcides and Longuer, that corresponded, according to his sayings ratified in presence of a Public Notary, to the samples seen and approved by the Delegate of Firm ROBERT LAWRENCE INC, during his stay in Barcelona, and with sic are mentioned in the notes appearing in orders Stock-sheets Nos. 100, 101, 102 and 103, where there is a note reading:

`COATS or JACKETS Germents (sic) TO BE AS SAMPLE INSPECTED IN SPAIN'";

that (2) the letters of credit required it to certify "THAT THE GOODS ARE IN CONFORMITY WITH THE ORDER"; that (3) a ten per cent random sample had been taken; and that (4) the "whole * * * was found conforming to the conditions estipulated sic on the Order-Stock-sheets."

The second part of each certificate contained a chronological account of the cabled messages we have summarized, followed by this language: "Requirer * * * is formally requiring us for delivering this certificate what we are doing today under reserves, not as far as the goods are concerned, which correspond to the samples seen and produced referred to at the beginning of this certificate, but to the existing difference between both interested parties as per the quoted cables."

All documents were presented to Banco Espanol, which honored them and made payment or the equivalent on March 28 and 29. On April 3 State Street cabled its refusal to accept the drafts on it "because accompanying...