Bank of America Nat. T. & S. Ass'n v. Liberty Nat. B. & T. Co., Civ. No. 5181.

• Decision Date: 17 October 1953
• Docket Number: Civ. No. 5181.
• Citation: 116 F. Supp. 233
• Parties: BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N v. LIBERTY NAT. BANK & TRUST CO. OF OKLAHOMA CITY.
• Court: U.S. District Court — Western District of Oklahoma

116 F. Supp. 233

BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N v. LIBERTY NAT. BANK & TRUST CO. OF OKLAHOMA CITY.

Civ. No. 5181.

United States District Court W. D. Oklahoma.

October 17, 1953.

COPYRIGHT MATERIAL OMITTED

Richardson, Cochran, Dudley, Fowler & Rucks, Oklahoma City, Okl., Kenneth M. Johnson, San Francisco, Cal., for plaintiff.

V. P. Crowe and John W. Swinford, Oklahoma City, Okl., for defendant.

WALLACE, District Judge.

The plaintiff, Bank of America, brings this action to recover a money judgment over against the defendant, the Liberty National Bank¹ of Oklahoma City, for a pecuniary loss allegedly sustained by plaintiff in transactions centering around a commercial letter of credit issued by Liberty to the plaintiff.

The original letter of credit was issued by Liberty to Bank of America at the request of Liberty's customer, Anderson-Prichard Oil Corporation; this customer wished to purchase quantities of oil well casing and tubing located in Europe through a United States importer, one Tegtmeyer. The irrevocable, commercial letter of credit was transmitted to the plaintiff on December 15, 1950; the plaintiff, in turn, issued its own irrevocable letter of credit² to the Union Bank of Switzerland at Geneva, Switzerland,³ on December 20, 1950.

A number of amendments were made to the original letter of credit by wire and letter before the two shipments of the materials and the negotiation of the two drafts in connection with the sales took place.

Plaintiff's cause of action is pitched upon two separate and independent theories. First, plaintiff is entitled to recover $124,223.05 and $70,611.47, plus appropriate interest, the amounts of two drafts drawn under this letter of credit, which drafts were refused payment by Liberty; or, second, and alternatively, plaintiff is entitled to recover a lesser sum based upon an implied contract for money paid out by Bank of America to the Swiss bank by virtue of Liberty's express request and direction.

I What Liability Exists in Relation to the Two Drafts Drawn Under the Letter of Credit?

Fundamentally, the letter of credit, as amended, called for the following:

(1) 1720 metric tons of new oil well casing and tubing of J-55 Grade, Range 2, 8 round threads and collars, with thread protectors on both ends and meeting A. P. I. American Petroleum Institute specifications.⁴

(2) An inspection certificate stating that materials met A. P. I. specifications.⁵

(3) All drafts to be accompanied by a full set of clean onboard ocean bills of lading to order of shipper, blank endorsed, marked "Notify Bank of America * * *".⁶

(4) Insurance, ocean freight, duties and taxes, if any, to place above materials f. o. b. Houston, Texas, to be paid for by seller and evidenced by vouchers attached to the drafts when submitted for payment.⁷

(5) All drafts to be accompanied by, (a) commercial invoices; (b) consular invoices; (c) railway weight certificates.⁸

Although both drafts were drawn under the same letter of credit we must consider each draft individually inasmuch as the factual situation surrounding each is different.

A. Liability of Liberty as to First Draft

Liberty insists it had the legal right to return without payment the first draft for the reason that the following deficiencies existed in regard to the documentary requirements established by the letter of credit: (1) no consular invoice was furnished; (2) an incomplete set of onboard bills of lading was furnished; (3) no vouchers evidencing payment of insurance, ocean freight, duty and taxes were furnished; (4) the ocean bill of lading was but a copy of the original set and did not purport to be an onboard bill; (5) the bill of lading was not a shipper's bill;⁹ (6) the copy of the bill of lading was foul and unclean; (7) the commercial invoice did not state that the casing met A. P. I. specifications; (8) the letter called for new pipe and the rail weight certificates explicitly recited the pipe to be secondhand; (9) the original letter of credit called for A. P. I. monograms and although these monograms were waived, the standard of quality was retained in the description of the goods.

Obviously, this is not merely a case involving the independent judgment of two banks in regard to whether or not, apart from other considerations, the documentary requirements of the letter of credit accompanied the drafts in question. Clearly, the primary force which moved Liberty to reject the drafts in question was the dissatisfaction of Liberty's customer, Anderson-Prichard, with the character and quality of the goods delivered under the contract.¹⁰

Although there is a line of authority which could be interpreted to require that each "t" be crossed and each "i" be dotted by any and all banks dealing with letters of credit and drafts negotiated thereunder, such an interpretation of this line of authority is improper.¹¹ Certain practical considerations must be taken into account in determining whether the terms of the letter of credit have in fact been met.¹²

This Court frowns upon mere technical defenses where in essence the contractual understanding between the parties has been met.¹³ In disposing of several highly technical irregularities raised by way of defense, the Court in Richard v. Royal Bank of Canada applied the true principle when it said:¹⁴

"We find no merit in any of these points. The letters of credit did not require the drawing of drafts. They assumed that they would be drawn, but, had they been drawn by a seller of the iron, the defendants, who were financing Fogel in his purchases, could not have sued the drawers thereof. To be sure, the drafts would have served as vouchers, but the receipts furnished were as good. Likewise, as to the weight certificates, the weight is given on the invoices, and approved by the persons designated to approve the weight certificates. No possible purpose could be served by having separate documents, although such appear to be more customary.

"In regard to the indorsement on the bills of lading of `freight collect,' the bills all show that the freight was to be paid by the consignee, and that was enough."

However, in the case at bar, at least two of the deficiencies raised by Liberty amount to more than mere technical defenses and in fact become most significant in regard to whether the letter was in fact complied with on all material points. Where a material defect exists, even though avowedly the defense is raised to protect the customer of the bank urging the defense, there is no reason, moral or legal, why such a defense may not be urged, particularly where strict compliance doubtless would have fully protected the customer and assured the customer of receiving the quality of goods bargained for.¹⁵

Of a certainty, the issue before the Court is not whether the prospective purchaser was presented with materials he thought he contracted to buy, but whether the banks handling the documents were chargeable with notice that the terms of the letter of credit had not been met and that the negotiation of any drafts thereunder was unauthorized.

1. Was the first draft accompanied by a clean bill of lading?

Whether a particular bill of lading is clean or foul is a very technical question; its answer is both one of fact and of law.¹⁶ After careful consideration the Court believes the bill in question cannot qualify as a "clean" bill.

Two suitable definitions of a clean bill are:

(1) "* * * it may be said that a `clean' bill of lading is one which contains nothing in the margin qualifying the words of the bill of lading itself. Citing cases."¹⁷

(2) "The description `clean bill of lading' imports one which contains nothing written, stamped or printed in margin qualifying words of bill of lading itself."¹⁸

On the bill before the Court the printed words in the bill "in apparent good order and condition" were deleted by the carrier; immediately below this extinction was the typewritten insertion "ship not responsible for kind and condition of merchandise"; in the body of the bill was stamped, "ship not responsible for rust".¹⁹

The Uniform Customs and Practice of the Seventh Congress of the International Chamber of Commerce²⁰ are by direct reference incorporated into the letter of credit here involved.²¹ Article 18 of this Uniform Customs provides that:

"Shipping documents bearing reservations as to the apparent good order and conditions of the goods may be refused."

Although, of course, a testifying expert witness cannot instruct the Court in regard to the applicable law of the case, testimony dealing with what the commercial world deems to be a "clean" bill is competent. As mentioned in Northern Industrial Chemical Co. v. Davis:²²

"Words, `clean bill of lading,' being technical expression of trade, it was not error to admit testimony of experts, to interpret phrase * * *."

Such is only reasonable. In interpreting any contract the intention of the parties must be obtained. Where technical expressions or phrases are used, presumably they are used in the manner commonly understood in that specific sphere of the business world from which they are drawn, unless expressly negated; consequently, the meaning thereof is incorporated by reference into the contract with the same force as if set down in detail.²³ However, apart from expert testimony, the Court believes that a reasonable interpretation of Article 18 of the Uniform Customs indicates that the bill in question did bear "reservations as to the apparent good order and conditions of the goods" and thus could be refused by Liberty.²⁴

Plaintiff argues that inasmuch as the bill in suit was subject to the provisions of both the Harter Act²⁵ and the Carriage of Goods by Sea Act²⁶ and as both acts provide that no shipowners shall be relieved from liability for loss or damage arising from negligence or fault on the part of the ship and its crew, and that all words or phrases inserted in bills of lading or shipping receipts ...