Bank of East Asia v. Pang

• Decision Date: 25 October 1926
• Docket Number: 19791.
• Citation: 140 Wash. 603,249 P. 1060
• Parties: BANK OF EAST ASIA, Limited, v. PANG et al.
• Court: Washington Supreme Court

249 P. 1060

140 Wash. 603

BANK OF EAST ASIA, Limited, v. PANG et al.

No. 19791.

Supreme Court of Washington

October 25, 1926

Department 2.

Appeal from Superior Court, King County; Claypool, Judge.

Action by the Bank of East Asia, Limited, against Herbert Archie Pang and another, doing business under the assumed trade-name of the Union Trading Company. Judgment dismissing the action and plaintiff appeals. Affirmed.

C. H Winders, of Seattle, for appellant.

Rummens & Griffin, of Seattle, for respondents.

MAIN J.

The complaint in this action is based upon two drafts for the sums of $12,500 and $7,500, respectively. To the amended complaint, which will be referred to as the complaint, a demurrer was interposed and sustained. The plaintiff declined to plead further and elected to stand upon the complaint with the result that judgment was entered dismissing the action from which it appeals.

The facts, as stated in the complaint, essential to present the law question to be determined may be summarized as follows: The appellant, the Bank of East Asia Limited, was located at Shanghai, China, and will be referred to as the bank. The Sang Lee Company was engaged in business at the same place. The respondents Herbert Archie Pang and Law Wing Woo did business under the name of Union Trading Company at Seattle, Wash. The Sang Lee Company purchased steel products from the Union Trading Company, and, to facilitate the matter of payment, the bank issued two letters of credit, the first of which was for $12,500, and was in words and figures as follows:

'American Express Company, Seattle, Washington.

'Mr. Grimmig, Building.

'Mr. Eberle, For Traff. Dept.

'Aug. 9, 1923.

'Irrevocable Export Credit. No. 17196.

'Mention this credit number on all communications.

'Union Trading Company, Seattle, Washington--Dear Sir: For account of our correspondent, named below, as ordered by cablegram we herewith open an irrevocable credit in your favor as follows: Amount $12,500 (twelve thousand five hundred dollars). Expires Sept. 30th. Draft must be presented on or before that date. For account of Sang Lee Company. Covering shipment of steel products. Destination, Shanghai direct. Insurance--marine to be effected by shippers, available by draft on us at Sang Lee Co., Shanghai at 90 d/a (in dup.) accompanied by following shipping documents (in form satisfactory to us): Complete set of steamer B/L to order Bank of East Asia, Limited. Marine and war risk insurance certificates in duplicate. Notify consignee. Invoice in triplicate.

'P. S.--Draft should bear the clause reading: 'Payable with interest added at 7% from date of draft until approximate date of arrival of cover in New York.'

'Above credit opened by Bank of East Asia, Limited, Shanghai, China.

'Yours truly,

Assistant Treasurer.'

This letter of credit by its terms is made irrevocable and was for the purpose of covering a shipment of steel products to the Sang Lee Company. The American Express Company was the agent of the bank for the purpose of making payment. On September 5, 1923, the Union Trading Company made a shipment of steel products and drew a draft in accordance with the letter of credit, as follows:

'Seattle, September 5, 1923.

'Exchange for $12,500.00.

'At ninety days sight of this first of exchange (second unpaid) pay to the order of Bank of East Asia, Limited, Shanghai, China, twelve thousand five hundred dollars only, value received, and charge the same to account of----

'Drawn under your irrevocable export credit No. 17196. 'Documents against payment.' 'Payable with interest added at 9% from date of draft until approximate date of arrival of cover in New York, U.S. A.

'Union Trading Co.,

'By Archie Pang, Manager.

'To Messrs. Sang Lee Company,

'Shanghai, China.'

This draft, with the documents attached, was presented to the American Express Company and paid. The draft calls for acceptance at sight and payment in 90 days. It, together with the bill of lading and invoice, was transmitted to the bank and was by it presented to the Sang Lee Company and accepted. On the due date, the latter company was unable to take up the draft, and it was duly protested and demand made upon the Union Trading Company to reimburse the bank. This demand was refused, and the present action followed. The second draft and the proceedings thereunder were the same as that upon the first.

The bank claims and so alleges in the complaint that the steel products were not of the kind and quality which had been contracted for by the Sang Lee Company, and that therefore it has a right, having paid the draft through its agent, to maintain an action directly against the Union Trading Company. The question is whether the bank, having issued the letter of credit providing that payment would be made when certain documents were presented, can now rely upon the claimed fact that the steel products were of an inferior quality. The contract for these products was between Sang Lee Company and the Union Trading Company. The letter of credit was a contract between the bank and the Union Trading Company. There is no claim that the documents presented when the payment was made by the express company did not conform to the requirements of the letter of credit. The bank was dealing in documents and not merchandise. In National City Bank v. Seattle National Bank, 121 Wash. 476, 209 P. 705, 30 A. L. R. 347, the question was whether the documents presented conformed to the requirements of the letter of credit, and arose between the agent of the bank issuing the letter and a bank presenting the draft and documents. In the course of the opinion in that case, the court made use of this language:

'We are not here concerned with the original contract between Sexton & Company and the importer, and need not inquire as to whether the terms of that contract were met, so as to fix the liability of the buyer. Bankers are not dealers in sugar in such a case as this, but are dealers in documents only, and whatever contract was made by the banks must be determined from the letter of credit itself. Here, as is the custom in such cases, the banker was presented with documents passed over his counter, and asked to pay a large sum of money in exchange for them. His duty was not to go out and determine by personal examination of the shipment, or by the employment of experts, whether the goods actually conformed to the contract between the buyer and seller, nor even to determine, either from his own knowledge or by expert advice, whether the documents called for goods which the buyer would be bound to accept. The banker knows only the letter of credit, which is his only authority to act, and the documents which are presented under it. If these documents conform to the terms of the letter of credit, he is bound to pay. If not, he is equally bound not to pay.'

In Laudisi v. American Exchange National Bank, 239 N.Y. 234, 146 N.E. 347, the plaintiff purchased a quantity of grapes which were to be shipped from California. As a method of paying for them, he made a contract with the defendant bank to issue to the vendor of the grapes a letter of credit under which the latter's draft for the purchase price was to be paid by the bank on presentation when accompanied by certain documents. The grapes were shipped to the plaintiff, and the draft for the purchase price thereof was paid by the bank on account of the plaintiff on the presentation therewith of the documents. The plaintiff claimed, among other things, that the grapes shipped were much inferior to those which he had contracted to buy and had notified the bank that the grapes were not of the quality contracted for and requested it not to pay the draft. The bank paid the draft, and the action was brought against it by its customer on whose behalf the letter of credit was issued. It was there held that the contract between the customer and the bank, under which the bank issued the irrevocable letter of credit, was entirely distinct and apart from the contract between the customer and his vendor, under which the goods were shipped. It was there said:

'The whole process of authorizing banks to issue letters of credit, under which the purchase price of goods is often paid for account of the vendee before he has had a chance to examine them, is largely based on confidence in the honesty of the vendor. If the vendee is suspicious of dishonesty, he can guard against it by appropriate clauses in his contract. But, certainly, the courts ought to exercise no power of embarrassing or

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