Bank of Nova Scotia v. San Miguel

• Decision Date: 14 May 1952
• Docket Number: No. 4575.,4575.
• Citation: 196 F.2d 950
• Parties: BANK OF NOVA SCOTIA v. SAN MIGUEL.
• Court: U.S. Court of Appeals — First Circuit

196 F.2d 950 (1952)

BANK OF NOVA SCOTIA v. SAN MIGUEL.

No. 4575.

United States Court of Appeals First Circuit.

May 14, 1952.

Henri Brown, San Juan, P. R., Brown, Newsom & Cordova, San Juan, P. R. (Enrique Cordova Diaz, San Juan, P. R., on brief), for appellant.

Herbert S. McConnell, San Juan, P. R. (Benicio Sanchez Castano, San Juan, P. R., on brief), for appellee.

Before MAGRUDER, Chief Judge, and MARIS and WOODBURY, Circuit Judges.

MARIS, Circuit Judge.

This is an appeal by the plaintiff, The Bank of Nova Scotia, a Canadian corporation, from a judgment of the United States District Court for the District of Puerto Rico entered upon a verdict for the defendant, Marcelino San Miguel, a citizen and resident of Puerto Rico. The litigation grew out of the following transactions:

Prior to July 31, 1947 the defendant had obtained an order to sell and ship to Jacob J. Salama & Company of Tangier, Morocco, 2,000 metric tons of Dominican sugar for $7.75 per 100 pounds. Salama had arranged through the Banco Hispano Americano in Tangier with The Chase National Bank of the City of New York to give to the defendant a letter of credit to cover the cost of the sugar thus purchased. A confirmed, irrevocable letter of credit was issued to the defendant by the Chase National Bank on July 31, 1947. By the letter as subsequently amended the Chase National Bank undertook, up to $345,000, to honor the defendant's sight drafts if presented at the office of the bank in New York on or before October 20, 1947 and if accompanied by the following commercial documents: a commercial invoice in quadruplicate, a certificate of origin, a weight certificate issued by Superintendency, a certificate of quality issued by Superintendency stating quality same as sample in possession of Superintendency, and a full set of bills of lading dated on or before October 15, 1947 to the order of Banco Hispano Americano, Tangier, marked to notify Industrial Commercial Espanola, S. A., showing Melilla as port of destination in transit for Spanish Morocco, evidencing a single shipment of 2,000 metric tons of crude sugar 96/97 degrees polarization at $7.75 per 100 pounds, f. o. b. vessel Dominican ports.

The defendant had arranged with Compania Antillana de Importacion by Exportacion C. por A., a Dominican corporation of which the defendant was president, to purchase in the Dominican Republic the raw sugar needed to meet his contract with Salama. The defendant had discussed with the plaintiff's Trujillo City branch the financing of these purchases and by a letter dated August 5, 1947 requested the plaintiff to advance to Compania Antillana against delivery of the warehouse receipts the sum of $208,600 with which to purchase the sugar and such additional sums as might be needed to pay production taxes, commissions and exportation permit fees and other expenses necessary for the transportation to and embarkation of the sugar at the Dominican ports. On the same day the defendant endorsed in blank and delivered to the plaintiff's San Juan branch his letter of credit from the Chase National Bank with instructions that it be sent to its Trujillo City branch and "should be handled under the strictest confidence and for exclusive use of the internal management of your bank."

Under date of August 8, 1947, plaintiff's Trujillo City branch acknowledged receipt of the defendant's letter of August 5th and of the letter of credit, and informed him it was authorized to grant loans to the company up to $215,000 against promissory notes to be issued by Compania Antillana. A continuing letter of guaranty in which the defendant personally guaranteed repayment was enclosed for the defendant's signature. The letter of guaranty was signed by the defendant and delivered as requested to the plaintiff. Subsequently advances were made by the plaintiff's Trujillo City branch to Compania Antillana as needed for the purchase of the sugar and the other expenses involved. Compania Antillana gave its note to the plaintiff for each advance and as security delivered to the plaintiff warehouse receipts for the sugar thus purchased. The total amount advanced by the plaintiff to Compania Antillana was $307,800.

The sugar was loaded on board a vessel bound for Spanish Morocco early in October, 1947. On the 10th of that month the plaintiff's Trujillo City branch forwarded to the defendant in New York a form of commercial invoice for the sugar to be copied on his own forms, signed and returned and a form of draft in its favor on the Chase National Bank as drawee for $341,713, the total purchase price of the sugar loaded, to be signed by him and returned to the plaintiff so that, to quote from the plaintiff's letter, "we may liquidate the loans made by reason of this sugar shipment." The defendant immediately signed and returned the invoice in quadruplicate and the draft in duplicate to the plaintiff at Trujillo City. The plaintiff thereupon inserted the date, October 15, 1947, in the draft, discounted it and applied the proceeds as follows: $307,800 in reimbursement of the advances made by it to Compania Antillana, $2,749.70 in payment to itself of interest on said advances at 8%, $1,560.55 in payment to itself of exchange charges upon the draft, and remitted the balance of $29,602.75 by check to the defendant in New York. At the same time the plaintiff cancelled and returned to Compania Antillana the promissory notes evidencing the advances.

Prior to October 15, 1947 the plaintiff's Trujillo City branch and Compania Antillana had been collaborating in securing the commercial documents which the letter of credit, issued by the Chase National Bank and then in the possession of the plaintiff's Trujillo City branch, required to accompany drafts drawn thereunder. The draft was presented by the plaintiff to the Chase National Bank in New York for acceptance and payment on October 20, 1947, the final day stipulated in the letter of credit for such presentation. The draft was accompanied by the commercial documents which the plaintiff and Compania Antillana had obtained. The Chase National Bank, however, refused to accept or pay the draft upon the ground that the accompanying documents did not comply with the requirements of the letter of credit and returned the draft to the plaintiff at about 4:30 P. M. that day.

The defendant was in New York at that time and after telephone conversations between the defendant, officers of the Chase National Bank and officers of the plaintiff's branch in New York the draft and accompanying documents were returned just before 5 P. M. on the same day to the Chase National Bank in order that it might secure authorization to accept the draft. The draft was again returned by the Chase National Bank to the plaintiff in New York on November 7, 1947 with a letter which disclosed the discrepancies between the documents submitted and the requirements stipulated in the letter of credit, as follows:

"1. Certificate of export authority presented instead of certificate of origin.

"2. Agent\'s certificate presented instead of Superintendency certificate.

"3. Agent\'s certificate is qualified by last paragraph.

"4. Agent\'s certificate specifies `sample compares favorable with sample handed to inspector\'. Letter of Credit stipulates `certificate to state quality same as sample in possession of Superintendency\'.

"5. Agent\'s certificate specifies `Quisqueya 97.17 Colon 97.47 polarization\'. Letter of Credit stipulates `96/97 degrees polarization\'."

The draft was formally protested by the plaintiff on January 20, 1948.

Salama refused to accept the sugar upon its arrival in Melilla and it was stored in a warehouse there. In order to minimize the loss which obviously might result from this situation the plaintiff in December, 1947 sent a representative to Tangier to negotiate with Salama. It appeared that the defects in the documents accompanying the draft were of a technical nature and such as could be corrected, the sugar being in fact equal to or better than sample. However, the sugar market had dropped in the interim and Salama refused to go through with the purchase on the original basis. After some negotiations Salama finally accepted the sugar at the reduced price of $256,713, $85,000 less than the price originally agreed upon. Pursuant to a prior agreement between the plaintiff, the defendant and Compania Antillana, solely for the purpose of minimizing damages and without waiving any of their rights or defenses, the sum of $256,713 thus realized on June 2, 1948 from the sale of the sugar was paid to and retained by the plaintiff in reduction of its claims arising out of these transactions. In effecting this settlement with Salama the plaintiff incurred expenses of $13,465.16.

On June 22, 1949, the plaintiff brought the present civil action against the defendant in which two causes of action were alleged. The first cause of action was for the recovery of the amounts advanced by the plaintiff to Compania Antillana at the defendant's request amounting to $307,800, with interest of $15,583.83, a total of $323,383.83, against which the plaintiff credited the sum of $213,655.09, being the amount it had recovered from Salama less its expenses of $13,455.16 and its payment of $29,602.75 to the defendant. The net amount claimed under the first cause of action was $109,728.74 with interest. This cause of action was based upon the theory that Compania Antillana was the defendant's agent in the transactions involving the advances from the plaintiff, that the defendant was accordingly legally liable to the plaintiff for the repayment of those advances and that the receipt by the plaintiff of the draft drawn by the defendant on the Chase National Bank in its favor did not operate as payment of those advances in view of the subsequent dishonor of the draft by the drawee, the Chase National Bank. The plaintiff chose not to base its cause of action upon the letter of...