Border Nat. Bank of Eagle Pass, Tex., v. American Nat. Bank of San Francisco, Cal.

Decision Date19 July 1922
Docket Number3806.
Citation282 F. 73
CourtU.S. Court of Appeals — Fifth Circuit

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

R. D Wright, of Eagle Pass, Tex., and William C. Douglas, of San Antonio, Tex. (Sanford & Wright, of Eagle Pass, Tex., and Douglas & Carter, of San Antonio, Tex., on the brief), for plaintiff in error.

S. J. Brooks and Howard Templeton, both of San Antonio, Tex. (Templeton, Brooks, Napier & Brown, of San Antonio, Tex., on the brief), for defendant in error.

Before WALKER, BRYAN, and KING, Circuit Judges.

BRYAN Circuit Judge.

This is a suit by the American National Bank of San Francisco, Cal., herein called plaintiff, against the Border National Bank of Eagle Pass, Tex., herein called defendant. After the exchange of several telegrams, defendant's obligation to plaintiff, which is the basis of the suit, assumed the following form:

'We guarantee irrevocably payment for account Joseph De Bona covering purchase 200 long tons Orient white granulated sugar from Maldonado & Co. f.o.b. Frisco twenty-two cents pound duty paid San Francisco public weigher's certificates of weights July, August, September shipment drawing on us with railroad bills lading and/or warehouse receipts attached.'

Besides a general denial, the defendant interposed special defenses to the effect that its undertaking was entered into as an accommodation, without security or consideration, and amounted to a guaranty of De Bona's obligation to Maldonado & Co.; that if De Bona and Maldonado & Co. ever entered into a contract, which is denied, it was a materially different one from the contract covered by defendant's guaranty; that De Bona repudiated his contract with Maldonado & Co. while it was wholly executory, and that defendant thereupon revoked its said guaranty; and that defendant had never received any benefit or thing of value out of the whole transaction. The court sustained exceptions to the special defenses.

April 22, 1920, De Bona, a broker at Eagle Pass, requested Maldonado & Co., brokers at San Francisco, to quote prices on refined granulated cane sugar for immediate or later delivery. April 23 Maldonado & Co. replied, and offered, subject to confirmation, from 100 to 200 long tons of Java white granulated sugar, for July, August, and September shipment from the Orient, at 22 cents per pound, f.o.b. San Francisco, upon being furnished with 'irrevocable letter of credit by wire. ' April 24 De Bona informed Maldonado & Co. that in all probability he would accept their offer of 200 tons, and inquired if they would confirm sale. Maldonado & Co. replied that, before they would confirm sale, 'you must have your bank wire American National Bank irrevocable letter of credit with order. ' Thereupon De Bona accepted Maldonado & Co.'s offer, and stated: 'Border National Bank this city guaranteeing. ' During these negotiations the Border Bank notified Maldonado & Co. that it would guarantee De Bona's contract for July, August, and September delivery, but, upon Maldonado & Co. notifying De Bona that their offer provided for shipment, instead of delivery, during the months mentioned, the Border Bank modified its undertaking with the American Bank accordingly. In pursuance of the negotiations and contract between De Bona and Maldonado & Co., the Border Bank sent to the American Bank the obligation sued on. The entire correspondence was carried on by telegram.

Thereupon Maldonado & Co. contracted with Amsinck & Co. for the purchase of sugar with which to fill their contract with De Bona. Amsinck & Co. required of them a letter of credit, which was furnished by the American Bank to the amount of $96,300, in reliance upon its contract with the Border Bank. June 19, 1920, De Bona undertook to cancel his contract with Maldonado & Co., and June 22, 1920, the Border Bank gave notice of the revocation of its obligation to the American Bank. But both Maldonado & Co. and the American Bank insisted upon performance.

The sugar was shipped from Java in September, 1920, and the American Bank paid out on its letter of credit $96,310.11, and on November 22, 1920, presented Maldonado & Co.'s draft for $98,594.88, payable to itself, with bill of lading, warehouse receipts, and other documents attached, to the Border Bank. The bill of lading called for the sugar described in defendant's obligation. Payment of the draft was refused, and thereafter the sugar was sold at public auction for $28,534.46.

The court sustained objections to defendant's offer to prove that De Bona had no funds, assets, or security on deposit with it at any time during the year 1920 or since; that during all said time De Bona was insolvent; and that defendant had at no time applied to the Federal Reserve Board for enlargement of its powers as to bankers' acceptances or otherwise. At the conclusion of the evidence the court directed a verdict for plaintiff, and entered judgment thereon for $72,368.84, which, it was calculated, represented the difference between the proceeds of sale of the sugar and the amount paid out by plaintiff on its letter of credit, together with interest and expenses incident to storage and sale.

The defendant assigns error and contends: (1) That the obligation sued on is ultra vires, because it is in legal effect a guaranty or lending of credit, and not a letter of credit; it contemplates a nonbankable transaction; and it contravenes certain provisions of the Federal Reserve Act, relating to bankers' acceptances. (2) That the said obligation is unenforceable, because it was dependent upon the sales contract between De Bona and Maldonado & Co.; it was not an unconditional acceptance, as required by the Negotiable Instruments Act of Texas; and sugar of the kind required was not described in the warehouse receipt attached to plaintiff's draft. (3) That the judgment is excessive.

1. A guaranty is a promise to answer for the payment of some debt, or the performance of some obligation, in case of the default of another person, who is in the first instance liable for such payment or performance. A letter of credit confers authority upon the person to whom it is addressed to advance money or furnish goods on the credit of the writer. Daniel on Negotiable Instruments (6th Ed.) Secs. 1752, 1790; 12 R.C.L. 1053, 1065. It is well settled that the guaranty of a national bank is ultra vires. 3 R.C.L. 425. But a national bank is bound by its letter of credit. Decatur Bank v. St. Louis Bank, 21 Wall. 294, 22 L.Ed. 560.

The defendant insists upon a strict construction of the word 'guarantee,' contained in its contract. If there were nothing to limit, qualify, or explain its meaning, that word might reasonably be construed to imply a promise to pay De Bona's debt in the event he failed to do so. But to ignore the circumstances in which it was used is to attach too much importance to it. It is a word which is frequently employed in business transactions, which do not provide for securing the promise or debt of another, to express an original, primary obligation. The promise, in which the word appears, is to be construed in the light of the evidence and as a whole.

It was the intention of the parties to the sugar contract to secure it by a letter of credit. Maldonado & Co. required that form of security as a condition precedent to their offer. That offer was accepted by De Bona as made. The American Bank was also making the same requirement. The Border Bank was fully cognizant of the correspondence between the parties to the sugar contract. It therefore knew of the requirement that a letter of credit be furnished. It would be imputing bad faith to the Border Bank to conclude that it deliberately attempted to substitute a guaranty for a letter of credit. But clearly that was not the case. The Border Bank readily consented to every suggestion of change, and evidenced an intention to comply with every requirement made by the American Bank. The only reasonable conclusion from the evidence is that the banks, as well as the parties to the sugar contract, contemplated and intended a letter of credit. The defendant's obligation is consistent with the intention of the parties. It does not purport to secure payment by De Bona, but for his account. The promise is not that defendant would pay if De Bona did not, but that defendant would pay in the first instance.

A construction which renders a contract valid is to be preferred to one which renders it void. 2 Williston on Contracts, Sec. 620. We are therefore of opinion that defendant's obligation, tested by its terms and by the intention of the parties, as shown by...

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