Courtaulds North America, Inc. v. North Carolina Nat. Bank, 75--1291
| Decision Date | 30 December 1975 |
| Docket Number | No. 75--1291,75--1291 |
| Citation | 528 F.2d 802 |
| Parties | 18 UCC Rep.Serv. 467 ., Appellee, v. NORTH CAROLINA NATIONAL BANK, a National Banking Association, Appellant. United States Court of Appeals, Fourth Circuit |
| Court | U.S. Court of Appeals — Fourth Circuit |
Robert B. Cordle, Charlotte, N.C. (E. Osborne Ayscue, Jr., Helms, Mulliss & Johnston, Charlotte, N.C., on brief), for appellant.
Laurence C. Leafer, Alexandria, Va., on brief for amicus curiae, for First Union Nat. Bank of North Carolina.
Lindsay R. Davis, Jr., Greensboro, N.C. (Welch Jordan, Douglas Arant, Jordan, Wright, Nichols, Caffrey & Hill, Greensboro, N.C., Bradley, Arant, Rose & White, Birmingham, Ala., on brief), for appellee.
Before BRYAN, Senior Circuit Judge, and WINTER and RUSSELL, Circuit Judges.
A letter of credit with the date of March 21, 1973 was issued by the North Carolina National Bank at the request of and for the account of its customer, Adastra Knitting Mills, Inc. It made available upon the drafts of Courtaulds North America, Inc. 'up to' $135,000.00 (later increased by $135,000.00) at '60 days date' to cover Adastra's purchases of acrylic yarn from Courtaulds. The life of the credit was extended in June to allow the drafts to be 'drawn and negotiated on or before August 15, 1973.'
Bank refused to honor a draft for $67,346.77 dated August 13, 1973 for yarn sold and delivered to Adastra. Courtaulds brought this action to recover this sum from Bank. 1
The defendant denied liability chiefly on the assertion that the draft did not agree with the letter's conditions, viz., that the draft be accompanied by a 'Commercial invoice in triplicate stating (inter alia) that it covers . . . 100% acrylic yarn'; instead, the accompanying invoices stated that the goods were 'Imported Acrylic Yarn.'
Upon cross motions for summary judgment on affidavits and a stipulation of facts, the District Court held defendant Bank liable to Courtaulds for the amount of the draft, interest and costs. It concluded that the draft complied with the letter of credit when each invoice is read together with the packing lists stapled to it, for the lists stated on their faces: 'Cartons marked: --100% Acrylic.' After considering the insistent rigidity of the law and usage of bank credits and acceptances, we must differ with the District Judge and uphold Bank's position.
The letter of credit prescribed the terms of the drafts as follows:
'Drafts to be dated same as Bills of Lading. Draft(s) to be accompanied by:
1. Commercial invoice in triplicate stating that it covers 100,000 lbs. 100% Acrylic Yarn, Package Dyed at $1.35 per lb., FOB Buyers Plant, Greensboro, North Carolina Land Duty Paid.
2. Certificate stating goods will be delivered to buyers plant land duty paid.
3. Inland Bill of Lading consigned to Adastra Knitting Mills, Inc. evidencing shipment from East Coast Port to Adastra Knitting Mills, Inc., Greensboro, North Carolina.'
The shipment (the last) with which this case is concerned was made on or about August 8, 1973. On direction of Courtaulds bills of lading of that date were prepared for the consignment to Adastra from a bonded warehouse by motor carrier. The yarn was packaged in cartons and a packing list referring to its bill of lading accompanied each carton. After the yarn was delivered to the carrier, each bill of lading with the packing list was sent to Courtaulds. There invoices for the sales were made out, and the invoices and packing lists stapled together. At the same time, Courtaulds wrote up the certificate, credit memorandum and draft called for in the letter of credit. The draft was dated August 13, 1973 and drawn on Bank by Courtaulds payable to itself.
All of these documents--the draft, the invoices and the packing lists--were sent by Courtaulds to its correspondent in Mobile for presentation to Bank and collection of the draft which for the purpose had been endorsed to the correspondent.
This was the procedure pursued on each of the prior drafts and always the draft had been honored by Bank save in the present instance. Here the draft, endorsed to Bank, and the other papers were sent to Bank on August 14. Bank received them on Thursday, August 16. Upon processing, Bank found these discrepancies between the drafts with accompanying documents and the letter of credit: (1) that the invoice did not state '100% Acrylic Yarn' but described it as 'Imported Acrylic Yarn,' and (2) 'Draft not drawn as per terms of (letter of credit), Date (August 13) not same as Bill of Lading (August 8) and not drawn 60 days after date' (but 60 days from Bill of Lading date 8/8/73). Finding of Fact 24. Since decision of this controversy is put on the first discrepancy we do not discuss the others.
On Monday, August 20, Bank called Adastra and asked if it would waive the discrepancies and thus allow Bank to honor the draft. In response, the president of Adastra informed Bank that it could not waive any discrepancies because a trustee in bankruptcy had been appointed for Adastra and Adastra could not do so alone. Upon word of these circumstances, Courtaulds on August 27 sent amended invoices to Bank which were received by Bank on August 27. They referred to the consignment as '100% Acrylic Yarn', and thus would have conformed to the letter of credit had it not expired. On August 29 Bank wired Courtaulds that the draft remained unaccepted because of the expiration of the letter of credit on August 15. Consequently the draft with all the original documents was returned by Bank.
During the life of the letter of credit some drafts had not been of even dates with the bills of lading, and among the large number of invoices transmitted during this period, several did not describe the goods as '100% Acrylic Yarn.' As to all of these deficiencies Bank called Adastra for and received approval before paying the drafts. Every draft save the one in suit was accepted.
The factual outline related is not in dispute, and the issue becomes one of law. It is well phrased by the District Judge in his 'Discussion' in this way:
'The only issue presented by the facts of this case is whether the documents tendered by the beneficiary to the issuer were in conformity with the terms of the letter of credit.'
The letter of credit provided:
'Except as otherwise expressly stated herein, this credit is subject to the 'Uniform Customs and Practice for Documentary Credits (1962 revision), the International Chamber of Commerce, Brochure No. 222'.' Finding of Fact 6.
Of particular pertinence, with accents added, are these injunctions of the Uniform Customs:
'Article 7.--Banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit.
'Article 8.--In documentary credit operations all parties concerned deal in documents and not in goods.
'If, upon receipt of the documents, the issuing bank considers that they appear on their face not to be in accordance with the terms and conditions of the credit, that bank must determine, on the basis of the documents alone, whether to claim that payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.
'Article 9.--Banks . . . do (not) assume any liability or responsibility for the description, . . . quality, . . . of the goods represented thereby . . ..
Also to be looked to are the North Carolina statutes, because in a diversity action, the Federal courts apply the same law as would the courts of the State of adjudication. Here applicable would be the Uniform Commercial Code--Letters of Credit, Chap. 25 G.S.N.C. Especially to be noticed are these sections:
' § 25--5--109. Issuer's obligation to its customer.--
(1) An issuer's obligation to its customer includes good faith and observance of any general banking usage but unless otherwise agreed does not include liability or responsibility
(a) for performance of the underlying contract for sale or other transaction...
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