Second Nat Bank of Allegheny v. Lash Corporation

• Citation: 299 F. 371
• Decision Date: 13 June 1924
• Docket Number: 3105.
• Parties: SECOND NAT. BANK OF ALLEGHENY v. LASH CORPORATION.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

299 F. 371

SECOND NAT. BANK OF ALLEGHENY v. LASH CORPORATION.

No. 3105.

United States Court of Appeals, Third Circuit.

June 13, 1924

J Bruce Orr, John J. Heard, Samuel McClay, and Reed, Smith Shaw & McClay, all of Pittsburgh, Pa., for plaintiff in error.

Walter Biddle Saul, Francis H. Bohlen, Jr., and Saul, Ewing, Remick & Saul, all of Philadelphia, Pa., and Richard W. Martin, of Pittsburgh, Pa., for defendant in error.

Before WOOLLEY and DAVIS, Circuit Judges, and BODINE, District Judge.

WOOLLEY Circuit Judge.

At the trial the court applied the rule of the McCarthy case. This now familiar rule, announced by the Supreme Court in Railway Co. v. McCarthy, 96 U.S. 258, 267, 24 L.Ed 693, approved in Davis v. Wakelee, 156 U.S. 680 690, 15 Sup.Ct. 555, 559, 39 L.Ed. 578, and followed by federal courts and many state courts, provides that:

'Where a party gives a reason for his conduct and decision touching anything involved in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and a different consideration.' Viewing this statement as the whole of the rule, and regarding the principle of waiver as its basis, some courts have held that where a party justifies his conduct on a ground specifically stated he is deemed to have waived all other grounds, and there the matter ends. This may be a correct interpretation of the quoted expression, but this expression is not the whole of the rule. Having said that a party cannot change his ground after litigation has begun, the court, giving the reason for the rule, continued:

'He is not permitted thus to mend his hold. He is estopped from doing it by a settled principle of law. Gold v. Bank, 8 Wend. (N.Y.) 562; Holbrook v. White, 24 Wend. 169; Everett v. Saltus, 15 Wend. 474; Wright v. Reed, 3 Durnf. & E. 554; Duffy v. O'Donovan, 46 N.Y. 223; Winter v. Coit, 7 N.Y. 288.'

The concluding words clearly indicate that the rule is founded on equitable estoppel. Insurance Co. v. Drake, 214 F. 536, 547, 548, 131 C.C.A. 82. Accordingly, when a party, with full knowledge of the facts, as here (Goodman v. Purnell, 187 F. 90, 109 C.C.A. 408; Banco Nacional v. Bank (D.C.) 289 F. 169, 176), has selected and given one of several available reasons for his refusal to perform his contract or discharge his duty and after suit changes his position and seeks to rely upon the others, federal courts in this circuit, looking to the reason of the rule and keeping in mind the distinction between waiver and estoppel (Shaw v. Spencer, 100 Mass. 382, 395, 97 Am.Dec. 107, 1 Am.Rep. 115), examine the record to find whether it appears that the party has misled his adversary or induced him to alter his position to his prejudice or has himself reaped an advantage by failing seasonably to assert the defense subsequently made-- in other words, whether the facts raise an estoppel (Galle v. Hamburg Co., 233 F. 424, 147 C.C.A. 360; Spitzer v. Trustees (C.C.A.) 267 F. 121, 128; Campbell v. Fetty (C.C.A.) 271 F. 671). We lay aside the contention of counsel for the plaintiff in error that the rule in the McCarthy Case is dictum, for, if dictum, it has nevertheless grown to the force of law and is recognized by the courts of New York where the contract in this case was made and by the courts of Pennsylvania where it was to be performed. Brink v. Insurance Co., 80 N.Y. 108, 113; Littlejohn v. Shaw, 159 N.Y. 188, 53 N.E. 810; Grimwood v. Munson S.S. Line (C.C.A. 2) 273 F. 166; Galle v. Hamburg Co. (C.C.A. 2) 233 F. 424, 147 C.C.A. 360; Goodman v. Purnell (C.C.A. 2) 187 F. 90, 109 C.C.A. 408; United Fruit Co. v. Bisese, 25 Pa.Super.Ct. 170, 174; McCormick v. Royal Ins. Co., 163 Pa. 184, 29 A. 747; Honesdale Ice Co. v. Lake Lodore Imp. Co., 232 Pa. 293, 81 A. 306.

With this understanding of the rule of the McCarthy Case, we inquire whether the trial court erred in applying it to the case at bar? That depends upon the facts. Shortly stated, the facts are these:

On July 8, 1920, the Standard Sugar & Supply Company of Pittsburgh entered into a contract with the Lash Corporation of New York for the purchase of two cars of sugar, the purchaser to furnish 'a bank guarantee.' Upon the request of the Sugar Company, the Second National Bank of Allegheny addressed a letter of credit to the Bank of the United States in New York promising to honor drafts drawn by the Lash Corporation on the Sugar Company 'calling for two cars of American white granulated sugar at $24.50 per hundred pounds, f.o.b. cars New York, if shipped immediately and accompanied by clean bills of lading without exceptions. These drafts, however, will be honored only upon arrival of cars in Pittsburgh. ' The price of sugar dropped and the Sugar Company, the purchaser, tried to cancel its contract with the Lash Corporation, the seller, and the bank (whose vice-president was a stockholder and director of the Sugar Company) tried to cancel its outstanding letter of credit. The Lash Corporation, however, proceeded to perform the contract and to hold these parties to their undertakings.

The letter of credit bore date July 20, 1920, and was received in New York on July 22. The first car was loaded on July 23 and bill of lading was given on July 24. The second car was tendered to the railroad company, but owing to car shortage it was not accepted for shipment until July 27, when drafts covering invoices for both cars were drawn against the letter of credit. The bank, in obedience to instructions of the Sugar Company, its customer, refused to honor the drafts upon the single ground of delay in shipment. The Lash Corporation then brought this suit and the bank in its pleadings set up for the first time the additional reasons for its action that the bills of lading did not show the quality of the sugar, that the shipments were not accompanied by clean bills of lading, and that both cars did not arrive in Pittsburgh, all contrary to the terms of the letter of credit. The court, in its rulings and charge, confined the issue to whether or not the bank was justified in repudiating its contract to honor the drafts for the single reason it had given at the time, holding, under the rule of the McCarthy Case, that it was estopped from setting up these additional reasons after suit and submitted the case on the issue whether or not the sugar had been 'shipped immediately' as required by the letter of credit. The plaintiff had a verdict and the case is here on the defendant's writ of error. While we have reviewed all of the many assignments of error, we have found that only those which in different ways touch the two matters last mentioned call for discussion.

It is clear that the bills of lading did not conform to the requirements of the letter of credit in...