Second Nat. Bank of Hoboken v. Columbia Trust Co.

• Decision Date: 20 March 1923
• Docket Number: 2859-2861.
• Parties: SECOND NAT. BANK OF HOBOKEN v. COLUMBIA TRUST CO. S. FISHER & CO. v. SAME. SAME v. WIGRAM et al.
• Court: U.S. Court of Appeals — Third Circuit

288 F. 17

SECOND NAT. BANK OF HOBOKEN v. COLUMBIA TRUST CO. S. FISHER & CO. v. SAME. SAME v. WIGRAM et al.

Nos. 2859-2861.

United States Court of Appeals, Third Circuit.

March 20, 1923

Action by the Columbia Trust Company against S. Fisher and Co. Judgment for plaintiff, and defendant brings error. Affirmed.

Action by William Arthur Wigram and others against S. Fisher & Co. Judgment for plaintiffs, and defendant brings error. Reversed, and new trial granted.

Merritt Lane, of Newark, N.J., and John J. Fallon, of Hoboken, N.J for plaintiffs in error.

McCarter & English, of Newark, N.J. (James M. Gifford and Francis Woodbridge, both of New York City, and Arthur F. Egner, of Newark, N.J., of counsel), for defendant in error Columbia Trust Co.

Robert Louis Hoguet, of New York City, for defendants in error Wigram and others.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS Circuit Judge.

The second and third of the above-stated cases are based on contracts for the sale of sugar which are substantially alike. The first is based on a letter of credit issued in compliance with the terms of one of the contracts. The trial judge, at the close of complainants' testimony, struck out the defenses in all three cases and directed verdicts for complainants. The cases are here on writs of error to review the judgments based on those verdicts. Similar questions of law and fact are raised in all three cases and so they will be disposed of in a single opinion.

Second National Bank v. Columbia Trust Company.

On April 7, 1920, S. Fisher & Co., of Hoboken, N.J., hereinafter called Fisher, entered into a written contract with Gordon Woodroffe & Co., of New York City, hereinafter called Gordon, whereby Gordon sold to Fisher 100 tons of Java white sugar, to be shipped 'from Java during September,' and bill of lading 'to be considered proof of date of shipment. ' Payment was to be made as follows:

'Net cash against invoice for approximate net shipped weights and delivery order under banker's confirmed letter of credit for $40,500 to be established in our favor with the Columbia Trust Company, New York, immediately. Any difference between approximate net shipped weights and net landed weights to be adjusted on receipt of weight master's certificate of weights. Credit to be in force until 31st December, 1920, and extended if required.'

Pursuant to the terms of payment requiring a 'confirmed letter of credit' to be immediately established, the Second National Bank of Hoboken, N.J., wrote the Columbia Trust Company of New York City on April 20, 1920, as follows:

'Attention of Foreign Credit Dept.:

'Referring to our telephone conversation of this afternoon, we hereby guarantee the account of Messrs. S. Fisher & Co. of this city to the amount of $40,500, covering their contract with Messrs. Gordon, Woodroffe & Co., for the shipment of sugar from Java during September, 1920. We agree to pay you this amount upon presentation of delivery order and proper document certified by transporting steamship company that the sugar is held by them subject to delivery on presentation of said order.'

Three days after this letter of credit was established, upon request of Gordon, the Columbia Trust Company established a confirmed letter of credit with N. V. Handel, Maatschappij, Java, for account of Gordon, to the amount of $500,000, covering 1,600 tons of 'Java white sugar.' It is alleged that this transaction included the 100 tons of sugar sold by Gordon to Fisher and the $40,500 established in the letter of credit of the Second National Bank. Maatschappij shipped sugar to Gordon, in reliance on the letter of credit established by the Columbia Trust Company, and drew two drafts on it for the payment thereof, which were accepted and paid.

The price of sugar dropped considerably, and some time between January 1 and 4, 1921, Fisher wrote the Second National Bank, calling its attention to the fact that the letter of credit was to be in force only until December 31, 1920, and, since no request had been made for its extension, directed it 'not to honor any drafts, letters of credit, guaranty, or other obligation for or on' its behalf. On January 4, 1921, the Second National Bank wrote to the Columbia Trust Company, incorporating in its letter a copy of the letter of Fisher to it. According to the entry permit, the 100 tons of sugar, covered by the letter of credit established by the Second National Bank, arrived in New York on the steamship Eastern Crown January 14, 1921.

On January 24, 1921, the bank refused to honor the letter of credit and pay the draft. So the sugar was sold for $14,898.90, which, less expenses of the sale, was credited against the draft. The trust company brought suit against the bank for the amount of the draft, and at the conclusion of the trial, as before stated, the trial judge struck out the defenses, and directed a verdict for $24,292.84, which represents the difference between the amount of the draft and the net proceeds of the sale of the sugar, with interest.

The assignments of error may be compressed into the following propositions:

1. The letter of April 20, 1920, from the Bank to the Trust Company was not a strict letter of credit, but a guarantee.

The importance of this contention lies in the fact that, if the writing is a letter of credit and the suit is based upon it, evidence of the nonperformance of the contract which gave rise to the letter is immaterial and inadmissible.

'If the letter is addressed to a particular person, who advances goods or money on it in accordance with its tenor, the latter becomes an available promise in favor of the person making the advance. When acted on, and the advances made in accordance with its terms, a contract is created between the writer of the letter and the party who has acted upon it, upon which an action can be maintained. ' American Steel Company v. Irving National Bank (C.C.A.) 266 F. 41, 43.

The action here is based on the letter, which created a contract between the bank and the trust company. If it was a letter simply guaranteeing the account, evidence of the nonperformance of the contract is admissible, and it was error for the court to overrule the offer to prove it. Merchants' National Bank v. Citizens State Bank, 93 Iowa, 650, 61 N.W. 1065, 57 Am.St.Rep. 284. A letter of credit is a letter authorizing one person to pay money or extend credit to another on the credit of the writer. A letter of credit may also be defined as:

'A letter of request whereby one person requests some other person to advance money or give credit to a third person, and promises that he will repay or guarantee the same to the person making the advancement. ' Lafargue v. Harrison, 70 Cal. 380, 384, 9 P. 259, 11 P. 636, 59 Am.Rep. 416.

Defendant contends that this writing is not a letter of credit, because it is not in the usual form of a letter of credit, and says:

'If the contract provision with respect to the letter of credit had been carried out as therein provided, S. Fisher & Co. would have gone to the Columbia Trust Company, and the Columbia Trust Company would have issued to Gordon, Woodroffe & Co. authority to draw on the Columbia Trust Company to the extent of $40,500 and charge it to the account of S. Fisher & Co.'

But a letter of credit does not have to be in a particular form, if it is such in effect and intention (Violett v. Patton, 9 U.S. (5 Cranch) 141, 150, 3 L.Ed. 61), and in effect is a guaranty (Birckhead v, Brown, 5 Hill (N.Y.) 643). The argument of defendant apparently proceeds as if the contract read:

'Banker's confirmed letter of credit for $40,500 to be established in our favor by (and not with) the Columbia Trust Company.'

If the letter of credit was to be established by the Trust Company, then the letter would have been issued by the Columbia Trust Company, as defendant contends it should have been. But the contract of sale provides that a 'banker's confirmed letter of credit for $40,500 to be established in our favor with the Columbia Trust Company. ' In other words, Fisher was to establish a credit of $40,500 in favor of Gordon with the Trust Company, and that is exactly what was done. As a consequence the trust company issued its letter of credit to Maatschappij, authorizing it to ship on its credit for account of Gordon sugar covered by this credit established with the trust company by Fisher, on whose account the bank was acting.

Fisher undertook to furnish a banker's letter of credit for $40,500 in favor of Gordon with the trust company. Pursuant to that undertaking, the bank, at the instance of Fisher wrote the letter in question to the trust company. It was sent by the bank and accepted by Gordon as a fulfillment of the contract, and on its authority the trust company gave credit to Gordon. The fact that the trust company gave credit to Gordon for a larger amount than was established with it by Fisher is immaterial, for Gordon was a wholesale dealer in sugar, and it may well be that additional credit had been established with the trust company in its favor by other purchasers. There was, therefore, on the one hand a proffer, and on the other hand an acceptance, which was regarded by everybody as a compliance with the contract, and which accomplished what both parties to the contract had in mind. Neither Fisher nor the bank may be permitted to say, to the serious damage of Gordon and the Trust company: Our solemn written obligation is not what we actually undertook and led you to believe we had performed. The letter, in substance, in effect, in intention and in conscience, was a letter of credit, upon the authority of which credit was given to Gordon. Violett v. Patton, supra. Being such, the suit between...