WALLACE, District Judge.
The plaintiff, Bank of America, brings this action to recover a money judgment over against the defendant, the Liberty National Bank
The original letter of credit was issued by Liberty to Bank of America at the request of Liberty's customer, Anderson-Prichard Oil Corporation; this customer wished to purchase quantities of oil well casing and tubing located in Europe through a United States importer, one Tegtmeyer. The irrevocable, commercial letter of credit was transmitted to the plaintiff on December 15, 1950; the plaintiff, in turn, issued its own irrevocable letter of credit
A number of amendments were made to the original letter of credit by wire and letter before the two shipments of the materials and the negotiation of the two drafts in connection with the sales took place.
Plaintiff's cause of action is pitched upon two separate and independent theories. First, plaintiff is entitled to recover $124,223.05 and $70,611.47, plus appropriate interest, the amounts of two drafts drawn under this letter of credit, which drafts were refused payment by Liberty; or, second, and alternatively, plaintiff is entitled to recover a lesser sum based upon an implied contract for money paid out by Bank of America to the Swiss bank by virtue of Liberty's express request and direction.
I
What Liability Exists in Relation to the Two Drafts Drawn Under the Letter of Credit?
Fundamentally, the letter of credit, as amended, called for the following:
(1) 1720 metric tons of new oil well casing and tubing of J-55 Grade, Range 2, 8 round threads and collars, with thread protectors on both ends and meeting A. P. I. [American Petroleum Institute] specifications.
(3) All drafts to be accompanied by a full set of clean onboard ocean bills of lading to order of shipper, blank endorsed, marked "Notify Bank of America * * *".
(4) Insurance, ocean freight, duties and taxes, if any, to place above materials f. o. b. Houston, Texas, to be paid for by seller and evidenced by vouchers attached to the drafts when submitted for payment.
(5) All drafts to be accompanied by, (a) commercial invoices; (b) consular invoices; (c) railway weight certificates.
Although both drafts were drawn under the same letter of credit we must consider each draft individually inasmuch as the factual situation surrounding each is different.
A. Liability of Liberty as to First Draft
Liberty insists it had the legal right to return without payment the first draft for the reason that the following deficiencies existed in regard to the documentary requirements established by the letter of credit: (1) no consular invoice was furnished; (2) an incomplete set of onboard bills of lading was furnished; (3) no vouchers evidencing payment of insurance, ocean freight, duty and taxes were furnished; (4) the ocean bill of lading was but a copy of the original set and did not purport to be an onboard bill; (5) the bill of lading was not a shipper's bill;
Obviously, this is not merely a case involving the independent judgment of two banks in regard to whether or not, apart from other considerations, the documentary requirements of the letter of credit accompanied the drafts in question. Clearly, the primary force which moved Liberty to reject the drafts in question was the dissatisfaction of Liberty's customer, Anderson-Prichard, with the character and quality of the goods delivered under the contract.
Although there is a line of authority which could be interpreted to require that each "t" be crossed and each "i" be dotted by any and all banks dealing with letters of credit and drafts negotiated thereunder, such an interpretation of this line of authority is improper.
This Court frowns upon mere technical defenses where in essence the contractual understanding between the parties has been met.
"We find no merit in any of these points. The letters of credit did not require the drawing of drafts. They assumed that they would be drawn, but, had they been drawn by a seller of the iron, the defendants, who were financing Fogel in his purchases, could not have sued the drawers thereof. To be sure, the drafts would have served as vouchers, but the receipts furnished were as good. Likewise, as to the weight certificates, the weight is given on the invoices, and approved by the persons designated to approve the weight certificates. No possible purpose could be served by having separate documents, although such appear to be more customary.
"In regard to the indorsement on the bills of lading of `freight collect,' the bills all show that the freight was to be paid by the consignee, and that was enough."
However, in the case at bar, at least two of the deficiencies raised by Liberty amount to more than mere technical defenses and in fact become most significant in regard to whether the letter was in fact complied with on all material points. Where a material defect exists, even though avowedly the defense is raised to protect the customer of the bank urging the defense, there is no reason, moral or legal, why such a defense may not be urged, particularly
Of a certainty, the issue before the Court is not whether the prospective purchaser was presented with materials he thought he contracted to buy, but whether the banks handling the documents were chargeable with notice that the terms of the letter of credit had not been met and that the negotiation of any drafts thereunder was unauthorized.
1. Was the first draft accompanied by a clean bill of lading?
Whether a particular bill of lading is clean or foul is a very technical question; its answer is both one of fact and of law.
Two suitable definitions of a clean bill are:
(1) "* * * it may be said that a `clean' bill of lading is one which contains nothing in the margin qualifying the words of the bill of lading itself. [Citing cases.]"
(2) "The description `clean bill of lading' imports one which contains nothing written, stamped or printed in margin qualifying words of bill of lading itself."
On the bill before the Court the printed words in the bill "in apparent good order and condition" were deleted by the carrier; immediately below this extinction was the typewritten insertion "ship not responsible for kind and condition of merchandise"; in the body of the bill was stamped, "ship not responsible for rust".
The Uniform Customs and Practice of the Seventh Congress of the International Chamber of Commerce
"Shipping documents bearing reservations as to the apparent good order and conditions of the goods may be refused."
Although, of course, a testifying expert witness cannot instruct the Court in regard to the applicable law of the case, testimony dealing with what the commercial world deems to be a "clean" bill is competent. As mentioned
"Words, `clean bill of lading,' being technical expression of trade, it was not error to admit testimony of experts, to interpret phrase * * *."
Such is only reasonable. In interpreting any contract the intention of the parties must be obtained. Where technical expressions or phrases are used, presumably they are used in the manner commonly understood in that specific sphere of the business world from which they are drawn, unless expressly negated; consequently, the meaning thereof is incorporated by reference into the contract with the same force as if set down in detail.
Plaintiff argues that inasmuch as the bill in suit was subject to the provisions of both the Harter Act
Plaintiff further asserts that inasmuch as section 1303(3) (c) of the Carriage
"* * * no carrier, master, or agent of the carrier, shall be bound to state or show in the bill of lading any marks, number, quantity, or weight which he has reasonable ground for suspecting not accurately to represent the goods actually received, or which he has had no reasonable means of checking." that the shipowner in the instant case had no intention either one way or the other to set out on the bill of lading "the apparent order and condition of the goods", and was merely stating he did not know the condition of the goods. Conceivably such an argument could explain the striking out of the printed words in the bill "in apparent good order and condition", but when this deletion is coupled with the inserted typewritten notation "Ship not responsible for kind and condition of goods" with the further addition by stamp "Ship not responsible for rust", obviously the shipowner intended to do more than just purport to show he was not in a position to pass upon the condition of the goods received.
2. Did the documents accompanying the first draft put those persons negotiating the draft legally on notice that the fundamental term of the letter of credit requiring new casing was violated?
Conceding for argument that the bill of lading in question technically was not "foul", distinct from such issue and even of more force is the fact that the documents taken as a whole legally placed all banks handling the transaction upon notice that a fundamental term of the letter of credit had not been met.
The Court appreciates that transactions similar to the one here involved must be handled under the unrelenting pressure of commerce, handled within a limited time for a limited fee; there is no intention or desire to place upon any bank a duty capable of execution only in the mind of a legal theorist. However, although the compensation is small and the responsibility great, once a bank accepts this duty is is bound to efficiently and accurately discharge the duty to the protection of all concerned.
Certainly the only function of any of the banks in the instant case was to see that the accompanying documents were regular and that they conformed with the letter of credit; no possible thought of responsibility exists as to the condition of the goods shipped apart from the picture of the transaction as reflected by the papers before the bank officials.
Unquestionably, no legal duty rested upon the Swiss Bank or the Bank of America, all other things appearing regular to even read, let alone translate the railway weight certificates which in the instant case indicated the materials were secondhand and did not conform to the letter of credit;
3. Is Liberty liable for payment of first draft for failing to return same within the statutory time allowed?
The two Oklahoma statutes which deal with the acceptance of bills of exchange read:
(1) "The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill; but the acceptance if given dates as of the day of presentation."
(2) "Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery, or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same."
Unquestionably the draft in question was not a sight draft and could not be considered as presented on Monday, February 26th, the day Liberty received the draft.
The evidence demonstrates that the information and documents to be furnished by the Houston bank were not received by Liberty's Mr. Hinkle until sometime after the defendant bank opened for business Monday morning, March 5th.
The evidence further shows that the telegram from Bank of America dated March 3rd,
Not only did Liberty return the draft the next day after receiving the documents which were a condition precedent to presentation of the draft, but by returning the draft Tuesday, March 6th, Liberty complied with the express terms of the letter of transmittal which accompanied the draft wherein Bank of America stated, "We look forward to receiving the funds during the early part of the coming week."
B. Liability as to second draft
Although some of the irregularities which were noted in regard to the status of documents accompanying the first draft also exist in connection with the second draft,
As mentioned previously, where a letter of credit is substantially complied with every reasonable effort should be made by the Courts to uphold its validity, particularly where the objections are technical in nature and made only in an effort to escape from the legal effect of a business bargain.
However, this Court knows of no instance where the precise time for expiration in regard to draft negotiation has been interpreted as merely a technical objection; the time set for the letter of credit to be in effect, both as to shipment and draft negotiation, are probably the most important and material requirements in regard to the relative rights of the parties set down by the letter of credit.
Although a number of modifications of the original letter in the instant case took place, which included several amendments in regard to expiration dates, the evidence unmistakably indicates that the last date authorized for negotiation was March 31, 1951.
All parties concerned meticulously saw to it that the letter of credit was extended, as to time, on a number of occasions; beyond doubt all concerned believed such amendments imperative. Such eliminates any question of estoppel.
(1) On January 29th, the defendant by telegram extended the shipment date to February 6th which extension was confirmed by letter.
(2) On February 3rd plaintiff sent a rush wire to defendant stating that it understood arrangements were being completed to extend the shipping date to February 28th and the expiration date to March 15th and requested instructions. Defendant immediately extended the date of shipment to February 25th and the time for negotiating drafts to March 10th; this extension was confirmed by a letter dated February 5th.
(3) On February 26th the final extension was granted by the defendant which permitted shipments to be made up through March 20th and negotiations of drafts up to March 31st; this was confirmed by letter.
It is only reasonable that the expiration date under an irrevocable letter of credit fix with certainty the relative liability of all parties. Furthermore it has been held that not only is the issuing bank no longer liable under the issued letter but the customer at whose instance the letter is issued is no longer responsible to the issuing bank for reimbursement, where the letter has expired.
II
Is Liberty Liable to Bank of America for the Two Deposits Made to the Account of the Union Bank Without Regard to the Two Drafts Drawn Under the Letter of Credit?
Separate and apart from liability arising by virtue of the letter of credit, and drafts drawn thereunder, the evidence establishes that Bank of America credited the account of the Swiss bank a total of $142,300.84 under the express direction and guaranty of Liberty. For this amount Liberty must stand liable.
After considerable correspondence and several conversations between the parties, which discussions included an officer of Anderson-Prichard, Liberty telegraphed the following authorization:
"Authorize payment Geneva on receipt of cable advice from Union Bank of Geneva, Switzerland, that they hold documents required your letter to them December 20, 1950 * * * monies paid on receipt of cable * * * shall not exceed $266.73 per metric ton for oil well casing or $335.00 per metric ton for oil well tubing * * *".
In recognition of Liberty's telegram, Bank of America cabled the Swiss Bank:
On January 8, 1951, Bank of America received from the Swiss Bank an airmail letter dated January 3rd which included the statement:
"We acknowledge receipt of your cable of December 29, 1950 * * * We have further advised the beneficiaries that we are authorized to pay conform (ed) documents at our bank, under cable advice to you."
On February 2, 1951, upon cable advice from the Swiss Bank, the Bank of America deposited $90,660.14 to the Swiss Bank's account;
The two cablegrams received by Bank of America from the Swiss Bank meant that the Swiss Bank had received the documents under the letter of credit and that they had paid out on the strength of those documents, and were in turn requesting reimbursement from the Bank of America.
Conceding the documents did not comply with the requirements set forth in the letter of credit, the deliberate choice was Liberty's and not the Bank of America in vesting the Swiss Bank with authority to pass upon the documents at the time the beneficiaries in Europe asked for their money.
Liberty urges that their authorizing telegram waived no rights to which they were entitled under the letter of credit and that the actions of Bank of America taken in their entirety indicate that Bank of America at all times considered that Liberty and Liberty's customer, Anderson-Prichard, had the right to be presented with all documents in conformity with the letter of credit before becoming liable for any money drawn thereunder.
The two credits to the Swiss Bank's account were made on February 2nd and February 27th, respectively;
III
Conclusion
It is the opinion of the Court that the Bank of America is entitled to judgment against the defendant, Liberty, for the net monetary loss suffered by Bank of America as a direct result of the two credits made to the account of the Swiss Bank under the express authority given by defendant, Liberty.
Bank of America deposited a total of $142,474.15 to the Swiss account. In addition, Bank of America paid duties and port charges in connection with the shipments in question in the amounts of $10,642.94 for the first shipment and $6,847.38 for the second shipment, and $118.28 for insurance on the goods while stored in Houston, Texas.
From this total outlay of $160,083.45 the net amount for which the shipped goods was sold of $120,249.05 must be deducted. Thus, plaintiff is entitled to judgment for $39,834.40, plus interest at 6% from appropriate dates on the applicable amounts.
Counsel should submit a journal entry in conformity with this opinion within ten days.
FootNotes
Parenthetically, it should be observed that the Court in the Camp case did not have the exact problem now before this Court inasmuch as the letter of credit in the Camp case did not require a "clean" bill.
"A clean bill of lading is a bill of lading which does not include overadded clauses expressly certifying the faulty state of the goods or of its condition. The bills of lading will be considered as clean even if they contain the clauses: (a), which, without expressly certifying that the goods and/or the condition are faulty, suggest however that this could be the case, for instance boxes for reutilization, used barrels, etc.; (b) which free the carrier from the responsibility of the risks arising from the nature of the goods and/or its condition; (c) by which the carrier declares to ignore the contents, the weight, the measurements, the quality or the technical specifications of the goods." (Emphasis supplied.) See (PX-56, pp. 3, 4.)
Obviously, unless a legitimate question existed under the customs of the Seventh Congress as to the status of a bill such as the one in the instant case there would have been no need to expressly cover this point by (a) and (b), supra.
In regard to the inspection certificate the Swiss Bank said: "Being fully aware of the great attention which we had therefore to direct to this inspection certificate in the quality of paying Bank, and of the importance of this main document, we were shocked at the sight of its exceedingly poor and elusive wording." (PX-56, p. 2.) Although neither Liberty nor its customer Anderson-Prichard can complain as to form of the inspection certificate inasmuch as Liberty expressly approved such a certificate (R 240, PX-B) and even though as a practical matter doubtless this entire controversy now before us would have been avoided if Liberty and its customer had not modified the original inspection certificate requirement (See PX-N) nonetheless, the loose wording of the inspection certificate certainly should have called for careful scrutiny by all banks handling the papers. Bank of America was specifically put on notice regarding the question of quality of goods raised by the inspection certificate, and stated in its letter to Liberty on February 9, 1951: "Our correspondent in transmitting the documents had made reference to the cablegram they sent us concerning the Inspection Certificate. They state that the wording is not quite to their liking and they deemed it advisable to bring the matter to our attention." (PX-11.)
Arnold of Anderson-Prichard became suspicious when he first observed the bill of lading. See (R 226). Arnold mentioned the qualifications appearing on the bill to Rodman who upon returning to Oklahoma City had the railway weight certificates translated; the translation revealed that the goods were secondhand. (R 243-246.) Also, the importer, Tegtmeyer, readily recognized that the railway weight certificates showed the goods to be used. (R 144, Blake.) The fact that these two persons, independently, realized from the documents that the materials were secondhand lends force to the Court's observation that the Swiss Bank and Bank of America should so have learned.
Of some significance is the fact that when Liberty refused payment because the bill of lading was not an "onboard" bill of lading the plaintiff made a most strenuous effort to correct this omission. (See DX-7, along with DX-9, 10, 11, 12.) It may be noted that the fact that the goods actually reached the port of debarkation, does not necessarily dispense with the requirement that instruments called for to insure the shipment are not furnished. Moss v. Old Colony Trust Co., note 11, supra.
As recognized by Bank of America on February 28th in its cablegram to the Swiss Bank: "Yours 26th Credit 4707 Excess Shipment 20.05 Tons 6/58 Acceptable Stop We Credit Dollars Five/Six Four Zero Cents Seven Zero Stop However Understand Documents Stipulate Merchandise is Second Hand Which Not Repeat Not Acceptable Under Any Circumstances Stop Advise By Cable." (Emphasis supplied.) (See PX-40.) Again on March 5th the Bank of America cabled the Swiss Bank: "Reference Our Credit 4707 Your No 13298 Understand Serious Dispute Over First Shipment Has Arisen Between Buyer and Seller Stop Recommend All Documents For Subsequent Shipments Be Thoroughly Scrutinized Before Effecting Payment Stop Your Cooperation Appreciated". (Emphasis supplied.) (See PX-42.) Although these warnings came too late to prevent the completion of the transactions in question, the only reasonable implication is that had Bank of America known, as it should have known, that the goods were secondhand all documents would have been returned to the Swiss Bank immediately upon receipt.
As stated in Uniform Customs, article 38: "The period for which all irrevocable credits are to remain in force must be stipulated. The period may be either a time for payment or a time for shipment. If the credit does not specify which, the Bank shall consider the date to be the day for payment and after its expiration shall refuse payment, even if the documents bear a date within the time for payment." (Emphasis supplied.) (PX-65.)
Not to be overlooked is the fact that Bank of America permitted Tegtmeyer to draw the second draft on April 11th at a time when Bank of America had learned that the documents showed the shipped materials to be secondhand. (R 121-123, Blake.)
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