Opinion ID: 289836
Heading Depth: 1
Heading Rank: 1

Heading: The Claims for $624.29 and $10,000

Text: 8 The letter of credit involved was issued and confirmed by Chase with Venizelos, the amended beneficiary, for the account of Perfiles, at the request of Banco, Perfiles' bank. The primary purpose of such a letter of credit is to provide an assurance to the selling party (here the ship owner's agent Venizelos) of prompt payment against documents, i.e., to provide a method of payment, through banking channels, which defines the terms and conditions upon which and only upon which the payment will be made and which, within the strict limits of those terms and conditions, engages the full primary responsibility of the bank to make the payment. Ordinarily there are three separate and distinct contracts involved in a letter of credit transaction; the contract of the bank with its customer whereby it agrees to issue the letter of credit, the letter of credit itself and the contract of sale between the buyer who is also the person who procured the bank to issue the letter of credit and the seller who accepts and acts under the letter of credit by drawing drafts thereunder. Except insofar as its terms are expressly incorporated therein, a bank's contract with its customer for a letter of credit in favor of a beneficiary is separate and distinct from the charter party or other contract of sale between the customer and the seller; the letter of credit constitutes the sole contract of the bank with the seller and is completely independent of the other contracts. Kingdom of Sweden v. New York Trust Co., 197 Misc. 431, 96 N.Y.S.2d 779 (1949). See Gilmore and Black, The Law of Admiralty 3-12 at 105 (1957). Since the bank is interested only in the documents to be presented, the essential requirements of a letter of credit must be strictly complied with by the party entitled to draw against the letter of credit, which means that the papers, documents and shipping descriptions must be as stated in the letter. Anglo-South American Trust Co. v. Uhe, 261 N.Y. 150, 184 N.E. 741 (1933); accord: Marine Midland Grace Trust Co. of New York v. Banco Del Pais, S.A., 261 F.Supp. 884 (S.D.N.Y.1966). 9 Chase is a confirming bank in this case, see New York Uniform Commercial Code, 5-103(1)(f); cf. Bril v. Suomen Pankki Finlands Bank, 199 Misc. 11, 97 N.Y.S.2d 22, 34 (Sup.Ct.1950), and accordingly has all the duties and rights of a confirming bank. See New York Uniform Commercial Code, 5-107(2). Thus Chase added its own liability to that of the issuing bank, undertook to honor the drafts and was directly obligated as though it were the letter's issuer to the extent of its confirmation. New York Uniform Commercial Code, 5-107(2); see Gilmore and Black, supra, 3-17 at 111 fn. 96. 10 The beneficiary of a letter of credit is bound to comply with its terms and conditions; in the absence of such compliance, there would be no liability on the part of the issuing or confirming bank. North Woods Paper Mills v. National City Bank, 121 N.Y.S.2d 543 (1953), aff'd, 283 App.Div. 731, 127 N.Y.S.2d 663 (1954). In this case, the district court found that Venizelos had not complied with the terms since it had shipped only a partial shipment and payment was not allowed for this. That ruling was premised upon interpreting the amendment to the letter of credit providing for an increased amount of credit to cover transport expenses for 19,300 tons as meaning that anything less than 19,300 tons was a partial shipment and finding that the initial payment of $61,973.21 by Chase after the exchange of telegrams with Banco would not estop Chase from asserting that the 9915 or 10,015 tons was a partial shipment. We do not agree. 11 There is no question but that Venizelos and Perfiles meant and provided for the revolving letter of credit to cover the freight for two voyages; that is precisely what clause 47 of the charter party required, i.e., that a revolving letter of credit be established to cover the minimum freight for two voyages and each voyage was estimated at 9500 deadweight tons (9650 metric tons), thereby indicating the transport expenses for 19,300 metric tons would be the equivalent of two voyages. Moreover, even the amended letter of credit considered independently, requires reversal of the summary judgment on the first two claims. A construction that will sustain an instrument will be preferred to one that will defeat it; Ga Nun v. Palmer, 216 N.Y. 603, 111 N.E. 223 (1916); accord: Silverman v. Alpart, 282 App.Div. 631, 125 N.Y.S.2d 602 (1953); if an agreement is fairly capable of a construction that will make it valid and enforceable, that construction will be given it. M. O'Neil Supply Co., Inc. v. Petroleum Heat & Power Co., 280 N.Y. 50, 19 N.E.2d 676 (1939). The same general principles which apply to other contracts in writing govern letters of credit. Fair Pavilions, Inc. v. First Nat'l City Bank, 24 A.D.2d 109, 264 N.Y.S.2d 255 (1965), rev'd on other grounds, 19 N.Y.2d 512, 281 N.Y.S.2d 23, 227 N.E.2d 839 (1967). Where a letter of credit is fairly susceptible of two constructions, one of which makes it fair, customary and one which prudent men would naturally enter into, while the other makes it inequitable, the former interpretation must be preferred to the latter, and a construction rendering the contract possible of performance will be preferred to one which renders its performance impossible or meaningless. See Liberty Nat'l Bank & Trust Co. v. Bank of American Nat'l Trust & Savings Ass'n, 218 F.2d 831, 840 (10 Cir. 1955). Moreover, as between the beneficiary of a letter of credit and the issuer (or in this case, Chase, since confirmers are to be treated as issuers under New York commercial law) if ambiguity exists, the words are taken as strongly against the issuer as a reasonable reading will justify. Lamborn v. National Park Bank of New York, 212 App.Div. 25, 208 N.Y.S. 428 (1925), aff'd 240 N.Y. 520, 148 N.E. 664. 12 If the requirement of total shipment were interpreted to mean 19,300 tons as Chase claims, the letter of credit would be meaningless since Venizelos could not transport that amount in one voyage on its liberty ship 'Anastassis'; however, if a total shipment were said to be 9690 tons as stated in the original letter of credit, the contract would be reasonable and possible to perform. The letter of credit called for the shipment of about 9690 metric tons, and the amendment provided that all other terms, not amended, were to remain in effect. The amendment referred to the increase in credit being for transport expenses of 19,300 tons of Liberty ship scrap but did not refer to that amount as being one shipment. Any ambiguity here is to be resolved against Chase, the author of the amendment. Thus not only did the phrase '   partial shipments are not permitted' survive but so did the phrase calling for shipment of about 9690 metric tons. Any remaining question that the lower tonnage was to be considered a total shipment is answered by the other facts shown. The letter from Chase to Venizelos regarding the assignment to Venizelos as beneficiary of the letter of credit acknowledges that transportation was to be on the 'Anastassis,' a Liberty ship, and the amendment referring to transport expenses of 19,300 also specifies the 'Anastassis.' Liberty ships typically carry approximately 9650 metric tons in a load. When presented with the proper documents and a sight draft for $61,973.21, Chase cabled its correspondent bank, Banco, and queried as to what to do since the documents presented were for 9915.7 tons (the estimated amount). Banco cabled back approving the documents presented, and Chase paid Venizelos. When Chase paid this amount, Venizelos reasonably assumed that Chase would honor its obligations under the letter of credit, including demurrage and stevedore damages, with respect to that voyage and acting in reliance on that view, allowed unloading operations in Coatzacoalcos to commence. Since Venizelos acted in reliance and to its detriment, by allowing the goods to be discharged, on Chase's original payment of $61,000, Chase is estopped from asserting that the shipment was a partial one. In any event, after Banco cabled its agreement with the documents presented for 9915 tons, if Chase had any lingering doubts as to what was a 'partial shipment' with reference to the vessel specified in the amendment to the letter of credit, prudence would have dictated that it inquire further. Had Chase done so, it would have been clear that the correct construction of the letter was to prohibit, as partial shipments, shipments of less than 9690 metric tons; this is the only reasonable construction to be given to the terms of the amended letter of credit under the circumstances presented. 13 Since Veinzelos presented the proper documents requiring payment and since the contract should be interpreted as allowing no shipments less than 9690 metric tons, Venizelos is entitled to recover summary judgment on its claims for additional freight and demurrage and stevedore damages. As stated previously, the freight was 99.9 tons more than what was estimated, charged at the specified rate of $6.25 per ton, totaling $624.29. Venizelos is also entitled to collect the $10,000 maximum set aside in the letter of credit for demurrage and stevedore damages, since documents were presented showing justified claims well in excess of $10,000 for these two items. Although the charter party between Venizelos and Perfiles apparently only contemplated originally that $5,000 of the credit amount in the letter of credit would be for stevedore damages and/or demurrage, we must interpret the letter of credit as a separate and independent contract between Chase and Venizelos. Kingdom of Sweden v. New York Trust Co., supra. In the original letter of credit confirmed by Chase, $10,000 was earmarked for demurrages and an additional $5,000 was earmarked for indemnity damages; this was at a time when the total amount of the credit was $82,830 representing freight of 9690 tons at.$7.00 per ton, plus the additional $15,000. Thus these amounts would appear to have been earmarked to cover one voyage. The amendment actually decreased the aggregate limitation for demurrage and stevedore damages to $10,000 but gives no indication that while increasing the freight amount to cover two voyages (19,300 tons at $6.25 per ton, i.e. $120,625.00) the $10,000 was meant to cover two voyages. Although the parties might have specified a particular limitation per voyage, they did not. It would be unreasonable to infer that the parties would have decreased the aggregate limitation and yet increased its coverage to two voyages without some specific indication that such was their intent. Since, as between the confirming bank and the beneficiary of a letter of credit, if an ambiguity exists, in construing the letter the words should be taken as strongly against the bank as is reasonably justified, the maximum limitation of $10,000 for demurrage and indemnity damages is to be interpreted as meant for each voyage, and Venizelos is entitled to summary judgment for the $10,624.29 sought.