Court Opinion

ID: 8835345
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:19:52.102596+00
Date Added: 2024-06-11T17:05:02.847240
License: Public Domain

MAYER, Circuit Judge
(after stating the facts as above). We have omitted many details which appear in this record because, in our view, the case narrows down to a few points. The transactions between the Sherburne Company and Old Colony Trust Company pri- or to the issuance by defendant of the letter of credit are immaterial, except, perhaps, in so far as they explain the personnel.
r We start with the letter of credit to ascertain the rights and obligations of the parties, and we shall assume for the purposes of this opinion that plaintiff was the holder in good faith of this letter of credit.
We regard the law as settled for this' circuit by our decisions in American Steel Co. v. Irving Nat. Bank, 266 Fed. 41, Harper et al. v. Hochstim et al., 278 Fed. 102, 20 A. L. R. 1232, and International Banking Corporation v. Irving Nat. Bank, 283 Fed. 103, affirming (D. C.) 274 Fed. 122.
In these cases, this court pointed out that the transaction is one to purchase documents and not goods and that, in our view, the documents referred to in a letter of credit must conform in every respect with the requirements of that letter of credit.
The litigations, in this and other courts, which have arisen in the past few years, were the obvious outgrowth of radical changes in prices. It would be dangerous if bankers or banking institutions who issue letters of credit were confronted with the problem of deciding anything more than whether or not the documents presented were the documents required under the letter of credit and whether the conditions in the letter of credit set forth were complied with. Behind a letter of credit of the kind here concerned are, of course, always the buyer and seller of the merchandise, and usually the buyer, as here, indemnifies the issuer of the letter. The banker is always in a posi*156tion of sharp responsibility, and, if he honors a letter of .credit contrary to its terms, he may invite troublesome litigation. 'Thus, it is to the interest of the merchant as well as the bank that it should not be made difficult to obtain letters of credit because of technical reasons, and hence that the issuance of such letters áhall not be embarrassed by placing upon the issuing bank any responsibility to look beyond the documents required under the letter and the conditions, if any, with which under the letter there must be compliance.
1. In the case at bar, there were several requirements beside the presentation of the documents. The letter of credit, for instance, required that the sugar should be “white Java” and that drafts were to be drawn only against “net landed weights.”
The testimony shows that net landed weights are only ascertained after the merchandise has been landed and weighed and, after the United States customs officials have finished weighing to determine the duty payable on the importation. Willits & Patterson v. Abekobei & Co., Ltd., 197 App. Div. 528, 531, 189 N. Y. Supp. 525.
In the case at bar, in respect of the larger draft, the sugar was not officially weighed by the government until December 3d, four days after the drafts were tendered and three days after the letter of credit expired. In respect of the smaller draft, the sugar was not weighed until December 20th. The language of the letter of credit clearly stated “by your sight drafts against shipment of 1,000 tons of 2,240 lbs. each'White Java sugars packed in bags of about two (2) cwt. each at twenty and one quarter (20%c.) net landed weights, duty paid, per pound”; and this plainly meant that the sugar must have been delivered free from any control of the government and that the necessary United States customs procedure in this regard should be completed.
The invoices in triplicate presented with the drafts each stated so many lbs. “net at 20J4c. net landed weights duty paid New York.”
As this statement was false, there was failure of compliance with the letter of credit, and we might stop here.
But this contention of defendant is attacked on several grounds, two of which we notice.
First. It is said that the refusal to honor the drafts was not placed by defendant on the net landed weights ground and many cases, of which, perhaps, Railway Co. v. McCarthy, 96 U. S. 258, 267, 268, 24 L. Ed. 693, is the leader, are cited. As pointed out in that case, this doctrine is really founded on the principle of estoppel and estoppel presupposes either knowledge or information of a sufficient character or the means of obtaining such knowledge or information by reasonable inquiry in the circumstances. In the absence of such knowledge or information, there can be neither waiver nor estoppel, particularly in regard to a defect which cannot be cured.
Secondly. Three witnesses testified that by an established custom in the sugar importing trade the phrase “net landed ^ weights” has a definite and well-understood meaning, namely, that upon presentation of the documents payment is to be made on the basis of the invoice weights (either the full amount or a specified percentage thereof according to the terms of the contract), and, upon the subsequent *157ascertainment of the net landed weights, there is to be an adjustment on that basis. In other words, if the net landed weights exceed the invoice weights, an additional payment would be required, and, per contra, if the net landed weights are less than the invoice weights, then a refund would he necessary.
Assuming the existence of this custom, it will be noted that it relates to a custom between buyer and seller and, in any event, is somewhat dependent upon the contract between them. It is not a custom in respect of letters of' credit where, to repeat, we must always return to the language.
2. But the case does not depend upon the question of net landed weights.
Under section 91 of the New York General Business Law (Consol. Laws, c. 20), relating to warehousing, a warehouse receipt need not be in any particular form, “but every such receipt must- embody within its written or planted terms: (a) the location of the warehouse where the goods are stored.” The ■ issue by a warehouseman of a receipt for goods not received is denounced as a crime under sections 134 and 135 of the same statute.1
We think this branch of the case very simple. When the letter of credit required a negotiable “warehouse receipt,” it, of course, meant a genuine warehouse receipt in the sense of a legally proper warehouse receipt in accordance with the law of New York where the letter of credit was issued and where its obligations were to be performed. Before the goods are stored in a warehouse so as to enable the warehouseman to give an appropriate receipt, many contingencies may occur, and, in view of such contingencies, it is plain to any one familiar with the nature of dealings of this character that it is vital that the goods shall physically be in. the warehouse and that fact evidenced by legitimate warehouse receipt, Defendant cannot be called upon to determine questions of constructive possession and any similarly controverted points of law or fact. The matter is very simple when colloquially stated. It was as if defendant trust company said, “With your draft, deliver to us a truthful warehouse receipt which will inform us that the goods are in the warehouse,”
We think the effect of the failure of plaintiff to conform with this requirement of the letter of credit is too plain to call for anything further than the mere citation of a few cases. McReynolds v. People, 230 Ill. 623, 82 N. E. 945; United States v. Ehrgott (C. C.) 182 *158Fed. 271; Starr v. Beerman (Sup.) 189 N. Y. Supp. 174; Fisher Reeves & Co., Ltd., v. Armour & Co., Ltd., 90 L. J. K. B. 172 (1921).
Obviously, when, the issuer of a letter of credit knows that a document, although correct in form, is, in point of fact, false or illegal, he cannot be called upon to recognize such a document as complying with the terms of a letter of credit.
3. The delivery order was insufficient on its face. Plainly, ' such an order to comply with the terms of the letter of credit must have been an order for the delivery of goods which -had been landed and weighed. It was objected that the goods were on the ship and that objection was good. In order to be effective, it was necessary that the goods should not be subject to any control, governmental or otherwise. 1
That there was still governmental control is apparent from the provisionst of U. S. R. S. § 2882 (Comp. St. § 5574), supplemented by Treasury Regulation Article 1078. See, also, Treasury Regulations 245, 265, and 617, which apply to this as well as the larger draft.
Other reasons in support of the judgment have been advanced by defendant. These we have refrained from discussing because not necessary to decision.
We think on the grounds stated, supra, that there was no question for the jury, and that the dismissal of the complaint was right.
Judgment affirmed.

General Business Law — New York.
“Section 184. Issue of Receipt for Goods Not Received. — A warehouseman, or any officer, agent or servant of a warehouseman, who issues or aids in issuing a receipt knowing that the goods for which such receipt is issued have not been actually received by such warehouseman, or are not under his actual control at the time of issuing such receipt, shall be guilty of a crime, and upon conviction shall be punished for each offense by imprisonment not exceeding one year, or by a fine not exceeding one thousand dollars, or by both.
“Section 135. Issue of Receipt Containing False Statement. — A warehouseman, or any officer, agent or servant of a warehouseman, who fraudulently issues or aids in fraudulently issuing a receipt for goods knowing that it contains any false statement, shall be guilty of a crime, and upon conviction shall be punished for each offense by imprisonment not exceeding one year, or by a fine not exceeding one thousand dollars, or by both.”