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letter of credit or guaranty for purchase price of goods.

Ordinarily, drafts payable after the time fixed in the letter of credit are not within the terms of the latter. Boyd v. Townsend (1843) 4 Hill (N. Y.) 183. That the date fixed for the expiration of a letter of credit is a condition that must be complied with, in order to fix liability under the letter of credit, is also the holding in G. Jaris Co. v. Banque D'Athenes (1923) 246 Mass. 546, 141 N. E. 576, where an extension of a letter of credit provided the "validity was extended to February 1st, 1919." This provision was held to require the presentation of drafts by that date, although it was assumed by the court that, in the ordinary course of events, it would be impossible to comply with the provision. The court said: The "construction of the letter and its amendments is not affected by the geographical situation. of Newfoundland, nor by the fact that only one steamship cleared St. Johns during January or February, 1919, for any port in Greece. The written instrument is unmistakable in its meaning." The time for the presentation of drafts was also held to be a condition essential to be complied with in order to fix the liability of the bank issuing the letter in Barde Steel Products Corp. v. Franklin Nat. Bank (1922; C. C. A. 3d) 281 Fed. 814.

However, where the letter of credit is ambiguous as to the date of expiration, it will be construed in this regard with reference to existing conditions, and such a construction will be adopted as will result in giving force and effect to the letter. Thus, where the letter provides for shipment of goods up to a certain time from a distant port, it will be construed as relating to the time of expiration so that it will be available to the seller who ships goods within the time specified. Lamborn v. National Park Bank (1925) 212 App. Div. 25, 208 N. Y. Supp. 428, affirmed in (1925) 240 N. Y. 520, 148 N. E. 664.

A draft purchased in reliance upon a letter of credit, limited as to the time for the presentation of any draft issued thereunder, is enforceable

against the person issuing the letter, where the draft was presented substantially within the time fixed in the letter. Boyd v. Townsend (N. Y.) supra. Thus, where in the usual course of mail transportation a letter containing a draft drawn on the faith of a letter of credit would have arrived at its destination so that the draft would have been presented within the time fixed in the letter, the fact that it was one day late, where due to delay in transmission through the mails, is not a ground for refusing to pay the draft, since the delay is excusable within the Negotiable Instruments Law. SECOND NAT. BANK V. M. SAMUEL & SONS (reported herewith) ante, 49.

The payment by the bank issuing a letter of credit, of drafts drawn thereunder and presented after the expiration of the time fixed in the letter, does not obligate the bank to pay other drafts presented after such date. Barde Steel Products Corp. v. Franklin Nat. Bank (Fed.) supra.

A mere delay in presenting a draft drawn and accepted on the faith of a letter of credit does not entitle the person contracting by the letter of credit to accept the same, to divert to other purposes money held by him to meet such draft. Lowery v. Steward (1858) 3 Bosw. (N. Y.) 505, affirmed in (1862) 25 N. Y. 239, 82 Am. Dec. 346; Starr v. Murchison (1878) 1 N. Y. City Ct. Rep. 413.

In Johnson v. Clark (1868) 39 N. Y. 216, where a person who had issued a letter of credit in the form of an agreement to accept a draft of a designated person for a certain amount refused to honor it on the ground that the draft was not drawn according to the authority of the letter, and subsequently the purchaser of the draft procured a new one, drawn according to the terms of the letter, and delivered up the first draft to be canceled, it was held that the person issuing the letter of credit and agreeing to accept the draft could not refuse acceptance on the ground of delay in presenting the second draft.

Authority to draw on the promisor at ninety days does not authorize a draft on him payable ninety days

after date, since in such case the promisor might not know of the existence of the draft until the day it was due, while, if the draft was drawn ninety days after sight, he would have ninety days in which to pay it after it had been presented to him. Ulster County Bank v. McFarlan (1843) 5 Hill (N. Y.) 432, affirmed in (1846) 3 Denio, 553.

Authority to draw for sixty days does not authorize the drawing of drafts under a letter of credit for ninety days. Birckhead v. Brown (1843) 5 Hill (N. Y.) 634. The court said: "We have no means of entering into their minds [of the parties] or discovering the motives which influence them in fixing on a precise period of sixty days. It is one of those questions which judicial tribunals cannot investigate. We could do no more than to venture a guess on the subject, and a surety is not bound to take the hazard of our guessing wrong. He has a right to say, "That is not my contract,' and so long as he can give this answer truly, he cannot be charged with the debt of his principal." Affirmed in (1845) 2 Denio, 375.

c. As to presenting shipping documents,

etc.

The purpose of a letter of credit is to assure one party to a contract prompt payment of the obligations assumed by the other; as a protection for the party arranging for the letter, it is usual, especially where the letter is issued as an assurance to the seller of goods, to provide therein that bills of lading, and perhaps other shipping documents, shall accompany any draft or drafts drawn under the letter. It is settled law that a provision of this character imposes a condition of liability under the letter. See cases cited III. a.

There is no legal objection to the letter of credit requiring the shipping documents to declare on their face compliance with the commercial or manufacturing details of the underlying agreement between the recipient of the credit letter and the buyer of the goods. The conditions imposed may be onerous, but, whether light or

heavy, they must be complied with. International Bkg. Corp. v. Irving Nat. Bank (1922; C. C. A. 2d) 283 Fed. 103.

Where a letter of credit contains a provision that drafts drawn on the faith thereof shall be accompanied by a straight bill of lading, no liability attaches under the letter for the payment of a draft accompanied by an order bill of lading. Lamborn v. Lake Shore Bkg. & T. Co. (1921) 196 App. Div. 504, 188 N. Y. Supp. 162, affirmed in (1921) 231 N. Y. 616, 132 N. E. 911. And the bank issuing a letter of credit containing a provision for such a bill of lading has no authority subsequently to agree with a holder of the draft that it may be accompanied by an order bill of lading. Williams Ice Cream Co. v. Chase Nat. Bank (1923) 120 Misc. 301, 199 N. Y. Supp. 314.

In Murdock v. Mills (1846) 11 Met. (Mass.) 5, where the letter of credit was issued upon the condition that the draft should be accompanied by a bill of lading of the property consigned to the promisor, it was held that the promisor was not liable for payment of drafts drawn upon him without complying with this condition.

It is pointed out in First Nat. Bank v. Bensley (1880; C. C.) 2 Fed. 609, supra: "The agreement of the defendant, as expressed in their telegram to the bank, was not simply an agreement to pay Buckingham & Brother's draft. It was an agreement on their part to pay J. Buckingham & Brother's draft with bill of lading attached, and, therefore, their promise was conditional. Its nature in this regard was communicated to the bank. All parties were advised that compliance with the terms named by the defendants was essential if the drawers and the bank would have the draft honored on presentation; and it is the fair meaning of the language used in the despatch that bills of lading should accompany the draft upon its presentation for payment. It was necessary, in order to hold the defendants upon their special promise, that the drafts should be drawn as they directedthat is, in the name of J. Buckingham & Brother-and that proper bills of

lading should accompany the draft." The general rule is that an obligation to present documents with the draft is complied with, if any of the accompanying documents contain the required description. Maurice O'Meara Co. v. National Park Bank (1925) 239 N. Y. 386, 39 A.L.R. 747, 146 N. E. 636.

IV. Right to payment of draft as affected by equities or claims of parties to primary contract.

When a letter of credit has been acted upon by the person to whom it is addressed, or by any member of the public, where it is intended for the public generally, it constitutes a contract between the writer of the letter and the person acting upon it, which is independent of, and distinct from, the contract; the performance of which it was given to assure, and hence liability thereunder is enforceable without reference to the claims of the parties arising out of the nonperformance of the primary contract.

United States.-Bank of Taiwan v. Gorgas-Pierie Mfg. Co. (1921; C. C. A. 3d) 273 Fed. 660; Border Nat. Bank v. American Nat. Bank (1922; C. C. A. 5th) 282 Fed. 73, writ of error dismissed in (1922) 260 U. S. 701, 67 L. ed. 471, 43 Sup. Ct. Rep. 96; International Bkg. Corp. v. Irving Nat. Bank (1922; C. C. A. 2d) 283 Fed. 103; Second Nat. Bank v. Columbia Trust Co. (1923; C. C. A. 3d) 30 A.L.R. 1299, 288 Fed. 17; Bank of America v. WhitneyCentral Nat. Bank (1923; C. C. A. 5th) 291 Fed. 929, petition for writ of certiorari dismissed in (1924) 264 U. S. 598, 68 L. ed. 869, 44 Sup. Ct. Rep. 331; Old Colony Trust Co. v. Lawyers' Title & T. Co. (1924; C. C. A. 2d) 297 Fed. 152, writ of certiorari denied in (1924) 265 U. S. 585, 68 L. ed. 1192, 44 Sup. Ct. Rep. 459; Bank of Taiwan v. Union Nat. Bank (1924; C. C. A. 3d) 1 F. (2d) 65.

California.-S. L. Jones & Co. v. Bond (1923) 191 Cal. 551, 217 Pac. 725.

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Massachusetts.-Central Sav. Bank

v. Richards (1872) 109 Mass. 413; National Wholesale Grocery Co. v. Mann (1925) 251 Mass. 238, 146 N. E. 791; Tocco v. Bank of Italy (1924) 249 Mass. 267, 143 N. E. 905.

Minnesota.-Oil Well Supply Co. v. MacMurphey (1912) 119 Minn. 500, 138 N. W. 784.

Nebraska.-Palmer v. Rice (1893) 36 Neb. 844, 55 N. W. 256.

New York.-Ulster County Bank v. McFarlan (1846) 3 Denio, 553; Burns v. Rowland (1863) 40 Barb. 368; Merchants' Bank v. Griswold (1878) 72 N. Y. 472, 28 Am. Rep. 159; Laudisi v. American Exch. Nat. Bank (1924) 239 N. Y. 234, 146 N. E. 347; Maurice O'Meara Co. v. National Park Bank (1925) 239 N. Y. 386, 39 A.L.R. 747, 146 N. E. 636; Courteen Seed Co. v. Hong Kong & S. Bkg. Corp. (1926) 216 App Div. 495, 215 N. Y. Supp. 525, affirmed in (1927) 245 N. Y. 377, A.L.R., 157 N. E. 272; Benecke v. Haebler (1899) 38 App. Div. 344, 58 N. Y. Supp. 16, affirmed in (1901) 166 N. Y. 631, 60 N. E. 1107; Frey & Son v. E. R. Sherburne Co. (1920) 193 App. Div. 849,. 184 N. Y. Supp. 661; Lamborn v. Lake Shore Bkg. & T. Co. (1921) 196 App. Div. 504, 188 N. Y. Supp. 162, affirmed in (1921) 231 N. Y. 616, 132 N. E. 911; Williams Ice Cream Co. v. Chase Nat. Bank (1924) 210 App. Div. 179, 205 N. Y. Supp. 446; Imbrie v. D. Nagase & Co. (1921) 196 App. Div. 380, 187 N. Y. Supp. 692; Brown v. C. Rosenstein Co. (1923) 120 Misc. 787, 200 N. Y. Supp. 491, affirmed without opinion in (1924) 208 App. Div. 799, 203 N. Y. Supp. 922.

Wisconsin.-First Wisconsin Nat. Bank v. Forsyth Leather Co. (1926) 189 Wis. 9, 206 N. W. 843.

England. Urquhart, L. & Co. v. Eastern Bank [1921] W. N. 364.

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It is pointed out in Courteen Seed Co. v. Hong Kong & S. Bkg. Corp. (1926) 216 App. Div. 495, 215 N. Y. Supp. 525, affirmed in (1927) 245 N. Y. 377, A.L.R. 19 157 N. E. 272: "When a bank buys a draft relating to a letter of credit, it acts solely for itself and at its own risk; its transaction is with the drawer, not with the drawee, except so far as it seeks to

benefit from the drawee's commitment in its letter of credit; it owes no duty to the drawee, or to the drawee's customer. It is engaged in quite a distinct kind of a transaction from selling its credits. It is buying commercial paper relying upon the credit of the drawer and any other security the drawer at the time may offer."

The holder of the draft may recover the amount thereof from the promisor, who issued the letter of credit, where the former has performed all of the conditions of the letter, but the promisor has refused to honor the draft on the ground that the goods actually furnished, in quality, do not comply with the contract of sale between the seller and the buyer, at whose instance the letter of credit was issued. Maurice O'Meara Co. v. National Park Bank (1925) 239 N. Y. 386, 39 A.L.R. 747, 146 N. E. 636.

Where the letter of credit contains a specific recital as to the character or quality of goods for the payment of which it is pledged, and requires that evidence of complying with the credit in this regard shall accompany any draft drawn under the letter of credit, the promisor is not concerned with any questions as to the actual character or quality of goods the buyer contracted for. Unless the evidences accompanying the draft show the goods to be of the character and quality specifically set forth in the letter of credit, no liability attaches thereunder. National City Bank v. Seattle Nat. Bank (1922) 121 Wash. 476, 30 A.L.R. 347, 209 Pac. 705; Lamborn v. Lake Shore Bkg. & T. Co. (1921) 196 App. Div. 504, 188 N. Y. Supp. 162, affirmed in (1921) 231 N. Y. 616, 132 N. E. 911.

The fact that the letter of credit was obtained by means of representations which, as between the bank issuing the letter and the person securing it, would entitle the bank to withdraw and cancel the letter, is no defense in behalf of the bank, to an action against it to recover on a draft purchased in good faith in reliance upon the letter. Johannessen v. Munroe (1896) 9 App. Div. 409, 41 N. Y. Supp. 586, affirmed in (1899) 158 N. Y.

641, 53 N. E. 535. So, a bank issuing a letter of credit cannot justify its refusal to honor drafts drawn upon it thereunder, on the ground of contract relations between it and the procurer of the letter. American Steel Co. v. Irving Nat. Bank (1920; C. C. A. 2d) 266 Fed. 41. There was a subsequent appeal in this in this case which was affirmed without opinion in (1921; C. C. A. 2d) 277 Fed. 1016, and from which writ of certiorari was denied in (1922) 258 U. S. 617, 66 L. ed. 793, 42 Sup. Ct. Rep. 271.

The rule that in an action by a bona fide purchaser of a draft against the bank issuing a letter of credit, any equities in favor of the buyer of goods, based upon the failure of the seller to comply with the contract of sale, are not to be considered in behalf of the defendant, does not apply. where compliance with the contract in the respect wherein the seller defaulted is specified in the letter as a condition of liability thereunder. Bank of Taiwan v. Union Nat. Bank (1924; C. C. A. 3d) 1 F. (2d) 65.

The promisor in a letter of credit, before paying drafts drawn thereunder, is in duty bound to examine the accompanying papers to ascertain whether or not the conditions of the letter have been complied with, but he is not required to examine any other documents than those specified in the letter of credit. Ibid.; Camp v. Corn Exch. Nat. Bank (1926) 285 Pa. 337, 132 Atl. 189.

Where the bank issuing a letter of credit notifies the seller of goods to whom it was addressed that, due to instructions of the person securing the letter, it will refuse to pay any draft thereafter drawn thereunder, it constitutes as anticipatory breach of the contract evidenced by the letter, and the seller is entitled to recover as his measure of damages the loss he suffered by the breach, by the buyer, of the contract of sale. Doelger v. Battery Park Nat. Bank (1922) 201 App. Div. 515, 194 N. Y. Supp. 582; Ernesto Foglino & Co. v. Webster (1926) 217 App. Div. 282, 216 N. Y. Supp. 225, modified as to the measure of damages in (1926) 244 N. Y. 516,

155 N. E. 878, reargument denied in (1926) 244 N. Y. 563, 155 N. E. 897.

The fact that the person for whose benefit the letter of credit was issued diverted the proceeds of it to other purposes than those contemplated by the party securing the letter of credit is no defense to the latter. Davidson v. Keyes (1842) 2 Rob. (La.) 254, 38 Am. Dec. 209; Hutchinson v. Mitchell (1860) 15 La. Ann. 326.

It has been held that where a letter of credit is in the form of a statement that the person therein designated has deposited with the writer of the letter a certain sum of money for a designated purpose, the liability of the person issuing the letter of credit is limited to the sum of money therein mentioned, and where this is afterwards drawn by the depositor, the person issuing the letter of credit is not liable to persons selling property to the depositor in reliance upon the letter. Roman v. Serna (1874) 40

Tex. 306.

V. Liability of procurer of letter to person acting thereon,

The rule has been recognized that the holder of a draft purchased on the faith of a letter of credit is entitled to recover the amount thereof, in an action against the procurer of the letter, as the damage he has suffered by the act of the latter in inducing the writer of the letter unjustifiably to refuse to pay the draft. SECOND NAT. BANK V. M. SAMUEL & SONS (reported herewith) ante, 49, denying equitable relief to the purchaser of the draft, on the ground that his remedy at law was adequate.

VI. Liability of holder of draft to procurer of letter.

It seems that an injunction will not ordinarily issue restraining the holder of a draft drawn under a letter of credit from presenting the draft for acceptance or payment, or to enjoin the bank issuing the letter from accepting or paying the draft where it complies with the letter of credit, although in violation of the contract between the seller and the buyer who secured the letter, it not appearing that either the drawee bank or the

holder of the draft is insolvent, since the buyer has an adequate remedy at law. Frey & Son v. E. R. Sherburne Co. (1920) 193 App. Div. 849, 184 N. Y. Supp. 661, reargument denied in (1920) 194 App. Div. 960, 185 N. Y. Supp. 929. And see Higgins v. Steinhardter (1919) 106 Misc. 168, 175 N. Y. Supp. 279, which holds to have been properly issued an injunction, pendente lite, to restrain the collection of a draft drawn under a letter of credit, where the buyer of goods, who secured the letter of credit, in his application therefor, stipulated that the credit should expire on a designated date, and the goods were not shipped until after such date. But the person procuring the issuance of a letter of credit may enjoin the bank issuing the letter from paying a draft which is not accompanied by the instruments stipulated for in the letter. Williams Ice Cream Co. v. Chase Nat. Bank (1923) 120 Misc. 301, 199 N. Y. Supp. 314.

The purchaser of a draft in reliance upon a letter of credit cannot be held liable to the person who secured the letter, on the ground that he purchased the draft and secured its payment after the liability of the bank issuing the letter had expired. Courteen Seed Co. v. Hong Kong & S. Bkg. Corp. (1927) 245 N. Y. 377, A.L.R.

157 N. E. 272.

In National Wholesale Grocery Co. v. Mann (1925) 251 Mass. 238, 146 N. E. 791, it is held that the seller of goods did not violate the contract of sale by collecting on the letter of credit, although, as between himself and the buyer, there was a breach of warranty as to the quality of some of the goods, for which the buyer was entitled to recover compensation for the loss thereby occasioned him.

While the seller is entitled to recover on a draft for the purchase price of goods, where based upon a letter of credit, without reference to any claims against him by the buyer for breach of warranty as to the quality of the goods, the latter may, however, recover from the seller the damages suffered by him by reason of such breach. Such relief is not precluded

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