# Pan-American Bank & Trust Co. v. National City Bank of New York > Court of Appeals for the Second Circuit · February 9, 1925 · 6 F.2d 762 URL: https://www.frixlaw.com/law-library/cases/9652569 ## Case - **Full name:** PAN-AMERICAN BANK & TRUST CO. Et Al. v. NATIONAL CITY BANK OF NEW YORK - **Court:** Court of Appeals for the Second Circuit - **Decided:** February 9, 1925 - **Citations:** 6 F.2d 762; 1925 U.S. App. LEXIS 2130 - **Precedential status:** Published - **Opinion:** Dissent by Hand - **Judges:** Judge-, Hough, Manton, Hand - **Cited by:** 21 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9652569 ## Opinion text HAND, Circuit Judge-(dissenting). I agree that paragraph 5 of section 13 of the Federal Beserve Act (Comp. St. § 9764) applies only to acceptances proper; that is, to acceptances payable on time, and not to sight drafts. The language seems to me clear, and the Beserve Board has so ruled. That there may be substantial differences between the two I am quite ready to believe, if for no other reason, at least because the draft being uncleared for a period of time subjects the acceptor to the intermediate fluctuations of the buyer’s credit and in the value of the goods. My trouble arises from the fact that the defendant’s obligation was certainly intended as a guaranty in accommodation of Seago & Co. and prima facie was ultra vires. I attach no importance to the fact, which I admit, that it was the defendant, and not Seago & Co., who was to repay the drafts when presented after payment by the plaintiff. That it is true is a distinction between the ease at bar and Nowell v. Equitable Trust Co., decided in September, 1924, by the Supreme Court of Massachusetts ( 249 Mass. 585 , 144 N. E. 749 ), but it is irrelevant. A creditor may always come first upon the guarantor, ignoring the principal, if he chooses, leaving the former to throw the eventual loss upon the latter where it belongs. Cochran v. U. S., 157 U. S. 286, 296 , 15 S. Ct. 628 , 39 L. Ed. 704 ; Eichel v. U. S. F. & G. Co., 241 F. 357 ; Id., 245 U. S 102, 38 S. Ct. 47 , 62 L. Ed. 177 ; American Surety Co. v. Lawrenceville Cement Co. (C. C.) 96 F. 25 . So much is this true that tho creditor’s forbearance, short of an agreement to forbear, does not prejudice his right. Greenway v. Orthwein, 85 F. 536 , 29 C. C. A. 330 (C. C. A. 8). Hence the agreement that the defendant should honor the drafts, which, as it chances, was quite dehors the formal agreement, made no difference in the relations of the parties. The relation of suretyship depends, not on the order of collection, but upon the eventual incidence of the loss. None of the distinctions raised by the plaintiff serve in the least to differentiate Nowell v. Equitable Trust Co., supra, which is clearly in point, and the only case so far as I know which decides the question. The gist of the matter is whether the power to issue letters of credit reasonably covers such a guaranty. The Louisiana stature gives such banks as the defendant the power *770 “to issue letters of credit authorizing the holders thereof to draw drafts upon them or their correspondents at sight or on time.” Act No. 184 of 1916, § 30. That power, of course, would have authorized the defendant to issue the letter, if that would have satisfied Barcellos, and it would also have authorized the defendant to make the plaintiff one of its correspondents or drawee hanks on whom Barcellos might have drawn. Had he in fact drawn on the plaintiff, the defendant must have paid the drafts, by virtue of the implied agreement between them arising from the very nature of the transaction. Tha agreement on which the plaintiff’s rights would rest in that case appears to me indistinguishable in substance from that on which it sues in the case at bar. The strength of the plaintiff’s case, therefore, rests upon the argument that, since the defendant coneededly had the power to make the plaintiff its correspondent, and thus to subject itself to precisely the same hazard as it in fact undertook, the difference is only one of form. People’s Bank v. National Bank, 101 U. S. 181 , 25 L. Ed. 907 . I have tried to state this position as fairly as I can, because it has apparent cogency, and it is only, I think, by considering more narrowly the functions of a letter of credit that it can be answered. An irrevocable commercial import letter is designed to do more than give the seller -a chance to cash his drafts when the time arrives. Granting that the law is not as yet clearly worked out, it is certain, at least in this circuit, that, when once communicated to the seller, the letter creates a contract, which is in fact irrevocable. American Steel Co. v. Irving National Bank, 266 F. 41 (C. C. A. 2). The seller may proceed to buy or manufacture the goods, relying upon the credit of the writing bank, which is his security. Hence it makes a great difference to the seller who is the writer. Since the correspondents named in such a letter make no promise, the seller may not look to them, but has only the credit of the writer. It was therefore quite another thing for the plaintiff, with its far stronger credit and wider reputation, to write the letter than for the defendant. Yet, as far as I can see, this action cannot succeed, unless we ignore the difference. The ease at bar is as good an illustration as one could ask. It is apparent that, had the defendant tried to satisfy Barcellos with its own obligation, it would have failed, and it could never have incurred the risk which has proved too much for its resources. It was only by persuading the plaintiff to give Barcellos the intermediate assurance that his drafts would in fact be honored when presented that the defendant could get itself involved in the transaction at all. True, it had to persuade the plaintiff to accept its guaranty, but that was quite another thing, as this case proves. I submit that, when the practical consequences of the difference in the legal relations are so important, we should not treat them as only formal. Rather we should say'that, when the charter gave the defendant the power “to issue letters of credit,” it meant to allgw no more than the , use of its credit, so far as that would be accepted, and did not allow it by means of a collateral guaranty to assume far larger commitments. The words must be read to mean what they do in common commercial use. So read, they do not include a transaction of the kind undertaken. To extend them was to offer to the defendant’s officers opportunities for speculative ventures to which the shareholders never agreed when they organized the bank. So it seems to me no answer to say that the defendant might lawfully have written a letter which, if accepted by the seller, would have put it just where it now is. It could not in fact have got into that position, because, had it followed the fair import of its power, nobody would have trusted it so far. Thus, the guaranty was ultra vires, and the Supreme Judicial Court of Massachusetts was right in so holding. I have said that, so far as I know, there are no contrary decisions, and it remains only to discuss those which the plaintiff cites. In Border Bank v. American National Bank, 282 F. 73 (C. C. A. 5), the seller, Maldonado, required security of the buyer. The defendant .(plaintiff in error) was the buyer’s bank, and sent to the plaintiff (defendant in error) a wire guaranteeing the seller’s draft. Had the plaintiff on the faith of that wire written a letter of credit to Maldonado, the seller, the case would have been on all fours with that at bar, but it did not. On the contrary, the plaintiff was'Maldonado’s own bank, and it was on that account that the wire was sent to it. It had written a letter of credit on Maldonado’s account, to secure his purchase from Amsinck of the sugar necessary to fill the contract which the defendant secured, and it had honored Amsinek’s drafts, so that it had at least a banker’s lien, perhaps more. Apparently,.also, it discounted Maldonado’s draft upon the defendant op the buyer, but it had not, so far as appears, issued to Maldonado an irrevocable letter of credit, on the faith of which Maldonado made the sale. *771 Thus it is plain that the case is in no sense parallel with this, but, on the contrary, that all it involved or could involve was the question whether the defendant’s wire was truly a letter of credit, in spite of the fact that it was called a guaranty. There ought never to have been any question of that. In the ease at bar the defendant’s guaranty was, of course, nothing of that sort. It was not given to the seller, Barcellos, and never came to his knowledge; nor was it given to Bareellos’ bank as security for the discount of his drafts when he should draw them. The facts were in substance the same in Second National Bank v. Columbia Trust Co., 288 F. 17 , 30 A. L. R. 1299 (C. C. A. 3), except that it does not appear that the plaintiff who was the seller’s bank had discounted his drafts. The court took the point in its discussion of the difference between a letter of credit with the plaintiff and one by it. Bank of Italy v. Merchants’ National Bank, 197 App. Div. 150 , 188 N. Y. S. 183, concerned a similar transaction. Finally, the plaintiff argues that it was the defendant’s agent to write the letter, and that the defendant had power to do by an agent what it might do direetly. I make no question that the defendant might have authorized the plaintiff to write such a letter for it, but it did not. The .letter was not the-defendant’s, but the plaintiff’s, and engaged its credit alone, as was essential to the success of the enterprise. When a man acts through an agent, he must mean the resulting rights or duties to be his own, and the agent must intend to commit, not himself, but his principal, to the person with whom he deals. Here there was nothing but a request and a guaranty,'and the parties had no purpose to bind the defendant to Barcellos. We must not be deceived by the anomalous doctrine of the undisclosed principal, though even for that there must also be a true agency. It is hard in so plain a ease to say more than that the parties never meant to create an agency. But, if I am wrong upon this point, as well may be, it seems to me plain that the documents presented to the plaintiff in New York did not conform with the letter of credit which it wrote, and for payments under which alone the defendant agreed to reimburse it. We have too often committed ourselves in this court to the doctrine that the obligation of the writer is measured by the conformity of the documents with the letter of credit to recede from that position. American Steel Co. v. Irving National Bank (C. C. A.) 266 F. 41 ; International Banking Corp. v. Irving National Bank (C. C. A.) 283 F. 103 ; Old Colony Trust Co. v. Lawyers’ Title & Trust Co. (C. C. A.) 297 F. 152 . My brothers are as decided in that opinion as I. So we have to determine whether the documents presented were a valid tender under the conditions which Barcellos had to perform. I shall assume that the bill of lading was good enough, taken by itself, though it was plainly no more than an acknowledgment that the goods were laden on the Tocantins or some other vessel of the carrier’s fleet. However that may be, it was of course a sine qua non that the insurance must cover the goods. If so, I submit that none of the policies were in form. Each was a valid insurance only if the Tocantins in fact lifted the goods, and yet the bill of lading was equally satisfied by a shipment on some other vessel.' Presented together, the two documents came only to this: The goods are on board either the Tocantins or some other vessel of the line, and they are insured if they are on board the Tocantins. Such documents are certainly an incomplete tender upon a letter of credit to secure a c. i. f. sale. The buyer is entitled to complete protection, and either the bill of lading should have been narrower or the policies broader; as they stood, they did not match. The allowance in the guaranty for any defect in the correctness and genuineness of the documents does not cover such a hiatus, or excuse the writer for accepting sueh papers as on their face were insufficient. It protected the plaintiff only against forgery and mistakes of fact in their contents. Were it not so, the guarantor and the person taking out the letter could be held, whatever the writer chose to accept. That would in effect nullify the whole theory of' the transaction. Further, it is no answer to say that the Tocantins in fact' lifted the sugar, and that the policies had become valid before the drafts reached New York. The bargain was to honor the drafts when the papers were in form, and plainly we may not, consistently either with principle or with our past rulings, make the writer’s obligation depend upon what he may learn dehors their borders. Unless we are prepared to say that a writer may be bound to honor drafts because in fact the seller has performed, I do not see how we can hold the defendant here. In short, there must be some independent law or custom which makes such documents a valid tender under a c. i. f. sale. And so the question comes up as to what law governed the sufficiency of the tender. That under general principles was the law of *772 the place of performance. My brothers believe that the Rio branch is to be regarded like any independent holder in due course of Bareellos’ drafts, and that the place of performance was New York. This, too, is the plaintiff’s argument. If so, I do not see any escape from holding that the ease turns upon 'the sufficiency of the tender in New York in October, or how the law or customs of Brazil can be material. No custom could in my judgment charge the writer of a letter of credit with the obligation of honoring drafts supported by such documents as these. After all, there is a limit to what one may incorporate into a contrast by custom, and to say that in a c. i. f. sale the buyer’s protection is dependent upon the choice of the carrier in selecting the ship seems to me to deny the most important provision of the contract. If such a custom were tolerable, the buyer's money might be advanced in direct opposition to the terms which he has exacted. Judged, therefore, as the plaintiff asks us to judge it, and as my brothers conceive it, the transaction at bar is not affected by custom anywhere, or by the laws of Brazil. If, on the other hand, the contract be interpreted so that the place for presentation was Rio, still in my judgment the same result follows. That interpretation would indeed be plainly impossible if the blank form of the letter of credit controlled, because that expressly provided for presentation in New York. However, Bareellos never saw it, and the only true letter ever issued was that which the branch delivered to him on June 5th. The important part' of that was the plaintiff’s wire to the branch which the letter incorporated. This read as follows: “Negotiate sight drafts up to $815,000 dollars U. S. Cy. On the.National City Bank of New York, New York.” It is, of course, true that, once the branch had negotiated the drafts, following this direction, any loss would eventually fall on the plaintiff. Yet, even if one were to ignore the word “negotiate,” and treat the letter as authorizing Bareellos to hold the branch -merely as an agency of the plaintiff, and to present the drafts for honor to it, still I think the parties meant the documents to be in form for a presentation valid in New York. This appears to me to follow, both from the direction to negotiate itself, and from the requirement that the drafts must be drawn on the plaintiff at New York. The form controlled the substance, because the substance was the form. Besides, while the defendant learned of the wire and must be taken as assenting to it, certainly the plaintiff gave no intimation that the original form of the guaranty was to be changed in this respect. The defendant at least was justified in supposing that the documents to be honored were such as would constitute a valid tender, where the drafts were to be presented for honor, not where Bareellos should negotiate them. Hence it appears that, even if I were not to take the plaintiff’s own version of the transaction, the sufficiency of the documents must still be determined by the law of New York, and that the law or custom of Brazil does not play any part in the ease. For these reasons I cannot agree with my brothers that the plaintiff’s evidence is material as to custom and the like in Brazil. It might be, indeed, if Bareellos’ performance was to be in Rio, or, if in Rio, were not to be judged by the law of New York, but it could not under the view that we all take of the transaction. While it is true that the plaintiff seeks to recover, the question is really whether it could have been forced to pay Bareellos. It is the liability of banks in such eases that is up, and I cannot help believing that the result of this decision is to extend their responsibility beyond the bounds which they have the right to set. In cases like this they must mean to reserve the right to judge whether the beneficiary of the letter has complied with its terms under the law of the place where he must’present his papers, and they would quite rightly be the first to protest if they were held because of outside facts which they might or might not know, and the evidence of which might be inconclusive or dubious. Since such business is done in large volume, and must be conducted with speed, I submit that they must be permitted to decide upon their liability by a mere inspection of the accompanying papers. That is generally a requirement; it is especially so of a c. i. f. sale. It seems to me that we are .assisting the plaintiff out of an unfortunate and disastrous error of one of. its agents at the expense of a principle, which it must itself in the long run be especially interested in maintaining. Finally, there is the question of the currency in which one of the policies was written. I should hesitate to say that, under a letter of credit securing a c. i. £. sale in dollars, a policy in any other currency would be a good tender; but I rather incline with my brothers to interpret this one as being in fact a dollar policy, especially considering the fact that it was intended to secure a shipment; to the United States. However, that question I need not answer, because my views are in any event not to prevail, and I have *773 already said enough, perhaps too much, to show why I think the defendant is entitled to a new trial. Indeed, it is only because of the unfortunate predicament of the plaintiff, and the departure, as I view it, from the established rules relating to letters of credit, which have of late become so important .in this court, that so long a dissent is justified, if it be justified at all. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9652569. Public record. Not legal advice.