On behalf of a client who had agreed to buy and pay for Java
sugar upon delivery f.o.b. cars at Philadelphia, a bank issued a
letter of credit to meet the sellers' drafts, which provided, among
other conditions, that shipment be made by steamer or steamers
from
Page 276 U. S. 470
Java to Philadelphia.
Held that the condition was
complied with where the consignment came from Java to Philadelphia
by a steamer originally destined from Java "to Port aid, option New
York," but which was diverted while on the high seas, so that she
pursued the same route to Philadelphia as if she had been destined
to that port from the beginning of the voyage. P.
276 U. S.
471.
15 F.2d 473 reversed.
Certiorari, 273 U.S. 688, to a judgment of the circuit court of
appeals, affirming a judgment for the respondent bank in an action
by the petitioners to recover damages for the bank's refusal to
honor a sight draft drawn against a letter of credit.
See
also 2 F.2d 23.
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
This action was brought in the Federal Court for Eastern
Virginia by Lamborn & Company, of New York City, against the
National Bank of Commerce of Norfolk. The jurisdiction of the
district court rested upon diversity of citizenship. The plaintiffs
sought damages for the refusal to honor a sight draft drawn against
a letter of credit, given pursuant to a contract of T. S. Southgate
& Co. to buy 1,000 bags of Java white sugar at 22 cents per
pound less 2 percent, duty paid, f.o.b. Philadelphia, landed
weights. Payment was to be made in New York City upon presentation
of sight draft with invoice and railroad order notify bill of
lading attached. The letter of credit provided: "Shipment to be
made during August/September, 1920 at option of the sellers from
Java by Steamer or Steamers to Philadelphia."
The sugar tendered had been shipped on the
West
Cheswald, a steamer which sailed from Java on September
30,
Page 276 U. S. 471
and by a continuous voyage arrived in Philadelphia on December
16. Then followed promptly the discharge of 1,000 bags of sugar;
the ascertainment of the net landed weight; the payment of the
duty; the shipment free on board railroad cars at Philadelphia of
the specified quantity of sugar to T. S. Southgate & Co.; the
drawing against the letter of credit of a sight draft for the
purchase price, $48,009.81, its presentation, together with the
appropriate shipping documents, for payment, and the refusal to
honor. All this was done long before the expiration of the letter
of credit. Between April 23, 1920, the date of the contract, and
the tender of the sugar, the market price had fallen 11 cents.
The bank claimed that the sugar tendered failed to satisfy the
requirements of the contract, because it had come not on a steamer
which had been continuously destined from Java to Philadelphia, but
upon one which, originally destined from Java "to Port Said, option
New York," was diverted by the charterers to Philadelphia while on
the high seas. The
West Cheswald had sailed by a direct
route from Java to Philadelphia, the diversion having been made
while she was near Bermuda, about three days from port, so that she
could pursue the same route to Philadelphia as if she had at all
times been destined for that port. In fact, another steamship
bearing sugar shipped by plaintiffs -- the
Washington Maru
-- which sailed from Java two days earlier, and had at all times
been destined to Philadelphia, arrived there three days after the
West Cheswald. The case was tried twice before a jury. The
only question in serious controversy was one of construction -- the
meaning to be given to the clause in the letter of credit quoted
above. At the first trial, both parties requested a directed
verdict. The verdict was directed for the plaintiffs. The court of
appeals reversed the judgment entered thereon and ordered a new
trial.
National Bank of Commerce of Norfolk v. Lamborn, 2
F.2d 23. At the second trial, the presiding
Page 276 U. S. 472
judge, applying the rule declared by the appellate court,
directed a verdict for the defendant. The judgment entered thereon
was affirmed by the court of appeals, 15 F.2d 473. This Court
granted a writ of certiorari, 273 U.S. 688, because of conflict
with cases decided by the Circuit Court of Appeals for the Second
Circuit,
Matthew Smith Tea, Coffee & Grocery Co. v.
Lamborn (and other cases), 276 F. 325, 10 F.2d 697,
cert.
denied, 271 U.S. 683, 685-686.
The defendant is obviously not liable unless there was a tender
of sugar which met the requirements of the letter of credit as to
amount and quality of the sugar, as to the time,
Norrington v.
Wright, 115 U. S. 188, and
the place,
Filley v. Pope, 115 U. S.
213, of shipment, and as to the manner of shipment
and the ultimate destination. [
Footnote 1] The clause "shipment by steamer or steamers to
Philadelphia" states the manner of shipment and the ultimate
destination. Compliance with its provisions was confessedly a
condition of liability. The bank contends that there was not a
compliance because the sugar tendered did not come by a steamer
which at all times leaving Java was destined to Philadelphia.
We find nothing either in the words of the letter of credit, in
the custom of the trade, or in reason which justifies implying the
condition that, from the inception of the voyage, Philadelphia must
have been the destination intended. The transaction is not like the
ordinary contract for goods to be shipped. It is not like the
common c.i.f. contract for shipment from a foreign to an American
port, where delivery to the ship at the port
Page 276 U. S. 473
of lading is delivery to the purchaser. Nor is it like those
contracts where shipment is to be made by a named vessel. Here, the
contract was for a sale f.o.b. cars Philadelphia -- and the buyer
was not to acquire any interest in the sugar, legal or equitable,
until so delivered. Thus, the contract resembles that involved in
Filley v. Pope, 115 U. S. 213,
upon which the bank relies. But the question for decision here is
an entirely different one. There, the contract of sale provided for
a "shipment from Glasgow." The meaning of the words used was clear;
the question was as to their legal effect. Was shipment from
Glasgow a condition? This Court held that it was. Here, it is
admitted that the term "shipment from Java by steamer or steamers
to Philadelphia" is a condition. The only question is whether that
phrase means not merely that the sugar must be shipped by steamer
from Java to Philadelphia, but also that the steamer which carried
it must, from the inception of the voyage from Java, have been
continuously destined to Philadelphia. No such requirement is
stated in the contract. While the original letter of credit had
required the seller to furnish a copy of the "Ocean bill of lading
covering shipment Java to Philadelphia," that requirement had been
eliminated on the seller's representation that compliance with it
would be impracticable under the form of shipment contemplated, and
its inclusion in the letter must be deemed to have been
inadvertent. As was said in
Harrison v. Fortlage,
161 U. S. 57,
161 U. S.
63:
"The court is not at liberty either to disregard words used by
the parties descriptive of the subject matter or of any material
incident, or to insert words which the parties have not made use
of."
The plaintiffs were entitled to a directed verdict. The
conclusion which we have reached is in accord not only with that
reached by the Circuit Court of Appeals for the Second Circuit, but
also with that of the state courts which have had occasion to
construe the same provision
Page 276 U. S. 474
in other contracts of Lamborn & Company made under like
circumstances. [
Footnote 2] As
the letter of credit is complete in itself, we have no occasion to
consider the terms of the contract between Lamborn & Co. and T.
S. Southgate & Co., or the circumstances which led to the
diversion of the
West Cheswald to Philadelphia which
counsel have discussed.
Reversed.
[
Footnote 1]
Compare Bowes v. Shand, 2 App.Cas. 455;
Ashmore
& Son v. Cox & Co., [1899] 1 Q.B. 436;
Landauer
& Co. v. Craven & Speeding Bros., [1912] 2 K.B. 94;
Hanesson v. Hamel & Horley, Ltd., [1922] 2 A.C. 36;
Merchants' Bank v. Griswold, 72 N.Y. 472;
Bank of
Montreal v. Recknagel, 109 N.Y. 482;
Mora v. Ledon v.
Havemeyer, 121 N.Y. 179;
Iasigi v. Rosenstein, 141
N.Y. 414.
[
Footnote 2]
H. O. Wilbur & Sons, Inc. v. Lamborn, 276 Pa. 479,
487;
Williams Ice Cream Co., Inc. v. Chase National Bank,
120 Misc. 301, 210 App.Div. 179;
J. Hungerford Smith Co. v.
Lamborn, 200 N.Y.S. 292;
Telling Belle Vernon Co. v.
Lamborn, N.Y.Law Journal, December 22, 1920; Pennsylvania Milk
Products Co. v. Lamborn (and other cases), N.Y.Law Journal, January
4, 1921.
See also Central Sugar Co. v. Lamborn, 200 N.Y.S.
499, 195 App.Div. 909;
Lamborn & Co. v. Log Cabin Products
Co., 291 F. 435;
Lamborn v. Hardie Co., 1 F.2d
679.
MR. JUSTICE STONE, dissenting.
I think the judgment below should be affirmed. I cannot agree
that a condition in a commercial letter of credit that drafts are
to be drawn against merchandise "shipment . . . from Java by
steamer or steamers to Philadelphia" is satisfied by a shipment
"from Java to Port Said, option New York," even though the cargo
ultimately reaches Philadelphia. I had supposed, as the opinion
below seems to me to show, that the character of a shipment is
fixed at the time it is made, and hence that language in a
mercantile contract indicating that a shipment is to be made from
one point to another could only mean that the point of destination
is to be known and specified at the time of shipment.
Hanesson
v. Hamel & Horley, Ltd., [1922] 2 A.C. 36;
Landauer
& Co. v. Craven & Speeding Brothers, [1912] 2 K.B. 94;
Mora y Ledon v. Havemeyer, 121 N.Y. 179;
Iasigi v.
Rosenstein, 141 N.Y. 414, 417.
But even if this were doubtful as a general proposition, there
would seem to be no room for doubt in the present
Page 276 U. S. 475
case. Here, the letter of credit specified that drafts when
presented should be accompanied by "copy of ocean bill of lading
covering shipment Java to Philadelphia." Obviously such a bill of
lading would be impossible unless the shipment were continuously
destined for Philadelphia. It is true that, for the convenience of
the seller the bank at the buyer's direction, later waived physical
presentation of a copy of the ocean bill of lading. But the record
does not show that the bank had any reason to suppose that the
requirement had originally been inserted in the letter of credit by
mere inadvertence; so far as it was aware, there was still to be an
"ocean bill of lading covering shipment Java to Philadelphia," but
the seller was to be excused from presenting it. The clause
"shipment . . . from Java by steamer or steamers to Philadelphia"
was not waived, and its meaning on the date of presentation of the
draft remained the same as when the credit was issued. The
provision in the letter of credit that "conditions embodied in this
credit must be adhered to, otherwise payment will not be effected,"
only expresses the rule, with which we all agree, that liability
upon a mercantile contract may be established only by strict
compliance with its conditions.
Filley v. Pope,
115 U. S. 213;
Norrington v. Wright, 115 U. S. 188;
Bowes v. Shand, 2 App.Cas. 455.
MR. JUSTICE McREYNOLDS, MR. JUSTICE SUTHERLAND, and MR. JUSTICE
SANFORD join in this dissent.