Opinion
Argued March 13, 1899
Decided April 18, 1899
George A. Strong for appellants.
Wilhelmus Mynderse for respondent.
This case has been twice tried. At the first trial the complaint was dismissed as not stating a cause of action; the General Term reversed the judgment and ordered a new trial. ( Johannessen v. Munroe, 84 Hun, 594.)
Thereupon the complaint was amended by alleging that the defendants composed the firm of Munroe Company of Paris, as well as John Munroe Company in New York; and further by alleging that there was a good and valuable consideration from Carsten Boe to John Munroe Co. at the time of the issuing of the letter of credit, the history and validity of which is involved in this action.
At the second trial, after all the proofs were in, the case was submitted to the jury and a verdict rendered for the plaintiff. The Appellate Division has affirmed the judgment entered on the verdict, and the correctness of that affirmance is challenged by this appeal.
This case is very peculiar in its facts, and as plaintiff's recovery is wholly based thereon, it is necessary to clearly understand them.
The transactions involved took place in February and March, 1892.
The plaintiff at that time and for six years prior thereto had been master of the Norwegian steamship "Raylton Dixon," and the defendants, John Munroe Co., were well-known bankers, doing business in the city of New York and at Paris, France, as Munroe Co.
On the 26th of February, 1892, one Carsten Boe, a ship broker doing business in the city of New York, procured from the defendants, for a good and valuable consideration, their certain letter of credit upon the branch of their banking house in Paris in favor of the plaintiff, which reads as follows, viz.:
"No. 5687. OFFICE OF JOHN MUNROE Co., BANKERS, | "No. 32 NASSAU STREET, "NEW YORK, February 26, 1892. |
"Messrs. MUNROE Co., "Paris:
"GENTLEMEN. — We hereby open a credit with you in favor of Captain J.A. Johannessen, s/s Raylton Dixon, for fcs. 15,000, available in bills at 90 days date; on acceptance of any bill or bills drawn under this credit you are to draw on Carsten Boe, New York, at seventy-five days date; payable at the current rate of exchange for first-class banker's bills on Paris on day of maturity. Commission is arranged.
"Bills under this credit to be drawn at any time prior to May 1, 1892.
"Truly yours, "JOHN MUNROE CO."
"The bill may be availed of in sterling, if desired; say £ 600 sterling.
"J.M. CO."
Two days later, on February 28th, 1892, the plaintiff arrived in the port of New York from Europe on his steamship the "Raylton Dixon," to enter upon a charter effected by Carsten Boe Co. The charter was not fulfilled, and the plaintiff, as master, representing the ship and her owners, rechartered, incurring a loss of some thirty-seven hundred dollars, which was determined, upon the completion of the loading of the steamship under her new charter, March 9th, 1892.
In making a settlement with the plaintiff on March 10th, 1892, Carsten Boe offered to pay him five hundred dollars in cash, and tendered him the letter of credit referred to for six hundred pounds sterling.
Before accepting this settlement the plaintiff, by his counsel and his ship broker, called on the defendants to ascertain if it was safe and prudent to accept the letter of credit as so much cash.
Mr. Kent, the counsel, and Mr. Hagaman, the ship broker, upon calling at the banking house of defendants, met Mr. Henry W. Munroe. The parties who engaged in this interview do not agree as to all that took place, but as the jury have found upon conflicting evidence for the plaintiff, his version of the transaction must be adopted.
This interview need not be stated in detail, but it amounted to this in substance. Mr. Munroe stated that the letter of credit was issued by his house; that ninety days' drafts drawn under it would be honored by the Paris house; that the letter of credit would not be canceled unless Mr. Boe should tell him that it had fallen into improper hands; that Mr. Boe had made a satisfactory arrangement with him upon issuing the letter of credit; that it was not customary for them to cash drafts drawn on their letters of credit, but that he had no doubt plaintiff could go out in the street and sell his draft under his letter.
Either Mr. Kent, or Mr. Hagaman, said to Mr. Munroe that Boe had tendered the letter of credit to plaintiff in payment of a debt. Kent then stated to Munroe that his purpose in calling was to ascertain whether there was any way in which the drafts drawn under the letter of credit could be stopped; that Munroe said yes, if Boe should come to him and say the letter had fallen into improper hands.
Mr. Kent further said in substance that the only question was if Mr. Munroe could be assured by Boe that the letter of credit had fallen into proper hands there would then be no way in which payment of drafts thereunder could be stopped, to which Mr. Munroe assented.
This interview was about two o'clock in the afternoon of March 10th, 1892.
Thereafter Kent and Hagaman went to the office of plaintiff's counsel and sent for Boe, who made his appearance, when the transaction was closed between plaintiff and Boe and the latter wrote a letter to defendants which was immediately sent them by messenger and read as follows, viz.: "I have to-day delivered to Capt. Johannessen your letter of credit No. 5687 on your Paris house in the regular course of business and he will avail of it accordingly."
This communication advised defendants that the letter of credit was in proper hands and was sent to their office about three or half-past the same afternoon.
Thereupon defendants wrote Boe that they had reason to believe that the letter of credit was not to be used in accordance with their understanding and that they should instruct the Paris house by cable that night to cancel it.
Defendants also wrote a similar letter to counsel for plaintiff and the latter replied stating that plaintiff had accepted the letter of credit for its full face value, relying on their firm name and statement; that he would draw on the Paris house, and if credit was not honored he would hold them responsible.
All of this correspondence took place the same afternoon, March 10th.
This case is distinguishable from any of the authorities cited by appellants.
The plaintiff suing here is not a stranger to this transaction, but is the party in whose favor the letter of credit was drawn. The credit was obtained from defendants by Carsten Boe for a good and valuable consideration, as Mr. Munroe, when asked by Mr. Kent if Boe had made a deposit, or had secured them against this letter, replied, "He has made arrangements satisfactory to us."
Furthermore, the defendants were not drawing upon a third party or strangers in Paris, but on a branch of their own house.
We then have the plaintiff, who was described to the defendants by his representatives on March 10th as a sailor who was bound to exercise the utmost caution towards his owners to see to it that the letter of credit was all right and that he was sure to get his money under it, making the most thorough investigation as to its validity and receiving assurances that if delivered to the proper party drafts under it would be duly honored and that he could doubtless discount them in the street. In about an hour after receiving this information the plaintiff settled his claim against Boe arising from the recharter of the ship and executed the following indorsement on the charter party:
"Received from Carsten Boe the sum of $500 and £ 600, under letter of credit, in full settlement of claim of the owners under this charter party, thereby releasing all parties interested from further liability thereunder."
The plaintiff here accepts the money and the letter of credit "in full settlement" and releases "all parties interested from further liability."
This closing language is broad enough to import release of third parties liable under the charter if such were the fact.
We are of opinion that this entire transaction, beginning with the issuing of the letter of credit and closing with the settlement referred to, presents all the elements of an estoppel, and defendants are precluded from setting up a defense based upon the alleged invalidity of the letter of credit for any cause. If it be the fact, as urged by the defendants, that the use of the letter of credit to pay the indebtedness incurred by the recharter of the ship was unauthorized, it was their duty to have canceled the credit on receiving information it was to be so used from Kent and Hagaman.
We have here the representation of certain facts by the defendants, with knowledge that plaintiff proposed to act thereon; the fact that he did so act and took the letter of credit and money in payment of his claim, releasing all parties from further liability. This constituted a taking of the letter of credit in good faith and for value. The plaintiff by the representations of defendants was induced to change his position, to give up his cause of action and proposed legal proceedings, to acknowledge full settlement and payment of his claim and to release all parties.
From the entire transaction it must be regarded as proved that the plaintiff took the letter of credit in payment as so much money. It is the fair and reasonable inference to be drawn from the surrounding circumstances as well as from the papers executed at the time.
The plaintiff would naturally have greater confidence in the credit of a well-known banking house like Munroe Co. than in the financial ability of Boe, who had just defaulted in his charter contract.
We do not deem it necessary to pass upon the question discussed by counsel as to whether this letter of credit is to be regarded as negotiable or non-negotiable.
The peculiar facts of this case control the disposition to be made of it without regard to technical rules of the law merchant.
The plaintiff's proofs, which we are required to accept as true under the verdict of the jury, make this a single transaction. The defendants said to plaintiff, in substance, that a letter of credit had been issued by them for six hundred pounds in his favor, purchased by Boe, which would be paid in due course if he drew on the Paris house.
The plaintiff, relying on this statement, took the letter of credit for value from Boe as so much money, and now insists that the defendants occupy a position where in equity and good conscience they are estopped from a defense of any kind.
An action for damages was the proper remedy after defendants canceled the letter of credit by cable to their Paris house and subsequently refused to honor the plaintiff's draft.
The judgment appealed from should be affirmed, with costs.
The letter of credit was a mere proposal to contract. ( Birckhead v. Brown, 5 Hill, 634.) It was based upon certain representations of Boe, the party at whose instance it was issued, and when the defendants discovered that it was used by him for a different purpose than he had represented; namely, to make advances on freight and vessels in Europe, they had the right to recall it. It was not a negotiable instrument. ( Evansville Nat'l Bank v. Kaufmann, 93 N.Y. 273, 287.) There was no estoppel by reason of what the defendants said with respect to their letter of credit, because it is clear that the plaintiff did not part with value on the faith of it and did not change his position, when taking it for a precedent debt and in giving a simple receipt for the indebtedness to himself, which merely stated that it was a release. Plaintiff would still have had the right to hold Boe for his debt.
I think that the representations attributed to the defendants, with respect to the validity of the letter of credit, were quite consistent with its supposed use for the purposes stated by Boe, when he applied for it.
I must dissent from the conclusions of Judge BARTLETT.
All concur with BARTLETT, J., for affirmance, except GRAY J., who dissents on memorandum, and O'BRIEN, J., who concurs with GRAY, J.
Judgment affirmed, with costs.