Johannessen v. Munroe

The complaint, in substance, alleges that on February 28, 1892, the defendants issued and delivered to one Boe a letter of credit as follows:

“No. 5687

“ Office of John Munroe & Co., \

“ Bankers, No. 32 Nassau Street,

“New York, February 2Qth, 1892.

“ Messrs. Munroe & Co., Paris :

“ Gentlemen — We hereby open a credit with you in favor of Captain J. A. Johannessen, ss. ‘Raylton Dixon,’ for fifteen thousand francs (fcs. 15,000), available in bills at ninety 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 bankers’ bills on Paris on day of maturity. Commission as arranged.

“Bills under this credit to be drawn at any time prior to May 1st, 1892.

“ Truly yours,

“JOHN MUNROE & CO.

“ The above may be availed of in sterling if desired; say six hundred pounds sterling (£600).

“J. M. & Oo.”

Boe, on March 10, 1892, being indebted to the plaintiff, gave and delivered- to him the letter of credit, which the plaintiff accepted as payment by the said Boe at the full face value thereof. Prior to acceptance, the plaintiff was assured by statements and representations of the defendants that it had been duly issued and was available for the full amount thereof in the manner provided by the

At the beginning of the trial defendants moved to dismiss the complaint upon the ground that it did not state any cause of action. After an intimation by the court that the complaint should be dismissed, the counsel for the plaintiff requested to be allowed to amend by adding an allegation which would show that the defendants were co-partners doing business “ under the firm name and style of Munroe & Company in Paris, Prance,” as well as under the firm name and style of John Munroe & Co. in New York. The court denied the motion to amend, and thereupon granted the motion to dismiss the complaint, to which rulings exceptions were taken, which were directed by the court to be heard in the first instance at General Term.

The two questions, therefore, presented are: (1) "Whether the complaint states a good cause of action; and (2) whether it was error in the court to refuse to permit the amendment as requested.

As stated in the American and English Encyclopaedia of Law (Vol. 13, p. 237), “ A letter of credit may be defined to be a letter of request, whereby one person requests .another to advance money or give credit to a third, and promises that he will repay or guarantee the same to the person making the advancement, or will accept bills drawn upon himself for the like amount. It is called a general letter of credit when it is addressed to all persons in general, and a special letter of credit when addressed to a particular person by name.” The letter of credit here sued upon being under all the definitions a special letter of credit, we shall confine ourselves to the rules relating to such an instrument. In the book already quoted, and under the sub-title of “Negotiability,” it is said (p. 213): “ There seems to be no doubt that a special letter of credit is not negotiable; especially is this true when it is more in the nature

In the well-considered case of Evansville Nat. Bank v. Kaufman ( 93 N. Y. 277 ) we find certain principles and rules laid down for our guidance, which, though taken from their context, may, without introducing confusion, be grouped together. It is therein said: “ The true distinction between general and special guaranties as contained in letters of credit is, that upon the faith of a general guaranty any person is entitled to advance money or incur liability upon complying with its terms, and can recover thereon the same as though specially named therein. In the case of a special guaranty, however, the liberty of accepting its terms is confined to the persons tó whom it is addressed, and no cause of action can arise thereon except by their action in complying with its conditions. * * * The common-law rule applies to contracts of guaranty as well as to other contracts; that a consideration is necessary to render them valid, and that unless such consideration be acknowledged by the contract itself, it is still necessary to prove one in order to recover thereon. * * * In the case of a special guaranty, the consideration necessary to support the promise may be either one furnished by the principal to the guarantor or by the promisee to either the principal or some third person, according to the terms of 'the guaranty. A general letter of credit is addressed to and invites people generally to advance money, give credit, or sell property, in reliance upon it, and when this is done the contract is complete and the acceptor becomes a party to it and may enforce it for 1ns own benefit. * * * In all of the cases cited where guarantors have been held liable even to third persons upon such instruments, the letter embraces either an express or implied request to such persons to advance value upon the faith of the paper therein described, and it is because they have parted with value upon such request that the liability of the promisor to them is predicated.”

Where it appears that the person sought to be charged, for a valuable consideration, issued a letter of credit, and that upon the faith of it the plaintiff gave value for the benefits thereunder, a cause of

Were this a promissory nóte, or governed by similar rules, then it would not be necessaiy to allege that it was issued for a consideration, it having been held, in Underhill v. Phillips ( 10 Hun, 591 ), that in an action on a negotiable promissory note it was not necessary to allege or prove a consideration ; and in Carnright v. Gray ( 57 Hun, 518 ; affd., 127 N. Y. 92 ) it was held that it was not necessary to prove value in an action on a negotiable promissory note. These decisions are based upon the statute in this State, relating to promissory notes, and upon the privilege which promissory notes, like bills of exchange, enjoy (a privilege not conceded to other unsealed instruments), of being presumed to be founded upon a valuable consideration. (Story on Prom. Notes [7th ed.], 231, §181.)

With respect to letters of credit, Daniells on Negotiable Instruments (3d ed., § 1790), says: “ While not possessing all the characteristics of negotiability which pertain to bills and notes [they] partake of them to such an extent as to be necessarily classed as negotiable instruments.” We find, however, no authority in this State which goes to the extent of holding that a special letter of credit, such as is here in question, is negotiable.

As to instruments other than promissory notes, therefore, particu

This we regard as the sole theory upon which the complaint can be supported, as we do not think there is much force in the other grounds relied upon, one of which is that the refusal of Munroe & Co., of Paris, to accept the draft created some liability as against the defendants. The defendants could not be held liable for the refusal of Munroe & Co., of Paris, to accept, unless, for a consideration, they contracted that they would accej)t, or unless because of jdaintiff being a holder for value, to whom representations were made, the defendants as against him are estopped. Practically then the question narrows down to the construction to be given to the language of the complaint. If it therein appears that the defendants contracted with the plaintiff for a valuable consideration that Munroe & Co., of Paris, would accept plaintiff’s drafts, or if plaintiff parted with value upon the faith of the letter of credit in a way to create an estoppel, then the complaint is sufficient.

Upon the first branch plaintiff insists that the words in the letter of credit, “ commissions as arranged,” are a statement of a consideration to the defendants, while the defendants as strenuously insist that they have no such meaning, but are a more condensed method of saying to the Paris house, “ Arrange your commission with plaintiff if you act on this letter.” There is no statement in the complaint of a consideration having been paid to the defendants by any one, and the attempt to resort to these words as an equivalent to such an allegation is clearly an afterthought, and as an afterthought

It is further insisted, however, by the plaintiff that “ there is another aspect to the relation of the parties. The defendants constituted Boe their agent to deliver the letter of credit, and they are bound by his acts, and are chargeable in law with the receipt of the consideration paid to him by the plaintiff, and are liable to the plain-' tiff in this action for the amount or value of the letter of credit.” If there is any strength in this argument it arises, not from the different aspect in which we may regard thp relation of the parties, but from that portion which states that the defendants are chargeable in law with the receipt of the consideration paid to Boe by the plaintiff, which brings it back to the same position from which we have been considering it.

Our conclusion, therefore, is that unless the complaint shows that the defendants agreed for a valuable consideration that the draft would be accepted, or expressly in writing agreed so to accept it, or unless the plaintiff, upon the faith of such agreement to accept, parted with something of value to Boe from whom he received the letter of credit, then no cause of action is stated. In the latter alternative the complaint is sustainable upon the theory of an estoppel, which from its nature requires the support of a consideration. In other words, unless there is a parting with value it is difficult, if not impossible, in any given case, to create an estoppel. Here it is alleged that the defendants duly issued and delivered to Boe the letter of credit, and that the defendants informed the plaintiff before he accepted it that the same had, been duly issued and was available for the full amount thereof. This we do not regard as equivalent to a statement that a consideration had been given for the letter of credit. It was, however, equivalent to saying to the plaintiff that it was valid, and that the obligation created by it would be inet . according to its terms. This certainly would justify the plaintiff in acting upon the faith of such representations, and where, as here, he did so act and received the letter of credit, giving therefor a valuable consideration by taking it in payment of a debt (which, upon all the authorities, would make him a bona fide holder for value), we do not see why, upon such facts, the defendants should

With respect to the other question as to the amendment it was clearly a matter of discretion; nor by the refusal was the plaintiff injured. The action being against the drawer, it would add no' strength to the cause of action to allege that the firm upon whom the letter was drawn was the same identical firm but resident in another place. Its liability is predicated upon its refusal to secure to plaintiff the credit as provided in the letter, and whether, as proof of this, it is shown that the defendants themselves, or some house upon whom they drew the letter, refused to pay the draft, would not strengthen the plaintiff’s position. If, by reason of the issuance of such letter, the plaintiff secured rights as against the defendants,, he can maintain this action as against them, whether they drew the letter of credit upon themselves in Paris or upon some other firm.

. We think, therefore, that the exceptions are well taken, and that there should be a new trial, with costs to plaintiff to abide the event.

I concur in the conclusion arrived at by Mr. Justice O’Brien in the case at bar. But I do not concur in his definition of what is now understood in the commercial world as a letter of credit. In the disposition of the question involved in this case there seems to be no necessity for a discussion upon that point. It appears that the plaintiff took this letter of credit for value, accepting it as payment for a debt due by the person from whom he received it. Prior to its acceptance the plaintiff made inquiry of the defendants, and was assured by them that it had been duly issued and was available for the full amount thereof, in the manner provided by the

It is suggested by Mr. Justice Follett that the representation was simply that the letter was genuine and available according to its terms. If the letter was genuine and available according to its terms it is difficult to see why the plaintiff has not a right to enforce it; and if it turned out not to be available according to its terms, why he has not a right to recover the damages sustained.

The exceptions should be sustained and a new trial ordered, with costs to the plaintiff to abide the event.

(dissenting):

This action is to recover on a special letter of credit, issued February 26, 1892, by the defendants, bankers of New Y ork, to Carsten Boe, and addressed to Munroe & Co., bankers, of Paris, France, for £600 sterling. March 10,1892, this letter was delivered by Carsten Boe to the plaintiff in payment of a debt for £600 sterling, and, on the same day, the plaintiff drew his bill of exchange on Munroe & Co., of Paris, France, for £600, which that firm refused to honor, upon the ground, as it is alleged in the answer, that the letter was issued without consideration, and was obtained by fraud. Aside from certain excepted cases, a plaintiff who seeks to recover on a contract must allege and prove a consideration for the promise. The excepted cases are contracts under seal, contracts executed pursuant to a statute, promissory notes and inland bills of exchange. (1 R. S. 768; Carnright v. Gray, 127 N. Y. 92 ; Moak’s Van Santv. Pldgs. 164.) If the contract sued on recites a consideration, and is set forth in the complaint, it is a'sufficient allegation of a consideration. The case at bar does not fall within any of the exceptions. It is not alleged in the complaint that the defendants received a consideration for the letter of credit, or that they ever represented that they did, and a cause of action is not stated. It is urged that the defendants are estopped fi-om denying that they received a consideration for the letter. This argument is founded on the allega

Exceptions sustained and new trial ordered, with costs to plaintiff to abide event.