Johannessen v. Munroe

32 N.Y.S. 863, 91 N.Y. Sup. Ct. 594, 66 N.Y. St. Rep. 142, 84 Hun 594

• Court: New York Supreme Court
• Decided: February 15, 1895
• Status: Published

Opinions

O’BRIEN, J.

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. 5,687.

“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 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 Cars-ten 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. & Co.”

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 terms thereof. The plaintiff, having accepted the letter of credit from Boe under such circumstances, thereupon caused notice to be sent to the defendants, and duly drew his bill of exchange or draft upon Munroe & Co. at 90 days, for £600 British sterling. The draft was presented for acceptance, and, upon acceptance being refused, was protested, and notice given to the defendants; and it is for the whole amount of £600, equivalent to $2,919.60, together with the cost of protest and interest, that the plaintiff demands judgment.

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 copartners, doing business “under the firm name and style of Munroe & Co. in Paris, France, 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 13 Am. & Eng. Enc. Law, 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 guaranty 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 subtitle of “Negotiability,” it is said (page 243):

“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 of a guaranty than when it relates to bills of exchange.”

And again, at page 240:

“In order to render the writer of a letter of credit liable either upon an implied acceptance or agreement to accept drafts taken on the faith of such letter, the drafts must be taken for a valuable consideration.”

In the well-considered case of 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 person to 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 con-

tracts, 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 his own benefit. * * * In all of the cases 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 action is stated; and we think, in addition, that if the plaintiff, relying upon the faith of representations or statements of defendants that the letter was issued for a valuable consideration, parted with value, then a cause of action is stated. A right to recover in such case is based on an estoppel. The complaint does not allege that the letter of credit was issued for a valuable consideration; the theory upon which a right to recover is based being that, having inquired and been assured by defendants that the letter of credit was duly issued and available according to its terms, the plaintiff then accepted it in payment óf an indebtedness. Under the decisions, this constituted the plaintiff a holder for value, the law being that one who accepts a letter of credit in payment of a debt due is a holder for value. This letter does not purport on its face to have been issued for value received; and the question remains, notwithstanding the fact that the plaintiff is a holder for value, whether a good cause of action is stated without an allegation showing that it was issued by defendants for a consideration.

Were this a promissory note, or governed by similar rules, then it would not be necessary 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, 11 N. Y. Supp. 278, affirmed 127 N. Y. 92, 27 N. E. 835, 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, Prom. Notes (7th Ed.) p. 234, § 181.

With respect to letters of credit, Daniel on Negotiable Instruments (3d Ed., § 1790) says:

“While not possessed of 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, particularly instruments in writing, such as special letters of credit, which are neither negotiable nor assignable, in order to charge *he maker or drawer with liability it is essential to.prove that -such instruments were made for a consideration, unless such liability can be supported by an estoppel. Allegations which are es-sential to be proved should be alleged. Applying these principles -to the case at bar, we think that, unless the plaintiff states a good -cause of action upon the theory that, as the result of the representations made by the defendants, he accepted the letter in payment of Boe’s indebtedness, thus becoming a holder for value, and so entitled to avail himself of the terms of the letter of credit, then, the -dismissal of the complaint was right. See Bank v. Myles, 73 N. Y. 337; Birckhead v. Brown, 5 Hill, 634; Bank v. Kaufman, 93 N. Y. 273; Leslie v. Bassett, 129 N. Y. 525, 29 N. E. 834.

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 & c 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 consideratlon, they contracted that they would accept, or unless, because of " plaintiff’s 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 let- • ter of credit, “Commission as arranged,” are a statement of a com ■ sideration to the defendants; while the defendants as strenuously ' insist that they have no such meaning, but are a mere condensed • method of saying to the Paris house, “Arrange your commission • with plaintiff if you act on this letter.” There is no statement in fthe complaint of a consideration having been paid to the defendants by anyone:; and the attempt to resort to these words as an equivalent to such an allegation is clearly an afterthought, and, as an afterthought, we think it without force, and accept the construction contended for by the defendants.

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 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 plaintiff 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 the 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 met 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 not be held liable. In other words, the defendants having, upon the application of Boe, extended to the latter a credit available in favor of the plaintiff, which the plaintiff received, but which, before taking, he inquired about from the defendants as to its availability according to its terms, and, after assurances such as were here given, it having been then received by the plaintiff for value, we think that, irrespective of the question whether or not the defendants received any consideration from Boe therefor, the plaintiff, as against the defendants, is entitled to recover.

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, 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.