Courtaulds North America, Inc. v. North Carolina National Bank


The defendant bank issued an irrevocable letter of credit on behalf of its customer, Adastra Knitting Mills. It promised to honor sixty-day time drafts of Courtaulds for up to $135,000 covering shipments of “100% Acrylic Yarn.” Courtaulds presented its draft together with a commercial invoice describing the merchandise as “Imported Acrylic Yarns.” The packing lists that were stapled to the invoice contained the following description: “Cartons marked: 100% Acrylic.” The bank refused to accept the draft because of the discrepancy between the letter of credit and the commercial invoice. (The buyer had gone into bankruptcy, and the courtappointed trustee would not waive the discrepancy.) The documents were returned and the plaintiff brought this action. The lower court held that the bank was liable to the plaintiff for the amount of the draft because the packing lists attached to each carton stated that the cartons contained “100% Acrylic,” and the bank appealed.

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The defendant denied liability chiefly on the assertion that the draft did not agree with the letter’s conditions, viz., that the draft be accompanied by a “Commercial invoice in triplicate stating (inter alia) that it covers . . . 100% acrylic yarn”; instead, the accompanying invoices stated that the goods were “Imported Acrylic Yarn.”
tated that the goods were “Imported Acrylic Yarn.” . . . [T]he District Court held defendant Bank liable to Courtaulds for the amount of the draft, interest, and costs. It concluded that the draft complied with the letter of credit when each invoice is read together with the packing lists stapled to it, for the lists stated on their faces: “Cartons marked: 100% Acrylic.” After considering the insistent rigidity of the law and usage of bank credits and acceptances, we must differ with the District Judge and uphold Bank’s position.
In utilizing the rules of construction embodied in the letter of credit—the Uniform Customs and state statute—one must constantly recall that the drawee bank is not to be embroiled in disputes between the buyer and the seller, the beneficiary of the credit. The drawee is involved only with documents, not with merchandise. Its involvement is altogether separate and apart from the transaction between the buyer and seller; its duties and liability are governed exclusively by the terms of the letter, not the terms of the parties’ contract with each other. Moreover, as the predominant authorities unequivocally declare, the beneficiary must meet the terms of the credit—and precisely—if it is to exact performance of the issuer. Failing such compliance there can be no recovery from the drawee. That is the specific failure of Courtaulds here.
. . . [T]he letter of credit dictated that each invoice express on its face that it covered 100% acrylic yarn. Nothing less is shown to be tolerated in the trade. No substitution and no equivalent, through interpretation or logic, will serve. Harfield, Bank Credits and Acceptances (5th ed. 1974), commends and quotes aptly from an English case: “There is no room for documents which are almost the same, or which will do just as well.” Although no pertinent North Carolina decision has been laid before us, in many cases elsewhere, especially in New York, we find the tenet of Harfield to be unshaken.
At trial Courtaulds prevailed on the contention that the invoices in actuality met the specifications of the letter of credit in that the packing lists attached to the invoices disclosed on their faces that the packages contained “cartons marked: 100% acrylic.” . . . But this argument cannot be accepted.
The district judge’s pat statement adeptly puts an end to this contention of Courtaulds: “In dealing with letters of credit, it is a custom and practice of the banking trade for a bank to only treat a document as an invoice which clearly is marked on its face as ‘invoice.’” This is not a pharisaical or doctrinaire persistence in the principle, but is altogether realistic in the environs of this case; it is plainly the fair and equitable measure. (The defect in description was not superficial but occurred in the statement of the quality of the yarn, not a frivolous concern.) Bank was not expected to scrutinize the collateral papers, such as the packing lists. Nor was it permitted to read into the instrument the contemplation or intention of the seller and buyer . . .
ntemplation or intention of the seller and buyer . . . Had the Bank deviated from the stipulation of the letter and honored the draft, then at once it might have been confronted with the not improbable risk of the bankruptcy trustee’s charge of liability for unwarrantably paying the draft monies to the seller, Courtaulds, and refusal to reimburse Bank for the outlay. Contrarily, it might face a Courtaulds claim that since it had depended upon Bank’s assurance of credit in shipping yarn to Adastra, Bank was responsible for the loss. In this situation Bank cannot be condemned for sticking to the letter of the letter.
Nor is this conclusion affected by the amended or substituted invoices which Courtaulds sent to Bank after the refusal of the draft. No precedent is cited to justify retroactive amendment of the invoices or extension of the credit beyond the August 15 expiry of the letter.
For these reasons, we must vacate the decision of the trial court, despite the evident close reasoning and research of the district judge . . .
Reversed and remanded for final judgment.

Decision. The judgment is reversed for the defendant bank. The description of the goods in the invoice did not match the description of the goods in the credit, and the defect was not cured by a correct description in the packing list.

Case Questions

1. Why did the bank refuse to accept the draft upon presentation of the documents?

2. Had the bank known that the yarns described in the invoice as “imported acrylic yarns” were actually 100% acrylic, as called for in the letter of credit, would the outcome of the case have been different?

3. What is the liability of a bank for paying or accepting a draft when the documents contain a discrepancy?

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