Banco Continental v. First Nat. Bank of Gatlinburg
| Citation | 762 F.2d 1005 |
| Decision Date | 30 April 1985 |
| Docket Number | PLAINTIFF-APPELLEE,DEFENDANT-APPELLANT,INTERVENOR-APPELLANT |
| Parties | Unpublished Disposition NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. BANCO CONTINENTAL,, v. FIRST NATIONAL BANK OF GATLINBURGAND DOUGLAS HEINSOHN, NO. 84-5378 |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TENNESSEE
Before: MERRITT, KENNEDY and WELLFORD, Circuit Judges.
This is an action for payment under a letter of credit. Defendant issuer bank, First National, at the instruction of intervening defendant customer Heinsohn, refused to honor a letter of credit presented to it by the bank of the beneficiary of the letter of credit. The beneficiary was Gallo Nunez, an Ecuadorian citizen doing business as Stella Maris; Nunez is not a party to this suit. Plaintiff, Banco Continental, is the beneficiary's bank in Ecuador.
The United States District Court for the Eastern District of Tennessee, having diversity jurisdiction under 28 U.S.C. Sec. 1332(a)(2), held that (1) under Tenn. Code Ann. Sec. 47-5-114(1), the issuer bank was obligated to honor the letter of credit provided only that the documents required by the letter of credit conformed to terms; and (2) that plaintiff, Banco Continental, was a holder in due course of the documents which entitled Nunez to payment under the letter of credit. The bank, therefore, took free of any of the defenses allowed in Tenn. Code Ann. Sec. 47-5-114(2) against one who is not a holder in due course.
Judgment was awarded for the plaintiff in the amount of $195,597.50, for the principal of the three drafts presented for payment; $25,687.50 as interest provided by Tenn. Code Ann. Sec. 47-14-103(3); and $6,650.00 incidental damages for telephone, telex, banking and travel expenses under Tenn. Code Ann. Sec. 47-5-115(1). Defendant's motion for a new trial was denied and this appeal ensued.
Heinsohn is a Gatlinburg doctor who decided to invest in the shrimp exporting business in 1980. He travelled to Ecuador to investigate the field and entered into a partnership arrangement with Nunez. They built a shrimp processing plant in Ecuador and began producing and exporting shrimp from Ecuador to the United States.
To facilitate the international financing of the partnership operation, in October 1982, Heinsohn arranged for the First National Bank of Gatlinburg to issue irrevocable letters of credit to Banco Continental. The letters of credit named Nunez as the beneficiary.
The letter of credit provided:
We hereby notify you of our irrevocable letter of credit NBR 1002. Aggregate amount of $300,000.00. Funds under this letter will be available against your tested telex (between Banco Continental and American Express New York) stating that all credit terms have been complied with and that you have in your possession all required documents. These documents are to be forwarded to us in a single cover by airmail.
Required documents are:
1. Full set of clean on board airway bill of lading
2. Beneficiarys signed commercial invoices in duplicate (2)
3. Beneficiarys signed guarantee that shipment will pass USDA inspection.
4. Insurance policy of certificate for 100 full invoice value convering all risks.
Covering shipment of:
Fresh frozen shrimp, headless shell on and/or peeled and deveined, all shrimp must be processed at beneficiarys plant and must be packaged in wonder shrimp boxes, bags and cartons.
All freight to be paid by beneficiary to Miami Florida partial shipments are permitted.
The letter also stated the price of the shrimp, that Stella Maris (Nunez) was the beneficiary, and that the shrimp were to be consigned to Heinsohn. It was understood that upon receipt of the documents, Banco Continental would deposit payment for the shipment in Nunez's account, and then draw on the irrevocable letter of credit from First National to cover the payment.
On November 9, 1982, Nunez made a shipment of shrimp to Heinsohn. Nunez submitted to Banco Continental the four documents specified in the letter of credit; Banco Continental sent the documents to First National, but because they were written in Spanish, First National had heinsohn approve the documents for payment to Banco Continental. Heinsohn, who is fluent in Spanish, approved the documents for the November 9, 1982, shipment and First National paid Banco Continental.
Nunez made shipments of shrimp to Heinsohn on November 16, November 23, and December 7, 1982. The shrimp were sent by air; they arrived in Miami before the documents were received by First National. Heinsohn learned that the shrimp were spoiled, packed in dirty water, and generally defective. He then instructed First National to refuse payment on the documents of these three shipments. First National denied Banco Continental's demand for payment, although the documents submitted for these three shipments were in substantially the same form as the documents for the earlier November shipment, which First National had honored.
Banco Continental first tried to obtain payment by making inquiries of First National and by using the services of Citibank of New York to collect the payments. When this route was unavailing, the bank filed suit in the Eastern District of Tennessee.
The parties agree that Tennessee law governs the resolution of this case. See Bossier Bank & Trust Company v. Union Planters National Bank of Memphis, 550 F.2d 1077 (6th Cir. 1977). The parties also agree that although letters of credit transactions are considered as essentially separate from the underlying contracts, see Tenn. Code Ann. Sec. 47-5-114(1)(1979), 1 letters of credit arrangements are contractual in nature and parties therefore can alter the general rule by incorporating the underlying contract into a letter of credit if they choose. CNA Mortgage Investors, Ltd. v. Hamilton National Bank, 540 S.W.2d 238, 242 (Tenn. App. 1975).
The District Court found that First National refused to honor the demands for payment because the shrimp were defective. There is no real dispute that the four documents required by the letter of credit were in fact submitted to First National in proper form.
Defendants argue on appeal, however, that the parties intended to incorporate the underlying contract into the letter of credit by reference to 'fresh frozen shrimp.' Defendants argue...
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In re Auto Specialties Mfg. Co.
...Although not binding precedent, the Sixth Circuit's unpublished disposition in Banco Continental v. First Nat'l Bank of Gatlinburg, 762 F.2d 1005 (Table) (6th Cir. April 30, 1985) (No. 84-5378 — text in Westlaw) is yet another example of a court reaching the same The only basis upon which B......