Pro-Fab, Inc. v. Vipa, Inc.
| Decision Date | 03 October 1985 |
| Docket Number | INC,PRO-FA,No. 84-8782,84-8782 |
| Citation | 772 F.2d 847 |
| Parties | 41 UCC Rep.Serv. 1779 , Plaintiff-Appellant, v. VIPA, INC., and Community Bank, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Charles J. Gearhiser, Chattanooga, Tenn., for plaintiff-appellant.
Paul T. Carroll, III, Walter J. Matthews, Rome, Ga., Russell F. Wolpert, Los Angeles, Cal., for defendants-appellees.
Appeal from the United States District Court for the Northern District of Georgia.
Before TJOFLAT and VANCE, Circuit Judges, and ATKINS *, District Judge.
Appellant Pro-Fab, Inc., of Rossville, Georgia, sued Vipa, Inc. and Community Bank because the bank, acting on instructions from Vipa, refused to pay on a letter of credit. The district court entered judgment for Pro-Fab and against Vipa under a settlement agreement, but granted the bank's motion for summary judgment against Pro-Fab. 1 Pro-Fab appealed to this court from the adverse summary judgment.
This story really began when Vipa, Inc., a New York corporation ("Vipa-NY"), successfully bid on an order from the Taiwanese government for the manufacture of track wheels to be used as spare parts for tanks. In February 1982, Angelo Spateri of Vipa-NY negotiated with Charles Carlton, president of Pro-Fab, to have Pro-Fab manufacture metal discs for the track wheels. Pro-Fab was also responsible for shipping the discs to Stalwart Rubber Co. ("Stalwart") where they would be coated with vulcanized rubber. After vulcanization, Pro-Fab was to transport the discs back to its plant for finishing work. Their agreement was confirmed in Pro-Fab's telex quote to Spateri on February 23, 1982. The telex was soon followed by a written purchase order dated March 15, 1982. The contract called for the manufacture of 5,950 track wheels for a total price of $437,325.
Meanwhile, out on the west coast, unbeknownst to Pro-Fab, Spateri consulted with long-time associate Louis Guerriero about the Taiwan deal. Guerriero also happened to be president of Vipa, Inc., but this Vipa was incorporated in California in 1981 ("Vipa-Cal"). Guerriero insisted at his deposition that the two corporations are completely separate entities. He testified that Spateri was never an officer of Vipa-Cal and had no authority to act for Vipa-Cal. Each sometimes served as a "consultant" to the other, and occasionally they put a deal together. Guerriero explained that Spateri brought him into this deal on a commission basis. Vipa-Cal put up a performance bond for the Taiwanese, and Guerriero took the lead in setting up the financing at his bank, Community Bank, in Burbank, California. Pro-Fab's president, Carlton, testified that he never knew that Vipa-NY and Vipa-Cal were independent entities.
Payment was to be made through a standard back-to-back letter of credit arrangement. The Taiwanese established an irrevocable letter of credit in favor of Vipa-Cal, issued by a Taiwan bank. Vipa-Cal in turn established an irrevocable letter in favor of Pro-Fab, issued by Community Bank. Community Bank played a dual role in the transaction. It was the issuing bank for Pro-Fab and therefore responsible for paying Pro-Fab upon proper demand. It was also an advising bank for Vipa-Cal. It forwarded the necessary documents and advised Vipa-Cal of payments under the letter of credit.
Carlton testified that during the February negotiation, he and Spateri agreed that Pro-Fab would be paid from a letter of credit. Carlton also explained, however, that Spateri agreed to advance Pro-Fab $200,000 from the total contract price under the letter of credit to enable Pro-Fab to buy the steel and the dies, and to cover its other start-up costs. Acting under that assumption, Carlton ordered the steel to make the dies in March, as soon as he received Spateri's purchase order. The promised letter of credit did not arrive until the end of April, however, and contained no provision for the $200,000 advance. The letter of credit was issued by Community Bank and stated it was "for account of Vipa, Inc." at Vipa-Cal's address. Carlton repeatedly tried to have Spateri change the terms of the letter of credit, but Spateri insisted that they could not be changed. Guerriero claimed that he knew nothing of the promised advance and would never have agreed to pay half of the money up front.
Carlton told Spateri that he had no money to purchase the dies, and he finally received a $26,000 check from Community Bank to cover their cost. Carlton was unsuccessful in borrowing against the letter of credit, and because no other money was forthcoming from Vipa, he mortgaged his home and business to pay his already overdue bill for the steel and to cover other start-up costs.
Sometime around July 1982, Spateri "got hard to find" and Guerriero became directly involved in the deal with Pro-Fab. 2 Guerriero testified that he was concerned about losing his performance bond to the Taiwanese because production was so far behind schedule.
Due to numerous delays for which the manufacturers and Vipa apparently must share blame, the first letter of credit expired October 10, 1982 before a single tank wheel had been shipped. After conferring with Pro-Fab and Stalwart, Guerriero negotiated an extension from the Taiwanese, and Community Bank issued a new letter of credit to Pro-Fab on January 4, 1983. The second letter of credit was intended to cover the initial shipment of at least 2100 wheels, which Guerriero had promised to ship quickly to placate the Taiwanese. Although the amount of the credit was only enough to pay for 2100 wheels, Guerriero agreed to pay for more if Pro-Fab could ship more. The letter of credit was originally due to expire on February 10, 1983, but was later modified to expire April 1, 1983. Carlton testified that the requirements under the second letter of credit were to be the same as those under the first, but the second contained two new provisions: It required oceangoing bills of lading and it prohibited partial shipments. Carlton did not protest to the bank when he received the letter of credit, despite the fact that he knew that he would not be able to procure the oceangoing bills of lading. 3
Pro-Fab made a total of four shipments in the first part of 1983. The first shipment on January 28 contained 2800 wheels. The bank noted that the documents submitted did not conform to the requirements 4 and that payment would cause the letter of credit to be overdrawn. The bank contacted Guerriero, who authorized full payment. The letter of credit was amended to increase the amount and extend the expiration date to April 1, 1983 to cover other shipments. 5 The amendment stated, however, that all other terms of the original credit remained unchanged.
The bank also found defects in the documentation for the next shipment on February 18. 6 Guerriero again waived the discrepancies and Community Bank paid Pro-Fab accordingly. The same pattern was followed for the March 17 shipment. 7 Community Bank sent a written statement along with each check listing the discrepancies in the documents and explaining that Pro-Fab was being paid despite the discrepancies. Controversy arose over the March 10 shipment, the third of four. Carlton had shipped the goods as usual but had heard nothing from California. When he received the check for the March 17 shipment on March 24, he called Community Bank to inquire about the delay on the March 10 shipment. Only then did the bank inform him that it would not honor the draft because Guerriero refused to waive the nonconformities in the documentation. The bank sent Pro-Fab a list of nine defects in a letter dated March 30, two days before the expiration of the letter of credit. 8 By April 1, Pro-Fab had cured all but three of the listed deficiencies, but the bank continued to refuse payment.
Pro-Fab asks this court to consider essentially three claims against Community Bank. The first is grounded in fraud, and the others are based on the technical requirements of the letter of credit.
Although it did not make the precise claim in its complaint, Pro-Fab argues before this court that it proved an act of fraud by Community Bank. Pro-Fab negotiated only with Spateri and contracted with Vipa-NY only through Spateri. At the time the contract was made, Pro-Fab had no knowledge of Guerriero or of Vipa-Cal's existence as a separate entity. At Community Bank's instigation, if not insistence, Guerriero's name was added to the contract as president of Vipa, Inc. Barbara Gregory, the bank vice-president who handled the issuance of the letter of credit, explained that she did not know Spateri to be president of Vipa and would not accept the document with his signature. She admitted that when Spateri sent her the "new last pages" of the contract, she did not inform Pro-Fab of the change or attempt to discover if Pro-Fab knew of the change.
This court has recently summarized the elements of a fraud action in Georgia:
Under Georgia law, the elements of a cause of action for fraud are (1) a false representation made by the defendant; (2) scienter, or knowledge of the statement's falsity at the time the statement was made; (3) an intention to induce the plaintiff to act or refrain from acting in reliance on the statement; (4) the plaintiff's justifiable reliance; and (5) damage to the plaintiff.
Wolfe v. Chrysler Corp., 734 F.2d 701, 703 (11th Cir.1984) (citation omitted). Certainly we cannot condone the irresponsible, deceitful conduct that Pro-Fab's evidence discloses, yet we must agree with the district court that Pro-Fab has shown no damage caused by the addition of Vipa-Cal to the contract. Pro-Fab claims it was damaged by Vipa-Cal's repudiation of the promise of $200,000 advance money, but Pro-Fab was still dealing directly with Spateri when the first letter of credit arrived, and he offered no help in getting the advance. Pro-Fab also contends that if...
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