875 F.2d 158 (8th Cir. 1989), 88-5101, State Bank of Springfield v. South Mill Mushroom Sales, Inc.

Docket Nº:88-5101.
Citation:875 F.2d 158
Party Name:STATE BANK OF SPRINGFIELD, a Minnesota banking corporation, Appellee, v. SOUTH MILL MUSHROOM SALES, INC., a Pennsylvania corporation, Appellant.
Case Date:May 08, 1989
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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875 F.2d 158 (8th Cir. 1989)

STATE BANK OF SPRINGFIELD, a Minnesota banking corporation, Appellee,


SOUTH MILL MUSHROOM SALES, INC., a Pennsylvania corporation,


No. 88-5101.

United States Court of Appeals, Eighth Circuit

May 8, 1989

Submitted Nov. 16, 1988.

Rehearing and Rehearing En Banc Denied June 22, 1989.

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Edward J. Pluimer, Minneapolis, Minn., for appellant.

Thomas L. Kimer, Minneapolis, Minn., for appellee.

Before LAY, Chief Judge, BEAM, Circuit Judge, and STUART, [*] District Judge.

BEAM, Circuit Judge.

South Mill Mushroom Sales, Inc. appeals the adverse verdict of the district court. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

I. Background

In early 1985, South Mill Mushroom Sales, Inc. (South Mill) reached an agreement with Garden Fresh Produce Company (Garden Fresh) to supply fresh mushrooms to Garden Fresh. As a condition of doing business, the parties agreed that a letter of credit would be issued by State Bank of Springfield (Bank) to South Mill on behalf of Garden Fresh. The parties intended that the letter of credit would secure payment by Garden Fresh. As the volume of business between Garden Fresh and South Mill increased, the parties agreed to the issuance of new letters of credit with increased dollar values.

On April 9, 1986, South Mill made demand on the letter of credit currently in effect. It was in the amount of $150,000. Karen Babbitt, South Mill's business manager, arrived at the Bank and presented certain of the documents necessary for the demand to the president of the Bank, Kevin Jensen. Jensen informed Babbitt that the Bank would examine the documents and contact South Mill within three days. Under Minnesota law, the Bank had three days to respond to the demand. Minn.Stat. Sec. 336.5-112 (1966). Jensen then contacted

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Willard Pankonin, president of Garden Fresh, and informed him that South Mill had made demand on the letter of credit.

On April 11, 1986, Pankonin, Jensen and John Pia, president of South Mill, reached an agreement (hereafter referred to as the compromise agreement) under which South Mill agreed to withdraw its demand on the $150,000 letter of credit. In exchange, Garden Fresh agreed to provide to South Mill $50,000 in the form of a cashier's check from the Bank and a new letter of credit in the amount of $100,000 issued by the Bank.

Daniel Gau, general manager of Garden Fresh, delivered the letter of credit and the cashier's check to Pia on April 16, 1986. Pia objected to two of the terms of the letter of credit and discussed his concerns with Gau and Pankonin. Specifically, Pia objected to the fact that the letter provided that South Mill was required, without qualification, to continue to supply mushrooms to Garden Fresh. In addition, from the language of the letter it appeared that there was no window in time within which South Mill could make a demand for payment. Pankonin agreed to the changes requested by Pia and contacted the Chairman of the Bank, Glen Schmitz, and informed him that the changes were to be made. Schmitz also approved the changes and agreed that a revised letter of credit would be issued.

In addition to the new letter of credit and the $50,000 cashier's check, Gau gave Pia a Garden Fresh check for $25,000 and a post-dated Garden Fresh check for $20,000. These checks were intended to cover the current week's shipment and the previous week's shipment. Gau informed Pia that the $20,000 check would not be good for at least a week, explaining that he needed that time to build up funds in the Garden Fresh bank account, which account would be drained by payment of the $25,000 check. Gau also told Pia that he would not be able to make any additional weekly payments for two to three weeks while Garden Fresh again built up funds in its bank account.

South Mill deposited the cashier's check and the $25,000 check on April 16, 1986. Several...

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