State Bank of Springfield v. South Mill Mushroom Sales, Inc.
| Decision Date | 22 June 1989 |
| Docket Number | No. 88-5101,88-5101 |
| Citation | 875 F.2d 158 |
| Parties | STATE BANK OF SPRINGFIELD, a Minnesota banking corporation, Appellee, v. SOUTH MILL MUSHROOM SALES, INC., a Pennsylvania corporation, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
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.
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.
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 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 days later the $25,000 check was returned because of insufficient funds. As a result, South Mill insisted upon immediate payment of the $25,000 or shipments would cease. Garden Fresh arranged to have a $25,000 cashier's check sent to South Mill by the Bank to remedy the situation. After receiving a Zap Mail copy of the cashier's check on April 26, 1986, South Mill released a shipment of mushrooms. South Mill received the actual check on April 28, 1986.
On April 29, 1986, South Mill decided to cease shipping mushrooms to Garden Fresh and again made demand on the original $150,000 letter of credit. The new $100,000 letter of credit agreed upon on April 16, 1986, had not yet been forwarded by the Bank. As soon as Garden Fresh learned of the demand made by South Mill, it had the Bank stop payment on the $25,000 cashier's check. On April 30, 1986, the $20,000 check was returned because of insufficient funds.
The Bank commenced this action against South Mill contending that South Mill had breached the compromise agreement and claimed $50,000 in damages. South Mill filed a counterclaim alleging damages of $100,000 based on the Bank's breach of the compromise agreement and also made claims on the $150,000 letter of credit and the dishonored $25,000 cashier's check. Following a trial, the district court found in favor of the Bank and ordered South Mill to return the $50,000 it had received from the cashier's check and dismissed all of South Mill's counterclaims.
The Bank claims that South Mill breached the compromise agreement by making demand on the original $150,000 letter of credit and by refusing to ship mushrooms to Garden Fresh. We consider each of these claims separately.
The Bank asserts, and the district court found, that South Mill breached the compromise agreement by reasserting its demand on the $150,000 letter of credit on April 29, 1986. One of the terms of the compromise agreement was that South Mill would withdraw the demand it made on the letter of credit on April 9, 1986. By reasserting that demand, the court reasoned that South Mill breached the agreement and, as a result, was unjustly enriched in the amount of $50,000 through its retention of the cashier's check which had been issued by the Bank as part of the agreement.
For two reasons we disagree with the district court and find that the attempted demand by South Mill on the first letter of credit did not operate as a breach of the compromise agreement. First, the compromise agreement functioned as an accord and satisfaction of the $150,000 letter of credit. "An accord and satisfaction acts to discharge a contract." Acton Constr. Co. v. State, 363 N.W.2d 130, 133 (Minn.Ct.App.1985). By substituting the $100,000 letter of credit and the balance of the terms of the compromise agreement for the $150,000 letter of credit, the Bank's obligations under the first letter of credit were discharged. Consequently, on April 29, 1986, when South Mill made demand on the original letter of credit, the letter was null and void. It is clear to us that demand on an instrument which is null and void cannot be considered a breach of contract.
Second, the first letter of credit was no longer in effect at the time South Mill made demand, having expired by its terms on April 10, 1986. Therefore, any demand made on the letter of credit would have been ineffectual. Thus, we find that South Mill did not breach the compromise agreement by attempting to make demand on the first letter of credit.
The Bank also claims that South Mill breached the compromise agreement on April 29, 1986, when it refused to provide further shipments of mushrooms. South Mill argues that it was under no duty to continue shipping produce because at that time Garden Fresh was in default of its payments. The district court made no decision on this portion of the Bank's claim, having already found that South Mill breached the compromise agreement by reasserting its demand on the original letter of credit.
In response to South Mill's argument, the Bank asserts that Garden Fresh was not in default. The Bank argues that when Gau met with Pia to deliver the $100,000 letter of credit and the $50,000 cashier's check, Gau and Pia reached an understanding regarding further payment. At that meeting Gau told Pia that it would take some time for Garden Fresh to build up sufficient funds in the Garden Fresh bank account to cover the $25,000 check and the $20,000 check. As a result, Gau told...
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