97 F.3d 480 (11th Cir. 1996), 95-4444, Banco General Runinahui, S.A. v. Citibank Intern.

Docket Nº:95-4444.
Citation:97 F.3d 480
Party Name:BANCO GENERAL RUNINAHUI, S.A., Plaintiff-Counter-Defendant-Appellant, v. CITIBANK INTERNATIONAL, a division of Citibank, N.A., New York, Defendant-Third-Party Plaintiff-Counter-Defendant-Appellant, R.M. Wade & Co., d.b.a. Wade Mfg. Co., Third-Party Defendant-Counter-Claimant-Appellee.
Case Date:October 10, 1996
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit
 
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Page 480

97 F.3d 480 (11th Cir. 1996)

BANCO GENERAL RUNINAHUI, S.A., Plaintiff-Counter-Defendant-Appellant,

v.

CITIBANK INTERNATIONAL, a division of Citibank, N.A., New

York, Defendant-Third-Party

Plaintiff-Counter-Defendant-Appellant,

R.M. Wade & Co., d.b.a. Wade Mfg. Co., Third-Party

Defendant-Counter-Claimant-Appellee.

No. 95-4444.

United States Court of Appeals, Eleventh Circuit

October 10, 1996

Page 481

        Kenneth Strick, Jay S. Blumenkopf, Boca Raton, FL, Douglas G. Combs, Portland, OR, Domenic L. Massari, III, Tampa, FL, for Appellant Banco General Runinahui, S.A.

        Robert J. Borrello, Miami, FL, Paul G. Dodds, Portland, OR, for R.M. Wade & Co.

        Appeals from the United States District Court for the Southern District of Florida.

        Before TJOFLAT and BLACK, Circuit Judges, and REAVLEY [*], Senior Circuit Judge.

        BLACK, Circuit Judge:

        Appellants Citibank International (Citibank) and Banco General Runinahui, S.A. (Banco) appeal the district court's entry of summary judgment in favor of R.M. Wade &

Page 482

Co. (Wade), arguing the court improperly concluded Citibank had wrongfully dishonored nonconforming documents Wade presented under the second of two letters of credit issued by Banco in favor of Wade and subsequently confirmed by Citibank. We affirm the district court's judgment as to all claims except those of Appellants contending the court erred in finding Citibank barred from dishonoring the documents Wade presented under the second letter of credit. 1

       I. BACKGROUND

Commercial Letter of Credit

        The commercial letter of credit is a payment device often used in international trade which permits a buyer in a transaction to substitute its financial integrity with that of a stable credit source, usually a bank. Alaska Textile Co., Inc. v. Chase Manhattan Bank, N.A., 982 F.2d 813, 815 (2d Cir.1992). As described by the Second Circuit:

        In its classic form, the letter of credit is only one of three distinct relationships between three different parties: (1) the underlying contract for the purchase and sale of goods between the buyer ("account party") and the seller ("beneficiary"), with payment to be made through a letter of credit to be issued by the buyer's bank in favor of the seller; (2) the application agreement between the [issuing] bank and the buyer, describing the terms the issuer must incorporate into the credit and establishing how the bank is to be reimbursed when it pays the seller under the letter of credit; and (3) the actual letter of credit which is the bank's irrevocable promise to pay the seller-beneficiary when the latter presents certain documents (e.g., documents of title, transport and insurance documents, and commercial invoices) that conform with the terms of the credit.

        Id.

        In some letters of credit, another bank, known as the confirming bank, assumes the same obligations as the issuing bank. See Fla.Stat. § 675.107(2) (1995) (a bank that confirms a credit becomes "directly obligated on the credit to the extent of its confirmation as though it were its issuer....").

        The key to the commercial vitality of the letter of credit is its independence: it is wholly separate and distinct from the underlying contract. When the beneficiary submits documents to the issuing/confirming bank, the bank's only duty is to examine the documents and determine whether they are in accordance with the terms and conditions of the credit. Dibrell Bros. Int'l, S.A. v. Banca Nazionale Del Lavoro, 38 F.3d 1571, 1579 (11th Cir.1994). If the bank finds the documents to be conforming, it is then obligated to honor a draft on the credit, independent of the performance of the underlying contract for which the credit was issued. Marino Indus. Corp. v. Chase Manhattan Bank, N.A., 686 F.2d 112, 115 (2d Cir.1982) ("It is the complete separation between the underlying commercial transaction and the letter of credit that gives the letter its utility in financing transactions."); Pro-Fab, Inc. v. Vipa, Inc., 772 F.2d 847, 852-53 (11th Cir.1985) ("The bank is obligated to look only to the requirements of the letter of credit, not to any other activity between the parties.")

        The Uniform Customs and Practices for Documentary Credits (UCP), first issued in 1930 by the International Chamber of Commerce and revised approximately every ten years since, is a compilation of internationally accepted commercial practices which may be incorporated into the private law of a contract between parties. Alaska Textile, 982 F.2d at 816. Although it is not the law, the UCP applies to most letters of credit because issuers typically incorporate it into their credits. Id.

Facts

        Wade engages in the business of manufacturing and marketing irrigation products. In September 1991, Ribadalgo Agro Consultores CIA Ltd. [Ribadalgo], Wade's Ecuadorian

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distributor, entered into a contract with Wade for the purchase of a Wade irrigation system. The parties agreed that a commercial letter of credit governed by the UCP, Int'l Chamber of Commerce Pub. No. 400 (1983 Revision) (UCP 400) would be used to finance Ribadalgo's purchase of the irrigation system from Wade.

First Letter of Credit

        On November 14, 1991, Ribadalgo obtained an irrevocable letter of credit from Banco, a banking institution with its principal place of business in Quito, Ecuador. The letter of credit was in the amount of $446,000, and named Wade as the beneficiary. The material terms of the letter of credit were that Wade was to ship certain of the irrigation equipment by December 31, 1991; Wade was to present the request for payment, including all the requisite documents "no later than 15 days after shipment, but within the validity of the credit"; and the letter of credit was valid through January 28, 1992, the expiry date. Citibank, which does business in Miami, Florida, confirmed the letter of credit upon Wade's request after Banco deposited $446,000 cash as collateral.

        Wade shipped the goods on December 31, 1991, and subsequently presented the requisite documents to Citibank for payment on January 14, 1992. The documents contained numerous discrepancies, but Citibank honored Wade's request for payment on January 22, 1992, without noting any deficiencies.

Second Letter of Credit

        In April 1992, Banco issued another irrevocable letter of credit to Ribadalgo in the amount of $400,000, again naming Wade as the beneficiary. The terms of this letter of credit were that Wade was to ship certain of the irrigation equipment by June 30, 1992; Wade was to present the request for payment, including all the requisite documents "no later than 15 days after shipment, but within the validity of the credit"; the expiry date of the credit was August 4, 1992; and partial shipments were acceptable. After Banco deposited $400,000 cash as collateral, Citibank confirmed the letter of credit. Thereafter, the letter of credit was amended to extend the shipment date to July 30, 1992, and the expiry date to August 21, 1992, and change the port of discharge. All remaining terms were unchanged.

        Wade timely shipped a portion of the goods on July 7, 1992. On July 21, 1992, one day before the document presentment deadline, Wade presented the requisite documents to Citibank, requesting payment under the terms of the credit for the shipped merchandise. 2 Two days later, on July 23, 1992, Citibank informed Wade that the documents submitted contained numerous discrepancies and that it therefore would not honor Wade's request for payment. 3 In response, Wade forwarded amended documents to Citibank on...

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