976 F.2d 561 (9th Cir. 1992), 90-56031, Chuidian v. Philippine Nat. Bank

Docket Nº:90-56031.
Citation:976 F.2d 561
Party Name:Vincente B. CHUIDIAN, Plaintiff, and Robert M. Damir, Trustee in Bankruptcy, Appellant, v. PHILIPPINE NATIONAL BANK, et al., Defendants-Appellees. Philippine Export and Foreign Loan Guarantee Corporation, Intervenor.
Case Date:October 01, 1992
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 561

976 F.2d 561 (9th Cir. 1992)

Vincente B. CHUIDIAN, Plaintiff,

and

Robert M. Damir, Trustee in Bankruptcy, Appellant,

v.

PHILIPPINE NATIONAL BANK, et al., Defendants-Appellees.

Philippine Export and Foreign Loan Guarantee Corporation, Intervenor.

No. 90-56031.

United States Court of Appeals, Ninth Circuit

October 1, 1992

Argued and Submitted July 8, 1992.

As Amended Dec. 11, 1992.

Steven C. Finley, McKenna & Fitting, San Francisco, Cal., Vincente B. Chuidian, Hillsborough, Cal., for plaintiff-appellant.

Joanne M. Frasca, Jones, Day, Reavis & Pogue, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before FARRIS, WIGGINS and FERNANDEZ, Circuit Judges.

FARRIS, Circuit Judge:

Robert Damir, trustee in bankruptcy for Vincente Chuidian, appeals the district court's judgment, following a bench trial, in favor of Philippine National Bank in

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Chuidian's action on a letter of credit. We affirm.

I

The underlying facts are set forth in Chuidian v. Philippine National Bank, 912 F.2d 1095 (9th Cir.1990) (Chuidian I ):

Chuidian owns interests in various businesses in California. In 1985, the Philippine Export and Foreign Loan Guarantee Corporation ..., an instrumentality of the Republic of the Philippines government under then-President Ferdinand Marcos, sued several of Chuidian's companies in Santa Clara Superior Court. Chuidian counterclaimed. The parties settled the Santa Clara County litigation in late 1985. As part of the settlement, the Bank, a state-owned bank, issued an irrevocable letter of credit to Chuidian on behalf of the Guarantee Corporation, payable ["at the counters of the"] Bank's Los Angeles branch.

Shortly thereafter, on February 26, 1986, the government of President Marcos was overthrown, and replaced by the ... government of President Corazon Aquino. The new government formed the Presidential Commission on Good Government ..., an executive agency charged with recovering "ill-gotten wealth" accumulated by Marcos and his associates....

.. In March 1986 ... [the Commission] instructed the Bank not to make payment on the letter of credit issued to Chuidian.... [T]he Commission suspected that Marcos and Chuidian had entered into a fraudulent settlement of the Santa Clara County litigation to pay off Chuidian for not revealing certain facts about Marcos's involvement in Chuidian's business enterprises. As a result, the Commission wished to examine the propriety of the settlement, and, in order to secure payment in the event of a decision against Chuidian, needed to prevent payment under the letter of credit.

When the Bank, pursuant to [the Commission's] order, refused to make payment under the letter of credit, Chuidian sued the Bank in Los Angeles County Superior Court. The Bank removed the action to federal district court pursuant to 28 U.S.C. § 1441(d).

Id. at 1097. After a fifteen day bench trial, the district court refused to enforce the terms of the letter of credit. The court determined that the letter of credit was to be performed in the Philippines, and that Philippine law, specifically the Commission's order sequestering the letter of credit, prohibited the Bank's performance. Thus, the court concluded, the Bank had successfully raised the defense of illegality of performance and its obligations under the letter of credit were excused. The court also found that the doctrine of international comity and the act of state doctrine required the court to recognize the validity of the Commission's sequestration order. The court's judgment and order is published at Chuidian v. Philippine National Bank, 734 F.Supp. 415 (C.D.Cal.1990) (Chuidian II ). Chuidian filed this timely appeal.

II

Damir contends the district court erred in concluding that performance under the letter of credit was excused because of supervening illegality. He recognizes, as he must, that, if Manila is the place of performance of the letter of credit, performance is excused. He argues, however, that the place of performance is Los Angeles and that the Commission's order is therefore insufficient to excuse performance.

In considering this issue, we need not decide the appropriate standard of review. Even if we were to apply a de novo review standard we would conclude, with the district court, see 734 F.Supp. at 419, that Manila was the sole place of performance of the letter of credit.

The Los Angeles branch was nominated to service the letter of credit merely in an advisory role. According to Article 10(c) of the Uniform Customs and Practice for Documentary Credits (1983 Revision), "[u]nless the nominated bank is the issuing bank or the confirming bank, its nomination by the issuing bank does not constitute

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any undertaking by the nominated bank to pay, to accept, or to negotiate." See also U.C.C. § 5-107(1). A confirming bank, by contrast, makes a "definite undertaking" when it adds its confirmation. See Uniform Customs, Article 10(b); U.C.C. § 5-107(2).

In deciding that Manila was the place of performance of the letter of credit, the district court relied on Sabolyk v. Morgan Guaranty Trust Co. of New York, No. 84 Civ. 3179, 1984 WL 1275 (S.D.N.Y.1984) (unpublished decision), and RSB Manufacturing Corp. v. Bank of Baroda, 15 B.R. 650 (S.D.N.Y.1981). Those cases look to the place of issuance of a letter of credit to determine the place of its performance. See Sabolyk, 1984 WL 1275, at * 2-3; RSB, 15 B.R. at 654. Designation of a place of payment under a letter of credit does not alter or amplify that result unless the paying bank also serves as a confirming bank or otherwise acts in a manner indicating that its role with respect to the letter of credit is more than merely mechanical. See RSB, 15 B.R. at 654. We agree. The Los Angeles branch did not function under the letter of credit as a confirming bank. The place of performance was Manila.

The rule Damir advocates--essentially that the place of performance of a letter of credit is the place designated for "payment at the counters"--is significantly more inflexible than the analysis we approve, which focuses primarily on the relationship between the issuing and paying banks. The commentary to § 5-102(3) of the U.C.C. states that "in the present state of the law and variety of practices as to letters of credit, no statute can effectively or wisely codify all the possible law of letters of credit without stultifying further development of this useful financing device." This statement suggests a policy favoring flexibility in the articulation of rules governing letters of credit. The uniform rule favored by Damir ignores the variety of relations that can arise between issuing and paying banks. As such, it threatens to...

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