American Coleman Co. v. Intrawest Bank of Southglenn, N.A.

• Court: U.S. Court of Appeals — Tenth Circuit
• Writing for the Court: Before McKAY, BARRETT and EBEL; BARRETT
• Citation: American Coleman Co. v. Intrawest Bank of Southglenn, N.A., 887 F.2d 1382 (10th Cir. 1989)
• Decision Date: 20 October 1989
• Docket Number: Nos. 88-1077 and 88-1220,s. 88-1077 and 88-1220
• Parties: , 10 UCC Rep.Serv.2d 1361 The AMERICAN COLEMAN COMPANY, a Delaware corporation, Plaintiff-Appellant, v. INTRAWEST BANK OF SOUTHGLENN, N.A., a national banking association, and United Bank of Southglenn, N.A., a national banking association, Defendants-Appellees.

Page 1382

887 F.2d 1382

58 USLW 2315, 10 UCC Rep.Serv.2d 1361

The AMERICAN COLEMAN COMPANY, a Delaware corporation Plaintiff-Appellant, v. INTRAWEST BANK OF SOUTHGLENN, N.A., a national banking association, and United Bank of Southglenn, N.A. a national banking association Defendants-Appellees.

Nos. 88-1077 and 88-1220.

United States Court of Appeals Tenth Circuit.

Oct. 20, 1989.

James L. Treece of Treece & Bahr, Littleton, Colo., for plaintiff-appellant.

John R. Webb and Susan B. Prose, of Holme, Roberts & Owen, Denver, Colo., for defendants-appellees.

Before McKAY, BARRETT and EBEL, Circuit Judges.

BARRETT, Senior Circuit Judge.

After examining the briefs and the appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); Tenth Cir.R. 34.1.9. The cause is therefore ordered submitted without oral argument.

In this diversity case, the American Coleman Company (American Coleman), plaintiff below, appeals from the district court's order granting summary judgment on behalf of the defendant below, Intrawest Bank of Southglenn, N.A., the predecessor to the United Bank of Southglenn, N.A. (Bank). The court dismissed, with prejudice, American Coleman's action for damages for an alleged wrongful dishonor of a request for payment pursuant to a letter of credit.

In 1984, American Coleman sold some real property located in Littleton, Colorado, to James E. Gammon (Gammon) and the South Santa Fe Partnership (the Partnership) and took a note secured by a first deed of trust on the property. The note and deed of trust were dated November 16, 1984, but not recorded until November 21, 1984. The terms of the repayment of the note required Gammon and the Partnership to post a letter of credit, of which American Coleman would be the beneficiary. The Bank, on behalf of its customer, Gammon and Associates, established a "Clean, Irrevocable Letter of Credit" in amount of $250,000 in favor of American Coleman. It was dated February 15, 1985, and was to expire on November 15, 1986. In consideration, the Bank received from Gammon a letter of credit fee and a second deed of trust on the Littleton property under a reimbursement contract whereby Gammon was to repay Bank for all payments made by Bank to American Coleman pursuant to the letter of credit. The letter of credit arrangement, once established, is often referred to as a statutory obligation on the part of the issuer (Bank) to honor drafts drawn by the beneficiary (American Coleman) that comply with the terms of the letter of credit. The transaction is separate and independent from the underlying business transaction between the beneficiary (American Coleman) and the Bank's customer (Gammon and Associates) which is contractual in nature. See Arbest Const. Co. v. First Nat. Bank & Trust Co., 777 F.2d 581, 583-84 (10th Cir.1985). A letter of credit is not an evidence of indebtedness; it is merely a promise by a bank to lend money under certain circumstances. Sprague v. United States, 627 F.2d 1044, 1049 (10th Cir.1980); Colorado Springs National Bank v. United States, 505 F.2d 1185, 1190 (10th Cir.1974).

The Bank was to make funds available to American Coleman pursuant to its sight drafts to be accompanied by the "[o]riginal Letter of Credit and your signed written statement that Jim Gammon and Associates is in default on the Note and Security Agreement dated November 21, 1984, between American Coleman and Jim Gammon and Associates." (R., Vol. I, Tab 2, Exh. A). The above reference to a note and security agreement dated November 21, 1984, was an error, inasmuch as no such documents ever existed. The record does not resolve the dispute relative to the party responsible for the error. However, on November 16, 1984, Gammon and Associates executed and delivered to American Coleman a note in the principal sum of $1,037,500 secured by a first deed of trust on the Littleton property sold which were recorded on November 21, 1984.

Thereafter, on December 31, 1985, and on May 16, 1986, American Coleman requested payments of $75,000, respectively, under the letter of credit. Both of these requests included the original letter of credit and the specific default language previously referred to, i.e., "Jim Gammon and Associates is in default on the Note and Security Agreement dated November 21, 1984, between American Coleman and Jim Gammon and Associates." (R., Vol. I, Tab 5, Exhibits A and B). Thus, a balance of $100,000 remained available to be drawn on under the letter of credit when on November 13, 1986, American Coleman tendered to Bank a sight draft in amount of $100,000 with the following statement appended thereto:

[T]he American Coleman Company informs you that Jim Gammon and Associates is in default on the Note and Security Agreement dated November 21, 1984, and the Promissory Note dated November 16, 1984, between American Coleman and Jim Gammon and Associates.

(R., Vol. I, Tab 2, Exh. B).

Bank formally dishonored the draft on November 17, 1986, two days after the letter of credit expired because (1) the amount requested was in advance of any default, and (2) no default could occur until November 16, 1986. Bank did not give as a reason for dishonor the fact that the wording of American Coleman's request was not in strict compliance with the terms of the letter of credit.

In the district court, both parties moved for summary judgment, agreeing that there was no genuine dispute of material fact relative to Bank's liability for its dishonor of American Coleman's request of November 13, 1986, for the balance of funds under the letter of credit. Bank contended that the fact that the note was not then in default constituted a valid ground for dishonor and, further, that dishonor was proper because American Coleman's request was not in strict compliance with the terms of the letter of credit. American Coleman argued that Bank should be estopped from raising the defense of strict compliance because Bank had not asserted this defense at the time of dishonor. Further, should Bank not be estopped, American Coleman contended that its request for funds was in strict compliance with the terms of the letter of credit. In considering the cross-motions for summary judgment, the district court relied upon the pleadings, the briefs, affidavits and other documentation.

The district court found/concluded that Bank was not estopped from raising the defense of strict compliance and that American Coleman's request of November 13, 1986, was not in strict compliance with the terms of the letter of credit. The court did not reach the issue whether the original reason given by the Bank, i.e., that the note was not yet in default, was a valid ground for dishonor.

On appeal, American Coleman contends that the district court's decision was erroneous, contrary to law, and an abuse of discretion in the court's holdings that: (1) the note was not yet in default, (2) the demand was not in strict compliance, technically or literally, with the terms of the letter of credit, (3) the Bank was not estopped from raising lack of strict compliance as a reason for dishonor, and (4) the beneficiary (American Coleman) was not misled, and could not have cured the defect because Bank was allowed, pursuant to C.R.S. Sec. 4-5-112(1)(a), to defer payment or dishonor for three banking days.

No contention is raised on appeal that substantial issues of material fact existed, precluding summary judgment under Rule 56(a) Fed.R.Civ.P. Even so, it is our duty to examine the record on appeal to determine whether any genuine issue of material fact pertinent to the ruling remains and, if not, whether the district court properly applied the substantive law. Florom v. Elliott Mfg., 867 F.2d 570, 574 (10th Cir.1989). And in making this evaluation, pleadings and documentary evidence must be construed liberally and in favor of the party opposing the motion. Id.; Harman v. Diversified Medical Investments Corp., 488 F.2d 111, 113 (10th Cir.1973), appeal after remand, 524 F.2d 361 (10th Cir.1975), cert. denied, 425 U.S. 951, 96 S.Ct. 1727, 48 L.Ed.2d 195 (1976). We are satisfied that no genuine issues of material fact remained when the district court granted summary judgment. Finally, in our de novo review, we have recognized different degrees of deference we must give to the interpretations and applications of state law by a resident federal judge sitting in a diversity action. Wilson v. Al McCord, Inc., 858 F.2d 1469, 1473 (10th Cir.1988) (some deference); Mullan v. Quickie Aircraft Corp., 797 F.2d 845, 850 (10th Cir.1986) (clearly erroneous standard); Rhody v. State Farm Mutual Insurance Company, 771 F.2d 1416, 1417 (10th Cir.1985) (great deference). We shall proceed under the "some deference" standard.

I.

American Coleman argues that the district court was clearly erroneous in finding/concluding that the Note of November 16, 1984, was not yet in default when the November 13, 1986, demand for payment was made by American Coleman upon Bank. The record shows, however, that the district court made no such finding.

It is true that after the draft of November 13, 1986, was submitted Bank did inform American Coleman that it would not fund the letter of credit because the Note was not in default and could not be in default until November 16, 1986. Because this was the only ground relied upon by Bank to dishonor the draft, American Coleman argued, unsuccessfully, that Bank should be estopped from raising the defense of strict compliance in the district court action because it failed to assert the issue of nonconformity at the time it dishonored the draft.

The district court plainly did not find/conclude that the Note of December 16, 1984, was in default. In the district court's Memorandum Opinion and Order of December 17, 1987, the court stated:

Since I conclude that the bank is not estopped from raising the defense of strict...