American Nat. Bank v. Cashman Bros. Marine Contracting
| Decision Date | 26 September 1989 |
| Docket Number | No. 88-297,88-297 |
| Citation | 550 So.2d 98,14 Fla. L. Weekly 2279 |
| Parties | 14 Fla. L. Weekly 2279, 9 UCC Rep.Serv.2d 1036, 8 A.L.R.5th 982 AMERICAN NATIONAL BANK, Appellant, v. CASHMAN BROTHERS MARINE CONTRACTING, Appellee. |
| Court | Florida District Court of Appeals |
John D. O'Brien, Panama City, for appellant.
Jacalyn N. Kolk of Hilton, Hilton, Kolk & Laing, P.A., Panama City, for appellee.
Appellant appeals from a summary judgment entered in a suit brought by the appellee for wrongful dishonor of a letter of credit. We reverse.
The appellant issued an irrevocable letter of credit to Hobbs Construction and Development Company for the benefit of the appellee, who was to tow a ship from Puerto Rico to Boston for Hobbs. The letter of credit specified two conditions of honor: the original letter and a document certifying the failure of Hobbs to make satisfactory payment. The letter of credit required that the certification be made in specific terms, as follows:
2. Beneficiary's signed affidavit dated the same as the draft as follows: "The Undersigned, being President or Treasurer of Cashman Brothers Marine Contracting Co., Inc., hereby certifies that Hobbs Construction and Development, Inc., has failed to make satisfactory arrangements for the payment of the towage of the dump scow ZB-1004 (O.N. 505974) from Puerto Rico to a port designated by us pursuant to paragraph 5 of the Charter Party between Weymouth Equipment Corporation and Hobbs Construction and Development, Inc., dated November 21, 1984 as amended." (Emphasis added.)
Appellee presented the letter for payment on the day before the letter was set to expire. The requisite certifying document failed to precisely follow the language set out in the original letter, for it contained the additional words: "I have determined." The language of the affidavit submitted is as follows:
The Undersigned, being President or Treasurer of Cashman Brothers Marine Contracting Co., Inc., hereby certifies that I have determined that Hobbs Construction and Development, Inc., has failed to make satisfactory arrangements for the payment of towage of the dump scow ZB-1004 (O.N. 505974) from Puerto Rico to a port designated by us pursuant to paragraph 5 of the Charter Party between Weymouth Equipment Corporation and Hobbs Construction and Development, Inc., dated November 21, 1984, as amended. (Emphasis added.)
The appellant bank, upon receiving the original letter and the nonconforming document, deferred honor pursuant to section 675.112, Florida Statutes (1987). Upon being told that the bank was deferring honor, the appellee's counsel made a demand and then left the bank with the original letter in hand. Three days later, appellant notified the appellee through appellee's counsel that it was refusing to honor the letter because presentment was not made during the term of the letter, the affidavit tendered was nonconforming, and the term of the letter had expired. The appellee subsequently filed suit for wrongful dishonor seeking in damages the face value of the letter of credit. The trial court granted summary judgment in favor of the appellee, finding that the deviation of language did not affect the meaning of the affidavit and that the other reasons given for dishonor were simply without merit.
On appeal, the appellant asserts that it was entitled to deny honor because of the nonconforming language, citing Fidelity National Bank of South Miami v. Dade County, 371 So.2d 545 (Fla. 3d DCA 1979). The appellant also argues that presentment had been withdrawn when appellee's counsel left the bank with the original letter. Therefore, after the period of deferral provided by statute had expired, appellant had nothing to honor.
We consider first the latter argument. Section 675.112(1)(a) provides that upon presentment of a demand for payment, a bank may defer honor until the third banking day following receipt of the documents; a deferral is not the equivalent of dishonor. This is what the appellant did. According to appellant's arguments, the withdrawal of the original letter from the bank's custody, after the bank exercised its statutory right to defer honor, precluded honor of the letter inasmuch as honor could not be made, by the express terms of the letter, without the original. Appellee argues, on the other hand, that the appellant had a continuing obligation to honor the letter following removal of the original from the bank's custody.
Upon review, we have difficulty in agreeing with appellant's argument that the summary judgment should be reversed on the theory that because the original letter and documents were withdrawn, the bank had the right to dishonor the letter. The record is clear that Cashman brought the original to the bank and delivered them to the bank manager, who made copies of the letter and accompanying documents, and returned the original to Cashman's representative. Although appellee Cashman has not made this argument, it is not clear that "presentment" under the UCC requires anything more.
Appellant argues that Chapter 675, Florida Statutes (1985), which provides the statutory framework for letters of credit, contemplates that original documents are to be left with the bank. Section 675.112(2) provides:
(2) Upon dishonor the bank may unless otherwise instructed fulfill its duty to return the draft or demand and the documents by holding them at the disposal of the presenter and sending him an advice to that effect.
The Official Comment 1 to section 5-112 of the Uniform Commercial Code, codified in Florida as section 675.112, states that the purpose of the deferral period is to allow the bank the opportunity to examine the documents. It does not appear to us that the quoted statutory language, as illuminated by the official comment, requires that tendered originals be left with the bank. Further, it is not at all clear that the bank did not agree to removal of the originals, since for its purposes (examination of the documents) the copies would appear to suffice.
Turning to the first issue (nonconformity of the certifying document), appellant argues that the trial court applied the wrong standard in determining whether the affidavit was sufficient to comply with the terms of the letter of credit. As noted by appellant, the principal decision addressing this issue in Florida is Fidelity National Bank of South Miami v. Dade County, supra, which followed the majority rule in holding that the standard to be applied is that the beneficiary "must comply strictly with and without deviation from" the provisions of the letter of credit. Appellant further urges that the Fidelity rule prevents banks from "having to make judgment calls," while the standard applied by the trial court does not allow banks to determine with certainty when compliance with a letter of credit is sufficient.
Appellee contends that the trial court's decision did not depart from the holding of Fidelity, since the addition of the words "I have determined," in Cashman's affidavit, did not require appellant to determine a disputed question of fact or law. Appellee urges, furthermore, that the additional words were harmless, in that the disputed affidavit did certify the essential facts as required by the letter of credit, and the beneficiary of the letter was not, as appellant argues, certifying an opinion. Appellee urges adoption of a standard of "reasonable compliance," citing authorities which hold that an insignificant variation between a letter of credit requirements and the accompanying documents does not permit dishonor.
Although the trial court was of the view that substance should prevail over form, we are of the opinion that the very nature of a letter of credit demands strict conformance to form. A letter of credit is "an engagement by a bank or other person made at the request of a customer ... that the issuer will honor drafts or other demands for payment upon compliance with conditions specified in the credit...." § 675.103(1)(a), Florida Statutes (1987); UCC, § 5-103(1)(a). A bank issuing a letter of credit has agreed to pay upon presentment of certain documents, and its obligation is to examine the documents for conformity with the terms expressed in the letter. As the court in Fidelity explained, the rule in nearly all jurisdictions is that there must be strict conformance with the terms of the letter of credit. 371 So.2d at 546-548. This is...
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