Bossier Bank & Trust Co. v. Union Planters Nat. Bank of Memphis, s. 76-1290
| Decision Date | 07 March 1977 |
| Docket Number | Nos. 76-1290,76-1291,s. 76-1290 |
| Citation | 550 F.2d 1077 |
| Parties | 21 UCC Rep.Serv. 254 BOSSIER BANK & TRUST COMPANY, a Louisiana Corporation, Plaintiff and Appellee, Cross-Appellant, v. UNION PLANTERS NATIONAL BANK OF MEMPHIS, a National Bank, Defendant and Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Robert M. Johnson, Canada, Russell & Turner, Memphis, Tenn., for defendant and appellant, cross-appellee.
Lee L. Piovarcy, Martin, Tate, Morrow & Marston, Jackson W. Moore, Memphis, Tenn., for plaintiff and appellee, cross-appellant.
Before PHILLIPS, Chief Judge, and EDWARDS and PECK, Circuit Judges.
On June 28, 1973, Union Planters National Bank of Memphis issued a letter of credit to Bossier Bank and Trust Co. of Bossier City, Louisiana, in the amount of $450,000. The letter of credit by its terms agreed to honor sight drafts drawn on it by Bossier in the aggregate amount of $450,000. Bossier presented to Union Planters a sight draft in the amount of $450,000, which was dishonored on October 7, 1974.
Bossier thereupon filed the present suit for $450,000, plus interest and incidental damages. Jurisdiction is based upon diversity of citizenship and Tennessee law controls.
Both banks filed motions for summary judgment. In a well reasoned memorandum opinion, dated August 25, 1975, Chief District Judge Bailey Brown granted summary judgment for $450,000 against Union Planters, plus interest from October 7, 1974, the date of dishonor of the letter of credit. Judge Brown retained the case on the docket pending determination of the amount of incidental damages. Reference is made to the memorandum opinion of Judge Brown which is made Appendix A to this opinion, for a more complete recitation of facts.
Thereafter, Judge Brown referred the issue of incidental damages to the federal magistrate, who held that Bossier is not entitled to incidental damages or attorneys fees. Judge Brown affirmed the decision of the magistrate. The memorandum decision of Federal Magistrate Aaron Brown is made Appendix B hereto.
Union Planters appeals from the judgment for $450,000, plus interest. Bossier cross-appeals from the denial of incidental damages, including attorneys fees. We affirm.
As a ground for reversal, Union Planters asserts that Bossier failed to comply with a condition of an amendment to the letter of credit requiring that the sight Union Planters further contends: (1) That the statement of Bossier accompanying the sight draft differed materially from the statement required by the letter of credit; and (2) that Bossier submitted an affidavit with the sight draft which both banks knew to be false. Upon consideration of the entire record, we conclude that these contentions are without merit for the reasons stated in the memorandum opinion of Judge Brown (Appendix A hereto).
draft must be accompanied by an assignment. The short answer to this contention is that there was no assignment. The letter of credit was issued directly to Bossier and it was never assigned.
We also conclude that the District Court was correct in disallowing Bossier's claim for incidental damages and attorneys fees.
The judgment of the District Court is affirmed. No costs are taxed. Each party will bear its own costs on this appeal and cross appeal.
APPENDIX A
MEMORANDUM DECISION
These are cross motions for summary judgment filed on behalf of the plaintiff, Bossier Bank & Trust Company (Bossier) and the defendant, Union Planters National Bank of Memphis (U.P.). Both parties have submitted their motions supported by affidavits and memoranda of law, and oral argument to the court.
This is a diversity action based on the wrongful dishonor of a letter of credit in the amount of four hundred fifty thousand dollars ($450,000). The court finds that there are no genuine issues of material fact here.
On June 28, 1973 the defendant, U.P., issued to plaintiff, Bossier, Letter of Credit No. 10676 for the account of Shreve Square on the River, Inc. The letter of credit, 1 by its terms agreed to honor sight drafts drawn on it by Bossier in the aggregate amount of $450,000. The letter of credit also provided the following:
The draft is to be accompanied by your written statement to the effect that you are entitled to draw against this Letter of Credit in reduction of the loan made to Shreve Square on the River, Inc., pursuant to the terms of your commitment letter dated June 21, 1973.
On October 2, 1974 plaintiff presented to U.P. a sight draft in the amount of $450,000 accompanied by an affidavit 2 which stated in pertinent part Affiant further did assert and declare that the Bossier Bank & Trust Company is entitled to draw against this said Letter of Credit in reduction of the loan made by the Bossier Bank & Trust Company to Shreve Square on the River, Inc., the said loan having been made pursuant to the terms of the commitment letter issued by Bossier Bank & Trust Company to Shreve Square on the River, Inc. under date of 21 June 1973.
On October 7, 1974 U.P. dishonored plaintiff's draft. Said dishonor prompted the instant lawsuit.
The plaintiff has filed its motion for summary judgment on the grounds that it was the beneficiary of the letter of credit, that it complied with the terms of the letter of credit and that the issuer, U.P., therefore wrongfully dishonored and is liable for the fact amount of the letter of credit plus incidental damages.
Defendant asserts in its motion that Bossier fraudulently "called" the letter of credit because the purpose for which Bossier sought to have it honored was not the purpose contemplated by the parties to the underlying contract and that if fraud is involved the issuer is not obligated to honor the drafts of the beneficiary.
The letter of credit was executed in Tennessee and performance and payment thereon was to be made in Tennessee; thus making Tennessee law controlling. Tennessee Code Annotated section 47-5-101 et seq. governs letters of credit and provides in relevant part:
47-5-109 Issuer's obligation to its customer.
(1) An issuer's obligation to its customer includes good faith and observance of any general banking usage but unless otherwise agreed does not include liability or responsibility
(a) for performance of the underlying contract for sale or other transaction between the customer and the beneficiary; or
(2) An issuer must examine documents with care so as to ascertain that on their face they appear to comply with the terms of the credit but unless otherwise agreed assumes no liability or responsibility for the genuineness, falsification or effect of any document which appears on such examination to be regular on its face.
A pertinent comment to the above section provides:
The purpose of the examination is to determine whether the documents appear regular on their face. The fact that the documents may be false or fraudulent or lacking in legal effect is not one for which the issuer is bound to examine. His duty is limited to apparent regularity on the face of the documents. The duties, privileges and rights of an issuer who has received documents which are regular on their face but are in fact improper because forged or fraudulent are dealt with in Section 5-114. Comments to Official Text 2 45-5-111 Warranties on transfer and presentment.
(1) Unless otherwise agreed the beneficiary by transferring or presenting a documentary draft or demand for payment warrants to all interested parties that the necessary conditions of the credit have been complied with. This is in addition to any warranties arising under chapters 3, 4, 7 and 8, of this title.
47-5-114 Issuer's duty and privilege to honor Right to reimbursement.
(1) An issuer must honor a draft or demand for payment which complies with the terms of the relevant credit regardless of whether the goods or documents conform to the underlying contract for sale or other contract between the customer and the beneficiary. * * *
(2) Unless otherwise agreed when documents appear on their face to comply with the terms of a credit but a required document does not in fact conform to the warranties made on negotiation or transfer of a document of title (§ 47-7-507) or of a security (§ 47-8-306) or is forged or fraudulent or there is fraud in the transaction
(a) the issuer must honor the draft or demand for payment if honor is demanded by a negotiating bank or other holder of the draft or demand which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course (§ 47-3-302) and in an appropriate case would make it a person to whom a document of title has been duly negotiated (§ 47-7-502) or a bona fide purchaser of a security (§ 47-8-302); and
(b) in all other cases as against its customer, an issuer acting in good faith may honor the draft or demand for payment despite notification from the customer of fraud, forgery or other defect not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor.
(3) Unless otherwise agreed an issuer which has duly honored a draft or demand for payment is entitled to immediate reimbursement of any payment made under the credit and to be put in effectively available funds not later than the day before maturity of any acceptance made under the credit. (Emphasis supplied.)
The letter of credit constitutes an independent contract between the issuer and the beneficiary. If the beneficiary presents to the issuer his draft accompanied by the document(s) in proper form called for in the letter of credit, the draft must be honored. See Banco Espanol de Credito v. State Street Bank and Trust Company, 385 F.2d 230 (1st Cir. 1967) cert. den. 390 U.S. 1013, 88 S.Ct. 1263, 20 L.Ed.2d 163; Dynamics Corporation of America v. Citizens and Southern National Bank, 356 F.Supp. 991 (N.D.Ga.1973). As stated in T.C.A. 47-5-114 the issuer must honor the draft despite a...
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