CNA Mortgage Investors, Ltd. v. Hamilton Nat. Bank

• Decision Date: 25 November 1975
• Citation: 540 S.W.2d 238,20 UCCRep.Serv. 500
• Parties: CNA MORTGAGE INVESTORS, LTD., Plaintiff-Appellee, v. HAMILTON NATIONAL BANK, Defendant-Appellant, and Venturi International, Inc., Intervening-Defendant. 540 S.W.2d 238, 20 UCC Rep.Serv. 500
• Court: Tennessee Court of Appeals

Page 238

540 S.W.2d 238

CNA MORTGAGE INVESTORS, LTD., Plaintiff-Appellee, v. HAMILTON NATIONAL BANK, Defendant-Appellant and Venturi International, Inc., Intervening-Defendant.

540 S.W.2d 238, 20 UCC Rep.Serv. 500

Court of Appeals of Tennessee, Eastern Section.

Nov. 25, 1975 Certiorari Denied by Supreme Court June 1, 1976.

Sam F. Fowler, Jr., John H. Fowler, Knoxville, for appellants.

John M. Kamins, Detroit, Mich., Foster D. Arnett, Knoxville, for appellee.

OPINION

GODDARD, Judge.

Hamilton National Bank, Defendant-Appellant, appeals an order granting summary judgment in favor of CNA Mortgage Investors, LTD., Plaintiff-Appellee, in connection with two irrevocable letters of credit issued by the Bank to CNA on the account of Venturi International, Inc. The Bank assigns two errors:

1. Numerous material issues of fact were placed in controversy by the pleadings, exhibits, and affidavits filed in this cause, and it was error for the Chancellor to grant Summary Judgment in favor of the Plaintiff CNA.

2. It was error for the Chancellor to refuse to allow Venturi to intervene in this suit as a matter of right under Rule 24.01 or by permission under Rule 24.02.

The Chancellor entered a well-written and well-reasoned memorandum opinion which, insofar as it relates to assignment of error number one, we adopt as the opinion of this Court.

'In this case Plaintiff CNA Mortgage Investors, LTD brought suit against Hamilton National Bank to enforce payment of two letters of credit issued by Defendant bank in the respective amounts of $37,500.00 and $34,000.00. By answer Defendant bank admitted that it had refused to pay the sight drafts issued by Plaintiff against the letters of credit and denied that Plaintiffs were entitled to payment.

'By agreed order Venturi International Inc. was permitted to intervene as a Defendant without Plaintiff waiving any objections thereto. Intervening Defendant Venturi filed an answer generally pleading the underlying facts and circumstances which brought about the issuance of the letters of credit and contending that Plaintiff was not entitled to be paid upon them. Plaintiff CNA filed a motion to dismiss Venturi's petition to intervene. Later Venturi filed an amended answered stating its claim with more detail. Following argument, Plaintiff's motion to dismiss as to Venturi was overruled without prejudice to renew its motion later. Plaintiff CNA thereafter filed another motion seeking to dismiss the petition of Venturi because it had no standing to intervene and for summary judgment against Defendant Hamilton National Bank because there is no genuine issue as to any material fact so as to entitle CNA to judgment as a matter of law. Venturi then moved as an alternative to its petition to intervene as a matter of right to be allowed to intervene by permission. Venturi also filed the affidavits of Adrian E. Ford a vice president of Defendant Bank and of Melvin T. Goldberger co-chairman of the board of Defendant Venturi in opposition to Plaintiff's motion to dismiss and for summary judgment. The motions of the parties were then brought on for argument and are here decided.

'The facts upon which the motions must be decided are based upon the pleadings, exhibits, answers to interrogatories, answers to requests for admissions, and affidavits on file. It appears that Venturi had engaged in negotiations with Plaintiff CNA for two loans in connection with a property to be developed in Boca Raton, Florida. Venturi sought an 18 month first mortgage construction loan from CNA in the amount of $6,800,000.00, and a 24 month standby commitment for a land purchase loan in the amount of $7,550,000.00. Each of the proposed loans called for Venturi to make an application deposit with CNA. The first in the amount of $34,000.00 and the second in the amount of $37,750.00.

'Venturi's co-chairman of the board, Melvin T. Goldberger, signed two 'Loan Applications' for Venturi on June 28, 1973. Plaintiff CNA and Venturi both admitted during argument that these loan applications had been executed and were in the typewritten form as set forth in Exhibits E and F attached to Plaintiff's complaint, except that there had been certain penned in changes in the applications. The parties agreed that the changes in Exhibits E and F having been initialed by both parties were part of the agreement. However, there was a dispute over certain changes shown on the copies of the applications attached to Venturi's pleadings. Venturi claimed they were part of the applications, and CNA claimed they were not because they were not initialed. Be that as it may, the decision here made is not affected by whether or not any disputed changes are deemed part of the loan applications.

'The two letters of credit were issued on the same date as the Loan Applications, June 28, 1973. Both of them were irrevocable. The significant words of the letters of credit read as follows:

We hereby authorize you to value on the Hamilton National Bank of Knoxville, Tennessee for account of Venturi, International, Inc. up to the aggregate amount of ($34,000.00 in one case and $37,750.00 in the other) available by your draft(s) at sight for and In accordance with the terms of the Loan Application dated June 28, 1973, between the parties attached hereto and becoming a part of this letter of credit. This letter of credit will expire September 28, 1973. * * * Except as otherwise expressly stated herein this credit is subject to the Uniform Customs and Practice for commercial documentary credits fixed by the Thirteenth Congress of the International Chamber of Commerce. (1962 revision) Brochure No. 222. (Underlining supplied.)

Despite the above underlined statement in each letter of credit referring to the attached loan application, there was no loan application attached to either letter of credit when issued by the Bank.

'Plaintiff CNA thereafter issued its sight draft in the applicable amount for each letter of credit. When the sight drafts arrived at Defendant Bank, it refused to pay them because (1) the loan application was not attached to the letter of credit and (2) Venturi had advised CNA had not met the conditions required to receive payment. Specifically the Bank gave its reasons for dishonor as follows:

Returned 9/13/73 because Loan Application dated June 28, 1973, did not accompany this letter of credit. Also, Venturi International, Inc., advises that CNA Mortgage Investors, LTD., has not satisfied the prerequisite conditions to draw on this letter of credit.

All parties have agreed in argument that Defendant Bank is bound by the reasons it gave for dishonor and cannot now rely on any different reasons.

'Plaintiff contends that under letter of credit law Defendant Bank must pay the letters of credit based upon the documents before the Court. Venturi and Bank claim that the loan applications were made part of the letters of credit by reference and therefore the underlying transaction may be considered in determining whether the Bank is bound to pay. Because of this Venturi also says there are issues common to Plaintiff's claim against the bank and Venturi's rights against the Bank so that it should be permitted to intervene.

'The questions raised should be decided prior to trial, if reasonably possible, because it appears that witnesses at great distances from Knoxville may be required to testify if the underlying transaction is to be considered. It would be a disservice to the parties and the witnesses to permit the parties to go to the great expense of preparing for trial should it be decided that the documents before the Court do not permit the introduction of proofs on the underlying transaction.

A letter of credit is basically a device for making payment in commercial transactions upon presentation to the issuing bank of certain documents specified in the letter of credit. In merchandise sales the device permits the seller to arrange for payment against documents. For example, upon presentation of the seller's sight draft and a bill of lading showing delivery of the merchandise together with any other documents required by the letter of credit, the issuing bank will forthwith pay the seller. The device is much used in foreign trade so that payment will be paid upon delivery of the goods even though the buyer may raise some objection to the goods. It is the delivery of documents to the bank, and nothing about the validity of the underlying transaction that controls payment by the bank. In their discussion of letter of...