Colorado Nat. Bank of Denver v. Board of County Com'rs of Routt County
| Decision Date | 31 August 1981 |
| Docket Number | No. 79SC389,79SC389 |
| Citation | 634 P.2d 32 |
| Parties | 31 UCC Rep.Serv. 1681 The COLORADO NATIONAL BANK OF DENVER, a national banking association, Petitioner, v. BOARD OF COUNTY COMMISSIONERS OF ROUTT COUNTY, Colorado, Respondent. |
| Court | Colorado Supreme Court |
Davis, Graham & Stubbs, Randall Weeks, A. Bruce Campbell, Denver, for petitioner.
Hall & Evans, Robert S. Treece, Denver, Kendrick & Kendrick, Kristine, Bradt, Kendrick, Colorado Springs, Mattlage, Maus & Lettunich, Daniel Maus, Steamboat Springs, for respondent.
We granted certiorari to review the court of appeals' decision affirming a district court's judgment holding the petitioner, the Colorado National Bank of Denver (the Bank), liable for the face amounts of three letters of credit it issued to secure the completion of road improvements by its customer, the Woodmoor Corporation (Woodmoor). Board of County Commissioners of Routt County v. The Colorado National Bank of Denver, Colo.App., 607 P.2d 1010 (1979). We reverse the judgment as to letters of credit No. 1156 and No. 1157, and affirm the judgment as to letter of credit No. 1168.
Woodmoor planned to develop a mountain recreation community in Routt County, Colorado (the County), to be known as Stagecoach. Early in 1973, Woodmoor obtained plat approval from the Routt County Board of County Commissioners (the Commissioners) for several Stagecoach subdivisions. Pursuant to section 30-28-137, C.R.S.1973 (1977 Repl. Vol. 12), and county subdivision regulations, approval of three of these subdivision plats was conditioned upon Woodmoor's agreement to provide a bond or other undertaking to ensure the completion of roads in accordance with the subdivision design specifications. Accordingly, subdivision improvements agreements were executed between Woodmoor and the County.
At Woodmoor's request, the Bank issued three letters of credit to secure Woodmoor's obligations under the agreements. The first two letters of credit, No. 1156 and No. 1157, were issued January 23, 1973 in the respective amounts of $158,773 and $77,330 bearing expiry dates of December 31, 1975. The third letter of credit No. 1168 was issued March 7, 1973 in the amount of $113,732 bearing an expiry date of December 31, 1976. The face amounts of the letters of credit were identical to the estimated costs of the road and related improvements in the respective subdivision improvements agreements. The County was authorized by each letter of credit to draw directly on the Bank, for the account of Woodmoor, up to the face amount of each letter of credit. Each letter of credit required the County, in order to draw on the letters of credit, to submit fifteen-day sight drafts accompanied by:
"A duly-signed statement by the Routt County Board of Commissioners that improvements have not been made in compliance with a Subdivision Improvements Agreement between Routt County and the Woodmoor Corporation dated (either January 9, 1973 or March 7, 1973) and covering the (respective subdivisions) at Stagecoach and that payment is therefore demanded hereunder."
Woodmoor never commenced construction of the roads and related improvements. On December 31, 1975, the expiry date of letters of credit No. 1156 and No. 1157, the County presented two demand drafts to the Bank for the face amounts of $158,773 and $77,330. The demand drafts were accompanied by a resolution of the Commissioners stating that Woodmoor had failed to comply with the terms of the subdivision improvements agreements and demanded payment of the face amounts of the letters of credit. On January 5, 1976, within three banking days of the demand, 1 the Bank dishonored the drafts. The Bank did not specifically object to the County's presentation of demand drafts rather than fifteen-day sight drafts as required by the letters of credit.
On December 22, 1976, the County presented the Bank with a demand draft on letter of credit No. 1168 which was accompanied by the required resolution of the Commissioners. The Bank dishonored this draft because of the County's nonconforming demand, viz., that a demand draft was submitted rather than a fifteen-day sight draft. On December 29, 1976, the County presented a fifteen-day sight draft to the Bank. This draft was not accompanied by the resolution of the Commissioners. On December 31, 1976, the Bank dishonored this draft.
The County sued to recover the face amounts of the three letters of credit plus interest from the dates of the demands. The Bank answered the County's complaints alleging several affirmative defenses. The fundamental premise of the Bank's defenses was the assertion that the County would receive a windfall since it had not expended or committed to spend any funds to complete the road improvements specified in the subdivision improvements agreements.
The County filed a motion in limine seeking a determination by the trial court to exclude evidence concerning matters beyond the four corners of the letters of credit and demands made on the letters of credit. The Bank replied by filing a cross-motion in limine seeking a ruling that it would not be precluded at trial from offering evidence outside the four corners of the letters of credit. The trial court, after extensive briefing by the parties and a hearing, granted the County's motion to limit the admissibility of evidence to the letters of credit, documents and drafts presented thereunder, the demands on the letters of credit, and the Bank's refusals to honor the County's demands for payment.
The remaining issues were whether the County's demands conformed to the letters of credit or, if not, whether the Bank had waived nonconforming demands, and whether interest ought to be awarded. The parties agreed on a stipulated set of facts concerning these remaining issues. The Bank did, however, make an offer of proof as to the rejected affirmative defenses. The Bank would have attempted to prove that the subdivisions in question remained raw, undeveloped mountain property for which there was no viable market and that the County had neither constructed, made commitments to construct, nor planned to construct the roads or other improvements described in the subdivision improvements agreements secured by the letters of credit. These allegations were disputed by the County.
The trial court entered judgment against the Bank for the face amounts of the letters of credit plus accrued interest at the statutory rate from the date of the County's demands. Costs were awarded in favor of the County. The Bank's motion for new trial was denied, and the Bank appealed.
The court of appeals affirmed the judgment of the trial court ruling that standby letters of credit are governed by article 5 of the Uniform Commercial Code, section 4-5-101 et seq. C.R.S.1973, and that 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. The court of appeals affirmed the trial court's refusal to consider any evidence regarding the County's alleged windfall. The court of appeals also held that any defects in the form of the County's demands were waived by the Bank.
We first address the question whether the trial court properly limited the evidence to be presented at trial to the letters of credit, the demands by the County, and the Bank's replies to the demands. The Bank has continually asserted during each stage of this action that it ought to be permitted to show that the County will receive a windfall if the County is permitted to recover against the letters of credit. The Bank requested an opportunity to prove that the County will utilize the funds it would receive in a manner other than that specified in the road improvements agreements. Fundamentally, the Bank seeks to litigate the question of the completion of the purpose of the underlying performance agreements between Woodmoor and the County. This the Bank cannot do.
An overview of the history and law concerning letters of credit is useful in the consideration of this issue. The letter of credit arose to facilitate international commercial transactions involving the sale of goods. E. g., H. Ray Baker, Inc. v. Associated Banking Corp., 592 F.2d 550 (9th Cir. 1979); Harfield, Code Treatment of Letters of Credit, 48 Cornell L. Q. 92 (1962); Note, Letters of Credit: Injunction as a Remedy For Fraud in U.C.C. Section 5-114, 63 Minn.L.Rev. 487 (1979); Annot., 35 A.L.R.3d 1404 (1978). Today the commercial utility of the letter of credit in both international and domestic sale of goods transactions is unquestioned and closely guarded. E. g., East Girard Savings Ass'n v. Citizens National Bank, 593 F.2d 598 (5th Cir. 1979); Chase Manhattan Bank v. Equibank, 550 F.2d 882 (3d Cir. 1977); Association De Azucareros De Guatemala v. United States National Bank of Oregon, 423 F.2d 638 (9th Cir. 1970); Harfield, The Increasing Domestic Use of the Letter of Credit, 4 U.C.C.L.J. 251 (1972); Verkuil, Bank Solvency and Guaranty Letters of Credit, 25 Stan.L.Rev. 716 (1973). In recent years, the use of the letter of credit has expanded to include guaranteeing or securing a bank's customer's promised performance to a third party in a variety of situations. See First Empire Bank New York v. Federal Deposit Insurance Corp., 572 F.2d 1361 (9th Cir.), cert. denied 439 U.S. 919, 99 S.Ct. 293, 58 L.Ed.2d 265 (1978). This use is referred to as a standby letter of credit. Article five of the Uniform Commercial Code governs both traditional commercial letters of credit and standby letters of credit. East Bank of Colorado Springs v. Dovenmuehle, 196 Colo. 422, 589 P.2d 1361 (1978).
Three contractual relationships exist in a letter of credit transaction. E. G., East Girard Savings Association v. Citizens National Bank, supra; Dynamics Corp. of America v. Citizens & Southern National Bank, 356...
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