Data General Corp. v. Citizens Nat. Bank

• Decision Date: 29 February 1980
• Docket Number: Civ. No. B 78-204.
• Court: U.S. District Court — District of Connecticut
• Parties: DATA GENERAL CORP., INC. v. CITIZENS NATIONAL BANK OF FAIRFIELD.

502 F. Supp. 776

DATA GENERAL CORP., INC. v. CITIZENS NATIONAL BANK OF FAIRFIELD.

Civ. No. B 78-204.

United States District Court, D. Connecticut.

February 29, 1980.

Ronald J. Cohen, Lawrence W. Iannotti, Tyler, Cooper, Grant, Bowerman & Keefe, New Haven, Conn., for plaintiff.

L. Douglas Shrader, Charles M. Needle, Zeldes, Needle & Cooper, Bridgeport, Conn., for defendant.

MEMORANDUM OF DECISION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

ELLEN B. BURNS, District Judge.

Plaintiff, a Delaware corporation with its principal place of business in Westboro, Massachusetts, designs and produces computer hardware and software. Plaintiff entered into a contract, dated November 13, 1976, with B.B.S. Systems, Inc. (hereinafter B.B.S.), located in Fairfield, Connecticut, to sell certain computer equipment to B.B.S., which equipment was to be used by the Town of North Haven. Some time thereafter, defendant, Citizens National Bank of Fairfield, a national banking corporation located in Fairfield, Connecticut, was contacted to serve as the issuing bank in a letter of credit in which plaintiff would be the beneficiary. A letter was written on April 4, 1977, by defendant's president, Mr. Raymond T. Bogert, to plaintiff, Bogert Affidavit, Exh. 1 (filed June 14, 1979), and a Mailgram was returned on April 13, 1977. On April 22, 1977, Bogert mailed two letters to plaintiff, with copies sent to B.B.S. One letter read in full:

Based on Assignment of funds to us by the subject and originating from the Town of North Haven, this Bank hereby commits to honor your draft in an amount not to exceed $83,000 relative to the Data General-B.B.S. OEM contract of November 13, 1975, provided:

1) Said draft is in bankable form, and

2) Said draft is accompanied by a certification that the items called for in Town of North Haven purchase order No. 12991, dated 3/2/77, have been delivered and have successfully completed the Data General standard diagnostic test.

We have endeavored to cover all the essential elements in your Mailgram of April 13, but if there are any questions, please contact the undersigned.

Bogert Affidavit, Exh. 2. The other letter read in full:

Based on Assignment of funds to us by the subject and originating from the Town of North Haven, this Bank hereby commits to honor your draft in an amount not to exceed $83,000, relative to the Data General-B.B.S. OEM contract of November 13, 1975, provided:

1) Said draft is in bankable form, and

2) Said draft is accompanied by a certification provided by Data General Corp. that all the equipment supplied by Data General Corp. as called for in B.B.S. Systems purchase order # TNH-01 dated 12-12-76, will have completed the running of the Data General Standard Diagnostic Test.

3) This amount will be paid directly to Data General Corp., Route 9, Westboro, Mass. 01591, no later than 30 days after receipt by Citizen's National Bank of Fairfield, unless Data General Corp. has recieved sic payment in full from B.B.S. Systems Inc. Any partial payment from B.B.S. Systems Inc. against referenced purchase order number will reduce the amount to be covered under this document.

Bogert Affidavit, Exh. 3; Lawrence Affidavit, Exh. A (filed Dec. 6, 1978); Complaint, Exh. A (filed May 31, 1979).¹

On October 21, 1977, plaintiff mailed a letter to Mr. Robert Winstanley, of the defendant bank, certifying that the computer equipment had passed the required tests and also enclosing a draft, dated October 20, 1977, for payment in the amount of $82,070.50.² Lawrence Affidavit, Exhs. B and C; Complaint, Exhs. B and C. On February 16, 1978, Winstanley wrote a letter to plaintiff in which he denied the bank's obligation to make payment against the October 20, 1977 draft. Lawrence Affidavit, Exh. D; Complaint, Exh. D.³ In this suit, based upon diversity jurisdiction, plaintiff claims it is entitled to payment of $82,070.50 plus attorneys fees and costs.

Defendant opposes plaintiff's motion for summary judgment on the grounds that there are genuine issues of material facts to be resolved, including questions whether there had been a valid contract between plaintiff and defendant, whether plaintiff had made its acceptance of the contract known to defendant, whether acceptance was a condition precedent to the letter of credit, whether the April 22, 1977, letter constituted the letter of credit, whether the assignment of funds from B.B.S. to defendant was a condition of the letter of credit, and whether all other conditions were met. The court disagrees, for suits concerning letters of credit are especially appropriate for determination by motions for summary judgment, whether on cross-motions by both parties, e. g., Bossier Bank & Trust Co. v. Union Planters National Bank, 550 F.2d 1077, 1078 (6th Cir. 1977); Venizelos, S.A. v. Chase Manhattan Bank, 425 F.2d 461, 463 (2d Cir. 1970); Dulien Steel Products, Inc. v. Bankers Trust Co., 298 F.2d 836, 837 (2d Cir. 1962); Beathard v. Chicago Football Club, Inc., 419 F.Supp. 1133, 1136 (N.D.Ill. 1976); motions for summary judgment by the defendant bank, e. g., Barclays Bank D.C.O. v. Mercantile National Bank, 481 F.2d 1224, 1226 (5th Cir. 1973), cert. dismissed, 414 U.S. 1139, 94 S.Ct. 888, 39 L.Ed.2d 96 (1974); Far Eastern Textile, Ltd. v. City National Bank & Trust Co., 430 F.Supp. 193 (S.D.Ohio 1977); or motions for summary judgment by the plaintiff beneficiary, e. g., New York Life Insurance Co. v. Hartford National Bank & Trust Co., 173 Conn. 492, 378 A.2d 562 (1977). As the district court observed in West Virginia Housing Development Fund v. Sroka, 415 F.Supp. 1107, 1110 (W.D.Pa.1976), "Liability on the letter of credit presents solely legal issues and thus can be disposed of by the court on a motion for summary judgment." (emphasis in original). Cf. Dovenmuehle, Inc. v. East Bank of Colorado Springs, N.A., 563 P.2d 24, 27 (Colo.App.1977) (evidence offered by defendant bank to prove the intent of the parties to a letter of credit was excluded properly). Moreover, the affidavits of Richard Lawrence, plaintiff's regional credit manager, and of Bogert do not differ as to the sequence of events; they only dispute the significance of the events.

Letters of credit are governed by Article 5 of the Uniform Commercial Code hereinafter U.C.C., codified in Connecticut at Conn.Gen.Stat. §§ 42a-5-101 to 42a-5-117.⁴ Letters of credit commonly are used to facilitate commercial transactions between reluctant sellers and buyers, both of whom hesitate to initiate the exchange of money for goods. In a letter of credit, one or more banks function as intermediaries to avoid such an impasse. See generally Starr, Connecticut Code Comments, 20 Conn.Gen.Stat. Ann. 119-26 (1960); J. White and R. Summers, Uniform Commercial Code §§ 18-1 to 18-9 (1972); 50 Am.Jur.2d, Letters of Credit §§ 1-41 (1970 and 1979 Supp.) A letter of credit is designed to provide an assurance to the selling party of prompt payment upon presentation of documents, thereby substituting the credit of the bank for that of the buyer. Pringle-Associated Mortgage Corporation v. Southern National Bank of Hattiesburg, 571 F.2d 871, 874 (5th Cir. 1978); Venizelos, S.A. v. Chase Manhattan Bank, supra, 425 F.2d at 464; West Virginia Housing Development Fund v. Sroka, supra, 415 F.Supp. at 1109-10, 1112; Dynamics Corp. of America v. Citizens & Southern National Bank, 356 F.Supp. 991, 995 (N.D.Ga.1973); New York Life Insurance Co. v. Hartford National Bank & Trust Co., supra, 173 Conn. at 497, 378 A.2d 562. The particular letter of credit in this case falls within the ambit of U.C.C. § 5-102(1)(a) as a "credit issued by a bank if the credit requires a documentary draft or a documentary demand for payment." A letter of credit is defined as "an engagement by a bank or other person made at the request of a customer and of a kind within the scope of section 42a-5-102 that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit." U.C.C. § 5-103(1)(a). The defendant here is the issuer, i. e., the bank or other person issuing a credit. U.C.C. § 5-103(1)(c). The plaintiff, the seller of the computer equipment, is the beneficiary, for it is the "person who is entitled under its terms to draw or demand payment." U.C.C. § 5-103(1)(d). B.B.S., the buyer of the equipment, is the customer, as that company was the "buyer or other person who causes an issuer to issue a credit." U.C.C. § 5-103(1)(g). The U.C.C. provides that no particular form of phrasing be required for a letter of credit. The only requisites are that the letter of credit be in writing and signed by the issuer. U.C.C. § 5-104(1).

In a letter of credit situation, there are ordinarily three separate and distinct contracts involved: (1) the contract between a bank and its customer (usually the buyer) whereby the bank agrees to issue the letter of credit to the beneficiary (usually the seller); (2) the contract of sale between the buyer and the seller whereby, among other things, the seller agrees to obtain payment under the letter of credit by drawing drafts thereunder and presenting them to the bank accompanied by documents specified by the buyer; and (3) the letter of credit itself, which is a contract between the bank and the beneficiary (usually the seller) whereby the bank agrees to pay the drafts drawn under the letter of credit and presented to it by the beneficiary if they are accompanied by the requisite documents. Venizelos, S.A. v. Chase Manhattan Bank, supra, 425 F.2d at 464-65; Far Eastern Textile, Ltd. v. City National Bank & Trust Co., supra, 430 F.Supp. at 195; Savage v. First National Bank & Trust of Tulsa, 413 F.Supp. 447 (N.D.Okl. 1976); Dynamics Corp. of America v. Citizens & Southern National Bank, supra, 356 F.Supp. at 995. A letter of credit is entirely independent of the underlying contract of sale between the customer and beneficiary; as long as the documents of the beneficiary are in...