Fina Supply, Inc. v. Abilene Nat. Bank

• Decision Date: 18 March 1987
• Docket Number: No. C-5390,C-5390
• Citation: 726 S.W.2d 537
• Parties: 3 UCC Rep.Serv.2d 1856, 13 A.L.R.5th 1017 FINA SUPPLY, INC., Petitioner, v. ABILENE NATIONAL BANK, Abilene, Texas n/k/a MBank Abilene, N.A., Respondents.
• Court: Texas Supreme Court

Page 537

726 S.W.2d 537

3 UCC Rep.Serv.2d 1856, 13 A.L.R.5th 1017

FINA SUPPLY, INC., Petitioner, v. ABILENE NATIONAL BANK, Abilene, Texas n/k/a MBank Abilene N.A., Respondents.

No. C-5390.

Supreme Court of Texas.

March 18, 1987.

Rehearing Denied April 22, 1987.

Donald E. Godwin, Maxwell, Godwin & Carlton, Dallas, Roy A. Longacre, Wagstaff, Alvis, Stubbeman, Seamster & Longacre, Abilene, Patrick C. Guillot & David L. Patterson, Maxwell, Godwin & Carlton, Dallas, for petitioner.

W. Mike Baggett, Winstead, McGuire, Sechrest & Minick, Pete Baker, Glandon, Erwin, Scarborough, Baker, Choate & Arnot, Dallas, for respondents.

WALLACE, Justice.

This case concerns an irrevocable documentary letter of credit issued by Abilene National Bank in favor of Fina Supply, Inc. Fina entered into an oil exchange agreement with Brio Petroleum, Inc. Abilene National Bank's letter of credit No. 1342 was issued to assure Fina that it would receive payment for any excess shipments of oil made to Brio as a part of their exchange agreement. When Fina attempted to draw under the letter of credit, its draft was dishonored. Abilene National Bank sought a declaratory judgment that it was not liable to honor Fina's draft because the presentment documents submitted did not strictly comply with the terms of the letter of credit. Fina then sued Abilene National Bank for breach of contract, fraud, and for judicial reformation of the terms of the credit. These actions were consolidated for trial, and upon the jury's verdict the court rendered its judgment that Fina recover $4.5 million actual damages and $6.5 million in exemplary damages on its fraud cause of action. The trial court also entered an order reforming the terms of the letter of credit to cover exchange imbalances between Fina and Brio through April 1982. Abilene National Bank appealed, and the court of appeals reversed and rendered judgment that Fina take nothing. 706 S.W.2d 737. We affirm the judgment of the court of appeals.

Fina Supply and Brio Petroleum are in the business of acquiring oil for their affiliated refineries. Oil purchasing patterns sometimes result in the acquisition by one company of oil which is located nearer to another company's refinery. In October of 1981, Fina and Brio agreed to exchange stocks of oil in order to save transportation costs with the idea of exchanging like amounts of oil. Imbalances in the amounts shipped between Fina and Brio were to be made up by payments from one company to the other.

At the request of Brio Petroleum, Abilene National Bank issued its letter of credit No. 1342 in favor of Fina on September 28, 1981. Fina could receive payments from Abilene National Bank under the credit to cover exchange imbalances which favored Brio upon presentment of its draft accompanied by certain presentment documents. The credit payment under the letter of credit was authorized upon receipt of Fina's draft accompanied by:

1. copy of your commercial invoice covering approximately 124,000 barrels of Giddings type crude oil at a price of $36.25 per barrel delivered through October 1981;

2. copy of pipeline statement or pipeline receipt evidencing delivery of approximately 124,000 barrels of Giddings type crude oil to Brio Petroleum, Inc. via Exxon Pipeline, Raccoon Bend Station;

3. signed statement by an authorized representative of Fina Supply, Inc., certifying that the amount drawn hereunder represents balances due from Brio Petroleum, Inc.

Special Instructions:

Partial drawing prohibited.

Draft may not be presented prior to November 23, 1981.

This original letter of credit covered exchange imbalances during the month of October 1981. Fina and Brio negotiated an extension of the letter of credit to cover imbalances during the months of November and December of 1981. Mr. Scott McEwen, a Fina representative, contacted Kathy Kiser, a vice president of Abilene National Bank in charge of that institution's letter of credit operations, regarding amendment of the letter of credit. The first amendment extended the coverage of the letter of credit to include exchange imbalances in November and December of 1981, and also extended the expiration date to January 31, 1982.

In January, February and March of 1982, Fina and Brio negotiated three more amendments to the letter of credit. Kathy Kiser prepared the second amendment which extended the expiration date of the letter of credit to February 26, 1982, with all other terms and conditions to remain the same. Steve Reese, another Fina representative, contacted Kathy Kiser to discuss the variation between this amendment and the first amendment which made the extended coverage for the months of November and December 1981 explicit. Fina maintains that Kathy Kiser assured Reese that further exchange imbalances between Fina and Brio would be covered by the amendment extending the expiration date of the letter of credit. In January 1982, Reese and Kathy Kiser discussed extending the letter of credit to cover oil deliveries during the month of February 1982. The third amendment extended the expiration date to March 3, 1982, with all other terms and conditions to remain the same. In March 1982, a third Fina representative, Robert Holmes, contacted Kathy Kiser concerning the letter of credit to seek coverage of oil exchange imbalances for the months of March and April. At Kiser's suggestion, a fourth amendment was executed which extended the expiration date to May 31, 1982.

Fina bases its claim for fraudulent misrepresentation on Kiser's statements that the last three amendments extending the expiration date of the letter of credit also had the effect of extending the number of months during which exchange imbalances between Fina and Brio would be covered under the credit. In multiple points of error, Fina contends that the court of appeals erred in holding that Kiser's representations were her own opinions as to the legal effect of the amendments, and as such could not support a judgment for fraud. We agree with the court of appeals' determination that Kiser's representations on this point did not amount to actionable fraud.

In Westwind Exploration, Inc. v. Homestate Savings Association, 696 S.W.2d 378 (Tex.1985), we considered the legal effect of amendments to a letter of credit which extended the expiration date of the letter and stated that "all other terms and conditions remain the same." In Westwind, the letter of credit covered oil shipments in August 1982. Two amendments extended the expiration date of the letter. When Westwind, Inc. attempted to present invoices under the credit for shipments in July, August, September and October of 1982, its draft was dishonored for failure to strictly comply with the requirement that the presentment documents include only invoices for August shipments. We held that as a matter of law Westwind's presentment documents did not comply with the terms of the letter. The extension of the expiration date did not have the legal effect of expanding the months of coverage of the letter, rather extending the expiration date only lengthened the period during which the beneficiary could make proper presentment in conformity with the terms of the credit.

Kathy Kiser's representations to Fina that the coverage of the letter could be expanded by amending the expiration date were representations concerning the legal effect of the amendments. A representation as to the legal effect of a document is regarded as a statement of opinion rather than of fact and will not ordinarily support an action for fraud. Safety Casualty Company v. McGee, 133 Tex. 233, 127 S.W.2d 176 (Tex.Comm'n.App.1939, opinion adopted); Lewis v. River Oaks Capital Corp., 466 S.W.2d 348, 351 (Tex.Civ.App.--Houston [1st Dist.] 1971, writ ref'd n.r.e.); Bifano v. Econo Builders, Inc., 401 S.W.2d 670 (Tex.Civ.App.--Dallas 1966, writ ref'd n.r.e.).

There are certain exceptions to the general rule that misrepresentations involving a point of law or the legal effect of a document will not support an action for fraud. These...