Petra Intern. Banking Corp. v. First American Bank

• Decision Date: 01 March 1991
• Docket Number: Civ. A. No. 90-829-A.
• Citation: 758 F. Supp. 1120
• Court: U.S. District Court — Eastern District of Virginia
• Parties: PETRA INTERNATIONAL BANKING CORP., Plaintiff, v. FIRST AMERICAN BANK OF VIRGINIA, et al., Defendants.

758 F. Supp. 1120

PETRA INTERNATIONAL BANKING CORP., Plaintiff, v. FIRST AMERICAN BANK OF VIRGINIA, et al., Defendants.

Civ. A. No. 90-829-A.

United States District Court, E.D. Virginia, Alexandria Division.

March 1, 1991.

COPYRIGHT MATERIAL OMITTED

Charles Douglas Welty, Arlington, Va., for Petra Intern. Banking Corp.

John Anderson, Alexandria, Va., for First American Bank of Virginia.

Brien A. Roche, McLean, Va., for Dameron Intern., Inc., Richard E. Pitts, Marga K. Pitts, James Pitts and Nancy Pitts.

MEMORANDUM OPINION

ELLIS, District Judge.

This dispute grows out of the use of two documentary letters of credit to finance the purchase of T-shirts by a Virginia corporation from the manufacturer in Amman, Jordan. In essence, following the delivery of poor quality T-shirts, the purchaser refused to pay the issuing bank, and the issuing bank then refused to pay the confirming bank, which had honored drafts drawn under the letters of credit. The purchaser and the issuing bank rely on their receipt of technically nonconforming documents under the letters as grounds for nonpayment. The purchaser and the manufacturer settled their dispute over the poor quality T-shirts, but the remaining parties were not able to resolve their differences. Thus, here the confirming bank seeks recovery against the issuing bank and the purchaser for payments it made under the letters of credit, and the issuing bank seeks recovery against the purchaser for any sums it must pay to the confirming bank.

Before the Court are cross-motions for summary judgment. The motions raise, inter alia, the seldom litigated issue of what remedy an account customer has when an issuing bank inadvertently accepts nonconforming documents under a letter of credit. All material facts are undisputed. These facts, the terms of the letters of credit, other relevant contractual agreements, and existing law require that defendant First American Bank, the issuer of the letters, reimburse the confirming bank for payments made under the letters, and that First American Bank's account customer, the purchaser of the T-shirts, reimburse First American. Both First American and the purchaser, by failing to object to documentary inconsistencies in timely fashion, have waived their right to do so. All other issues raised in this case with the exception of costs and attorney's fees are also disposed of on summary judgment.

Facts

In 1987 Dameron International, Inc., a Virginia corporation ("Dameron"), purchased T-shirts from National Marketing-Export Co. ("National Marketing") of Amman, Jordan. To facilitate the transaction, Dameron sought issuance of two letters of credit by First American Bank of Virginia ("First American"). To this end, Dameron executed two documents, each entitled Application and Agreement for International Commercial Letter of Credit ("the Agreements"), and signed two commercial notes, each in the amount of $135,000.00, to secure the letters of credit. Richard Pitts, the president of Dameron, and his wife, son, and daughter-in-law, executed continuing guaranties to further secure any debts of Dameron owed to First American.¹ First American issued its Irrevocable Letters of Credit Nos. I-629 and I-630 ("the Letters"), each for $135,000, on December 17, 1987. The Letters stated that they were issued "in favor of National Marketing-Export Co.," of Amman, Jordan and "for the account of Dameron Intl., Inc." of McLean, Virginia. The Letters authorized drafts to be drawn on First American within thirty days of submission to First American of specific, listed documents. At the request of National Marketing and National's bank in Jordan, Petra Bank, the Letters were amended on December 22, 1987, to provide that drafts under the Letters could be drawn directly on Petra International Banking Corporation of Washington, D.C. ("PIBC"), Petra's American affiliate. In the vernacular of letters of credit transactions, PIBC became a "confirming bank," First American an "issuing bank," Dameron the "account customer," and National Marketing the "beneficiary" of the Letters.

When initially issued, the Letters required that an "inspection certificate from an independent inspector certifying number and quality of pieces per sample" of the T-shirts be among the documents presented for payment. This provision subsequently was amended to require both a certificate from a specific independent inspection company and a "statement by the beneficiary," National Marketing, attesting to the quality of the T-shirts.²

Dameron received several T-shirt shipments from National Marketing in 1988. Several corresponding payments were made under the Letters by PIBC to National Marketing. In late September 1988, another shipment was begun and National Marketing made a demand for payment under the Letters. This demand was relayed from Petra Bank in Amman to PIBC as two documentary time drafts drawn against the Letters in the aggregate amount of $95,904. PIBC sent a telex to First American on October 7, 1988, noting certain discrepancies between the documents submitted and those required by the Letters, including the fact that the certificate from the independent inspection company was missing. First American forwarded PIBC's telex to Dameron, which waived the discrepancies listed by PIBC on condition that the drafts were drawn 150 days from the date of the bill of lading, i.e., from the date of shipment.³ First American sent a telex message to PIBC on October 19, 1988, stating "ACCOUNT PARTY HAS WAIVED ALL DISCREPANCIES PROVIDED DRAFTS ARE DRAWN AT 150 DAYS BILL OF LADING."⁴ First American sent a second telex message on October 24, 1988, stating in relevant part: "DISCREPANCIES HAVE BEEN WAIVED BY A/P i.e., Dameron. PLEASE ACCEPT DRAFT AND FORWARD DOCS TO US."⁵ Between receipt of the first and second telexes, on October 21, 1988, PIBC discounted and accepted the documentary time drafts.⁶ On October 25, 1988, PIBC sent a telex to First American that confirmed receipt of First American's telex of October 24th, informed First American that the drafts had been accepted with the proviso that they be drawn 150 days from the date of the bill of lading, i.e., on February 21, 1989, and transmitted the documents to First American.⁷ First American forwarded the documents to Dameron shortly after receiving them. Dameron kept the documents and took possession of the T-shirts. On November 16, 1988, First American sent an acknowledgement letter to PIBC stating that the documentary drafts for $95,904 were "accepted and, at maturity, we will remit proceeds according to your cover letter."⁸

Dameron was dissatisfied with the quality of the T-shirts received from National Marketing. It undertook negotiations with National concerning the $95,904 payment. As the February 21, 1989 deadline for drawing on the time drafts approached, Dameron requested that First American obtain an extension of payment. First American then sent a telex to PIBC requesting an extension to May 21, 1989. The telex stated that National Marketing had agreed to this delay in receiving payment.⁹ PIBC informed First American that it would delay and refinance the payment provided that First American pay interest during the delay at the prime rate plus two percent. Dameron and First American agreed.¹⁰ As the new May 21, 1989 deadline drew near, Dameron requested that First American seek an additional extension of thirty days. First American requested the extension, explaining that "SPECIAL ARRANGEMENTS REGARDING THESE PAYMENTS WERE MADE BY BUYERS AND SELLERS ALLOWING THE 30 DAY EXTENSION."¹¹ PIBC agreed to this second extension on the condition that it continue to receive interest at prime plus two percent, and First American and Dameron accepted this requirement.¹²

In June or July, 1989, Richard Pitts informed First American that Dameron did not want to pay National Marketing because of the poor quality of the T-shirts. William von Berg of First American informed Pitts that First American would be obligated to pay under the Letters unless the bank were sued by Dameron and enjoined from doing so. While the parties are uncertain as to when this conversation occurred, it is clear that in late June, when Dameron requested a third extension, Dameron and National Marketing continued to be hopeful that they could settle their differences concerning the $95,904. Dameron planned to obtain additional T-shirts of suitable quality from National at a reduced price, and it so informed First American.¹³ On June 20, 1989, Richard Pitts requested that First American seek a third extension. On the same day, Bassem Farouki, the principal of National Marketing, informed PIBC that Dameron would be requesting an additional thirty-day extension.¹⁴ Although PIBC initially took the position that First American should finance Dameron, it eventually agreed to an extension to July 21, 1989, under the same interest payment conditions as were attached to the previous two extensions.¹⁵

Dameron's negotiations with National Marketing did not bear fruit. On July 20, 1989, Dameron obtained an Order of Attachment from the Fairfax County Circuit Court, directing First American not to pay PIBC under the Letters. First American claims that it did not immediately learn of the existence of the writ. Nevertheless, First American did not pay PIBC on July 21, 1989. Rather, on that day, at Dameron's request, First American requested an extension of payment to the following week. PIBC responded by demanding payment. Payment was not made. Instead, on July 28th, First American informed PIBC that it had been enjoined by the Fairfax County Circuit Court from making payments under the Letters until further notice.¹⁶

From July 20, 1989 until April 13, 1990, Dameron pursued a law suit against National Marketing in the Fairfax County Circuit Court. In the course of this litigation, and more than one year after its receipt of the documents, Dameron noticed and then informed First...