Sempione v. Provident Bank of Maryland
| Decision Date | 14 February 1996 |
| Docket Number | No. 94-2276,94-2276 |
| Parties | 29 UCC Rep.Serv.2d 310 Banca Del SEMPIONE, Plaintiff-Appellant, v. PROVIDENT BANK OF MARYLAND, Defendant-Appellee, and Suriel Finance N.V., Defendant, Jeanne Farnan, Party in Interest. United States Council on International Banking, Incorporated, Amicus Curiae. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Before LUTTIG and WILLIAMS, Circuit Judges, and BUTZNER, Senior Circuit Judge.
Reversed and remanded by published opinion. Senior Judge Butzner wrote the opinion, in which Judge Luttig and Judge Williams joined.
Banca del Sempione (BDS) appeals a summary judgment entered in favor of Provident Bank of Maryland in this diversity action. The controversy between the parties arises out of the terms of a letter of credit (LOC) that Provident issued. The district court held that BDS lacked standing, and it identified additional reasons for its grant of summary judgment. See Banca Del Sempione v. Suriel Finance, N.V. and Provident Bank, 852 F.Supp. 417 (D.Md.1994).
Because we conclude that BDS had standing and that the record discloses genuine issues of material fact, we reverse the judgment of the district court and remand the case for further proceedings.
For the purpose of this brief introduction, a bare bones outline of the transaction will suffice. We will advert to details as we discuss the issues.
Provident's customer, Rock Solid Investments, Ltd. (RSI), borrowed funds from Suriel Finance, N.V. Their loan agreement required RSI to obtain a LOC securing interest payments for seven years.
Provident issued a standby LOC naming Suriel beneficiary to secure RSI's interest payments for one year.
Manufacturers Hanover Trust Co. confirmed the Provident LOC for one year.
Suriel borrowed the funds needed for the RSI loan from BDS.
Provident wrote several letters to Suriel. A critical issue is whether these letters amended the LOC to make it automatically renewable annually for seven years, as BDS contends, or whether they simply constituted a side agreement that did not amend the LOC, as Provident contends.
At the request of Suriel, Manufacturers transferred the Provident LOC to BDS.
Manufacturers honored several drawings under the LOC, but at Provident's direction, it dishonored a subsequent drawing that was in excess of the amount confirmed.
After Provident refused to pay under its LOC, BDS brought this action.
Appellate review of a summary judgment requires an examination of the record before the district court to determine de novo that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.1994). The evidence and all reasonable inferences from the evidence must be viewed in the light most favorable to the nonmoving party. If a party fails to show an essential element of the case for which that party has the burden of proof, summary judgment is appropriate. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).
The parties agree that Maryland law governs this case. In accordance with Md.Code Ann.Com.Law § 5-103(4) (1992), Article 5 must be read in conjunction with Article 1 of the General Provisions of the Maryland Uniform Commercial Code. As § 1-102(3) permits, Provident made its LOC, and Manufacturers made its confirmation, subject to the Uniform Customs and Practices for Documentary Credits (1983 Revision International Chamber of Commerce Publication 400) (UCP). The UCP is not law. Nor does it have the force of law. Henry Harfield, Letters of Credit 3-4 (1979). As its name implies, the UCP is a code or compilation of the usage of trade pertaining to letters of credit. It stands "as a record of normal expectations." Id. at 4. Its use and interpretation are governed by Md.Code Ann.Com.Law § 1-205(2), which provides: "The existence and scope of [the] usage [of trade] are to be proved as facts." If the usage is "embodied in a written trade code or similar writing the interpretation of the writing is for the court." Like any fact, the meaning of the UCP and the usage of the trade can be proved by any person qualified to address the subject, including an expert witness.
The official comment to Md.Code Ann.Com.Law § 1-205 cautions against the "lay-dictionary" and the "conveyancer's" reading of a commercial document. Instead, the meaning of a document must be determined by the language the parties used and their actions in the context of commercial practices.
As the primary ground for granting summary judgment, the district court found that BDS did not have standing to allege wrongful dishonor or anticipatory repudiation. See 852 F.Supp. at 429-30.
In order to establish standing, BDS must prove an injury in fact, a causal connection between the injury and Provident's acts, and a likelihood that a favorable decision would redress the injury. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 2136-37, 119 L.Ed.2d 351 (1992). Section 5-115, Md.Code Ann.Com.Law, aids BDS by recognizing that improper dishonor and anticipatory repudiation are injurious and by providing a monetary remedy.
The first inquiry in reviewing summary judgment on the issue of standing is whether BDS failed to establish that Provident amended its LOC to provide a credit for seven years. Resolution of this question depends on ascertaining the intent of the parties.
The loan agreement between RSI and Suriel required RSI to obtain a standby LOC for $750,000 as security for the annual interest on the loan. The agreement, dated July 6, 1989, provided that the LOC must be irrevocable and transferable, in an amount not less than $750,000, "annually renewable automatically" as security for interest payments. One can draw a reasonable inference that Samuel Henry, a vice-president of Provident, knew the requirements of the LOC stipulated in the Suriel-RSI loan agreement. This inference is based primarily on Henry's letter of August 30, 1989, in which he refers to the loan agreement. Suriel's loan agreement with BDS required Suriel to obtain a similar LOC to secure Suriel's interest payments.
On July 21, 1989, Henry sent a commitment letter to RSI for a LOC naming Suriel as beneficiary and requiring RSI to maintain $800,000 on deposit at Provident as collateral. The attached draft of the LOC was for $750,000 "to be automatically renewed annually" for seven years.
In August, Provident arranged for Manufacturers Hanover Trust to be the confirming bank of the LOC.
On August 30, 1989, Henry sent Suriel a letter which provided in paragraph 2:
In the event Suriel must draw against the Standby Letter of Credit No. 99205 (L/C) issued by this Bank and confirmed by Manufacturers Hanover Trust Company of New York, this Bank will immediately amend the L/C to the original $750,000 credit available level without equivocation, upon receipt of the cash collateral restoring the reserve fund to $800,000.00, as specified in our letter dated July 21, 1989.
The district court's opinion quotes the August 30 letter. 852 F.Supp. at 421 n. 2.
On September 11, Provident issued its transferable, irrevocable LOC No. 99205 in the amount of $750,000. The LOC did not mention the provisions of paragraph 2 of Provident's letter of August 30, 1989. It provided that the LOC would expire on September 15, 1996.
On September 14, Manufacturers added its confirmation, number U169123, to the LOC for a period of one year to expire on September 15, 1990. Manufacturers' advice of confirmation stated:
Notwithstanding anything to the contrary hereinbefore stated, if this letter of credit is in existence after the expiration of Manufacturers Hanover Trust Company's confirmation of this letter of credit, then this letter of credit is available with Provident Bank of Maryland by payment against presentation of the documents detailed herein accompanied by your drafts at sight drawn on Provident Bank of Maryland. No mention of Manufacturers Hanover Trust Company's advice number U169123 need be made in the documents detailed herein.
Manufacturers' advice of confirmation quoted the Provident LOC. The text of the advice of confirmation, including the LOC, is reproduced in the district court's opinion. 852 F.Supp. at 421-23. Manufacturers sent a copy of its advice of confirmation, including the LOC, to Suriel and to BDS, which was Suriel's advising bank.
After receiving from Suriel Provident's letter of August 30 and the terms of the LOC quoted in Manufacturers' advice of confirmation, BDS objected to paragraph 2 of the August 30 letter, which made recollaterization a condition precedent to the LOC revolving annually in the full amount. BDS also objected to the failure of the LOC to provide unequivocally for automatic annual renewal of the LOC in the full amount for seven years. BDS stated these objections to Suriel, which passed them on to Provident.
In response to BDS's objections, which Suriel voiced, Henry wrote a letter on September 19 to Suriel, which stated: "If you should draw on us your interest draft as set forth the amount of $750,000 shall be reavailable to you upon your receipt of our tested telex or ...
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