Siderius, Inc. v. Wallace Co., Inc.

• Decision Date: 31 May 1979
• Docket Number: No. 1137,1137
• Citation: 583 S.W.2d 852
• Parties: 27 UCC Rep.Serv. 191 SIDERIUS, INC., Appellant, v. WALLACE COMPANY, INC. and Texas Commerce Bank National Association, Appellees.
• Court: Texas Court of Appeals

Page 852

583 S.W.2d 852

27 UCC Rep.Serv. 191

SIDERIUS, INC., Appellant, v. WALLACE COMPANY, INC. and Texas Commerce Bank National

Association, Appellees.

No. 1137.

Court of Civil Appeals of Texas, Tyler.

May 31, 1979.

J. Clifford Gunter, III, William Ikard, Bracewell & Patterson, Houston, for appellant.

Jeffrey A. Davis, Grant Cook, Reynolds, Allen & Cook, Alvin M. Owsley, Jr., Baker & Botts, John E. Bagalay, Jr., Houston, for appellees.

SUMMERS, Justice.

The instant case resulted from the consolidation of two lawsuits. The first suit was initiated by Melton Steel Company, hereinafter referred to as "Melton," against Wallace Company, Inc., hereinafter referred to as "Wallace," and Siderius, Inc., hereinafter referred to as "Siderius," alleging breach of contract and interference with contractual relationships. Subsequently, Wallace brought a separate action to enjoin Texas Commerce Bank, hereinafter referred to as the "Bank," from honoring a documentary draft presented by Siderius against a letter of credit which had been issued by the Bank at Wallace's request for Siderius' benefit. The two suits were consolidated by the trial court. Cross-actions were filed by both Wallace and Siderius; Wallace sought recovery from Siderius for fraudulently inducing it to enter into a contract with Siderius, and Siderius sought recovery from Wallace on grounds of breach of contract and from the Bank for wrongful dishonor of Siderius' draft against the letter of credit.

Originally, Siderius was going to sell 5,000 net tons of foreign steel pipe to Melton for approximately $715.00 per net ton. Melton, in a back-to-back transaction, intended to then sell the same pipe to Wallace. This agreement was conditioned upon Wallace's obtaining a letter of credit for Melton's benefit for approximately.$4.1 million. Wallace was unable to obtain the letter of credit, and as a result, the deal fell through. Siderius then approached Wallace and offered to sell the pipe to Wallace directly for $715.00 per net ton, conditioned on Wallace's obtaining a letter of credit for Siderius' benefit.

Based upon Wallace's application, Texas Commerce Bank issued an irrevocable documentary letter of credit for Siderius' benefit on August 1, 1974. The terms of the letter of credit specified that:

"GENTLEMEN:

WE HEREBY OPEN OUR IRREVOCABLE LETTER OF CREDIT IN YOUR FAVOR FOR THE ACCOUNT OF Wallace Company, Inc. P.O. Box 2597 Houston, Texas 77001 FOR A SUM OR SUMS NOT EXCEEDING IN THE AGGREGATE THE SUM OF Three Million Seven Hundred Fifty-Three Thousand Seven Hundred Fifty and No/100 U.S. Dollars ($3,753,750.00). AVAILABLE BY YOUR DRAFTS ON us AT ______ sight ______ TO BE ACCOMPANIED BY:

-Commercial Invoice.

-Customs Invoice.

-Certificate of Origin.

-Packing List (Including Tallies) Dock Delivery Order.

-Negotiable Insurance Certificate of Policy covering Marine and War risks including All Risk Warehouse to Warehouse for 110% Of full invoice value.

-Full set of On Board Ocean Bills of Lading to the order of Texas Commerce Bank National Association, Notify: W. A. Sammis, Wallace Co., Inc., Box 2597, Houston, Texas 77001, Telephone Number 713-675-2661, showing 'Freight Prepaid.'

EVIDENCING SHIPMENT from 1. Italian Port, 2. & 3. Israel Port to Port of Houston, Texas U.S.A., not later than November 30, 1974 of:

1. 2500 N.T. ( 5%) 65/8 O.D. X .280 Wall X 18.97 # API5LB ERW DRL BLK PE BEV DRL Steel Line Pipe to latest edition API Specifications.

2. 1500 N.T. ( 5%) 103/4 O.D. X .365 X 40.48 # ditto above except API 5L X-42.

3. 1000 N.T. ( 5%) 123/4 O.D. X .375 X. 49.56 # ditto above except API 5L X-42.

5000 N.T. TOTAL

DRAFTS MUST BE NEGOTIATED AND PRESENTED TO US ON OR BEFORE February 1, 1975. . . .

THIS CREDIT IS SUBJECT TO THE 'UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1962 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, BROCHURE NO. 222.' "

On August 12, 1974, Wallace issued its purchase order for the three shipments of steel pipe described above which expressly stated that it was based on the letter of credit issued by the Bank. Siderius issued its sales confirmation on August 21, 1974, which noted that payment was to be by the letter of credit described above.

The terms of the letter of credit were amended by letters of amendment five times, ¹ each of which stated "ALL OTHER The pipe in question was to be shipped from the Italian port of Ravenna on board the M/V Slavonija. On February 20, 1975, Siderius presented to the Bank a bill of lading and other documents along with the third draft for payment in an amount in excess of.$1.8 million. The bill of lading was dated January 15, 1975, and on its face appeared to conform to the terms of the letter of credit. Wallace notified the Bank that it suspected that the bill of lading presented by Siderius in the third draft was fraudulent because the shipping requirements had not been met and informed the Bank that it declined to waive any defects. The Bank dishonored Siderius' first presentation of the third draft on February 24, 1975, as nonconforming because the bill of lading was issued under and subject to a charter party, the insurance certificate was short, and the dock delivery order was improper. In addition, Wallace notified Siderius that it was rejecting the Italian pipe on the grounds that the shipment of such pipe failed to conform to the contract terms. It is undisputed that on January 15, 1975, the Slavonija had not yet arrived in the Italian port of Ravenna and did not reach that port until January 24, 1975. The loading of the pipe on board the Slavonija was not completed until January 29, 1975.

                CONDITIONS REMAIN UNCHANGED."  The shipping deadlines for all three shipments of steel pipe, as specified originally in the letter of credit, were amended by agreement of the parties.  In early November, 1974, Siderius requested an extension of the shipping deadline in regards to the pipe to be manufactured in Italy; Wallace consented.  In order to reflect this modification, the letter of credit was amended on November 13, 1974, to allow the bills of lading pertaining to the Italian pipe to be dated no later than January 15, 1975.  In addition, the expiration date of the letter of credit was postponed to February 28, 1975.  2 Subsequently, Siderius requested that the shipping deadline for the Israeli pipe also be extended.  Wallace agreed, and the letter of credit was amended to change the shipping deadline for these portions of the pipe from November 30, 1974, to December 15, 1974.  3  In late December or early January, a request was once again made by Siderius seeking a further extension for shipment of the Italian pipe.  Wallace refused to agree to anymore extensions and the January 15, 1975, deadline remained in force.  The two shipments of pipe manufactured in Israel were shipped, delivered in Houston, and Siderius' first and second drafts on the letter of credit in regards to these two shipments were honored by the Bank.  The dispute in the instant case pertains to the shipment of the portion of pipe manufactured in Italy
                

Although the letter of credit expired on February 28, 1975, Siderius returned to the Bank and made a second presentation of the third draft on March 7, 1975. A new dock delivery order and copy of the bill of lading with charter party language removed were submitted to the Bank by Siderius. The insurance certificate remained short and the bill of lading continued to be dated January 15, 1975. Wallace refused to waive any defects, including late presentation, and the Bank dishonored Siderius' second presentation of the third draft. Subsequently, Wallace applied for a temporary injunction in order to enjoin the Bank from honoring Siderius' third draft because it was allegedly accompanied by false and fraudulent documents. On March 24, 1975, the trial court so enjoined the Bank. This injunction suit was consolidated with the suit initiated by Melton.

Trial was to a jury; however the Melton claim was settled during the trial. In response to the special issues submitted, the jury found that Siderius' representation to Wallace that the entire order of 5,000 net tons of pipe would be shipped no later than November 30, 1974, was a material factor in inducing Wallace to enter the contract, and that Wallace relied upon Siderius' representation. (Special Issues Nos. 2 and 4) In addition, the jury found that by the terms used in the letter of credit, as originally agreed, Siderius and Wallace intended to require Siderius to have the Italian Pipe loaded on board no later than November 30, 1974; and by the terms of the letter of credit, as amended, Siderius and Wallace intended to require Siderius to have the Italian pipe loaded on board no later than January 15, 1975. (Special Issues Nos. 5 and 6) The jury refused to find that by the terms of the letter of credit, Wallace and Siderius intended that a received-for-shipment bill of lading acknowledging receipt of the goods for shipment issued by January 15, 1975, would be sufficient to evidence shipment. (Special Issue No. 7) The jury also found that Wallace and Siderius intended in their agreement for time to be of the essence. (Special Issue No. 20)

In response to Special Issues Nos. 21, 22, and 23, the jury answered that the bills of lading presented to the Bank by Siderius represented that the Italian pipe was on board the ship in Ravenna on or before January 15, 1975, that such representation was false, and that Siderius knowingly and intentionally falsely represented the date the Italian pipe was on board the ship. In addition, the jury found that Siderius failed to act in good faith in arranging for shipment of the Italian pipe and in submitting documents to the Bank regarding that shipment. (Special Issue No. 6-A) The jury refused to find that Siderius performed or substantially performed its agreement with Wallace or that the documents presented to the Bank by Siderius in connection with the draft in...