Washington Federal Sav. & Loan Ass'n v. Prince George's County, 1762
| Decision Date | 01 September 1988 |
| Docket Number | No. 1762,1762 |
| Citation | 80 Md.App. 142,560 A.2d 582 |
| Parties | , 9 UCC Rep.Serv.2d 704 WASHINGTON FEDERAL SAVINGS & LOAN ASSOCIATION v. PRINCE GEORGE'S COUNTY, Maryland, et al. , |
| Court | Court of Special Appeals of Maryland |
Richard C. Daniels (William C. Davis, III and Daniels & Daniels, on the brief), College Park, for appellant.
Robert M. Carrico, Jr., Associate County Atty. (Michael P. Whalen, County Atty., Michael O. Connaughton, Deputy County Atty. and J. Michael Dougherty, Jr., Associate County Atty., on the brief), Upper Marlboro, for appellee, Prince George's County.
Peter I.J. Davis (Shaffer & Davis, Chartered, on the brief), Rockville, for appellee, Brigham & Day Paving Co., Inc.
Argued before MOYLAN, ROSALYN B. BELL and ROBERT M. BELL, JJ.
It is now well settled that, in Maryland, the demand of a beneficiary under a letter of credit must strictly comply with the terms and conditions of the letter of credit. Mercantile-Safe Dep. v. Baltimore County, 309 Md. 668, 670 526 A.2d 591 (1987). The reasons for, and limitations on, the rule were clearly stated by the Court of Appeals:
We think the strict compliance test best promotes the purposes of letters of credit. However laudable the equitable considerations underlying the substantial compliance standard may be, "[t]he basic tenets of letters-of-credit law derive from the necessities of the marketplace and not from the aspirations of the cloister." Harfield, "Code, Customs and Conscience in Letter-of-Credit Law," 4 U.C.C.L.J. 7, 11 (1971). While we recognize a potential for abuse in a super or hypertechnical application of the strict compliance test, the cases which apply this rule are not so rigid as to permit an insurer to dishonor if it finds, for example, an obvious and immaterial typographical error. Courts will not permit a bank in such circumstances to use such a discrepancy to protect itself from an insolvent customer or to protect its customer from payments. See Leon, "Letters of Credit: A Primer", 45 Md.L.Rev. 432, 453 (1986).
309 Md. at 679-80, 526 A.2d 591. In Mercantile-Safe Dep., the demand under the letter of credit contained a number of discrepancies, including:
1. The grading permit number in the certification letter read 18868, whereas the number designated in the letter of credit was CGR 18868.
2. The certification letter stated "I have been informed" that Z & C has not complied with the grading permit, whereas the letter of credit required the Director to certify directly, through personal knowledge, not through hearsay, of the lack of compliance.
3. The certification letter did not identify Z & C, Inc. as the permitee.
4. The certification letter did not name the property, Discovery Acres, for which the permit had been issued.
309 Md. at 671, 526 A.2d 591. On the basis of these discrepancies, the Court held "that Baltimore County's presentment did not strictly comply with Mercantile's letter of credit, nor is the variance in question a mere technical inaccuracy." 309 Md. at 682, 526 A.2d 591. Indeed, the court indicated that Baltimore County failed even to meet the substantial compliance test. Id.
The only issue presented on this appeal from the judgment of the Circuit Court for Prince George's County is whether Prince George's County, one of the appellees herein, complied strictly, as the court found, or only substantially, as Washington Federal Savings and Loan Association, appellant, contends, with the terms and conditions of the letters of credit issued by appellant. We will hold that the County strictly complied and, so, affirm. In so doing, we make the point that, if the demand is otherwise sufficient, supplying more than is required will not have the effect of rendering an otherwise sufficient presentment, insufficient.
Brigham & Day, the other appellee, has filed a cross-appeal, in which it asks:
Did the trial court abuse its discretion in denying Brigham & Day's Motion for Pre-judgment interest on clearly liquidated sums which were due?
We also find this issue to lack merit.
The facts are not in dispute and may, therefore, be briefly summarized. 1 Appellant issued irrevocable letters of credit Nos. 118 and 137 on behalf of Intercontinental Construction Corporation ("ICC") and in favor of Prince George's County. The letters of credit, issued in connection with two projects, Cipriano Springs Subdivision, Permit No. 83.014 and New Orchards Estates Subdivision, Permit No. 83.126, served to assure Prince George's County that payments would be made for all labor and/or materials provided under the permits. Brigham & Day, one of ICC's subcontractors supplied labor and/or materials for both of the projects and pursuant to both permits. It subsequently filed claims with the County against both letters of credit.
Before proceeding against the letters of credit, Brigham & Day obtained a confessed judgment note from ICC and two of its principals. The note reserved Brigham & Day's right to proceed against the letters of credit. When ICC defaulted under the Confessed Judgment note, Brigham & Day obtained a Consent Judgment against ICC. It informed the County of this fact and also that it had not been paid for labor and materials it had supplied. 2
The letters of credit permitted Prince George's County to obtain payments from appellant up to the amount of the letters of credit upon presentment of "... the County's sight draft, accompanied by: (1) the County's signed statement that [the applicable permit] is still outstanding and persons providing labor and materials to complete the work required by the permit have not been paid." 3
The County made demand on the letters of credit on Brigham & Day's behalf. On two occasions, it sent sight drafts, as required by the letters, along with a request that payment be made according to their terms. On the first occasion, the letter dated February 13, 1986, accompanying the sight drafts, advised appellant:
Your attention is directed to Irrevocable Letters of Credit Number 118 and 137, issued by your Company in behalf of Intercontinental Construction Corporation. These letters of credit are in the amounts of $172,312 and $189,717 and were submitted to Prince George's County as security to insure payment for all labor and/or materials provided under the above-referenced permits. 4
I have received from the Prince George's County Attorney's Office a copy of a Consent Judgment entered against Intercontinental Construction Corporation and Paul and Penelope Golkin for work performed under these permits.
Pursuant to these Consent Judgments, enclosed you will find two sight drafts, made payable to "Prince George's County, Maryland, to the use of Brigham & Day Paving Company, Inc." These sight drafts are in the amounts of $33,598.50 and $67,616.60, respectfully [sic]. As set forth in the original terms of these letters of credit, payment by the bank on any sight draft shall be made within thirty (30) days of the issuance and presentment of the sight draft.
Copies of the consent judgments were enclosed.
Prior to the expiration of the letters of credit and before appellant had made payment pursuant to the sight drafts, the County amended its demand. It did so in a letter dated March 25, 1986 and sent by certified mail, to appellant. That letter provided:
Re: Ciprano Springs Subdivision Permit Number 83.014; Letter of Credit Number 118
Dear Mr. Williams:
I have received a letter from your attorney, Richard C. Daniels, regarding the sight drafts forwarded to you by letter dated February 13, 1986. Please be advised that under Irrevocable Letter of Credit No. 118, your Bank issued two letters of credit for permit No. 83.014, both numbered 118. One is in the amount of $172,312 for performance bond and the other is $172,312 for labor and materialman's bond. Therefore, Mr. Daniels' statement that we submit "a written estimate of the Division of Permits, Department of Public Works and Transportation as to the entire amount of the value of the work remaining to be completed, certified by a public engineer" would not apply to the sight drafts since we are only demanding payment under the Labor and Materialman's Bond and not the Performance Bond.
Under permit Number 83.014, please accept this as your formal notice that "the permit is still outstanding and persons providing labor and materials to complete the work required by the permit have not been paid". Enclosed is a sight draft in the amount of $33,598.50, made payable to Prince George's County, Maryland to the use of Brigham & Day Paving Company, Inc.
Insofar as New Orchards Estate Subdivision, Permit Number 83.126, please be advised that the "permit is still outstanding and persons providing labor and materials to complete the work required by the permit have not been paid." Enclosed is a sight draft in the amount of $67,616.60 to be made payable to Prince George's County, Maryland, to the use of Brigham & Day Paving Company, Inc.
Enclosed for your convenience is a copy of the Consent Judgment.
Appellant paid the two sight drafts on April 2, 1986; however, it noted on the drafts "Paid in Protest". It then initiated this declaratory judgment action to determine the issue raised by this appeal.
Appellant very strenuously urges that Prince George's County did not strictly comply with the terms of the letters of...
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