Case Title: Nobel Ins. Co. v. First Nat. Bank of Brundidge

Citation: 821 So. 2d 210

Docket Number: 1001351, 1001421

State: alabama

Court: Alabama Supreme Court

Date: 2001-11-30T00:00:00Z

Document:
821 So. 2d 210 (2001)
NOBEL INSURANCE COMPANY
v.
The FIRST NATIONAL BANK OF BRUNDIDGE et al.
The First National Bank of Brundidge and J.T. Ramage III
v.
William F. Hamrick et al.
1001351 and 1001421.

Supreme Court of Alabama.
November 30, 2001.
*211 Jeffrey E. Friedman, Joe L. Leak, and Robert G. Boliek, Jr., of Friedman, Leak & Bloom, P.C., Birmingham, for Nobel Insurance Company.
Joe Espy III and Flynn Mozingo of Melton, Espy, Williams & Hayes, P.C., Montgomery, for The First National Bank of Brunidge and J.T. Ramage III.
HARWOOD, Justice.
Nobel Insurance Company (hereinafter referred to as "Nobel") appeals the summary judgment for The First National Bank of Brundidge (hereinafter referred to as "the Bank"), J.T. Ramage III, Henry T. Strother, Jr., William F. Hamrick, and Palomar Insurance Corporation (hereinafter referred to as "Palomar")(case no. 1001351). The Bank and Ramage appeal to preserve certain claims dismissed by the summary judgment, in the event this Court reverses that judgment (case no. 1001421). The two appeals have been consolidated. We reverse and remand.
Nobel first sued the Bank in the United States District Court for the Middle District of Alabama to enforce certain letters of credit issued by the Bank. The letters of credit were issued by order of the Bank's customers, Strother and Hamrick, both of whom were insurance brokers for Palomar. The letters of credit were signed by Ramage, the Bank's president, and issued in favor of Western American Specialized Transportation Service, Inc. (hereinafter referred to as "Western American"), one of Hamrick's clients who sought insurance coverage from Nobel. The federal district court aptly described the facts underlying this lawsuit in a May 12, 1999, memorandum opinion and order:
(Footnote omitted.)
On October 26, 1999, the federal district court entered a memorandum opinion and order dismissing Nobel's lawsuit without prejudice, and placing the case on the federal district court's administrative docket. The opinion and order stated, in pertinent part, that "the state action contains additional [p]arties and issues necessary for the complete resolution of this case that are not contained in the federal action," and that "this action is completely governed by state law and involves several novel or complex state law issues that the state court is best suited to resolve."
All of the parties filed answers and other responsive pleadings to Hamrick's complaint for a declaratory judgment. The answer filed by the Bank included a counterclaim against Hamrick, crossclaims against Strother, Nobel, and Western American, and a third-party complaint against Palomar. On March 30, 2001, after all parties involved had filed motions for a summary judgment, the trial court entered the following order:
"The joint motion for summary judgment is based on general principles of suretyship law, including Ala.Code § 8-3-13, which, in pertinent part provides:
On appeal, Noble argues that the trial court erred in entering the summary judgment because, it argues: (1) the trial court improperly applied the law of surety contracts rather than the law applicable to letters of credit; (2) when the trial court entered the summary judgment, discovery relating to Hamrick and Strother's status as sureties was pending; and (3) § 8-3-13, Ala.Code 1975, the surety statute relied upon by the trial court, does not apply to "contracts with collateral conditions."
Our review of a summary judgment is de novo.
Hobson v. American Cast Iron Pipe Co., 690 So. 2d 341, 344 (Ala.1997). Nobel argues that the trial court erred in applying suretyship law to the transaction underlying this lawsuit because, it argues, letters of credit are subject to a separate body of law. Under the law governing letters of credit, Nobel argues, the letters of credit in this case cannot be extinguished by application of § 8-3-13 even though they were arguably posted as collateral by Strother and Hamrick, as sureties, to answer for the debt of Western American.
The letters of credit at issue all state, in pertinent part:
(Emphasis added.)
In support of its argument, Nobel relies on this Court's discussion of the legal character of letters of credit in AmSouth Bank, N.A. v. Martin, 559 So. 2d 1058 (Ala.1990). In that case, this Court stated, in pertinent part:
559 So. 2d  at 1062-63 (emphasis added).
Nobel asserts that the applicable law as stated in Martin requires that the contractual obligations contained in the letters of credit be enforced as complete and distinct transactions, without reference to the underlying loan arrangements to provide insurance coverage for Western American. Moreover, Nobel argues that the letters of credit at issue are "standby" letters of credit. This Court discussed standby letters of credit in Southern Energy Homes, Inc. v. AmSouth Bank, 709 So. 2d 1180 (Ala.1998):
709 So. 2d  at 1184-86 (footnotes omitted) (emphasis added).
In light of the analysis in Southern Energy Homes, supra, we agree that the letters of credit issued by the Bank to Nobel are properly characterized as "standby" letters of credit. Because we also conclude that the letters of credit are properly viewed as distinct from the parties' surety arrangements, we must also conclude that the trial court erred in applying the law of suretyship to extinguish the Bank's responsibility to honor the letters of credit. The letters of credit are independent of the underlying transaction between Nobel and Western American. Martin, supra, and Southern Energy Homes, supra. Because we hold that the trial court erred in entering the summary judgment, we need not address the remaining issues presented by Nobel.
In case no. 1001351, we reverse the trial court's summary judgment in favor of the Bank, Ramage, Strother, Hamrick, and Palomar, and we remand the cause for further proceedings consistent with this opinion. In case no. 1001421, the Bank's and Ramage's appeal seeking to preserve claims that were dismissed by the entry of the summary judgment, we remand.
1001351REVERSED AND REMANDED.
1001421REMANDED.
MOORE, C.J., and BROWN, WOODALL, and STUART, JJ., concur.
SEE, J., recuses himself.