Opinion ID: 523260
Heading Depth: 2
Heading Rank: 1

Heading: Breach of the compromise agreement by South Mill

Text: 11 The Bank claims that South Mill breached the compromise agreement by making demand on the original $150,000 letter of credit and by refusing to ship mushrooms to Garden Fresh. We consider each of these claims separately.1. Demand on the $150,000 letter of credit 12 The Bank asserts, and the district court found, that South Mill breached the compromise agreement by reasserting its demand on the $150,000 letter of credit on April 29, 1986. One of the terms of the compromise agreement was that South Mill would withdraw the demand it made on the letter of credit on April 9, 1986. By reasserting that demand, the court reasoned that South Mill breached the agreement and, as a result, was unjustly enriched in the amount of $50,000 through its retention of the cashier's check which had been issued by the Bank as part of the agreement. 13 For two reasons we disagree with the district court and find that the attempted demand by South Mill on the first letter of credit did not operate as a breach of the compromise agreement. First, the compromise agreement functioned as an accord and satisfaction of the $150,000 letter of credit. An accord and satisfaction acts to discharge a contract. Acton Constr. Co. v. State, 363 N.W.2d 130, 133 (Minn.Ct.App.1985). By substituting the $100,000 letter of credit and the balance of the terms of the compromise agreement for the $150,000 letter of credit, the Bank's obligations under the first letter of credit were discharged. Consequently, on April 29, 1986, when South Mill made demand on the original letter of credit, the letter was null and void. It is clear to us that demand on an instrument which is null and void cannot be considered a breach of contract. 14 Second, the first letter of credit was no longer in effect at the time South Mill made demand, having expired by its terms on April 10, 1986. Therefore, any demand made on the letter of credit would have been ineffectual. Thus, we find that South Mill did not breach the compromise agreement by attempting to make demand on the first letter of credit. 2. Stopping shipments to Garden Fresh 15 The Bank also claims that South Mill breached the compromise agreement on April 29, 1986, when it refused to provide further shipments of mushrooms. South Mill argues that it was under no duty to continue shipping produce because at that time Garden Fresh was in default of its payments. The district court made no decision on this portion of the Bank's claim, having already found that South Mill breached the compromise agreement by reasserting its demand on the original letter of credit. 16 In response to South Mill's argument, the Bank asserts that Garden Fresh was not in default. The Bank argues that when Gau met with Pia to deliver the $100,000 letter of credit and the $50,000 cashier's check, Gau and Pia reached an understanding regarding further payment. At that meeting Gau told Pia that it would take some time for Garden Fresh to build up sufficient funds in the Garden Fresh bank account to cover the $25,000 check and the $20,000 check. As a result, Gau told Pia that Garden Fresh would be unable to make any more payments for two to three weeks. However, on April 28, 1986, almost two weeks after this meeting, Gau again told South Mill that it would be at least three weeks before Garden Fresh could make any payments to South Mill. In effect, South Mill was told to expect payment as much as five weeks after it was due. In addition, the $25,000 Garden Fresh check, which Gau had assured Pia would be honored, had been returned for insufficient funds. Furthermore, on April 28, 1986, Gau informed South Mill that the $20,000 check, which had been post-dated to April 23, 1986, had also been returned. We find that these events were not contemplated or agreed to by South Mill at the time it entered into the compromise agreement, nor were they a part of the understanding Pia and Gau reached on April 16, 1986. 17 Under the revised letter of credit, South Mill had no duty to continue shipping mushrooms to Garden Fresh unless Garden Fresh was current. Due to earlier problems with payment, the parties had agreed that Garden Fresh would send South Mill a check every week covering the previous week's shipment. Under these circumstances, Garden Fresh was not current. Consequently, we hold that Garden Fresh did in fact breach the compromise agreement by failing to remain current and as a result South Mill had the right to discontinue shipments to Garden Fresh. Thus, South Mill did not breach the compromise agreement by stopping shipments to Garden Fresh. 18 Since South Mill did not breach the compromise agreement by attempting to make demand on the original letter of credit or by stopping shipments to Garden Fresh, we reverse the decision of the district court on this issue and hold that South Mill was not unjustly enriched in the amount of the $50,000 cashier's check. In fact, the $50,000 check was, apparently, tendered to pay part of a past due account which was in arrears by an amount far in excess of $50,000. 19