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

Heading: Breach of the compromise agreement by the Bank

Text: 20 In its counterclaim, South Mill contends that the Bank breached the compromise agreement by failing to issue the revised $100,000 letter of credit. On April 16, 1986, the Bank agreed to supply a revised letter of credit. However, a revised letter was never issued. The district court found that the Bank did not have a duty to issue the letter of credit after South Mill made demand on the original letter of credit and breached the compromise agreement. Since the demand was made only thirteen days after the Bank agreed to issue the revised letter of credit, the court found that the failure to issue the letter within that time was not unreasonable. 21 Having found that South Mill's demand on the first letter of credit was not a breach of the compromise agreement, we conclude that the demand did not excuse the Bank from its obligation to issue the revised $100,000 letter of credit. Consequently, we must now consider whether the Bank's failure to issue the revised letter functioned as a breach of the compromise agreement. 22 It has long been established that the letter of credit is separate and distinct from the underlying contractual transaction between the issuing bank's customer and the beneficiary of the letter of credit. Bank of Newport v. First Nat'l Bank and Trust Co., 687 F.2d 1257, 1261 (8th Cir.1982). As such, it would appear, initially, that the Bank's failure to issue the revised letter of credit would not have functioned as a breach of the agreement because, pursuant to Bank of Newport, the Bank's obligations under the letter of credit were separate from the compromise agreement between South Mill and Garden Fresh. However, this rule is not applicable to the circumstances of this case. The Bank was an integral party to the business relationship and the compromise agreement. The obligations of the Bank under the agreement cannot be separated from those of the other parties to the agreement, South Mill and Garden Fresh. As part of the agreement, the Bank agreed to provide the letter of credit and a $50,000 cashier's check. In return, the Bank received a greater possibility that Garden Fresh would stay in business and, consequently, the chances were enhanced that Garden Fresh could repay the Bank the money it had borrowed. Therefore, we decline to apply the rule in Bank of Newport and find, instead, that the Bank's failure to issue the letter of credit, as it agreed to do pursuant to the compromise agreement, was a breach of the compromise agreement by a party to the contract. 23 As damages for the breach by the Bank, South Mill claims $100,000 under the theory that the revised letter of credit gave it an absolute right to be paid up to $100,000 in the event Garden Fresh was in default on the agreed-upon payment terms. We cannot reach a conclusion on this issue because the district court made no findings on the issue of a default by Garden Fresh and consequently the issue of damages from such a default was not adequately addressed. Although we have found that Garden Fresh was in default, we must remand this case to the district court for a determination of damages due South Mill as a result of the Bank's breach of the compromise agreement and Garden Fresh's default by being in arrears for a period in excess of thirty days. 24