Court Opinion

ID: 9476710
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:02:48.437486+00
Date Added: 2024-06-11T17:45:27.547857
License: Public Domain

GARZA, Circuit Judge,
dissenting.
I respectfully dissent.
The majority, focusing on the expiry date and nothing else, in effect makes the letter of credit involved in this case a nullity.
I agree with the court below that if Exxon had made any claim against the letter of credit before October 31, 1981, the Banque would not have honored any claim because Houston Oil and Refinery, Inc. still had the months of November and December to return to Exxon the oil that they had received under the original contract between Houston Oil and Refining, Inc. and Exxon.
*1127I am convinced that the Texas judge sitting on the court below, interpreting the letter of credit under Texas law, was correct. I would affirm the granting of summary judgment to Exxon on the basis of his memorandum opinion of September 17, 1986, which is attached as Appendix A to this dissent.
APPENDIX A
United States District Court Southern District of Texas Houston Division
EXXON COMPANY, U.S.A., Plaintiff, vs. BANQUE DE PARIS ET DES PAY-BAS, Defendant.
Civil Action No. H-82-3481
MEMORANDUM
This action requires the construction of a letter of credit (letter) issued by the Banque de Paris et des Pay-Bas (Paribas) for the benefit of Exxon Company, U.S.A., (Exxon) to secure an obligation of Houston Oil and Refining, Inc. (HORI). The parties have filed cross-motions for summary judgment. The court will grant Exxon’s motion and deny Paribas’s motion.
On July 9, 1981, Exxon and HORI entered into an oil exchange agreement (agreement). Exxon, finding that it had a temporary surplus of crude oil at its Baton Rouge refinery, contracted to ship HORI approximately 558,000 barrels of crude in July 1981, and HORI agreed to deliver the same amount of crude to Exxon during September through December, 1981. The agreement required HORI to secure its obligation by a letter of credit in favor of Exxon for $19,530,000. On HORI’s application, Paribas, for a fee of approximately $50,000, issued the letter on July 16, 1981.
Two provisions of the letter clash. The certification provision requires that in order to collect under the letter, Exxon must certify that HORI failed to deliver the required volume of crude in September-December. On the other hand, the presentment clause requires the certification of non-delivery to be made by October 81, 1981. Exxon learned sometime in November that HORI was going to default. It presented the certification of HORI’s default to Paribas on November 30, 1981, and again on December 1,1981. Paribas rejected both presentments as untimely.
Exxon wants its money.

Making Sense of the Letter of Credit.

In the State of Texas letters of credit are subject to the same rules of construction that apply to ordinary contracts. Temple-Eastex, Inc. v. Addison Bank, 672 S.W.2d 793, 798 (Tex.1984); Republic Nat’l Bank v. Northwest Nat’l Bank, 578 S.W.2d 109, 115 (Tex.1978). The question of ambiguity in a contract is one of law. Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983); R & P Enterprises v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). A contract is ambiguous only where its meaning remains uncertain after application of the rules of construction. The letter is not ambiguous.

Against the Drafter.

Inconsistencies must be resolved against the party who drew the contract. Temple-Eastex, Inc., 672 S.W.2d at 798; Republic Nat’l Bank, 578 S.W.2d at 115. This rule seems especially compelling here. Deposition testimony shows that shortly after the letter was issued a Paribas employee noticed the inconsistency and discussed it with HORI. Paribas never sought to amend the letter to remove the contradiction or to notify Exxon.

Possibility of Performance.

A construction in favor of Exxon is required by the rule that contracts must be construed to render performance possible. Temple-Eastex, Inc., 672 S.W.2d at 798; Republic Nat’l Bank, 578 S.W.2d at 115. Obviously Exxon could not have certified on October 31 that HORI had not delivered through the end of the following two months. Paribas argues that practices in the industry were such that in the normal course of things Exxon should have known by October 31 that HORI would default. Assuming that to be the case, it does not follow that Exxon was bound to make presentment by October 31. The present*1128ment provision required Exxon to certify that HORI had defaulted, not that it probably would. It is difficult to believe that Paribas would have cheerfully paid $19,-000,000 to Exxon for a default that had not yet taken place.
BA Commercial Corp. v. Hynutek, Inc., 705 S.W.2d 713 (Tex.App. — Dallas 1986, no writ), supports Exxon’s position. In that case the court construed a letter of guaranty that required Hynuteck to certify by December 31 that certain payments were more than twenty-five days past due. A payment fell due on December 31, and Hynucek made demand upon the guarantor at the end of January.
Ignoring the dictum about the letters of credit generally, the court in BA Commercial identified and applied the rules of construction that resolve this case.
[A] fair reading of the guaranty shows that such an interpretation would defeat the express intent of the parties.
# * # * # *
[Requiring that 25 days notice be given by December 31, 1983, would, in effect, have made a proper demand technically impossible and, therefore, would be contrary to the intent of the parties.
BA Commercial, 705 S.W.2d at 716. The word “purpose” could be well substituted for “intent” in those two passages.

Exxon Could Have Med.

Paribas, becoming disingenuous, maintains that there was nothing to stop Exxon from certifying by October 31 that HORI had defaulted, although a default had not occurred until mid-November. Paribas purports to have understood the certification simply as “a statement ... allowing Exxon to recover the proceeds of the letter of credit at any time during the specified period that it believed itself to be at risk in the transaction.” (Paribas’s January 1986 memorandum of law, p. 15). The court rejects this interpretation of certification for three reasons. First, it strains the court’s credulity to believe that Paribas would or should have paid on Exxon’s representation that it was merely feeling insecure about HORI’s future performance. HORI would have sued Paribas. Second, it is difficult to understand the reason for the requirement of certification if something less than an actual default were enough to trigger payment. One certifies the truth of specific, verifiable facts, not one’s fears as to future performance. Had Paribas received a certification from Exxon of an unequivocal announcement of impending default by HORI, Paribas might have accepted it as an anticipatory breach or repudiation, but the facts do not give rise to that argument. Third and most important, where the plain wording of a letter of credit requires a party to certify the past occurrence of specific events, it is inimical to maintain that the actual truth of the certification is of no importance.

Election of Remedies.

Paribas also argues that Exxon cannot recover because Exxon has made an election of remedies. The basis of this claim is that, after failing to obtain payment from Paribas, Exxon in January 1982 entered into an agreement with HORI (1982 agreement). The purpose of this agreement was to rescue HORI’s indebtedness to Exxon, both under the agreement that the letter was issued to cover and under another oil exchange agreement on which HORI had defaulted. In October 1982 HORI defaulted on the 1982 agreement. Exxon filed suit against it, and Paribas argues that in so doing Exxon foreclosed its option to sue Paribas. The court does not agree.
Election of remedies is defined in Texas as “the act of choosing between two or more inconsistent but co-existent modes of procedure and relief allowed by law on the same set of facts.” Custom Leasing, Inc. v. Texas Bank & Trust, 491 S.W.2d 869, 871 (Tex.1973). The classic example of election of remedies involves a plaintiff’s choice between two remedies that may be imposed on the same defendant, as between specific performance and damages in a contract case, or between negligence and intentional injury in a tort action. Seegers v. Spradley, 522 S.W.2d 951 (Tex.Civ.App. —Beaumont 1975), writ ref’d n.r.e.); Fulmer v. Rider, 635 S.W.2d 875 (Tex.App. —Tyler 1982, writ ref’d n.r.e.). Here, by *1129contrast, Exxon is proceeding under what are really two distinct contracts with two distinct obligors: the letter and the 1982 agreement with HORI.

Accord or Novation.

Similar to the election claim, Paribas argues that the 1982 agreement constituted either an accord and satisfaction or a novation. Neither claim is tenable. There is no indication that there was an agreement express or implied, between Exxon and HORI that Paribas would be released from its responsibility. That intention to release Paribas must have been embodied in their agreement for an accord and satisfaction to exist to Paribas’s benefit. E.g., San Benito Bank & Trust Co. v. Rio Grande Music Co., 686 S.W.2d 635, 640 (Tex.App. —Corpus Christi 1984, writ ref’d n.r.e.). There is also no novation between Paribas and Exxon since Paribas and Exxon did not reach any agreement. See Dodson v. Sizenbach, 663 S.W.2d 13, 16 (Tex.App. —Houston [14th Dist.] 1983, no writ); Villarreal v. Laredo Nat’l Bank, 677 S.W.2d 600, 607 (Tex.App. —San Antonio 1984, writ ref’d n.r.e.).
If HORI had performed the 1982 agreement and if Paribas .had then paid Exxon, HORI may have been entitled to recover the payment from Exxon. That did not happen.

Conclusion.

A judgment will be entered in favor of Exxon for $19,530,000, pre-judgment interest at 6% from January 1, 1982, post-judgment interest, and costs of court, leaving attorneys’ fees the only issue to be decided.
Signed on September 17, 1986, at Houston, Texas.
/s/Lynn N. Hughes
Lynn N. Hughes
United States District Judge