Court Opinion

ID: 194683
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:22:44+00
Date Added: 2024-06-11T13:04:17.035491
License: Public Domain

United States Court of Appeals
                    For the First Circuit
                                         

No. 92-2145

                       MUELLER COMPANY,

                    Plaintiff, Appellant,

                              v.

                      SOUTH SHORE BANK,

                     Defendant, Appellee.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. William G. Young, U.S. District Judge]
                                                    

                                         

                            Before

                    Boudin, Circuit Judge,
                                         
                Aldrich, Senior Circuit Judge
                                             
                  and Stahl, Circuit Judge.
                                          

                                         

David M.  Jones with whom James  E. Howard,  M. Katherine Willard,
                                                                 
and Kirkpatrick & Lockhart were on brief for appellant.
                      
George W.  Mykulak with whom Gary  R. Greenberg,  Louis J. Scerra,
                                                                  
Jr., and Goldstein & Manello, P.C. were on brief for appellee.
                              

                                         

                        April 22, 1993
                                         

          STAHL,  Circuit Judge.    In this  appeal, we  must
                               

determine whether defendant-appellee South Shore Bank ("South

Shore")  properly  refused plaintiff-appellant  Mueller Co.'s

("Mueller")  request for  payment under  a letter  of credit.

Because the  documents accompanying Mueller's request did not

comply  with the  requirements  of the  letter of  credit, we

affirm  the district  court's  ruling that  the dishonor  was

proper.

                              I.
                                

           FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                                                   

          George  A.  Caldwell  Company  ("Caldwell")  was  a

family-owned gas  and water-works  supply company located  in

Stoughton, Massachusetts.1  Caldwell  purchased supplies on a

regular basis  from Mueller, a supplier  in Atlanta, Georgia.

By  early 1990, Caldwell could no longer meet its payments to

Mueller, and Mueller stopped shipping supplies.  

          As  a   condition   to  Mueller's   resumption   of

shipments,  Caldwell arranged  for  South Shore  to issue  an

irrevocable  standby letter  of credit  in favor  of Mueller.

The  letter, dated  May  24,  1990,  and  in  the  amount  of

$500,000, provided  that if Caldwell failed  to make payments

for  goods ordered  and  shipped  after  May 24,  1990,  then

Mueller  could  present a  sight  draft  to South  Shore  for

payment.  The sight  draft was to be accompanied  by invoices

                    

1.  Caldwell is not a party to the controversy before us.

                             -2-
                              2

"clearly  evidencing  that   the  goods  described  in   said

invoice(s) represent goods ordered  and shipped after May 24,

1990."2   By  its  terms,  the letter  of  credit  was to  be

governed by the Uniform  Customs and Practice for Documentary

Credits (1983 Version) (hereinafter "UCP").

          With the assurance of the standby letter of credit,

Mueller resumed  shipments to Caldwell.   Again, Caldwell was

unable to meet its payments.  Mueller notified South Shore in

late October that it planned to draw on the letter of credit,

and sent South  Shore an  "aged trial  balance" which  listed

invoices that Mueller planned to present for payment.  

                    

2.  The letter of credit stated in relevant part:

     [South Shore] hereby establish[es]  our irrevocable
     letter  of credit in [Mueller's] favor available by
     your  drafts  drawn  at  sight and  accompanied  by
     documents specified below:

     1.    A  statement  on the  letterhead  of  Mueller
     Company, addressed  as per this  letter of  credit,
     signed by  an individual or  individuals purporting
     to be  authorized,  stating:    "Payment  has  been
     demanded   of  George  A.  Caldwell,  213  Turnpike
     Street, Stoughton, Ma. 02072-0006, not received and
     is still outstanding for more than 60 days from the
     relative  invoice  date(s).    Our  demand  relates
     solely to  goods ordered and shipped  after May 24,
     1990."  

     2.    Copy(ies)  of  invoice(s) issued  by  Mueller
     Company   purporting   to   represent   the   above
     transaction, marked "unpaid" and clearly evidencing
     that  the   goods  described  in   said  invoice(s)
     represent goods  ordered and shipped  after May 24,
     1990.

                             -3-
                              3

          On December  31, 1990,  the expiration date  of the

letter  of credit, Mueller  presented a sight  draft to South

Shore  in  the   amount  of  $221,996.11.     The  draft  was

accompanied by  163 invoices  purporting  to represent  goods

ordered  and shipped  after  May 24,  1990.   A  considerable

number of the invoices, however, listed order dates  prior to

May 24, 1990.   South Shore sent  a timely letter to  Mueller

refusing  to  honor  the  draft  on  the   grounds  that  the

"[i]nvoices presented  do  not clearly  evidence  that  goods

described represent  goods ordered and shipped  after May 24,

1990 as per . . . the letter of credit." 

          Mueller  thereafter  filed  a diversity  action  in

district   court,  alleging   that  South   Shore  wrongfully

dishonored the  draft, arguing, inter alia,  that South Shore
                                          

knew or should have known that the invoices represented goods

ordered  and shipped  after May  24, 1990.   Upon  motion for

summary judgment by South Shore, the district court dismissed

Mueller's cause  of action on  the grounds that  the invoices

submitted by Mueller  did not  comply with the  terms of  the

letter of credit.  For the reasons that follow, we affirm.

                             II.
                                

                          DISCUSSION
                                    

A.  Dishonor of the Draft
                         

          Under  the provisions  of  the UCP,  "[b]anks  must

examine all documents with  reasonable care to ascertain that

                             -4-
                              4

they  appear, on  their face,  to be  in accordance  with the

terms   and  conditions  of  the  credit."    UCP,  Art.  15.

Moreover,   letters  of   credit   "by  their   nature,   are

transactions separate from the  sales or other contract(s) on

which they may  be based, and banks  are in no  way concerned

with or bound  by such contract(s)."  UCP, Art.  3.  See also
                                                             

Ground  Air Transfer,  Inc. v.  Westates Airlines,  Inc., 899
                                                        

F.2d  1269, 1272  (1st Cir.  1990) ("[C]ourts  have typically

considered  the  letter of  credit  as  `independent' of  the

contract.").     Thus,  in  determining   their  rights   and

obligations  under  a  letter  of credit,  "parties  are  not
                                                             

required to look beyond the face of the documents presented."

Auto  Servicio  San  Ignacio,   S.R.L.  v.  Compania  Anonima
                                                             

Venezolana de Navegacion, 765 F.2d 1306, 1310 (5th Cir. 1985)
                        

(emphasis in original).  See also UCP, Art. 4 ("[A]ll parties
                                 

concerned deal  in documents,  not in goods,  services and/or

other performances to which the documents may relate.").  I n

this case, the letter of credit required that the sight draft

be  accompanied  by  invoices "clearly  evidencing"  that the

goods  were  "ordered  and  shipped  after  May  24,  1990."3

                    

3.  Mueller argues  that the  qualifying term "after  May 24,
1990"  applies  only  to  "shipped," and  not  to  "ordered."
Obviously, goods  would not be shipped  without being ordered
at some date, and if the phrase were read as meaning that the
date  was of no  consequence, there would be  no point to the
word  "ordered" being present at all.   Accordingly, we agree
with  the district court that  the term "after  May 24, 1990"
unambiguously modifies both "shipped" and "ordered."

                             -5-
                              5

Surely,  an invoice with an order  date prior to May 24, 1990
                                             

does  not "clearly evidence" an order placed after that date.

Rather, such an invoice directly contradicts the terms of the

letter  of credit.4  In  contending that South  Shore knew or

should have known that  these invoices represented goods that

had been  reordered and shipped  subsequent to May  24, 1990,
                   

Mueller is  essentially urging  that South Shore  should have

looked  beyond  the  face   of  invoices  to  the  underlying

transaction.   As  we have  stated, however, South  Shore was

under no such obligation.  See, e.g., Auto Servicio, 765 F.2d
                                                   

at 1310;  UCP, Art. 4.   Because the invoices failed  to meet

the  requirements  of the  letter  of  credit, we  find  that

dishonor was proper.

B.  Additional Arguments
                        

                    

4.  We   disagree  with  Mueller's  characterization  of  the
improper  order dates as  "technical inconsistencies."   See,
                                                            
e.g., Exotic Traders Far East Buying Office v. Exotic Trading
                                                             
U.S.A., Inc.,  717 F. Supp. 14,  17 (D. Mass. 1989).   Unlike
            
the  documents in  Exotic  Traders which  the district  court
                                  
found "could not have misled anyone," id., the non-conforming
                                         
order dates in the  instant case signaled that the  goods had
been ordered prior to May 24, 1990.  By its terms, the letter
                  
of credit did not bind South Shore to honor such invoices.
     Moreover, we reject Mueller's  argument that South Shore
could or  should have relied  on the "invoice"  dates, rather
than the  "order" dates, in determining  whether the invoices
complied  with the letter of  credit.  While  it appears that
most  or all of the invoices had  invoice dates after May 24,
1990,  the  nonconforming  order  dates  were  sufficient  to
justify dishonor.  See,  e.g., UCP, Art. 15  ("Documents that
                             
appear, on  their face, to  be inconsistent with  one another
will  be considered as not appearing, on their face, to be in
accordance with the terms of the letter of credit.").

                             -6-
                              6

          Our  ruling  that  dishonor  was   proper,  as  the

district court properly pointed  out below, is dispositive of

Mueller's additional arguments. 

          We  reject Mueller's  contention that  the invoices

with  valid  order  dates  constituted  separate  or  partial

drawings on the letter of credit.  While the letter of credit

did allow partial  drawings, Mueller chose  to draw upon  the

letter  of  credit  only  once  with  a  single  sight  draft

presented on  the letter's expiration date.   Mueller directs

us to no authority, nor have we located any, which stands for

the proposition that an issuing bank  must pay a portion of a
                                                        

documentary  sight draft  on  the grounds  that  some of  the
                                                     

documents comply.  Because the "valid" invoices presented did

not meet the  amount of  the sight draft,  the bank  properly

declined to honor the entire draft.

          Finally, we  find nothing in the  record to support

Mueller's contention that the  dishonor amounted to bad faith

or an  unfair business practice.5 

                    

5.  In arguing that South Shore's dishonor  was in bad faith,
Mueller relies  almost exclusively on the  fact that Caldwell
expressed an  initial  willingness to  waive the  documentary
discrepancies between the invoices  and the letter of credit.
This argument is based on  a misunderstanding of the doctrine
of  waiver as it  applies to  letter of  credit transactions.
While  Caldwell may waive its  own right to  insist on strict
                                  
compliance, it  may not  waive South  Shore's  right in  this
respect.    See  e.g.,  Cooperative  Agricole  Groupement  de
                                                             
Producteurs Bovins de L'Ouest  v. Banesto Banking Corp., 1989
                                                       
WL  82454, *23 (S.D.N.Y. July  19, 1989) ("Any  waiver by the
[customer] merely  effects the contract between  the bank and
the  [customer].   Any  other  interpretation  of the  waiver

                             -7-
                              7

                             III.
                                 

                          CONCLUSION
                                    

          Because Mueller  has presented no  genuine issue as

to  any material fact, the entry of summary judgment in favor

of South Shore was proper as  a matter of law.   Accordingly,

the order of the district court is

          Affirmed.
                  

                    

doctrine would emasculate the UCP requirements for amending a
letter of  credit.").    Accordingly,  we find  no  merit  in
Mueller's  argument  that  Caldwell's  willingness  to  waive
indicates that South Shore proceeded in bad faith.  
     Equally  unavailing  is  Mueller's   estoppel  argument.
Mueller's late October letter, which included the "aged trial
balance," and  which stated that Mueller intended  to draw on
the letter  of credit, did  not include any  actual invoices.
Thus,  South  Shore's  failure   to  object  to  the  October
notification letter did not estop it from later rejecting the
draft due to nonconforming invoices.
     To  the  extent that  Mueller  makes  other waiver,  bad
faith, or estoppel claims, we find them to be without merit.

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