Mueller Company v. South Shore Bank ( 1993 )

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.
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"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.
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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
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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."
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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.").
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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
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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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