Banco General Runinahui, S.A. v. Citibank International

United States Court of Appeals,
Eleventh Circuit.
No. 95-4444.
BANCO GENERAL RUNINAHUI, S.A., Plaintiff-Counter-Defendant-
Appellant,
v.
CITIBANK INTERNATIONAL, a division of Citibank, N.A., New York,
Defendant-Third-Party Plaintiff-Counter-Defendant-Appellant,
R.M. WADE & CO., d.b.a. Wade Mfg. Co., Third-Party Defendant-
Counter-Claimant-Appellee.
Oct. 10, 1996.
Appeals from the United States District Court for the Southern
District of Florida. (No. 93-43-CIV-UUB), Ursula Ungaro Benages,
District Judge.
Before TJOFLAT and BLACK, Circuit Judges, and REAVLEY*, Senior
Circuit Judge.
BLACK, Circuit Judge:
Appellants Citibank International (Citibank) and Banco General
Runinahui, S.A. (Banco) appeal the district court's entry of
summary judgment in favor of R.M. Wade & Co. (Wade), arguing the
court improperly concluded Citibank had wrongfully dishonored
nonconforming documents Wade presented under the second of two
letters of credit issued by Banco in favor of Wade and subsequently
confirmed by Citibank. We affirm the district court's judgment as
to all claims except those of Appellants contending the court erred
in finding Citibank barred from dishonoring the documents Wade
presented under the second letter of credit.1
*
Honorable Thomas M. Reavley, Senior U.S. Circuit Judge for
the Fifth Circuit, sitting by designation.
1
There were two presentments under the second letter of
credit. The district court granted summary judgment in favor of
I. BACKGROUND
Commercial Letter of Credit
The commercial letter of credit is a payment device often
used in international trade which permits a buyer in a transaction
to substitute its financial integrity with that of a stable credit
source, usually a bank. Alaska Textile Co., Inc. v. Chase
Manhattan Bank, N.A., 982 F.2d 813, 815 (2d Cir.1992). As
described by the Second Circuit:
In its classic form, the letter of credit is only one of
three distinct relationships between three different parties:
(1) the underlying contract for the purchase and sale of goods
between the buyer ("account party") and the seller
("beneficiary"), with payment to be made through a letter of
credit to be issued by the buyer's bank in favor of the
seller; (2) the application agreement between the [issuing]
bank and the buyer, describing the terms the issuer must
incorporate into the credit and establishing how the bank is
to be reimbursed when it pays the seller under the letter of
credit; and (3) the actual letter of credit which is the
bank's irrevocable promise to pay the seller-beneficiary when
the latter presents certain documents (e.g., documents of
title, transport and insurance documents, and commercial
invoices) that conform with the terms of the credit.
Id.
In some letters of credit, another bank, known as the
confirming bank, assumes the same obligations as the issuing bank.
See Fla.Stat. § 675.107(2) (1995) (a bank that confirms a credit
becomes "directly obligated on the credit to the extent of its
confirmation as though it were its issuer....").
The key to the commercial vitality of the letter of credit is
Wade as to the first presentment but denied it as to the second
on the basis that Wade had knowingly misstated the amount due
under the second presentment by including the amount Citibank
refused to pay on the first. Since Wade has not appealed this
holding, we will address only the first presentment under the
second letter of credit.
its independence: it is wholly separate and distinct from the
underlying contract. When the beneficiary submits documents to the
issuing/confirming bank, the bank's only duty is to examine the
documents and determine whether they are in accordance with the
terms and conditions of the credit. Dibrell Bros. Int'l, S.A. v.
Banca Nazionale Del Lavoro, 38 F.3d 1571, 1579 (11th Cir.1994). If
the bank finds the documents to be conforming, it is then obligated
to honor a draft on the credit, independent of the performance of
the underlying contract for which the credit was issued. Marino
Indus. Corp. v. Chase Manhattan Bank, N.A., 686 F.2d 112, 115 (2d
Cir.1982) ("It is the complete separation between the underlying
commercial transaction and the letter of credit that gives the
letter its utility in financing transactions"); Pro-Fab, Inc. v.
Vipa, Inc., 772 F.2d 847, 852-53 (11th Cir.1985) ("The bank is
obligated to look only to the requirements of the letter of credit,
not to any other activity between the parties.")
The Uniform Customs and Practices for Documentary Credits
(UCP), first issued in 1930 by the International Chamber of
Commerce and revised approximately every ten years since, is a
compilation of internationally accepted commercial practices which
may be incorporated into the private law of a contract between
parties. Alaska Textile, 982 F.2d at 816. Although it is not the
law, the UCP applies to most letters of credit because issuers
typically incorporate it into their credits. Id.
Facts
Wade engages in the business of manufacturing and marketing
irrigation products. In September 1991, Ribadalgo Agro Consultores
CIA Ltd. [Ribadalgo], Wade's Ecuadorian distributor, entered into
a contract with Wade for the purchase of a Wade irrigation system.
The parties agreed that a commercial letter of credit governed by
the UCP, Int'l Chamber of Commerce Pub. No. 400 (1983 Revision)
(UCP 400) would be used to finance Ribadalgo's purchase of the
irrigation system from Wade.
First Letter of Credit
On November 14, 1991, Ribadalgo obtained an irrevocable letter
of credit from Banco, a banking institution with its principal
place of business in Quito, Ecuador. The letter of credit was in
the amount of $446,000, and named Wade as the beneficiary. The
material terms of the letter of credit were that Wade was to ship
certain of the irrigation equipment by December 31, 1991; Wade was
to present the request for payment, including all the requisite
documents "no later than 15 days after shipment, but within the
validity of the credit"; and the letter of credit was valid
through January 28, 1992, the expiry date. Citibank, which does
business in Miami, Florida, confirmed the letter of credit upon
Wade's request after Banco deposited $446,000 cash as collateral.
Wade shipped the goods on December 31, 1991, and subsequently
presented the requisite documents to Citibank for payment on
January 14, 1992. The documents contained numerous discrepancies,
but Citibank honored Wade's request for payment on January 22,
1992, without noting any deficiencies.
Second Letter of Credit
In April 1992, Banco issued another irrevocable letter of
credit to Ribadalgo in the amount of $400,000, again naming Wade as
the beneficiary. The terms of this letter of credit were that Wade
was to ship certain of the irrigation equipment by June 30, 1992;
Wade was to present the request for payment, including all the
requisite documents "no later than 15 days after shipment, but
within the validity of the credit"; the expiry date of the credit
was August 4, 1992; and partial shipments were acceptable. After
Banco deposited $400,000 cash as collateral, Citibank confirmed the
letter of credit. Thereafter, the letter of credit was amended to
extend the shipment date to July 30, 1992, and the expiry date to
August 21, 1992, and change the port of discharge. All remaining
terms were unchanged.
Wade timely shipped a portion of the goods on July 7, 1992.
On July 21, 1992, one day before the document presentment deadline,
Wade presented the requisite documents to Citibank, requesting
payment under the terms of the credit for the shipped merchandise.2
Two days later, on July 23, 1992, Citibank informed Wade that the
documents submitted contained numerous discrepancies and that it
3
therefore would not honor Wade's request for payment. In
response, Wade forwarded amended documents to Citibank on July 24,
1992, and July 27, 1992. Although Citibank conceded the documents
as amended contained no discrepancies, it nevertheless rejected
2
Meanwhile, on July 17, 1992, the Ecuadorian Criminal
Investigations Department issued an order freezing all
Ribadalgo's assets and precluding payment on any lines of credit
made available to Ribadalgo due to alleged drug trafficking.
Four days later, the Ecuadorian Department of Banking entered an
order barring Banco from making payment under the letter of
credit. In turn, Banco advised Citibank not to honor any request
for payment made by Wade thereunder.
3
Although Wade disputes some of the discrepancies alleged by
Citibank, it concedes the documents were nonconforming.
them as untimely because they were not received within 15 days of
shipment as required under the terms of the credit.
II. ISSUES PRESENTED
There are three issues raised by the parties in this appeal
which merit our consideration: 4 (1) whether Wade is entitled to
payment under the second letter of credit because it submitted
conforming documents before the expiry date of the credit; (2)
whether the district court erred in finding Citibank waived its
right to require that Wade submit conforming documents under the
second letter of credit; and (3) whether the district court erred
in finding Citibank estopped from dishonoring Wade's nonconforming
presentment under the second letter of credit.
III. STANDARD OF REVIEW
We review district court rulings on summary judgment de novo,
applying the same legal standards that bound the district court in
rendering its decision. Canadyne-Georgia Corp. v. Continental Ins.
Co., 999 F.2d 1547, 1554 (11th Cir.1993).
IV. DISCUSSION
A. Document Presentment
Appellants contend Citibank rightfully dishonored Wade's
demand for payment under the second letter of credit because Wade
did not submit conforming documents as required under the terms of
the credit. The letter of credit provided that documents had to be
4
Banco also claims error on the part of the district court
in refusing to find it excused from making payment on the letter
of credit on the following grounds: (1) illegality of
performance; (2) the act of state doctrine; and (3) principles
of international comity. We affirm the district court's judgment
on these bases pursuant to our Eleventh Circuit Rule 36-1.
presented "no later than 15 days after shipment, but within the
validity of the credit." It is this provision which is the source
of dispute.
This Court has recognized and applied the "strict compliance"
standard to requests for payment under commercial letters of
credit:
Under Florida law, letters of credit are subject to a rule of
"strict compliance." Documents presented for payment must
precisely meet the requirements set forth in the credit....
If the documents do not on their face meet the requirements of
the credit, the fact that a defect is a mere "technicality"
does not matter.
Kerr-McGee Chem. Corp. v. FDIC, 872 F.2d 971, 973 (11th Cir.1989)
(citations omitted).
Wade does not challenge the applicability of this standard,5
but disputes when the submitted documents had to be in strict
compliance with the terms of the credit. Wade argues the documents
did not have to be conforming before the presentment deadline, but
6
only before the expiry date of the credit. Specifically, Wade
interprets the phrase "no later than 15 days after shipment, but
5
Wade does argue, however, that Citibank waived its right to
insist upon strict compliance based upon advice allegedly given
by Citibank's employee to Wade's freight forwarder. Since Wade
raises this issue for the first time on appeal, we decline to
consider it. See Marsden v. Moore, 847 F.2d 1536, 1548 (11th
Cir.), cert. denied, 488 U.S. 983, 109 S. Ct. 534, 102 L. Ed. 2d 566
(1988).
6
See First Nat'l Bank of Council Bluffs v. Rosebud Housing
Auth., 291 N.W.2d 41, 46 (Iowa 1980) ("Upon becoming aware the
first documentation furnished was improper, Rosebud had a right
to remedy the defect before the expiration of the credit"); Bank
of Cochin Ltd. v. Manufacturers Hanover Trust Co., 612 F. Supp.
1533, 1542 (S.D.N.Y.1985) ("The UCP also implicitly invites cure
of any documentary deficiencies apparent before the letter of
credit expiration by issuer notification to the beneficiary"),
aff'd, 808 F.2d 209 (2d Cir.1986).
within the validity of the credit" to mean it was required to
initially submit documents "no later than [July 22, 1992]," but
that between the presentment deadline and the expiry date of the
credit there was a "cure period" during which it could remedy any
deficiencies contained in the initial presentment. Since Wade
initially submitted its documents within the 15-day presentment
period and thereafter cured the discrepancies before the expiry
date, it maintains it was entitled to receive payment.7
A rule such as that suggested by Wade would reduce the
function of the document presentment deadline to a mere benchmark
for the initial submission of documents, no matter how discrepant.
It would permit beneficiaries to make only half-hearted
presentments, forcing banks to waste time reviewing discrepant
documents submitted in anticipation of the opportunity to cure
defects before the "real deadline," the expiry date. Enabling a
beneficiary to enjoy an unrestricted right to cure deficiencies
before the expiration of the credit would render the document
presentment deadline virtually meaningless and effectively subvert
the strict compliance standard.
7
No court has considered the question of when submitted
documents must be in strict compliance with the terms of the
credit in the event such terms provide for a document presentment
deadline in advance of the expiry date. The authorities cited by
Wade are factually distinguishable from this case. In First
Nat'l, there was no stated document presentment deadline;
documents simply had to be presented with the demand for payment
under the letter of credit. 291 N.W.2d at 43. Similarly, in
Bank of Cochin, the district court analyzed the letter of credit
in terms of a shipment deadline and credit expiry date, without
discussing a separate document presentment deadline. 612 F. Supp.
at 1535. In this case, by contrast, the terms of the letter of
credit clearly provided for a document presentment deadline in
advance of the expiry date.
Moreover, "the terms and conditions of a letter of credit
must be strictly adhered to...." Corporacion de Mercadeo Agricola
v. Mellon Bank Int'l, 608 F.2d 43, 47 (2d Cir.1979), and the terms
of the letter of credit in this case made no provision for a "cure
period" entitling Wade to limitless attempts at remedying
deficiencies until the expiry date. Accordingly, under the terms
of the credit in this case, we conclude that conforming documents
had to be submitted by the presentment deadline in order to satisfy
the strict compliance standard followed in this Circuit. Any right
to cure would have arisen only if the documents had been submitted
promptly enough to permit bank examination, notification of
discrepancies, and a second submission all before the presentment
deadline. Since Wade failed to submit conforming documents by the
presentment deadline, Citibank was justified in dishonoring Wade's
demand for payment.
B. Waiver
The district court found that although Citibank had a right
to demand conforming documents in strict compliance with the terms
of the second letter of credit, it waived its right in this case by
its previous one-time acceptance of discrepant documents submitted
by Wade under the first letter of credit.8 We disagree.
The text of the UCP does not support the application of common
8
No federal court has decided this precise issue under a
letter of credit expressly incorporating the UCP. The district
court relied solely upon the Louisiana state court decision,
Schweibish v. Pontchartrain State Bank, 389 So. 2d 731
(La.Ct.App.1980), writ denied, 396 So. 2d 885 (La.1981). The
Schweibish court cited no cases in support of its holding,
hinging its decision only on equitable principles. 389 So. 2d at
737-38.
law equitable doctrines such as waiver in letter of credit cases.9
Although we have observed that "equitable doctrines such as waiver
and estoppel apply to these types of [letter of credit]
transactions" under the Uniform Commercial Code (UCC), Pro-Fab, 772
F.2d at 851,10 courts have been reluctant to accept claims of waiver
in such cases. See Courtaulds N. Am., Inc. v. North Carolina Nat'l
Bank, 528 F.2d 802, 807 (4th Cir.1975) ("Obviously, the previous
acceptances of truant invoices cannot be construed as a waiver in
the present incident");11 Texpor Traders, Inc. v. Trust Co. Bank,
720 F. Supp. 1100, 1115 (S.D.N.Y.1989) (holding that merely because
the account party "in one instance chose to waive discrepancies in
the letter of credit ... does not require that it do so again, nor
9
Indeed, nothing in the UCP obligates or even permits a bank
to examine documents presented under a letter of credit in
relation to similar documents previously examined under a
different letter of credit. Such a practice would undermine the
UCP goals of certainty, promptness and finality in the context of
an international banking system. See Alaska Textile, 982 F.2d at
815-16.
10
See also Dibrell Bros., 38 F.3d at 1581.
11
Notably, Official Comment 7 to UCC Revised Article 5
provides in relevant part:
Waiver of discrepancies by an issuer or an applicant in
one or more presentations does not waive similar
discrepancies in a future presentation. Neither the
issuer nor the beneficiary can reasonably rely upon
honor over past waivers as a basis for concluding that
a future defective presentation will justify honor.
The reasoning of Courtaulds ... is accepted and that
expressed in Schweibish ... is rejected.
U.C.C.Rev. Art. 5, § 5-108 Official Cmt. 7 (1995).
UCC Revised Article 5 bears directly on the issues
raised in this case because, unlike the original version, it
incorporates the UCP approach to such concepts as notice of
discrepancies and preclusion. See generally U.C.C.Rev. Art.
5, Prefatory Note.
does it authorize the issuing bank to similarly waive such
discrepancies");12 Alpargatas, S.A. v. Century Business Credit
Corp., 183 A.D.2d 491, 583 N.Y.S.2d 441, 442 ("The fact that
defendant [applicant] may have waived strict compliance in the past
does not justify an inference of a waiver of any discrepancies that
might arise at some future point under another such letter"),
appeal dismissed, 80 N.Y.2d 925, 589 N.Y.S.2d 312, 602 N.E.2d 1128
(1992), appeal denied, 82 N.Y.2d 655, 602 N.Y.S.2d 804, 622 N.E.2d
305 (1993). Against this background, there is no need for us to
determine whether common law equitable doctrines such as waiver are
applicable under letters of credit governed by the UCP,13 because
even were we to so find, the facts of this case simply would not
12
The district court attempted to distinguish Texpor Traders
on the basis that the account party had waived the previous
discrepancies in that case, not the bank. See 720 F. Supp. at
1115. From the perspective of the beneficiary, however, the
source of the authority for the initial waiver is irrelevant. In
either instance, the beneficiary finds out that although an
earlier nonconforming submission of documents was accepted, a
subsequent submission was rejected as discrepant.
13
Since courts have been hesitant to find waiver under
letters of credit incorporating the UCC, they will be as
reluctant, if not more so, to find waiver under letters of credit
governed by the UCP. See Alaska Textile, 982 F.2d at 820
("Where, as here, a beneficiary presents documents under letters
of credit that expressly incorporate the UCP as a template of
rights and responsibilities, courts should be chary about
altering the parties' relationship based on equitable doctrines
such as waiver.") The UCC, which is supplemented by common law
equitable doctrines, see U.C.C. § 1-103 (1967), and the UCP
"adopt vastly different approaches" to nonconforming demands.
See Alaska Textile, 982 F.2d at 822. For example, whereas common
law estoppel is equitable, requiring a beneficiary to satisfy the
traditional estoppel elements, the UCP 400 provides for a "strict
estoppel" or mechanical "preclusion" penalty against a bank that
fails to effect dishonor of discrepant documents in a timely
fashion. See UCP 400 art. 16(e); Kerr-McGee, 872 F.2d at 973-
74; Alaska Textile, 982 F.2d at 823. We are not convinced that
the strict compliance standard under the UCP leaves any room for
common law equitable doctrines such as waiver and estoppel.
support a waiver claim.14
We conclude that a significant showing would have to be made
before parties to a letter of credit governed by the UCP would be
found to have waived its express terms, see Alaska Textile, 982
F.2d at 820, and such a showing has not been made here. It would
severely hamper large institutions, dealing in a myriad of complex
international transactions, if a single failure to apply the strict
compliance standard under a letter of credit were to result in the
loss of the right to demand conforming documents in subsequent
transactions with the same beneficiary. Citibank's single instance
of accepting discrepant documents under the first letter of credit
did not extinguish its right to demand conforming documents from
Wade under the second letter of credit.
C. Estoppel
Appellants argue the district court also erred in finding
Citibank estopped from dishonoring the nonconforming documents
submitted by Wade. Article 16 of the UCP 400 provides in relevant
part:
c. The issuing bank shall have a reasonable time in which to
examine the documents and to determine ... whether to take up
or to refuse the documents.
d. If the issuing bank decides to refuse the documents, it
must give notice to that effect without delay by
telecommunication or, if that is not possible, by other
expeditious means....
e. If the issuing bank fails to act in accordance with the
[above] provisions ... the issuing bank shall be precluded
14
We recognize that the Second Circuit has found the
equitable doctrines of waiver and estoppel applicable under
letters of credit governed by the UCP, see Alaska Textile, 982
F.2d at 820, but we need not reach this issue under the facts of
this case.
from claiming that the documents are not in accordance with
the terms and conditions of the credit.
UCP 400 art. 16(c)-(e) (emphases supplied).
The two inquiries are sequential: an issuing/confirming bank
is entitled to a "reasonable time" in which to examine documents;
then, if it decides to refuse them, it must give notice to that
effect "without delay." Here, Wade made its initial presentment of
documents to Citibank one day before the presentment deadline, and
Citibank advised Wade the documents were nonconforming by telephone
two days later. The district court found that Citibank had not
examined Wade's documents within a "reasonable time" and had not
notified Wade of the discrepancies "without delay."15
"In the letter-of-credit context, "[w]hat is a "reasonable
time" is to be determined by examining the behavior of those in the
business of examining documents, mostly banks,' " Alaska Textile,
982 F.2d at 823 (quoting U.C.C.Rev. Art. 5, § 5-108 Official Cmt.
2 (1995)), and requires an analysis of the "nature, purpose, and
circumstances of each case." Id. In concluding Citibank had not
reviewed the documents within a "reasonable time," however, it does
not appear the district court examined banking behavior. Instead,
the court focused on the limited time available to Wade to cure any
15
Appellants maintain the questions of whether Citibank
failed to act "within a reasonable time" and "without delay" were
not before the district court on summary judgment, but instead
were introduced into the case sua sponte by the court without the
benefit of briefing from the parties, affidavits directed to
these issues, or other development of the record. On this basis,
Appellants contend summary judgment in favor of Wade was
inappropriate. Given our holding that the district court erred
in finding Citibank estopped from dishonoring the discrepant
documents submitted by Wade, it is unnecessary for us to resolve
this issue.
discrepancies, reducing the entire inquiry to a question of the
document presentment deadline:
The relevant facts are that Wade submitted documents to
Citibank on July 21, 1992, one day before the document
presentment date, and that Citibank notified Wade's freight
forwarding agent that the submitted documents were discrepant
on July 23, 1992, one day after the expiration of the document
presentment date.
The "reasonable time" requirement cannot be interpreted, as
it was by the district court, to mean "early enough to allow the
beneficiary to cure and represent the documents before the
presentment deadline." The mere fact that the presentment period
expired before the completion of Citibank's review and notification
process does not compel any conclusion about whether Citibank spent
a reasonable amount of time examining the documents.16 A rule which
required, in all circumstances, notice to the beneficiary of
discrepancies before the passing of the document presentment date
would conflict with Article 16(c) of the UCP 400 by stripping banks
of their "reasonable time" to review documents.
Courts have interpreted "reasonable time" under the UCP 400 to
mean at least three business days, see, e.g., Occidental Fire &
Casualty Co. v. Continental Bank, N.A., 918 F.2d 1312, 1318 & n. 3
(7th Cir.1990); and, although merely persuasive in this case,
Article 13(b) of the UCP, Int'l Chamber of Commerce Pub. No. 500
(1993 Revision) (UCP 500) affords banks seven banking days to
review documents and give notice of any discrepancies. Since
Citibank not only reviewed the documents but also notified Wade by
16
Indeed, the "reasonable time" requirement does not imply
that banks must examine a presentation out of order or hurry a
decision based upon particular needs or desires of a beneficiary.
See U.C.C.Rev. Art. 5, § 5-108 Official Cmt. 2.
telephone of the discrepancies within just two days, we hold the
district court erred in finding Citibank estopped from dishonoring
Wade's nonconforming presentment.
V. CONCLUSION
For the foregoing reasons, we reverse the judgment of the
district court in finding Citibank barred from dishonoring Wade's
nonconforming presentment under the second letter of credit. In
all other respects, we affirm the district court's judgment. We
remand the case for further proceedings consistent with this
opinion.
AFFIRMED in part; REVERSED in part; and REMANDED.