REVISED DECEMBER 11, 2008
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
November 24, 2008
No. 07-30441
Charles R. Fulbruge III
Clerk
LABARGE PIPE & STEEL CO.
Plaintiff-Appellant
v.
FIRST BANK; ALLEN J. DAVID
Defendants-Appellees
Appeal from the United States District Court
for the Middle District of Louisiana
Before JONES, Chief Judge, GARWOOD, and JOLLY, Circuit Judges.
GARWOOD, Circuit Judge:
Plaintiff-appellant, LaBarge Pipe & Steel Co. (LaBarge), appeals the
district court’s grant of summary judgment for defendants-appellees, First Bank
and Allen David. LaBarge sued defendants asserting claims relating to the
Irrevocable Standby Letter of Credit No. 180 that First Bank issued to LaBarge,
including claims for wrongful dishonor, breach of a letter of credit, detrimental
reliance, breach of a good faith obligation, and negligent misrepresentation.1 For
1
According to its second amended complaint, LaBarge asserts all of these claims
against First Bank, and only the negligent misrepresentation claim against David.
No. 07-30441
the reasons stated below, we affirm in part and reverse and remand in part to
the district court.
FACTS AND PROCEEDINGS BELOW
LaBarge, a Missouri company, sells industrial pipe across the United
States. PVF USA, LLC (PVF), a Louisiana company, sold industrial pipe, valves,
and fittings from its office in Port Allen, Louisiana.2 On November 19, 2002,
PVF requested and received a quote for the purchase of steel pipe from LaBarge.
On November 25, 2002, PVF ordered 3,800 feet of thirty-inch pipe from LaBarge
for a total price of $143,613.40 Matthew Mannhard, a LaBarge salesman,
reviewed PVF’s credit history, and informed PVF that LaBarge would not sell
the requested pipe on open credit terms. Therefore, he gave PVF the following
payment options: sending a cashiers check via overnight mail, wire transferring
the funds, or obtaining a letter of credit. PVF chose to obtain a letter of credit.
PVF then contacted First Bank, a commercial bank in Baton Rouge,
Louisiana, to arrange for First Bank to issue the letter of credit. Acting as
LaBarge’s representative in the arrangement, Mannhard worked with Allen
David, a First Bank employee, to arrange for First Bank to issue a standby letter
of credit in the amount of $144,000.00 for the benefit of LaBarge. David and
Mannhard discussed and finalized the letter of credit. On November 25, 2002,
David faxed a copy of the letter of credit to LaBarge. The facsimile cover sheet
stated: “Here is the letter of credit you requested. Please let me know if you
need any additional information.” After reviewing the facsimile copy of the
letter of credit, Mannhard requested a change in the language of the letter of
credit, which First Bank made. On November 26, 2002, David faxed a copy of
the thus amended letter of credit to LaBarge. The facsimile cover sheet, which
2
PVF filed bankruptcy on January 9, 2003. The parties do not discuss, and the record
does not reveal, the current status of the company or of the bankruptcy proceedings. LaBarge
indicates in its brief that PVF no longer operates its business at the Port Allen, Louisiana
location.
2
No. 07-30441
contained David’s signature, stated: “Here is the revision to the letter of credit
you requested. Please let me know if you need any additional information.”
The letter of credit issued by First Bank is dated November 25, 2002. It
reflects that “LaBarge Pipe & Steel, Co.” is “BENEFICIARY” and that “PVF
USA, L.L.C.” is “APPLICANT.” It is addressed to LaBarge and states “We
hereby establish our Irrevocable Standby Letter of Credit No. 180 in your favor
for the account of PVF USA available by your drafts on us payable at sight for
any sum of money not to exceed a total of $144,000 . . . when accompanied by
this Irrevocable Letter of Credit” and by LaBarge’s statement certifying that
invoices to PVF “remain unpaid 30 days or more after invoice date” and by copies
of the invoices. It also states that: “the original Irrevocable Letter of Credit must
be presented with any drawing so that drawings can be endorsed on the reverse
thereof.” Furthermore, it states that “Except so far as otherwise expressly
stated, this irrevocable Letter of Credit is subject to the ‘Uniform Customs and
Practice for Documentary Credits (1983 Revision) International Chamber of
Commerce Brochure No. 400’” (the UCP 400). Finally, the letter of credit states
that it “shall be valid until February 23, 2003.” It bears the handwritten
signatures of David and a First Bank Vice President.
LaBarge claims that in a phone conversation on November 26, 2002,
Mannhard asked David at what point LaBarge would be protected by the letter
of credit so that it could safely ship the pipe to PVF. At this point, Mannhard
allegedly informed David that LaBarge did not want to ship the pipe to PVF
until the purchase price was fully secured by the letter of credit. According to
LaBarge, David told Mannhard that the letter of credit was issued, that First
Bank was obligated to pay if PVF defaulted on its obligations, and that LaBarge
could now safely ship the pipe. In their brief, First Bank and David do not
3
No. 07-30441
explicitly affirm or deny that David made these representations to Mannhard.3
However, in his deposition, David testified that he did not recall speaking with
Mannhard on November 25 or 26, 2002 regarding whether LaBarge was secure
under the letter of credit at that time.
After these alleged conversations occurred, LaBarge shipped pipe invoiced
at $95,216.60 to PVF on November 26, 2002. It sent an additional shipment of
pipe (invoiced at $48,396.80) to PVF on December 4, 2002. The total amount of
pipe shipped was invoiced at $143,613.40. PVF did not make any payment for
any of the pipe, and filed bankruptcy on January 9, 2003.
David never told Mannhard or any other LaBarge representative what he
planned to do with the original signed version of the letter of credit. It is unclear
what happened to the original November 25, 2002 letter of the credit as
LaBarge, First Bank, and PVF have not been able to locate it. In David’s
deposition, he testified that he kept the letter of credit after faxing a copy of it
to LaBarge on November 26, 2002, and called PVF officials multiple times to
encourage them to collect the letter of credit from his office. He testified that on
December 2, 2002, PVF official, Scott Kirby, took the letter of credit when he
came to First Bank to make a deposit. However, in his deposition, Kirby denies
ever having received the original letter of credit. Furthermore, in its original
complaint, LaBarge asserted that on December 10, 2002, First Bank informed
LaBarge that it had given the original of the letter of credit to PVF. Then, from
January 15 to 20, 2003, LaBarge attempted to locate the original letter of credit
from PVF and First Bank without success.
In the latter part of January and early February of 2003, LaBarge and
First Bank representatives twice talked on the telephone to discuss the
documentation that LaBarge needed to present in order to draw on the letter of
3
However, at oral argument, counsel for First Bank argued that whether David made
these representations to Mannhard was a disputed issue of fact.
4
No. 07-30441
credit. During these two telephone conversations, LaBarge employees informed
First Bank’s executive vice president, Andrew Adler, that they could not locate
the original letter of credit and only had the facsimile copy that they received
from First Bank on November 26, 2002. Adler informed LaBarge
representatives that First Bank would not honor a presentation without the
original credit. After these conversations, Harold Burroughs, counsel for
LaBarge, called for Adler to discuss payment under the letter of credit. James
Lackie, First Bank’s counsel, returned the call on February 6, 2003. In that
phone call, Burroughs informed Lackie that LaBarge could not locate the
original letter of credit. Burroughs again so informed Lackie in a letter dated
February 11, 2003.
In February 2003, LaBarge attempted to draw on the letter of credit in the
amount of $143,613.40, the total price of all pipe it had shipped to PVF. It
mailed the letter of credit facsimile it had received on November 26, 2002, along
with the relevant unpaid invoice copies and its certificate that they remained
unpaid for thirty days or more after their dates, to First Bank on February 14,
2003. First Bank received these documents on the morning of Monday, February
17, 2003. Also included with LaBarge’s February 14, letter was an Affidavit of
Beneficiary of Irrevocable Letter of Credit and Indemnification of Issuer signed
by Michael Brand, CFO, Secretary, and Treasurer of LaBarge, which stated that
the “original letter of credit” could not be produced because it was not delivered
to LaBarge and was lost or destroyed. This document also essentially provided
that LaBarge would reimburse First Bank if someone were to present the
original letter of credit and were able to successfully draw on that document.
First Bank, on the day it received LaBarge’s presentation, Monday, February 17,
2003, mailed to LaBarge a letter dishonoring its draw. LaBarge received this
letter on Friday, February 21, 2003. The letter, which was written by First
Bank’s attorney, did not advise that First Bank was holding LaBarge’s
5
No. 07-30441
documents at its disposal, or that First Bank would return the documents to
LaBarge. While LaBarge was waiting for a response from First Bank, Brand
called First Bank officials two times on Wednesday, February 19, 2003. Brand
received no response to his inquiries concerning the draw on the letter of credit
until Adler returned Brand’s call during the afternoon of Thursday, February 20,
2003, and informed Brand that First Bank would not honor the letter of credit
because LaBarge did not include the original letter of credit in its presentation.
On April 11, 2003, LaBarge filed suit against First Bank, asserting claims
for wrongful dishonor, breach of the letter of credit, detrimental reliance, and
breach of a good faith obligation. LaBarge filed a Motion for Leave to Amend
Complaint on November 21, 2003, adding David as a defendant, and adding a
claim of negligent misrepresentation against First Bank and David. The district
court accepted this motion in an order dated January 5, 2004, and David was
added as a party to the case.4 LaBarge also filed a separate suit against First
Bank and David on November 24, 2003. These two suits were consolidated. On
May 4, 2004, First Bank and David filed a motion for summary judgment
against LaBarge. On June 25, 2004, LaBarge filed a motion for partial summary
judgment against the defendants. The district court granted the defendants’
motion for summary judgment and denied LaBarge’s motion for partial
summary judgment, and issued a Ruling on Motion for Summary Judgment and
Motion for Partial Summary Judgment on April 17, 2007. It also granted First
Bank’s Motion for Award of Attorney’s Fees and entered its final judgment on
that date. LaBarge filed a timely notice of appeal on May 8, 2007.
4
In its Second Amended Complaint, LaBarge also added claims against PVF officials,
Charles D. Sylvest, Bruce Wayne Thompson, and Michael Scott Kirby. However, these claims
have been dismissed from the case, and are not at issue in this appeal.
6
No. 07-30441
DISCUSSION
We limit our discussion to the issues raised by the parties on appeal:
whether LaBarge presented the “original” letter of credit with its request to
draw; whether UCP 400, Article 16(e) precludes First Bank from asserting that
the documents LaBarge presented are not in accordance with the terms and
conditions of the letter of credit; and whether the district court erred in granting
summary judgment for First Bank and David on LaBarge’s detrimental reliance
and negligent misrepresentation claims.5 For the reasons stated below, we
reverse the district court’s judgment denying LaBarge’s recovery from First
Bank on the letter of credit and we affirm the district court’s judgment that First
Bank and David were entitled to summary judgment on LaBarge’s detrimental
reliance and negligent misrepresentation claims, and we remand for entry of
appropriate judgment.
The district court’s jurisdiction was based on diversity of citizenship under
28 U.S.C. § 1332(a)(1). The governing substantive law is that of Louisiana.
This court applies a de novo standard of review when determining whether
a district court erred in granting summary judgment. Scottsdale Ins. Co. v. Knox
Park Construction, Inc., 488 F.3d 680, 683 (5th Cir. 2007). Under Federal Rule
of Civil Procedure 56(c), summary judgment is proper when the evidence shows
that “there is no genuine issue as to any material fact and that the movant is
entitled to judgment as a matter of law.”
5
LaBarge also argues that the declaration of First Bank’s expert witness, Professor
Ronald J. Mann, should be disregarded. LaBarge moved to strike the declaration in the trial
court on the basis that Professor Mann lacked qualifications because his methodology did not
comport with Daubert requirements. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 113
S. Ct. 2786 (1993). However, LaBarge did not raise this argument in its original brief before
this court. Because arguments not asserted in an original brief are generally deemed to be
abandoned, we will not address this argument. Haspel & Davis Milling & Planting Co. Ltd.
v. Board of Levee Comm’rs of the Orleans Levee Dist., 493 F.3d 570, 579 n.29 (5th Cir. 2007).
7
No. 07-30441
A. Letters of Credit
Letters of credit, or “credits,” are commercial devices generally used to
relieve the tension between merchants and buyers when the merchant is
hesitant to lose possession of its goods before being paid, but the buyer would
like to have the goods before parting with its money. JAMES J. WHITE & ROBERT
S. SUMMERS, UNIFORM COMMERCIAL CODE, § 26-1 (5th ed. 2008) [hereinafter
WHITE & SUMMERS]. Letters of credit come in two forms, “commercial” and
“standby.” Id. The credit at issue in this case is a standby letter of credit.
In a typical standby letter of credit arrangement, a financial institution,
the “issuer,” serves as something like a guarantor of an amount of money in a
transaction between a buyer, the “customer” or “applicant,” and a seller, the
“beneficiary” of the letter of credit. Id. at § 26-2; see also F.D.I.C. v. Plato, 981
F.2d 852, 854 n.3 (5th Cir. 1993). If the applicant breaches the underlying
agreement with the beneficiary, the beneficiary seeks payment from the issuer
by presenting to the issuer a request for payment and certain documents
specified in the letter of credit, such as documents of title, transport, insurance,
and commercial invoices. Plato, 981 F.2d at 854 n.3; Alaska Textile Co. v. Chase
Manhattan Bank, 982 F.2d 813, 815 (2d Cir. 1992). There is generally a
reimbursement contract (also called an “application agreement”) between the
issuer and the applicant that requires the applicant to reimburse the issuer for
payments made under the letter of credit. Alaska Textile, 982 F.2d at 815;
WHITE & SUMMERS § 26-2.
A standby letter of credit is similar to a guaranty in that it acts as a
protection against default by a customer in a purchase agreement. WHITE &
SUMMERS § 26-1(b). However, a guaranty differs from a standby letter of credit
in that under a standby letter of credit, the beneficiary has bargained for the
right to be paid upon presentation of specific documents, even if the beneficiary
defaults on the underlying contract with the applicant. Id. at § 26-2(a); see also
8
No. 07-30441
David J. Barru, How to Guarantee Contractor Performance on International
Construction Projects: Comparing Surety Bonds with Bank Guarantees and
Standby Letters of Credit, 37 GEO. WASH. INT’L L. REV. 51, 66-67 (2005). The
issuer of a letter of credit may not raise the defenses that the applicant may
assert against payment to the beneficiary. WHITE & SUMMERS § 26-2(a); Barru,
supra, at 67. The issuer’s liability generally turns solely on whether the
beneficiary presents the documents specified in the credit. Id.
The obligation of the issuer to pay the beneficiary is independent of any
obligation of the applicant to the issuer. WHITE & SUMMERS § 26-2. Thus, if the
applicant enters bankruptcy after the letter has been issued, but before it has
been drawn upon, despite the fact that the applicant may not be able to pay the
issuer, the issuer must pay the beneficiary on a properly presented draw on the
letter of credit. Id.
In this case, LaBarge and PVF had an underlying contract for the sale of
pipe. First Bank acted as the “issuer” of the letter of credit, while LaBarge was
the “beneficiary,” and PVF was the “applicant.” The letter of credit is an
“undertaking” (as opposed to a contract) between the First Bank and LaBarge
in which First Bank promised to pay LaBarge if PVF did not pay before thirty
days after the date of LaBarge’s invoices for the sale of pipe and if LaBarge
presented to First Bank specified documents in its timely request to draw on the
credit. Id.
B. UCP 400 and the UCC
The letter of credit in this case is governed by both Article Five of the
Uniform Commercial Code as adopted by Louisiana (the UCC or Article Five)
and the UCP 400. See LA. REV. STAT. ANN. §§ 10:5-101 - 10:5-118 (2003). The
Uniform Customs and Practice (UCP) is a compilation of the usage of the trade
for letters of credit. Banca del Sempione v. Provident Bank of Maryland, 75 F.3d
951, 954 (4th Cir. 1996). Many revisions of the UCP have been issued since the
9
No. 07-30441
International Chamber of Commerce issued the first version in 1930. Alaska
Textile, 982 F.2d at 816. The latest version of the UCP is the UCP 600, which
became effective on July 1, 2007. WHITE & SUMMERS § 26-3(b) n.6. The letter
of credit at issue in this case explicitly incorporates the rules of the UCP 400, the
1983 version of the UCP. See LA. REV. STAT. ANN. § 10:5-116(c) (“Except as
otherwise provided in this Subsection, the liability of an issuer . . . is governed
by any rules of custom or practice, such as the Uniform Customs and Practice
for Documentary Credits, to which the letter of credit . . . is expressly made
subject.”). Thus, in deciding this case, this court must follow the terms of the
UCP 400.
However, Article 5 indicates that “letters of credit that incorporate the
UCP or similar practice will still be subject to Article 5 in certain respects.” Id.
at § 10:5-116(c) cmt. 3. Thus, the incorporation of UCP 400 into the letter of
credit does not render Article 5 completely inapplicable in this case. Id. Instead,
“where there is no conflict between Article 5 and the relevant provision of the
UCP . . . both apply.” Id.; WHITE & SUMMERS § 26-3 (c). However, the UCP 400
governs where there is a conflict between its provisions and those of Article 5.
LA. REV. STAT. ANN. § 10:5-116(c).6
6
The pertinent language LA. REV. STAT. ANN. § 10:5-116(c) is as follows:
“If (i) this Chapter would govern the liability of an issuer . . . under Subsection
(a) or (b); (ii) the relevant undertaking incorporates rules of custom or practice;
and (iii) there is conflict between this Chapter and those rules as applied to that
undertaking, those rules govern except to the extent of any conflict with the
nonvariable provisions specified in [section] 10:5-103(c).”
The “nonvariable provisions” referenced in section 10:5-116(c) are listed in section 10:5-103(c)
as follows:
“With the exception of this Subsection, Subsections (a) and (d), [sections] 10:5-
102(a)(9) and (10), 5-106(d), and 5-114(d), and except to the extent prohibited
in [sections] 10:1-102(3) and 5-117(d), the effect of this Chapter may be varied
by agreement or by a provision stated or incorporated by reference in an
undertaking.”
None of these nonvariable provisions are pertinent to the legal issues in this case. Thus, when
there is a conflict between the provisions of the UCC and the UCP 400 that are pertinent to
this case, the provisions of the UCP 400 apply.
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No. 07-30441
C. The “Original” Letter of Credit
The letter of credit at issue in this case states that “The original
Irrevocable Letter of Credit must be presented with any drawing so that
drawings can be endorsed on the reverse thereof.” First Bank refused to honor
LaBarge’s request to draw on the letter of credit because it presented the
facsimile version of the credit that it received from First Bank on November 26,
2002 instead of the original credit. The district court held that “it is undisputed
that LaBarge did not submit the original letter of credit to First Bank when
LaBarge attempted to draw on the letter of credit.” However, LaBarge contends
that the facsimile letter of credit that it presented to First Bank qualifies as the
original letter of credit. We disagree.
The UCP 400 and Louisiana law provide guidance as to what form of a
letter of credit a beneficiary can present to an issuer. Note three of the UCC
comments to LA. REV. STAT. ANN. § 10:5-104 indicates that letters of credit may
be issued electronically instead of as hard copies (at least when marked by the
relevant bank as “original”). This suggests that a letter of credit transmitted to
a beneficiary via fax machine could be successfully presented to an issuer.
Furthermore, UCP 400, Article 12 states:
“a. When an issuing bank instructs a bank (advising bank) by any
teletransmission to advise a credit . . . and intends the mail
confirmation to be the operative credit instrument . . . the
teletransmission must state ‘full details to follow’ (or words of
similar effect), or that the mail confirmation will be the operative
credit instrument . . . . The issuing bank must forward the operative
credit instrument . . . to such advising bank without delay.
b. The teletransmission will be deemed to be the operative credit
instrument . . . and no mail confirmation should be sent, unless the
teletransmission states ‘full details to follow’ (or words of similar
effect), or states that the mail confirmation is to be the operative
credit instrument . . . .”7
7
An “adviser” is “a person who, at the request of the issuer, a confirmor, or another
adviser, notifies, or requests another adviser to notify, the beneficiary that a letter of credit has
11
No. 07-30441
This language suggests that the facsimile sent to LaBarge by First Bank
might be considered the “operative credit instrument” because it does not state
“full details to follow” or similar language, and does not state that a mail
confirmation will be the operative letter of credit.8
Nonetheless, these provisions do not apply in this case because the letter
of credit specifically provides that LaBarge must present the “original” to
successfully draw. The term “original” is not defined in the credit, Article Five,
or the UCP 400. Article 12 of UCP 400 discusses what should be considered the
“operative credit instrument,” but does not use the term “original.” However, the
been issued, confirmed, or amended.” LA. REV. STAT. ANN. § 10:5-102(a)(1). Thus an “advising
bank” acts as a middle man between the issuer and the beneficiary of a letter of credit. It
“undertakes to the issuer and to the beneficiary accurately to advise the terms of the letter of
credit, confirmation, amendment, or advice received by that person and undertakes to the
beneficiary to check the apparent authenticity of the request to advise.” Id. at § 10:5-107(c).
No advising bank or adviser was utilized in the letter of credit transaction at issue in this case.
Instead, LaBarge dealt directly with the issuing bank.
8
First Bank argues that Article 22 of the UCP 400 describes what should be considered
the “original” letter of credit. This Article states that:
“a. All instructions for the issuance of credits and the credits themselves . . .
must state precisely the document(s) against which payment, acceptance or
negotiation is to be made. . . .
c. Unless otherwise stipulated in the credit, banks will accept as originals
documents produced or appearing to have been produced:
i by reprographic systems
ii by, or as the result of, automated or computerized systems
iii as carbon copies,
If marked as originals, always provided that, where necessary, such documents
appear to have been authenticated.”
This language addresses what “documents” should be considered originals. This Article only
appears to apply to the authenticity of supporting documents, not to letters of credit
themselves because it indicates that the instructions regarding the documents it describes
should be contained in the letter of credit. Furthermore, as Article 12 specifically addresses
what should be considered an “operative credit instrument,” and contains different
requirements than those found in Article 22 for original “documents,” the two articles would
conflict if they both applied to the letters of credit themselves. Moreover, the facsimile in
question is not “marked as [an] original[].” However, because the letter of credit at issue in
this case specifically requires the “original” credit to be presented for a successful draw, and
we hold that the language of the credit, not any provisions of UCP 400, govern this issue, we
need not now address this issue.
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No. 07-30441
plain meaning of the term is clear. In its definition of “original,” a leading legal
dictionary states that “[a]s applied to documents, the original is the first copy or
archetype; that from which another instrument is transcribed, copied, or
imitated.” BLACK’S LAW DICTIONARY 1099 (6th ed. 1990). Thus, it is clear that
the term “original” in the instant letter of credit referred to the actual first copy
of the document. Though a facsimile copy may in certain circumstances qualify
as an “operative credit instrument” under UCP 400, Article 12, it is not
necessarily the “original” letter of credit. Because the letter of credit expressly
required LaBarge to present the “original” of the credit, LaBarge could not
present anything other than the document from which the facsimile copy was
made in order to successfully draw.9 See Brul v. MidAmerican Bank & Trust
Co., 820 F. Supp. 1311, 1314 (D. Kan. 1993) (holding that when the letter of
credit required the “original” credit to be presented, the beneficiaries could not
force the issuing bank to honor a draw when they presented a photocopy of the
credit); Airlines Reporting Corp. v. Norwest Bank, 529 N.W.2d 449, 450, 452-53
(Minn. Ct. App. 1995) (holding that when the beneficiary had received but lost
the original credit, and the credit stated that when “the draft is presented, it
must be accompanied by the Letter of Credit,” presentation of an altered copy of
the letter of credit did not constitute strict compliance with the terms of the
credit).
Furthermore, First Bank’s actions do not alter the plain meaning of the
term “original” in the letter of credit. LaBarge suggests that the words that
First Bank wrote on the cover sheets to the facsimile copies of the credit that it
sent to LaBarge on November 25 and 26, 2002 indicate that the facsimile copy
is the original letter of credit. On the facsimile cover sheet sent November 25,
9
Moreover, the credit facially contemplates possible multiple draws and its express
requirement that draws be endorsed on “the original Irrevocable Letter of Credit” obviously
contemplates that there is only one original, and that must be the one and only document
actually signed by the two bank officers.
13
No. 07-30441
2002, David wrote “Here is the letter of credit you requested.” On the cover
sheet sent with the facsimile on November 26, 2002, he wrote, “Here is the
revision to the letter of credit you requested.” LaBarge suggests that by
referring on November 25 to the facsimile version as “the” letter of credit, and
by making an arguably somewhat similar reference on November 26, First Bank
indicated that the facsimiles were the original copies of the credit. This
argument is without merit. The language on the cover sheets merely indicates
that the facsimile is a copy of the original credit. It does not alter the plain
meaning of the term “original” as it is used in the text of the credit.
Moreover, LaBarge suggests that the facsimile copy of the credit is the
original because First Bank represented to LaBarge that LaBarge had
everything necessary to secure payment under the credit when it only had the
facsimile copy. However, these alleged representations only demonstrate that
First Bank gave faulty information, not that the facsimile copy should be
considered the original.10
The language of the letter of credit is clear. Therefore, we hold that the
district court properly concluded that LaBarge did not present the “original”
letter of credit to First Bank when it presented the November 26, 2003 facsimile
copy of the credit to First Bank in its attempt to draw in February of 2003 and
that LaBarge’s only attempted draw on the letter of credit was hence invalid.
D. UCP 400, Article 16(e) Preclusion
LaBarge argues that First Bank should have to honor the letter of credit
because it did not comply with the terms of the UCP 400 when dishonoring
LaBarge’s request to draw. Under UCP 400, Article 16(c) and (d), an issuing
bank must take specific steps when dishonoring a request to draw on a letter of
10
Moreover, the statements and conduct of LaBarge in the last half of December 2002,
January 2003 and the first week of February 2003, reflect that, at least by then, it well
understood that the November 26, 2003 facsimile was not what the letter of credit referred to
as “the original Irrevocable Letter of Credit” that “must be presented with any drawing.”
14
No. 07-30441
credit.11 First, the issuing bank has a “reasonable time” to examine the
documents and decide whether to pay or dishonor the request to draw. UCP 400,
Article 16(c). Next, if the bank decides to dishonor, it then “must give notice to
that effect without delay by telecommunication or, if that is not possible, by
other expeditious means . . . to the beneficiary,” and must state the discrepancies
on which it bases its decision to dishonor. UCP 400, Article 16(d). Finally, it
must state whether it will hold the documents or return them to the beneficiary.
Id. If a bank does not comply with these steps when dishonoring a request to
draw, it “shall be precluded from claiming that the documents are not in
accordance with the terms and conditions of the credit.” UCP 400, Article 16(e).
LaBarge contends, and this court agrees, that First Bank did not comply with
Article 16(d) when dishonoring LaBarge’s request to draw because once First
Bank decided not to honor the draw it did not then provide notice of dishonor
“without delay,” and it did not “without delay” state the discrepancies in respect
11
In relevant part, UCP 400, Article 16 states:
“c. The issuing bank shall have a reasonable time in which to examine the
documents and to determine as above 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, to the bank from which it received the documents (the
remitting bank), or to the beneficiary, if it received the documents directly from
him. Such notice must state the discrepancies in respect of which the issuing
bank refuses the documents and must also state whether it is holding the
documents at the disposal of, or is returning them to the presentor (remitting
bank or the beneficiary, as the case may be). The issuing bank shall then be
entitled to claim from the remitting bank of any reimbursement which may
have been made to that bank.
e. If the issuing bank fails to act in accordance with the provisions of
paragraphs (c) and (d) of this article and/or fails to hold the documents at the
disposal of, or to return them to, the presentor, the issuing bank shall be
precluded from claiming that the documents are not in accordance with the
terms and conditions of the credit.”
15
No. 07-30441
of which it refused to honor or inform LaBarge of the disposition of the
documents it presented.
The district court held that LaBarge did not strictly comply with the terms
of the credit because it did not present the “original” letter of credit in its request
to draw. Therefore, it concluded that First Bank properly refused to honor
LaBarge’s request to draw. The district court also held that First Bank was not
precluded by UCP 400, Article 16(e) from asserting that the documents that
LaBarge presented were not in accordance with the terms and conditions of the
credit. LaBarge knew that the letter of credit required presentation of the
original letter of credit, but still submitted a facsimile copy with its request.
Thus, the court held that under Fifth Circuit precedent, Philadelphia Gear Corp.
v. Central Bank, 717 F.2d 230, 238 (5th Cir. 1983), LaBarge could not fairly
argue that it was not timely and sufficiently notified of the discrepancy in
presentation. The district court also found that First Bank did notify LaBarge
of its intention to dishonor the request to draw “without delay by
telecommunication.” UCP 400, Article 16(d).
1. Strict Compliance
Under the doctrine of strict compliance, which applies to this transaction
under Louisiana law, the documentation that the beneficiary of a letter of credit
presents to the issuer in order to draw on a credit must comply exactly with the
requirements of the credit or the issuer is entitled to refuse payment. LA. REV.
STAT. ANN § 10:5-108(a);12 Office of Conservation of the State of Louisiana v.
Progressive Nat’l Bank of Rayne, 573 So.2d 1324, 1327 (La. Ct. App. 1991)
12
LA. REV. STAT. ANN § 10:5-108(a) states:
“Except as otherwise provided in [section] 10:5-109, an issuer shall honor a
presentation that, as determined by the standard practice referred to in
Subsection (e), appears on its face strictly to comply with the terms and
conditions of the letter of credit. Except as otherwise provided in [section] 10:5-
113 and unless otherwise agreed with the applicant, an issuer shall dishonor a
presentation that does not appear so to comply.”
16
No. 07-30441
(indicating that strict compliance with the terms of a letter of credit is the law
in Louisiana); Schweibish v. Pontchartrain State Bank, 389 So.2d 731, 737 (La.
App. 1980) (indicating that under Louisiana law, an issuing bank was “entitled
to demand strict compliance with the conditions stated in the letters of credit
issued to [the] plaintiff”). Thus, an issuer properly dishonors a request to draw
if the documents presented do not strictly comply with the credit’s requirements
and it timely and sufficiently notifies the beneficiary of its intent to dishonor.
Philadelphia Gear, 717 F.2d at 236.
The facts regarding the documents presented to First Bank by LaBarge
are not disputed. In its request to draw, LaBarge presented the facsimile copy
of the letter of credit that it received from First Bank on November 26, 2002.
However, the letter of credit required that “the original Irrevocable Letter of
Credit must be presented with any drawing so that drawings can be endorsed
on the reverse thereof.” Because the facsimile version of the letter of credit was
not “the original,” LaBarge did not strictly comply with the terms of the letter
of credit in making its request to draw. If First Bank had timely and properly
dishonored LaBarge’s presentation, it would have properly denied LaBarge’s
request because LaBarge did not strictly comply with the terms of the letter of
credit. However, this case is complicated by the fact that First Bank did not
follow the proper procedures when dishonoring LaBarge’s request to draw on the
letter of credit.
2. Timeliness and Sufficiency of Notice of Dishonor
First Bank failed to comply with the requirements of UCP 400, Article
16(d), when dishonoring LaBarge’s presentation under the letter of credit. First,
First Bank failed to give notice of its decision (and of the document discrepancies
in respect to which it refused) “without delay by telecommunication,” and second,
when it did notify LaBarge that it would dishonor the presentation, it failed to
state whether it was going to hold LaBarge’s documents or return them to
17
No. 07-30441
LaBarge. Article 16(e) of UCP 400 provides that when the issuing bank does not
follow one of these required steps when dishonoring a draw, it “shall be
precluded from claiming that the documents are not in accordance with the
terms and conditions of the credit.”
a. Timeliness of Notice
LaBarge contends that First Bank did not give timely notice under UCP
400, Article 16(d), which requires that “[i]f the issuing bank decides to refuse the
documents [in a presentation], it must give notice [to the beneficiary] to that
effect without delay by telecommunication or, if that is not possible, by other
expeditious means . . .” and that notice also “must state the discrepancies in
respect of which the issuing bank refuses the documents and must also state
whether it is holding the documents at the disposal of, or is returning them to
the presentor.” LaBarge contends that First Bank did not give notice by
telecommunication and did not give notice “without delay.”
The district court held that First Bank timely notified LaBarge that it
would not honor the presentation. It noted that the UCP 400 did not define
“without delay,” but that Article 5 provides that “[a]n issuer has a reasonable
time after presentation, of at least three days, but not beyond the end of the
seventh business day of the issuer after the day of its receipt of documents . . .
to honor . . . [or] to give notice to the presenter of discrepancies in the
presentation.” LA. REV. STAT. ANN. § 10:5-108(b). Thus, the court concluded that
First Bank complied with the requirements of Louisiana law by giving notice by
telecommunication three days after the presentation. It held that the letter,
which LaBarge received on February 21, 2003 (four days after First Bank
received and decided to deny LaBarge’s requested draw), and the phone call from
Adler on February 20, 2003 (three days after First Bank received and decided
to deny the request) were timely notice of dishonor. We disagree.
18
No. 07-30441
The district court erred in concluding that LA. REV. STAT. ANN. §
10:5-108(b) provided the relevant time for giving notice in this case.13 UCP 400
does not define or explain the meaning of “without delay.” However, the lack of
an explicit definition of the time period that constitutes notice “without delay”
does not indicate that section 10:5-108(b) applies in place of or in addition to
UCP 400, Article 16(d). The terms of UCP 400 (requiring notice “without delay”
after “issuing bank decides to refuse the documents”) are clear and
unambiguous, and they conflict with the terms of section 10:5-108(b) to the
extent that the latter provides that notice of dishonor and of discrepancies in the
presentation is always timely if given within three business days of
presentment. Thus, this court should apply only the terms of the UCP 400 to
this case. See LA. REV. STAT. ANN. § 10:5-116(c) (indicating that in most cases
when a letter of credit incorporates the UCP, and the terms of the UCP conflict
with the terms of the UCC, the terms of the UCP govern);14 see also Alaska
Textile, 982 F.2d at 821-23 (holding that when determining what constitutes a
“reasonable time” under UCP 400, Article 16(c) (time for issuer to make decision
whether to honor), it was improper to apply the UCC’s three day time limit for
what constitutes a “reasonable time”).
As the Southern District of New York has noted when interpreting the
meaning of the term “without delay” as it is used in UCP 400, Article 16(d):
13
Section 10:5-108(b) provides:
“(b) An issuer has a reasonable time after presentation, of at least three
days, but not beyond the end of the seventh business day of the issuer after the
day of its receipt of documents:
(1) to honor,
(2) if the letter of credit provides for honor to be completed more than
seven business days after presentation, to accept a draft or incur a deferred
obligation, or
(3) to give notice to the presenter of discrepancies in the presentation.”
14
Respecting § 10:5-116(c), see supra, note 6.
19
No. 07-30441
“UCP 400 does not specifically define the term[] . . . ‘without delay.’
However, ‘the phrase [‘without delay’] is akin to ‘immediate (at
once), instant, instantaneous, instantly, prompt.’ All of these
synonyms connote a sense of urgent action within the shortest
interval of time possible.” Kuntal, S.A. v. Bank of New York, 703 F.
Supp. 312, 313-14 (S.D.N.Y. 1989) (quoting Bank of Cochin Ltd. v.
Manufacturers Hanover Trust Co., 808 F.2d 209, 213 (2d Cir. 1986),
a case discussing a similar notification “without delay” requirement
under the 1974 version of the UCP).
Furthermore, the term is defined as “[i]nstantly; at once,” or “[w]ithin the time
reasonably allowed by law.” BLACK’S LAW DICTIONARY 1632 (8th ed. 2004). As
UCP 400, Article 16(d) does not otherwise define “without delay” under this
provision, that phrase must at least mean in the shortest time period reasonably
possible. Thus, Article 16(d)’s requirement that an issuer give notice “without
delay” commands that it give notice as quickly as reasonably possible after it has
decided to dishonor a draw. Because the language of the UCP 400, Article 16(d)
is clear, although other sources of law or other articulations of customary
practices may provide specific time periods during which an issuer ‘s notice of
dishonor will always be timely, such sources are not controlling in this case. As
the UCP 400 does not provide a specific time during which an issuer’s notice of
dishonor will always be timely, none should be inferred into its provisions.
What constitutes “without delay” depends on the facts of each case. One
court has even held that failure to notify on the day that the decision to dishonor
was made was not notification “without delay.” Datapoint Corp. v. M&I Bank
of Hilldale, 665 F. Supp. 722, 727 (W.D. Wis. 1987). The Datapoint court held
that the issuer did not notify the beneficiary of dishonor “without delay” under
UCP 400 when it mailed notice of dishonor on the day it received the request
instead of notifying the beneficiary by telephone, despite the fact that it told the
beneficiary of the dishonor via telephone the next day when the beneficiary
called the issuer.
20
No. 07-30441
Under the common meaning of the term, First Bank clearly did not notify
LaBarge “without delay by telecommunication” (or otherwise) that it would not
honor the presentation (or of any discrepancy in the documents presented).
After First Bank received LaBarge’s presentation on Monday, February 17,
2003, it waited until February 20, 2003 to call LaBarge to inform the company
that it would not honor the draw. However, First Bank determined not to honor
LaBarge’s request to draw on February 17, 2003, the day it received the
presentation, and First Bank wrote a letter to LaBarge on that date informing
LaBarge of its decision. Nonetheless, First Bank waited over three days, from
the morning of Thursday, February 17, 2003 until the afternoon of February 20,
2003, to inform LaBarge by telephone that it would not honor the presentation.
Furthermore, when First Bank did call LaBarge, it was only in response to
LaBarge’s two February 19 phone calls. The letter dated February 17, 2003
(which is not notice “by telecommunication”) arrived at LaBarge on February 21,
2003, four days after First Bank had received the presentation. These
communications cannot be considered notice “without delay” as they were by no
means within the shortest reasonably possible interval. First Bank could have
easily replied to LaBarge virtually immediately, or at least in fewer than three
days, by simply picking up the telephone and calling the company or faxing the
February 17 letter to it. It did not even attempt to do so. Therefore, we hold
that as a matter of law, under UCP 400, Article 16(d), First Bank did not notify
LaBarge “without delay” that it would not honor its presentation.
b. Disposition of Documents
LaBarge also argues that First Bank must pay on the letter of credit
because it failed to address the disposition of LaBarge’s documents in any of the
notices of dishonor that it did give, in violation of UCP 400, Article 16(d). Article
16(d) provides that when notifying a beneficiary of dishonor, the issuer must
state “whether [it] is holding the documents at the disposal of, or is returning
21
No. 07-30441
them to the [beneficiary].” First Bank does not dispute that it failed to provide
LaBarge with this information when it notified LaBarge that it would not honor
the presentation.
3. Possible Exceptions to Preclusion Under UCP 400, Article 16(e)
Because First Bank failed to comply with the requirements of UCP 400,
Article 16(d) when dishonoring LaBarge’s presentation, UCP 400, Article 16(e)
provides that, it “shall be precluded from claiming that the documents are not
in accordance with the terms and conditions of the credit.” (See note 11 supra.)
However, pertinent case law suggests two possible exceptions to this preclusion
requirement.
a. Presentation of documents with known defects
LaBarge did not and apparently could not strictly comply with the terms
of the letter of credit when presenting it because it did not have the original
credit. Furthermore, it had previously been told by First Bank that the
presentation would not be honored absent this essential document. Thus,
LaBarge may have knowingly presented discrepant documents to First Bank.15
The district court held that because LaBarge knowingly presented an improper
document when making its presentation to First Bank, the preclusion provision
of Article 16(e) should not be enforced in this case.
The district court’s decision was guided by Philadelphia Gear, a Fifth
Circuit case in which Louisiana law applied, as it does here. 717 F.2d 230. In
15
LaBarge argues that it did not knowingly present discrepant documents because it
thought that the facsimile copy of the letter of credit successfully could be presented. First
Bank disputes this contention, arguing that LaBarge knew at the time it requested the draw
that the original credit was required as demonstrated by the fact that, among other things,
LaBarge wrote in its indemnification proposal that it included in its presentation that the
“original letter of credit” could not be produced because it was not delivered to LaBarge and
was lost or destroyed. We note that it is clear that First Bank then knew LaBarge was
presenting a facsimile and that LaBarge then knew that First Bank knew this and LaBarge
took the position that the facsimile sufficed, knowing that First Bank took the position it did
not. However, as we hold that whether LaBarge knowingly presented discrepant documents
is immaterial, we will not now address this particular issue.
22
No. 07-30441
that case, the beneficiary knowingly presented discrepant documents in an
attempt to draft on a letter of credit. Id. at 238. The issuing bank timely
notified the beneficiary that the documents did not comply with the terms of the
credit, but did not specify the defects on which it based the dishonor. Id. at 233.
The issuer also did not return the documents to the beneficiary or inform the
beneficiary that it would hold the documents on file for inspection. Id. The
district court held that the issuer was estopped from raising the documents’
deficiencies as a defense because it violated the 1974 revision of the UCP (UCP
290) by failing to return the documents or notify the beneficiary that they were
being held at the issuer’s disposal. Id. On appeal, this court held that with
respect to the drafts that the beneficiary knew to be defective, the issuer’s notice
was not deficient. Id. at 237. It held that because a beneficiary knowingly
presented defective documents, the issuer was not required by the UCP to notify
the beneficiary of the precise reasons it would not accept the nonconforming
documents when it dishonored the beneficiary’s request to draw. Id. at 238. We
there stated that “[i]t would be a strange rule indeed under which a party could
tender drafts containing defects of which it knew and yet attain recovery on the
ground that it was not advised of them.” Id.
The district court improperly concluded that Philadelphia Gear applies to
this case. Philadelphia Gear is distinguishable from the present case in multiple
respects. First, the letter of credit at issue in Philadelphia Gear was subject to
the UCP 290, not the UCP 400, and the two versions of the UCP differ
significantly.16 See id. at 233. Under UCP 290, when dishonoring a draw, an
16
The relevant provisions of UCP 290, Article 8 state:
“(c) If, upon receipt of the documents, the issuing bank considers that they
appear on their face not to be in accordance with the terms and conditions of the
credit, that bank must determine, on the basis of the documents alone, whether
to claim that payment, acceptance or negotiation was not effected in accordance
with the terms and conditions of the credit.
23
No. 07-30441
issuer is not required, as it is under UCP 400, to “state the discrepancies in
respect of which [it] refuses the documents.” UCP 400, Article 16(d). Instead,
under UCP 290 the issuer must to give notice to the beneficiary of dishonor
“stating the reasons therefor.” UCP 290, Article 8(e). The Philadelphia Gear
court refused to find a requirement that upon dishonor, the issuer should
identify specific discrepancies in a presentation where such a requirement did
not exist in UCP 290. Philadelphia Gear, 717 F.2d at 237. However, this case
involves a violation of a clear rule that issuers must follow when dishonoring a
presentation. LaBarge is not requesting that this court imply a rule that is not
explicitly stated in the UCP 400, but only that it enforce the clear language of
Article 16(d) and (e).
Next, Philadelphia Gear did not involve “strict preclusion” language like
that found in UCP 400, Article 16(e). Article 8(f) of UCP 290 applies similar
preclusion language only when the issuer does not hold the documents at the
disposal of the remitting bank or return the documents to the remitting bank.
The UCP 290 preclusion language does not apply when an issuer does not state
the reasons for dishonoring a draw. In Philadelphia Gear, the problems with the
issuer’s notice of dishonor were that it did not inform the beneficiary of the
precise reasons it considered the presented documents to be nonconforming and
(d) The issuing bank shall have a reasonable time to examine the documents
and to determine as above whether to make such a claim.
(e) If such claim is to be made, notice to that effect, stating the reasons therefor,
must, without delay, be given by cable or other expeditious means to the bank
from which the documents have been received (the remitting bank) and such
notice must state that the documents are being held at the disposal of such bank
or are being returned thereto.
(f) If the issuing bank fails to hold the documents at the disposal of the remitting
bank, or fails to return the documents to such bank, the issuing bank shall be
precluded from claiming that the relative payment, acceptance or negotiation
was not effected in accordance with the terms and conditions of the credit.” Id.
at 234.
24
No. 07-30441
that it did not return or inform the beneficiary or remitting bank that it would
hold at the disposal of the remitting bank the drafts and supporting documents.
717 F.2d at 233. Thus, the court’s decision to refuse to preclude the issuing bank
from asserting the discrepancies because it did not advise the beneficiary of
them did not involve the strict preclusion language set forth in the UCP 400.
Instead, the court simply refused to estop the issuer from asserting document
discrepancies as a basis for dishonor. Id. at 234, 238.
Philadelphia Gear is also distinguishable in that it relied on a
presentation warranty that is no longer a part of Louisiana law. The court
expressly relied on a former provision of the Louisiana Code that stated that in
a presentation, the beneficiary warrants that its drafts conform to the terms of
the credit. Id. at 238 (applying LA. REV. STAT. ANN. § 10:5-111 (1974)).
The pertinent warranty provision of the Louisiana code was changed in
January 2000, and now states that “if its presentation is honored, the beneficiary
warrants . . . to the issuer . . . and the applicant that there is no fraud or forgery
of the kind described in [section] 10:5-109(a).” LA. REV. STAT. ANN. § 10:5-
110(a)(1). Thus, now, a beneficiary provides no warranty under Louisiana law
unless a presentation is honored, which it was not in this case. Furthermore,
the warranty only promises no fraud or forgery, not that a presentation complies
exactly with the terms of the credit. Therefore, unlike in Philadelphia Gear, the
warranty of presentation cannot be used by First Bank in this case because First
Bank did not honor LaBarge’s presentation. LA. REV. STAT. ANN. § 10:5-
110(a)(1).17
17
As First Bank notes, Philadelphia Gear also relied upon a warranty of good faith
which still applies to all transactions under Article 5. LA. REV. STAT. ANN. § 10:1-203 (“Every
contract or duty within this Title imposes an obligation of good faith in its performance or
enforcement.”). Nonetheless, because the same presentation warranty no longer applies,
Philadelphia Gear is distinguishable from this case. Moreover, there is no evidence of relevant
lack of good faith on LaBarge’s part. See note 15 supra.
25
No. 07-30441
At least two other circuits have refused to apply Philadelphia Gear. In
Kerr McGee Chem. Corp. v. F.D.I.C., 872 F.2d 971, 973-74 (11th Cir. 1989), the
Eleventh Circuit refused to apply the holding of Philadelphia Gear because the
letter of credit at issue in that case incorporated UCP 400 instead of UCP 290.
It noted that the UCP 400 “provides that the bank must state its reasons for
dishonor, and that failure to state these reasons will preclude a later claim of
discrepancy.” Id. at 974. Similarly, in Hamilton Bank v. Kookmin Bank, 245
F.3d 82, 92 (2d Cir. 2001), the Second Circuit refused to apply Philadelphia Gear
in part because the letter of credit in Hamilton Bank incorporated UCP 500,
which has preclusion language similar to that in UCP 400, Article 16(e). The
court concluded that the preclusion rule “is mandatory and admits of no
exception.” Id. at 92. Thus, it rejected the holding of Philadelphia Gear.
Moreover, Voest-Alpine Trading USA Corp. v. Bank of China, 288 F.3d
262, 264 (5th Cir. 2002), a beneficiary knowingly presented discrepant
documents when attempting to draft on a credit that incorporated UCP 500. The
beneficiary and its advising bank knew of the defects in the documents it
presented, but presented them in hopes that the applicant would waive these
defects. Id. at 264. This court held that it would not reach the issue of whether
the documents presented were proper because the issuing bank did not provide
timely notice of dishonor, and was precluded from asserting that the documents
did not conform to the terms of the credit. Id. at 267. Voest-Alpine did not even
cite Philadelphia Gear. Moreover, we recognized in Voest-Alpine that
beneficiaries often present defective documents to issuers when drawing on
letters of credit in part because the applicant may waive the deficiencies in
presentation. Id. at 266 (5th Cir. 2002) (quoting Alaska Textile, 982 F.2d at 824)
(“as many as half of the demands for payment under letters of credit are
discrepant, yet, in the vast majority of cases, the account party waives the
discrepancies and authorizes payment.”); WHITE & SUMMERS § 26-5(b).
26
No. 07-30441
For the reasons stated, we decline to apply Philadelphia Gear to this case
by holding that a beneficiary cannot knowingly present defective documents and
obtain recovery based on untimely and insufficient notice of dishonor by the
issuer under UCP 400, Article 16(e).
b. The Incurable Defect Exception
First Bank relies on LeaseAmerica Corp. v. Norwest Bank Duluth, 940 F.2d
345, 349-50 (8th Cir. 1991). In LeaseAmerica, as in this case, when dishonoring
a request to draw, the issuing bank did not notify the beneficiary whether it was
holding or returning the presented documents to the beneficiary. Id. at 349.
The Eighth Circuit held that the failure of the bank to comply with that UCP
400, Article 16(d) requirement did not preclude it from dishonoring the draw
because the defects in the beneficiary’s presentation were not curable.18 Id.
(“LeaseAmerica cannot avoid the adverse results of an incurably defective
compliance by invoking a strict compliance standard to the conduct of the Bank
or by applying the provisions of the UCP [400].”). It explained that the language
of UCP 400, Article 16(e) is meant to provide a beneficiary with the opportunity
to cure defects in its presentation, so if the defects cannot be cured, the
preclusion rule should not be enforced. Id. at 349-50.
This court made a similar statement in dicta in Heritage Bank v. Redcom
Laboratories, Inc., 250 F.3d 319, 327 (5th Cir. 2001), a case applying Texas law.
In Heritage Bank, the issuing bank dishonored a letter of credit, but did not
notify the beneficiary of the deficiencies in the presentation, which violated the
preclusion rule of the UCP 500. Id. This court held that the issuing bank
waived all discrepancies related to the presentation because it did not notify the
beneficiary of the deficiencies, the defects could have been cured, and the
beneficiary would suffer prejudice if it were not notified of the defects. Id. In
18
The court observed that “Minnesota law applies to this case, but the parties have
cited us no authority in point and we have found none.” Id.
27
No. 07-30441
dicta, the court suggested, citing a Texas case, that it may have applied the
incurable defect exception to the UCP 500 preclusion rule had the defect at issue
in the presentation been incurable. Id. (“If the presentment were untimely, no
cure would be possible, and the bank had no duty to notify Redcom of the
defect.”). But the court concluded that Redcom’s presentment was timely, so
Redcom could have cured any defects. Id.19
However, other courts have rejected the incurable defect exception to the
preclusion rule and have held that the preclusion rule should be strictly
enforced. See Toyota Tsusho Corp. v. Comerica Bank, 929 F. Supp. 1065, 1073
(E.D. Mich. 1996) (referring to the preclusion rule of UCP 400, Article 16(e) as
“strict preclusion”). Under the strict preclusion theory of UCP 400, Article 16(e),
if an issuer does not comply with the terms of Articles 16(c) and (d), it is
automatically precluded from asserting its right to offer valid grounds for
rejecting a presentation. Id. The beneficiary need not demonstrate “detrimental
reliance or ability to cure” the deficiencies in the documents in order for Article
16(e) preclusion to apply. Id. at 1073-74 (declining to apply Lease-America). See
also Hamilton Bank, 245 F.3d at 92 (stating that the preclusion rule set forth in
UCP 500, Article 14(e) presents “mandatory” language that “admits of no
exception”); Amwest Sur. Ins. Co. v. Concord Bank, 248 F. Supp. 2d 867, 877
(E.D. Mo. 2003) (“To balance the rule of strict compliance, Article 14 [of UCP
500] provides for a rule of strict preclusion.”); Banque de L’Union Hatienne v.
Manufacturers Hanover Int’l Banking Corp., 787 F. Supp. 1416, 1423 (S.D. Fla.
19
In Wing On Bank Ltd v. American National Bank & Trust, 457 F.2d 328 (5th Cir.
1972), a Florida law case, we held that the issuing bank’s failure to timely notify of defects in
the documents presented with the draw was immaterial because the beneficiary “failed to
establish that it was prejudiced by the delay.” Id. at 329. However the opinion does not
indicate any of the relevant terms of the letter of credit respecting this issue other than to note
that it was subject to some unspecified version of the UCP. As with UCP 290 (see note 16
supra), this pre-1968 UCP may have had no preclusion rule applicable to failure to give timely
notice of defects in documents presented.
28
No. 07-30441
1991) (rejecting the plaintiff’s argument that strict preclusion under Article 16(e)
of UCP 400 does not apply when the defect in presentation is incurable).
We decline to apply the Lease-America incurable defect approach here. We
note that in Lease-America notice of dishonor and of discrepancies was held
timely given, but merely failed to also include a statement whether the issuer
“was holding or returning the documents.” Id. at 349. Here, there was not any
timely notice of either dishonor or of the defects in the documents presented, in
addition to a lack of notice of whether the issue was holding or returning the
documents. Moreover, in Lease-America the attempt to draw was made on the
last day, and the documents submitted reflected that the condition that the
applicant have at least ten days notice of default before the draw was not met,
so the incurable nature of the defect was then facially evident and certain. Here,
however, the attempted draw was made on Monday, February 17 and the letter
of credit remained valid on February 23, so it was not necessarily or facially
impossible on February 17 for the original letter to have been found and timely
submitted.
More importantly, we conclude that the Louisiana courts would not adopt
the incurable defect exception. While we realize that what is ultimately
controlling here, by virtue of LA. REV. STAT. ANN. § 10:5-116(c) (see note 6,
supra), is UCP 400 Article 16(d) and (e) (see note 11 supra), nevertheless the
post Lease-America revision of UCC Article 5 reflected in LA. REV. STAT. ANN.
10:5-108, made effective January 1, 2000, plainly indicates the legislative intent
to apply a rule of strict preclusion, rather than prejudice to the beneficiary, in
respect of the issuer’s failure to timely give notice of dishonor and defects in the
presentation. R.S. 10:5-108(c) provides:
“(c) Except as otherwise provided in Subsection (d) [relating to
fraud, forgery and expiration of the letter before presentation], an
issuer is precluded from asserting as a basis for dishonor any
29
No. 07-30441
discrepancy if timely notice is not given, or any discrepancy not
stated in the notice if timely notice is given.”
The UCC comment to this amendment of Article 5 (which appears in West’s
Louisiana Revised Statutes just following R.S. 10:5-108) includes the following:
“3. The requirement that the issuer send notice of the
discrepancies or be precluded from asserting discrepancies is new to
Article 5. It is taken from the similar provision in the UCP and is
intended to promote certainty and finality.
The section thus substitutes a strict preclusion principle for
the doctrines of waiver and estoppel that might otherwise apply
under Section 1-103. It rejects the reasoning in Flagship Cruises
Ltd. v. New England Merchants’ Nat. Bank, 569 F.2d 699 (1st Cir.
1978) and Wing on Bank Ltd. v. American Nat. Bank & Trust Co.,
457 F.2d 328 (5th Cir. 1972) where the issuer was held to be
estopped only if the beneficiary relied on the issuer’s failure to give
notice.
Assume, for example, that the beneficiary presented
documents to the issuer shortly before the letter of credit expired,
in circumstances in which the beneficiary could not have cured any
discrepancy before expiration. Under the reasoning of Flagship and
Wing On, the beneficiary’s inability to cure, even if it had received
notice, would absolve the issuer of its failure to give notice. The
virtue of the preclusion obligation adopted in this section is that it
forecloses litigation about reliance and detriment.”
As the language of UCP 400 Article 16(d) and (e) does not on its face suggest an
incurable defect exception and the jurisprudence is divided, we believe that the
Louisiana courts would not apply such an exception. We also observe that
WHITE & SUMMERS cites Lease-America as an example of decisions “to require
some level of detrimental reliance on the beneficiary’s part before finding
preclusion,” id. § 26-8 at 193 & n.6, and goes on to state that “In the previous
edition of this treatise, we argued that such holdings were incorrect, and the new
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No. 07-30441
provisions on strict preclusion in the UCC and UCP indicate that the drafters
agreed.” Id. at 193.20
First Bank is strictly precluded by UCP 400 Article 16(e) from raising the
defects in LaBarge’s presentation. The district court’s judgment in favor of First
Bank on LaBarge’s claim against it under the letter of credit is reversed and the
case is remanded for the district court to enter judgment in favor of LaBarge on
that claim. The court should award LaBarge the amount of its draw on the
letter of credit, namely $143,613.40, plus any appropriate legal interest under
Louisiana law, less any payments made by PVF to LaBarge for the purchase of
the pipe.21 The district court should also award LaBarge its attorney’s fees and
other litigation expenses on its letter of credit claim (but not its other claims)
under LA. REV. STAT. ANN. § 10:5-111(e).
.
E. Detrimental Reliance and Negligent Misrepresentation
Claims
20
See also the following from WHITE & SUMMERS concerning current UCP provisions
comparable to UCP 400 sections 16(d) & (e), viz:
“In effect, these sections are the quid pro quo for the strict compliance
requirements. While the beneficiary must strictly comply in its presentation,
so too must the issuer give notice of the deficiencies in a prescribed manner or
forever waive the right to raise the issue of defective presentation. These notice
requirements are an offsetting balance for the strict compliance requirements.”
Id.
In the referenced previous (4th) edition of WHITE & SUMMERS, the following passage
appears (§ 26-9(b)) in the discussion of Lease-America:
“[The doctrine] that preclusion does not apply if beneficiary would be unable to
cure is an equitable encroachment on the strict rules of the UCP. Courts should
not be invited to ignore preclusion rules whenever notice by the issuer could not
cure. ‘Preclusion’ is different from an ‘estoppel’ that would be dependent on
reliance; ‘preclusion’ is a strict rule requiring no reliance and designed to make
life simple for beneficiaries, issuers and courts.” Id.
21
LaBarge admits that PVF has paid it a portion of the debt it owes LaBarge for the
pipe. In PVF’s proposed bankruptcy plan, filed in October 2003, PVF is to pay the said entire
then remaining debt to LaBarge, and has apparently issued LaBarge a note for that amount
on which PVF has made some payments. The district court should also consider whether to
make any provision respecting that note and if so, what.
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No. 07-30441
Based on the alleged misleading statements that David made to Mannhard
regarding LaBarge’s security under the letter of credit on November 26, 2002,
LaBarge brings a claim against First Bank for detrimental reliance22 and one for
negligent misrepresentation against both First Bank and David. The district
court properly granted summary judgment against LaBarge on both of these
claims.
As an element of these claims, LaBarge must prove that it reasonably or
justifiably relied on First Bank’s alleged statements and assurances.
Detrimental reliance is defined under LA. CIV. CODE ANN. art. 1967 (2008), which
states that “[a] party may be obligated by a promise when he knew or should
have known that the promise would induce the other party to rely on it to his
detriment and the other party was reasonable in so relying” (emphasis added).
To recover for negligent misrepresentation, a plaintiff must establish (1) the
defendant supplied false information in the course of business, (2) the defendant
had a legal duty to supply the plaintiff with correct information, (3) the
defendant breached this duty, and (4) the plaintiff suffered damages “as a result
of its justifiable reliance” on the misrepresentation. Sys. Eng’g and Sec., Inc. v.
Sci. & Eng’g Asscs., Inc., 962 So.2d 1089, 1092 (La. Ct. App., 4th Cir., 2007)
(emphasis added).
The district court properly granted summary judgment for First Bank on
these two LaBarge claims on the grounds that it was not reasonable or
22
In its complaints, LaBarge lists a claim for detrimental reliance. The district court
also refers to “LaBarge’s detrimental reliance/equitable estoppel claim.” However, the
language of LaBarge’s brief suggests that it makes both an equitable estoppel and a
detrimental reliance claim. This is misleading because it appears that under Louisiana law
“equitable estoppel” is simply another name for detrimental reliance, and the terms are used
interchangeably. See Prime Income Asset Mgmt., Inc. v. Tauzin, 981 So.2d 897, 905 (La. Ct.
App. 2008) (indicating that detrimental reliance is “a form of equitable estoppel”); Garber v.
Badon & Ranier, 981 So.2d 92, 105 (La. Ct. App. 2008) (indicating that detrimental reliance
is “also known as equitable estoppel”). We will refer to LaBarge’s claim as the “detrimental
reliance” claim.
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No. 07-30441
justifiable for LaBarge to rely on the alleged statements made by David. The
evidence conclusively establishes that LaBarge cannot prove at least one of the
elements of each of these two claims against First Bank. See Celotex Corp. v.
Catrett, 106 S. Ct. 2548, 2552 (1986). LaBarge should have known that it should
rely on the terms of the credit instead of oral representations from First Bank
representatives in determining whether to ship the pipe. The terms of the letter
of credit explicitly required the original to be presented for payment.
Furthermore, LaBarge is a well-established company with vast experience in the
business of shipping pipe. It does not argue that it is not familiar with letters
of credit or that it has not used them before. Thus, LaBarge should have known
that it could not reasonably rely on statements made by a First Bank employee
when those statements contradicted the express terms of the letter of credit.
Furthermore, LaBarge’s assertion of these two claims against First Bank is an
attempt to bypass the laws governing letters of credits.
Because LaBarge was not reasonable or justified in relying on the alleged
misrepresentations made by a First Bank employee, it cannot establish an
essential element of each of these two claims against First Bank and David.
Therefore, we hold that the district court properly granted summary judgment
against LaBarge on its detrimental reliance and negligent misrepresentation
claims.
CONCLUSION
For the foregoing reasons, the judgment of the district court is affirmed
in part, and reversed and remanded in part for further proceedings as called
for herein and otherwise as not inconsistent with this opinion.
AFFIRMED in part, REVERSED and REMANDED in part
for further proceedings.
33