and its counsel, but that Associates desired to meet with Chase on the following Tuesday, May 1st, to discuss the renegotiation of the Chase Loan. On the same day, however, one of the principals of Associates called Chase and blamed the closing delay on Equibank, but also asked for the meeting on May 1, 1973.
Again, Chase determined to act on the Letter of Credit, and on April 27, 1973, Robert Lambert of Chase sent a telex to Equibank, identical to that which had been sent on March 27th, demanding payment on the Letter of Credit.
When nothing was heard from Equibank, the testimony shows that on April 30, 1973, Lambert again called Anderson to inquire as to Equibank's receipt of the telex and Anderson said that it had been received and was being given attention. Later in the day, another officer of Equibank requested that Chase send a formal draft and letter of default to Equibank. Lambert stated that Chase would comply and said he would have the necessary documents forwarded to Equibank in due course through its Domestic Collections Department. There is substantial dispute as to whether or not Equibank agreed to this procedure.
On May 7, 1973, Chase issued a formal sight draft and collection letter to which Equibank replied on May 17, 1973, by dishonoring the Letter of Credit for: "Late presentation of documents. (Expiration date was April 30, 1973. Documents received May 10, 1973) Draft does not indicate our Letter of Credit number as required in the original credit."
When payment was further denied, Chase brought this action in which it contends that all of the conditions precedent to payment under the Letter of Credit have been performed. Chase also contends that Equibank waived technical compliance with the terms of the Letter of Credit by not so informing it in response to the telex and telephone calls.
I. Chase v. Equibank
Historically, a Letter of Credit is an assurance of payment upon certain terms and conditions, substituting the acceptable credit standing of a bank or other person for the unknown or doubtful standing of a borrower.
It differs from the classical surety undertaking in that it is a primary obligation between the issuer and the beneficiary (Uniform Commercial Code, 12A P.S. § 5-114(1), Comment 1), and for this reason, the recipient of the Letter is isolated from the arrangement between the issuer and the borrower. In construing the terms of a Letter of Credit, the same general principles apply which govern other written contracts. Camp v. Corn Exchange National Bank, 285 Pa. 337, 132 A. 189 (1926). (Uniform Commercial Code, 12A P.S. § 5-101). Except insofar as expressly incorporated therein, the bank's contract with its customer for the Letter of Credit is separate and distinct from the contract which exists between the creditor and the customer/borrower. Venizelos, S.A. v. Chase Manhattan Bank, 425 F.2d 461 (2d Cir. 1970).
Chase contends that Equibank breached the contract by failing to honor its telex when presented, as of April 30, 1973, in that there were only "technical deficiencies" in its certification of Air-North's default which Equibank knew about, even better than Chase. Therefore, it is alleged that Equibank cannot suffer any prejudice whatsoever with regard to any deficiency in certification. Further, Chase maintains that late presentation of the documents was caused by Equibank's silence on April 30, 1973, when informed that the documents would be forwarded through Chase's Collection Department in due course. It is Chase's position that Equibank thereby waived any defects in documentation.
Equibank, on the other hand, argues that the telex was not a sight draft as specifically required by the Letter of Credit, and that even if it were, it would still have been bound to dishonor it because of the manner of its presentment without the necessary accompanying documentation. Additionally, Equibank specifically denies any waiver on its behalf by anyone, and submits an Affidavit of the officer who talked with Lambert of Chase on April 30, 1973, to support this position.
In order for Summary Judgment to be granted by the Court, there must be no genuine issue as to any material fact, and the moving party must be entitled to judgment as a matter of law. (Rule 56 Fed.R.Civ.P.). In this case, under the affidavits, the Court feels that the issues cannot be decided by means of Summary Judgment Motions, due to substantial factual dispute on the question of waiver. On the matter of whether or not the telex was a draft under the Letter of Credit, the Court will decide that question.
Under the Uniform Commercial Code, as adopted in Pennsylvania (12A P.S. § 5-114(1)), it is provided that:
"An issuer must honor a draft or demand for payment which complies with the terms of the relevant credit regardless of whether the . . . documents conform to the underlying contract . . . between the customer and the beneficiary. The issuer is not excused from honor of such a draft or demand by reason of an additional general term that all documents must be satisfactory to the issuer, but an issuer may require that specified documents must be satisfactory to it."
A sight draft is an order for the immediate payment of money from a bank. In the instant case, the telex in question contained a direction that money be transferred to Equibank's account at the Chase Bank in New York. Equibank argues that this was not a demand and, therefore, the telex could not be considered a draft. However, Comment 2 to Section 3-102 of the Uniform Commercial Code states:
". . . In the case of orders the dividing line between 'a direction to pay' and 'an authorization or request ' may not be self-evident in the occasional unusual, and therefore non-commercial, case. The prefixing of words of courtesy to the direction -- as 'please pay' or 'kindly pay' -- should not lead to a holding that the direction has degenerated into a mere request. . . ." (Emphasis added).