APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civ. No. 74-477).
Aldisert and Weis, Circuit Judges and Huyett,*fn* District Judge.
Whether equity bans Equibank from rejecting the Chase paper must be decided in this dispute over a letter of credit. The beneficiary contended that its tardy presentation of documents was the result of an agreement by the issuing bank to extend the time beyond that specified in the letter. The district court held that a waiver would be ineffective without the consent of the bank's customer who had caused the letter to issue. We hold that waiver can be enforced as against the issuing bank, and vacate a summary judgment in its favor.
In 1971, the Chase National Bank agreed to provide Air-North Associates long-term financing for motel construction near Pittsburgh, Pennsylvania. As a prerequisite for the commitment, Chase required a letter of credit in its favor, payable in the event that Air-North did not complete the loan transaction in accordance with the agreement. Equibank, a banking institution located in Pittsburgh, issued the requested irrevocable letter of credit which provided for payment upon presentation of a sight draft accompanied by "certification from you [Chase] that Air-North Associates has defaulted and which default has not been cured. . . ."
Equibank also agreed to provide interim construction financing for Air-North, with repayment at the time of the Chase loan closing. Construction delays forced postponement of the closing several times, and the letter of credit's expiration date was extended to April 30, 1973.
On Friday, April 27, 1973, Air-North's representatives failed to appear for the scheduled closing in New York, and Chase immediately sent a telex message to Equibank requesting payment of the $108,000.*fn1 After an alleged telephone conversation with an Equibank official on Monday, April 30, 1973, Chase sent a letter confirming Air-North's default and a formal draft via normal collection channels. Equibank received the papers on May 10, 1973, but dishonored the draft because of "late presentation of draft and documents," noting the letter's April 30, 1973 expiration date.
Chase filed suit in district court against Equibank for dishonoring the draft, and joined Air-North because of its default. Air-North is no longer financially responsible. After several hearings and the filing of opinions on various issues, the district judge entered summary judgment in favor of the defendant Equibank. He held that Chase's presentation was untimely, and consequently Equibank properly dishonored the draft.
Both Chase and Equibank knew that construction difficulties had delayed the closing, and realized Air-North could have been declared in default some weeks before April 27, 1973. However, both banks made plans for the closing and in preparation their lawyers exchanged letters. Chase maintains that its letters of April 10 and April 26 had special significance. Those communications referred to items of construction not performed according to the original commitment but the letters did not use the word "default," did not mention the letter of credit, and did not demand payment thereunder.
In its opinion granting summary judgment to Equibank, the district court held that these letters did not constitute certification of default as specified in the letter of credit. The court characterized the correspondence as "present indications of possible default." We agree with this description and with the learned judge's insistence upon strict compliance with the conditions stated in the letter of credit. That requirement is all the more appropriate here where Chase, the beneficiary, must be presumed knowledgeable about banking practices.
The Uniform Commercial Code as adopted in Pennsylvania, PA. STAT. ANN. tit. 12A, § 5-103(1)(a) (Purdon 1970), defines a letter of credit as:
". . . an engagement by a bank or other person made at the request of a customer and of a kind within the scope of this Article . . . that the issuer will honor drafts or other demands for payment upon ...