Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Banco Nacional De D Esarrollo v. Mellon Bank

January 18, 1984


On Appeal from the United States District Court for the Western District of Pennsylvania

Author: Sloviter

Before: GIBBONS, SLOVITER, Circuit Judges, and CALDWELL, District Judge*fn*


SLOVITER, Circuit Judge.

The question in this appeal is whether Mellon Bank, issuer of a letter of credit, wrongfully dishonored a request for payment from a Nicaraguan bank, Banco Nacional de Desarrollo. On cross motions for summary judgment, the district court held that payment was required. We reverse the judgment of the district court.


The I.B.P. Corporation of Pittsburgh ("IBP"), an importer of meat from Central America, arranged for Mellon Bank to issue an irrevocable letter of credit in favor of Empresa Nicaraguensa de la Carne, Encar of Managua, Nicaragua ("Encar"), an exporter of meat with which IBP had made a purchase agreement.

The letter of credit Mellon Bank issued on August 7, 1980 in the amount of about $98,000.00*fn1 named Banco Nacional as the advising bank to Encar,*fn2 and was to expire on August 31, 1980. Mellon Bank was to pay "100% INVOICE VALUE" upon receipt of various documents covering a shipment of "Fresh frozen boneless beef packed in polylined fiber carton solid packed in even weight 60# cartons. Approx 1200 carton min 90% C.L. chucks at 1.18 FOB and approx. 124 ctns. 100% lean product at 1.75 FOB Nicaragua."*fn3

Shipment and payment proceeded on course. IBP and Encar conducted subsequent dealings via Mellon Bank and Banco Nacional by means of "amendments" to the letter of credit which altered one or more terms covering the amount, expiry, documentation, goods covered, shipment or "special conditions." Mellon did not negotiate the "amendments" with Banco or Encar, but issued them on instructions from IBP and then advised Banco and forwarded copies.

Encar shipped two loads of meat to Miami on February 10, 1981. At that time, no amendment to the letter of credit covered that shipment. On February 16, Encar submitted documents and drafts covering those two loads of meat to Banco for payment.On February 17, upon instruction from IBP, Mellon issued Amendment 15, which stated: "Amount increased by About US $450,000.00 . . . Shipment permitted of 1 load shank at US $1.11 per lb. FOB shipment to Miami and 1 load clods at US $1.1150 per lb. FOB shipment to Miami. . . . For product covered by this amendment only payment will only be effected upon Mellon Bank's receipt from IBP Corporation of written notice that product has arrived in the United States." (emphasis added). Banco received a telex from Mellon of the gist of Amendment 15 on February 17, and sent a copy to Encar. Banco then paid Encar for the February 10 shipments and for other shipments not in contest here.*fn4

By early March, Banco submitted the drafts and documents covering the February 10 shipments to Mellon for re-payment on behalf of Encar. Mellon telexed Banco that it was awaiting written notice from IBP that the product had arrived. IBP authorized payment for various goods from various shipments, but never notified Mellon of the arrival of one of the shipments of February 10 listed in Amendment 15 and invoiced as 0148-IG (although it appears conceded that the shipment did in fact arrive). Mellon paid Banco for all but that one shipment. On March 31, the letter of credit expired. Banco Nacional sued Mellon for $43,387.50, the invoice value of shipment 0148-IG, alleging wrongful dishonor, and basing federal jurisdiction on diversity of citizenship. The parties, after completion of discovery, submitted cross-motions for summary judgment. The district court held Mellon bound to pay Banco, finding that by requiring written notice from IBP, Mellon had impermissibly amended an irrevocable letter of credit without the beneficiary's approval. Banco Nacional de Desarrolla v. Mellon Bank, N.A., 558 F. Supp. 1265 (W.D. Pa. 1983).


This court is obliged to follow Pennsylvania's choice of law rules in this diversity case. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). Those rules require application of Pennsylvania substantive law. See Toyota Industrial Trucks U.S.A., Inc. v. Citizens National Bank, 611 F.2d 465 (3d Cir. 1979); Intraworld Industries, Inc. v. Girard Trust Bank, 461 Pa. 343, 355-56, 336 A.2d 316, 323 (1975).*fn5 The governing Pennsylvania law is contained in Article 5 of the Uniform Commercial Code, 13 Pa. Cons. Stat. Ann. ยงยง 5101 et seq. (Purdon Supp. 1983), and relevant case law. See generally Intraworld, 461 Pa. at 355-56, 336 A.2d at 323.

A letter of credit is an efficacious arrangement which assures payment for completion of an obligation by placing the duty to pay on an issuer of good financial reputation. In order to assure a contracting party, usually a seller of goods or services, of payment where the debtor's reliability is uncertain, the debtor arranges for the issuer to undertake to pay the agreed upon sum on the obligee's presentation of specified documents, usually evidencing completion of the underlying transaction. A fundamental principle of letter of credit law is that the issuer is a purchaser of documents only, obliged to pay if the specified documents are received without reference to the changing status or desires of the buyer and seller: "The issuing bank deals only in documents and need only determine whether they appear on their face to be in accordance with the terms and conditions of the credit." Chase Manhattan Bank v. Equibank, 550 F.2d 882, ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.