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FIVE STAR PARKING v. PHILADELPHIA PARKING AUTH.

January 11, 1989

FIVE STAR PARKING, a joint venture consisting of three business corporations: CHARTER AUTO PARKS, INC., GRANT PARKING, INC., L & R AUTO PARKS, INC., Plaintiff
v.
PHILADELPHIA PARKING AUTHORITY, Defendant and BANK OF AMERICA, Third Party Defendant



The opinion of the court was delivered by: GAWTHROP, III

 Background

 In August of 1982, Five Star, a California joint venture that operates parking concessions nationwide, applied at a California branch of the Bank for a letter of credit to be issued by the Bank in favor of the Authority as beneficiary. The motivation for the letter of credit was to obtain a form of standby bank assurance against possible non-performance by Five Star under a parking concession contract with the Authority. See Five Star Parking v. Philadelphia Parking Authority, 662 F. Supp. 1053 (E.D. Pa. 1986).

 On August 19, 1982, the Bank issued the letter of credit. Although the application and the letter of credit were amended several times, the only written precondition to the Bank's paying upon the letter of credit was its receipt from the Authority of a draft drawn upon the letter of credit, accompanied by the Authority's simple statement that Five Star had not performed in accordance with its obligations under the parking concession contract. The Authority contends, and Five Star concedes, that these materials comprise the letter of credit, and that the letter of credit contains no reference to any requirement of notice to Five Star.

 In December, 1985, the Authority presented the Bank with a draft for $ 500,000, accompanied by a statement that Five Star had not performed according to the terms of the parking contract. Upon receipt of these items, the Bank honored the draft.

 Five Star sued the Authority, alleging, inter alia, that "the Authority's action in drawing down funds secured by the Letter of Credit without any reason or basis for so doing, without any prior notice to plaintiffs and without any adequate justification, constitutes a breach of its duty and obligations under the License Agreement." Plaintiff's Second Amended Complaint, para. 34 (emphasis added).

 The Authority filed a third-party complaint against the Bank, even though the reference to notice in Five Star's complaint appears to be nothing more than part of Five Star's general claim that the Authority breached the terms of the license agreement. For its part, Five Star has raised no claim that any party's conduct was in violation of the letter of credit undertaking; it has made no claim against the Bank for its conduct with regard to the letter of credit, nor has it defended against its obligation to repay the Bank for the $ 500,000 it advanced.

 Discussion

 The Authority contends that if there was a duty to give Five Star notice, that duty rested with the Bank rather than with the Authority. I disagree.

 The principles governing the duties of an issuer of a letter of credit are well settled by judicial decisions based upon the guiding provisions of Article 5 of the Uniform Commercial Code (UCC) as adopted in both California and Pennsylvania. 13 Pa. Cons. Stat. Ann. §§ 5101-17 (1984); Cal. Com. Code §§ 5101-17. Although the Bank contends that California law controls the issue at bar, I need not and thus do not reach the choice of law issue because the law in both states is the same. See Sound of Market Street, Inc. v. Continental Bank International, 819 F.2d 384, 387 (3rd Cir. 1987) (declining to decide choice of law issue in letter of credit case because controlling precepts of relevant California and Pennsylvania law were the same).

 Neither the UCC nor the letter of credit requires the bank to give its customer, Five Star, notice before allowing a beneficiary, the Authority, to draw upon a letter of credit. *fn1" The only question before the court, therefore, is whether a notice requirement should be implied under established letter of credit principles.

 Letters of credit are governed by two interrelated and fundamental tenets. The first is that a contract for a letter of credit is separate and independent from any contract or course of dealing between the customer and the beneficiary of the letter of credit. The second is that the issuer is charged only with reviewing specified documents submitted by the beneficiary, and must pay the beneficiary's draft upon the letter of credit if those documents conform to the requirements stated in the letter of credit itself.

 For example, in Lumbermans Acceptance Co. v. Security Pacific National Bank, 86 Cal. App. 3d 175, 150 Cal. Rptr. 69 (1979), the court affirmed the grant of summary judgment in favor of an issuing bank that had paid on a letter of credit, holding that the bank was entitled to recover the amount drawn from its customer because the bank had received the specified document which was, as here, a statement that the customer had not performed a certain obligation. Applying Cal. Com. Code §§ 5109 and 5114(1), the court held that it was enough that the statement appeared on its face to comply with the document requirement, regardless of the facts of the ...


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