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COA: Store not a beneficiary of letters of credit

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The Indiana Court of Appeals ruled a department store has no rights derived from letters of credit between a bank and the man developing the site for a new store location.

In Fifth Third Bank v. Kohl's Indiana L.P. and Kohl's Department Store, No. 82A01-0906-CV-272, Fifth Third Bank appealed the trial court's grant of summary judgment for Kohl's in the store's complaint seeking proceeds from letters of credit issued to the Evansville-Vanderburgh Area Plan Commission as beneficiary. The bank issued four letters of credit to Dennis Owens, who entered into an operation and easement agreement with Kohl's to develop a site for a store. The commission required Owens to provide the letters of credit.

Owens failed to perform the work to Kohl's satisfaction and they sued him for breach of contract. The suit asked the commission to draw on the letters of credit for repayment to Kohl's. Fifth Third then intervened in the suit.

The trial court treated the letters as performance bonds and granted summary judgment for Kohl's. The trial court based its decision on Comment 6 to Indiana Code Section 26-1-5.1-102, but that was an error, the appellate court ruled. The determination whether Owens failed to meet the requirements or stipulations should be made by the commission, not Fifth Third, wrote Judge Edward Najam. The bank isn't required as the issuer to make "the determination of an extrinsic fact" before the commission can draw on each letter of credit, and the exception set out in Comment 6 does not apply here, the judge found.

The trial court also erred in determining Kohl's was a third-party beneficiary to the letters of credit. The Court of Appeals adopted the reasoning in Arbest Construction Co. v. First National Bank & Co. of Oklahoma City, 777 F.2d 581 (10th Cir. 1985), which found no provision in Oklahoma statutes imposed duties on the issuer toward third parties who are neither named by the letter of credit nor proper assignees of the letter of credit.

"Indeed, Indiana Code Section 26-1-5.1-103(d) states that the rights and obligations of an issuer (here, Fifth Third) to a beneficiary (here, the Commission) under a letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary," wrote Judge Najam. "Under Section 103(d), the issuer of a letter of credit has no duty to a third party not named as a beneficiary or properly designated as an assignee."

The appellate judges remanded the case with instructions.

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  1. Such things are no more elections than those in the late, unlamented Soviet Union.

  2. It appears the police and prosecutors are allowed to change the rules halfway through the game to suit themselves. I am surprised that the congress has not yet eliminated the right to a trial in cases involving any type of forensic evidence. That would suit their foolish law and order police state views. I say we eliminate the statute of limitations for crimes committed by members of congress and other government employees. Of course they would never do that. They are all corrupt cowards!!!

  3. Poor Judge Brown probably thought that by slavishly serving the godz of the age her violations of 18th century concepts like due process and the rule of law would be overlooked. Mayhaps she was merely a Judge ahead of her time?

  4. in a lawyer discipline case Judge Brown, now removed, was presiding over a hearing about a lawyer accused of the supposedly heinous ethical violation of saying the words "Illegal immigrant." (IN re Barker) http://www.in.gov/judiciary/files/order-discipline-2013-55S00-1008-DI-429.pdf .... I wonder if when we compare the egregious violations of due process by Judge Brown, to her chiding of another lawyer for politically incorrectness, if there are any conclusions to be drawn about what kind of person, what kind of judge, what kind of apparatchik, is busy implementing the agenda of political correctness and making off-limits legit advocacy about an adverse party in a suit whose illegal alien status is relevant? I am just asking the question, the reader can make own conclsuion. Oh wait-- did I use the wrong adjective-- let me rephrase that, um undocumented alien?

  5. of course the bigger questions of whether or not the people want to pay for ANY bussing is off limits, due to the Supreme Court protecting the people from DEMOCRACY. Several decades hence from desegregation and bussing plans and we STILL need to be taking all this taxpayer money to combat mostly-imagined "discrimination" in the most obviously failed social program of the postwar period.

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