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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. My mother got temporary guardianship of my children in 2012. my husband and I got divorced 2015 the judge ordered me to have full custody of all my children. Does this mean the temporary guardianship is over? I'm confused because my divorce papers say I have custody and he gets visits and i get to claim the kids every year on my taxes. So just wondered since I have in black and white that I have custody if I can go get my kids from my moms and not go to jail?

  2. Someone off their meds? C'mon John, it is called the politics of Empire. Get with the program, will ya? How can we build one world under secularist ideals without breaking a few eggs? Of course, once it is fully built, is the American public who will feel the deadly grip of the velvet glove. One cannot lay down with dogs without getting fleas. The cup of wrath is nearly full, John Smith, nearly full. Oops, there I go, almost sounding as alarmist as Smith. Guess he and I both need to listen to this again: https://www.youtube.com/watch?v=CRnQ65J02XA

  3. Charles Rice was one of the greatest of the so-called great generation in America. I was privileged to count him among my mentors. He stood firm for Christ and Christ's Church in the Spirit of Thomas More, always quick to be a good servant of the King, but always God's first. I had Rice come speak to 700 in Fort Wayne as Obama took office. Rice was concerned that this rise of aggressive secularism and militant Islam were dual threats to Christendom,er, please forgive, I meant to say "Western Civilization". RIP Charlie. You are safe at home.

  4. It's a big fat black mark against the US that they radicalized a lot of these Afghan jihadis in the 80s to fight the soviets and then when they predictably got around to biting the hand that fed them, the US had to invade their homelands, install a bunch of corrupt drug kingpins and kleptocrats, take these guys and torture the hell out of them. Why for example did the US have to sodomize them? Dubya said "they hate us for our freedoms!" Here, try some of that freedom whether you like it or not!!! Now they got even more reasons to hate us-- lets just keep bombing the crap out of their populations, installing more puppet regimes, arming one faction against another, etc etc etc.... the US is becoming a monster. No wonder they hate us. Here's my modest recommendation. How about we follow "Just War" theory in the future. St Augustine had it right. How about we treat these obvious prisoners of war according to the Geneva convention instead of torturing them in sadistic and perverted ways.

  5. As usual, John is "spot-on." The subtle but poignant points he makes are numerous and warrant reflection by mediators and users. Oh but were it so simple.

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