ILNews

COA: Store not a beneficiary of letters of credit

Back to TopE-mailPrintBookmark and Share

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.

ADVERTISEMENT

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. State Farm is sad and filled with woe Edward Rust is no longer CEO He had knowledge, but wasn’t in the know The Board said it was time for him to go All American Girl starred Margaret Cho The Miami Heat coach is nicknamed Spo I hate to paddle but don’t like to row Edward Rust is no longer CEO The Board said it was time for him to go The word souffler is French for blow I love the rain but dislike the snow Ten tosses for a nickel or a penny a throw State Farm is sad and filled with woe Edward Rust is no longer CEO Bambi’s mom was a fawn who became a doe You can’t line up if you don’t get in a row My car isn’t running, “Give me a tow” He had knowledge but wasn’t in the know The Board said it was time for him to go Plant a seed and water it to make it grow Phases of the tide are ebb and flow If you head isn’t hairy you don’t have a fro You can buff your bald head to make it glow State Farm is sad and filled with woe Edward Rust is no longer CEO I like Mike Tyson more than Riddick Bowe A mug of coffee is a cup of joe Call me brother, don’t call me bro When I sing scat I sound like Al Jarreau State Farm is sad and filled with woe The Board said it was time for him to go A former Tigers pitcher was Lerrin LaGrow Ursula Andress was a Bond girl in Dr. No Brian Benben is married to Madeline Stowe Betsy Ross couldn’t knit but she sure could sew He had knowledge but wasn’t in the know Edward Rust is no longer CEO Grand Funk toured with David Allan Coe I said to Shoeless Joe, “Say it ain’t so” Brandon Lee died during the filming of The Crow In 1992 I didn’t vote for Ross Perot State Farm is sad and filled with woe The Board said it was time for him to go A hare is fast and a tortoise is slow The overhead compartment is for luggage to stow Beware from above but look out below I’m gaining momentum, I’ve got big mo He had knowledge but wasn’t in the know Edward Rust is no longer CEO I’ve travelled far but have miles to go My insurance company thinks I’m their ho I’m not their friend but I am their foe Robin Hood had arrows, a quiver and a bow State Farm has a lame duck CEO He had knowledge, but wasn’t in the know The Board said it was time for him to go State Farm is sad and filled with woe

  2. The ADA acts as a tax upon all for the benefit of a few. And, most importantly, the many have no individual say in whether they pay the tax. Those with handicaps suffered in military service should get a pass, but those who are handicapped by accident or birth do NOT deserve that pass. The drivel about "equal access" is spurious because the handicapped HAVE equal access, they just can't effectively use it. That is their problem, not society's. The burden to remediate should be that of those who seek the benefit of some social, constructional, or dimensional change, NOT society generally. Everybody wants to socialize the costs and concentrate the benefits of government intrusion so that they benefit and largely avoid the costs. This simply maintains the constant push to the slop trough, and explains, in part, why the nation is 20 trillion dollars in the hole.

  3. Hey 2 psychs is never enough, since it is statistically unlikely that three will ever agree on anything! New study admits this pseudo science is about as scientifically valid as astrology ... done by via fortune cookie ....John Ioannidis, professor of health research and policy at Stanford University, said the study was impressive and that its results had been eagerly awaited by the scientific community. “Sadly, the picture it paints - a 64% failure rate even among papers published in the best journals in the field - is not very nice about the current status of psychological science in general, and for fields like social psychology it is just devastating,” he said. http://www.theguardian.com/science/2015/aug/27/study-delivers-bleak-verdict-on-validity-of-psychology-experiment-results

  4. Indianapolis Bar Association President John Trimble and I are on the same page, but it is a very large page with plenty of room for others to join us. As my final Res Gestae article will express in more detail in a few days, the Great Recession hastened a fundamental and permanent sea change for the global legal service profession. Every state bar is facing the same existential questions that thrust the medical profession into national healthcare reform debates. The bench, bar, and law schools must comprehensively reconsider how we define the practice of law and what it means to access justice. If the three principals of the legal service profession do not recast the vision of their roles and responsibilities soon, the marketplace will dictate those roles and responsibilities without regard for the public interests that the legal profession professes to serve.

  5. I have met some highly placed bureaucrats who vehemently disagree, Mr. Smith. This is not your father's time in America. Some ideas are just too politically incorrect too allow spoken, says those who watch over us for the good of their concept of order.

ADVERTISEMENT