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Agricola v. Mellon Bank International

decided: October 2, 1979.

CORPORACION DE MERCADEO AGRICOLA, PLAINTIFF-APPELLANT,
v.
MELLON BANK INTERNATIONAL, DEFENDANT-APPELLEE.



Plaintiff Corporacion de Mercadeo Agricola appeals from an order entered by Judge Leval in the Southern District of New York dismissing plaintiff's contract claim against defendant Mellon Bank International. Plaintiff alleged that defendant unjustifiably refused to honor plaintiff's draft drawn under defendant's letter of credit. Affirmed.

Before Lumbard, Mansfield and Gurfein, Circuit Judges.

Author: Lumbard

Plaintiff Corporacion de Mercadeo Agricola (CMA) appeals from an order entered by Judge Leval in the Southern District of New York on December 7, 1978 and reported at 464 F. Supp. 88 (S.D.N.Y.1978) dismissing CMA's contract claim against Mellon Bank International (Mellon). CMA alleged that Mellon unjustifiably refused to honor CMA's draft drawn under Mellon's letter of credit 5171. Mellon moved for summary judgment and showed that CMA failed to tender documentation in conformity with the specifications contained in the letter of credit. The district court granted Mellon's motion and CMA appealed. We affirm.

This case arises out of dealings between CMA and the Pan American Fruit and Produce Corporation (Pan American). CMA is a corporation organized under the laws of the Republic of Venezuela as an official government agency engaged in the business of selling Venezuelan agricultural commodities. Pan American is a New York corporation engaged in international trade. The Mellon Bank is a New York corporation as well.

In March, 1974, CMA and Pan American entered into Contract No. 84 which provided that CMA would sell to Pan American approximately 30,000 metric tons of Venezuelan paddy rice at a price of $9,630,000. The ninth paragraph of the contract provided for payment of the purchase price by means of an irrevocable letter of credit. This first letter of credit was to be issued in CMA's favor in the above amount within five days after execution of the contract of sale.

To ensure performance of its contractual obligations, including execution of the first letter of credit as required by paragraph nine, Pan American agreed to provide CMA upon execution of the contract with a guaranty of ten percent of the total purchase price, of $963,000. The contract further provided that this guaranty would become payable "by virtue of the sole fact of nonfulfillment" by Pan American of any of its obligations under the agreement. Accordingly, Pan American purchased from Mellon Bank on March 18, 1974 a second letter of credit (LC 5171) in CMA's favor which provided liquidated damages totalling $963,000 should Pan American default. This second letter of credit obligated Mellon to honor sight drafts drawn by CMA in amounts up to $963,000, when accompanied by:

"Beneficiary's signed statement in duplicate that Pan American Fruit & Produce Corp. did not perform in accordance with contract 084 for the purchase sale of 30,000 M.T. Paddy Rice in accordance with conditions agreed upon by buyers and sellers. Statement of facts by beneficiary and accountee."

This guaranty was designed to compensate the seller for any losses incurred as the result of the buyer's insolvency or as the result of any other contingency leading to the buyer's default. The letter of credit called for statements from both the buyer and the seller acknowledging the buyer's default, but the contract did not specify any circumstances under which the buyer would be required to issue a statement. However, in the event of default, the seller could have sought a court order requiring the production by the buyer of the necessary statement in order to enforce the good faith intentions of the parties. No such court order was sought here until after the letter of credit expired.

As of April, 1974, Pan American had failed to obtain the first irrevocable letter of credit which was to be used for payment of the purchase price, in violation of paragraph nine of the contract. CMA therefore advised Mellon in late April, 1974 that it planned to exercise its right to obtain liquidated damages under the second letter of credit. Mellon agreed, at Pan American's request, to extend the expiration date of the second letter of credit from April 30, 1974 to June 30, 1974, in order to allow more time for Pan American to cure its default. Pan American, however, failed to cure its default. Accordingly, on June 5, 1974, CMA presented Mellon Bank with a draft on the second letter of credit in the amount of $963,000, accompanied by documents which CMA claims satisfied the requirements of the letter of credit. These documents included:

1. A document written by one Sr. Valera on April 29, 1974, in which Valera asserts that he is the representative of Pan American and that Pan American has not fulfilled its obligations under the contract;

2. A copy of Pan American's letter of February 13, 1974, authorizing Valera to sign Contract No. 84 on behalf of Pan American (see infra);

3. A statement by CMA that Pan American had not fulfilled its obligations under the contract; and

4. A copy of Contract No. 84 bearing Valera's signature for Pan American.

Since Valera's authority to sign on behalf of Pan American for payment on the letter of credit is at the center of this controversy, we shall review the nature and extent of that authority in some detail. Pan American engaged Valera, a Venezuelan commodity trader, in early 1974, for the purpose of negotiating the contract with CMA. Accordingly, on February 13, 1974, Pan American sent to CMA the following letter, which delineates the authority granted to Valera:

Gentlemen:

We are pleased to inform you hereby that we have conferred a power of attorney to Mr. Gonzalo Sanchez Valera, Identity Card (Venezuelan) No. 163598, by which he is entitled to sign contracts and represent us and our company before the official and private organizations of the Republic of Venezuela.

Very truly yours,

Pan American Fruit

& Produce Corp.

Pursuant to this authorization Valera signed Contract No. 84 on behalf of Pan American. The authority contained in this letter, however, was not general. Rather, Valera was authorized to represent Pan American only before the "official and private organizations of the Republic of Venezuela" such as CMA. Mellon Bank is neither an official nor a private organization of the Republic of Venezuela. Accordingly, this authority did not include representation of Pan American before Mellon Bank and it did not include any authority to prepare the documents necessary for payment on the letter of credit. CMA does not assert that Valera's authority was ever enlarged beyond the parameters delineated in this February 13, 1974 letter.

That Valera never possessed the authority to prepare and sign the documents necessary for CMA to collect on the letter of credit is further confirmed by the names and signatures which Pan American certified to Mellon in July, 1973 as authorized to represent Pan American in its dealings with Mellon. Pan American certified to Mellon the name and signature of Gilbert D. Heller, Pan American's president, and Loretta Szeliga, its secretary. Valera's name was never on any list of authorized signatures submitted to Mellon.

Finally, whatever authority Valera possessed with respect to Pan American was revoked in a notarized document dated March 8, 1974. CMA received this document March 15, 1974 eighty days before CMA attempted to use Valera's signature to collect on the letter of credit. To be sure, CMA seeks to lessen the impact of this revocation notice by arguing that the way in which it was mailed and received rendered it ineffective. CMA argues that Pan American should have sent this letter to CMA's legal department or to the president's office, where its importance would have been recognized. Instead, this letter was received by another bureau of CMA and placed in the general correspondence file, where its significance was not recognized until defendants obtained it through discovery. Notice to the agent, however, is notice to the principal, unless the person giving notice has reason to know that the agent has no duty to or will not transmit the message to the principal. See generally, Seavey, Notice Through an Agent, 65 U.Penn.L.Rev. 1 (1916). Since CMA has made no showing that Pan American should have known that the CMA mailroom would not transmit the revocation notice to the proper parties, the general rule applies. Indeed, even without proof of receipt by the addressee, proof that such a letter was sent would be strong evidence of sufficient notice.

When CMA demanded payment on the letter of credit, Valera's lack of authority immediately attracted attention. After reviewing the documents and noting Valera's lack of authority, Mellon Bank checked with Pan American to see if it should nevertheless honor CMA's draft on the basis of Valera's signature. Pan American advised Mellon that Valera was not authorized to prepare a statement of facts or sign for Pan American and that Mellon should therefore not pay on the draft.

On June 11, 1974, Mellon advised CMA that it would not honor the draft because:

". . . Sr. Gonzalo Sanchez Valera is not authorized to sign on behalf of the accountee, Pan American Fruit and Produce Corporation. The accountee informs us the authority which was previously granted to him was revoked prior to the opening of our credit. Consequently, the ...


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