Rappaport Fam. Part. v. Meridian Bk.

Citations: 657 A.2d 17; 441 Pa. Super. 194; 26 U.C.C. Rep. Serv. 2d (West) 474; 1995 Pa. Super. LEXIS 891

Court: Superior Court of Pennsylvania; April 11, 1995; Pennsylvania; State Appellate Court

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The Samuel Rappaport Family Partnership (appellant) appealed a ruling from the Court of Common Pleas of Philadelphia County, which granted Meridian Bank (appellee) judgment notwithstanding the verdict on February 1, 1994. The case involved a lease agreement between McKlan, Inc. and various property owners for a Philadelphia restaurant and delicatessen, requiring a cash security deposit and later a $100,000 letter of credit contingent on the approval of a liquor license by the Pennsylvania Liquor Control Board. 

The lease allowed McKlan a five-year term with two optional renewals and mandated that the letter of credit be drawn from a reputable bank, payable to the escrow agent upon fulfillment of specific documentation conditions. Marvin Orleans later bought the property, and I. David Pincus was appointed as the escrow agent. Central Penn National Bank issued the letter of credit at McKlan's request, which required documentation for payment, including notice of McKlan being informed of any default. Central Penn merged with Meridian Bank, which subsequently amended the letter of credit multiple times.

When McKlan defaulted and filed for bankruptcy, the appellant acquired the property but did not review the letter of credit beforehand. Afterward, Mr. Pincus submitted a sight draft to Meridian, accompanied by certifications asserting that the appellant was the lawful assignee of the lease and that McKlan had not cured its default. The procedural history indicates complexities regarding the lease assignment, the letter of credit's terms, and the responsibilities of the parties involved. Ultimately, the Superior Court affirmed the lower court's decision in favor of Meridian Bank.

Appellant and McKlan amended their lease on April 5, 1985, to clarify the provisions regarding a letter of credit. Michael Bohley, an employee of Meridian, reviewed the letter of credit and noted that Mr. Pincus did not include a required certificate signed by Mr. Orleans in his sight draft presentment. After contacting McKlan for a waiver of this requirement and receiving a refusal, Meridian denied payment on the sight draft. Subsequently, appellant filed a complaint against Meridian on October 28, 1988, alleging breach of contract and breach of implied warranty of good faith, and seeking a declaration of rights regarding the letter of credit. Meridian answered the complaint, denying liability and asserting several defenses. On January 6, 1989, Meridian moved for summary judgment, claiming appellant lacked standing for relief, but this motion was denied on May 16, 1989. A jury later found that Mr. Pincus's presentment met the letter of credit's terms, determining Meridian's dishonor caused appellant $100,000 in damages, awarding the full face amount of the letter of credit. Meridian's post-trial motions, including a request for judgment n.o.v. and a new trial based on the standing claim, were partially successful; the trial court denied the new trial but granted judgment n.o.v., ruling that Meridian's dishonor was justified due to noncompliance with the letter of credit's terms. Appellant's appeal challenges the judgment n.o.v., arguing that Mr. Orleans's death introduced ambiguity in the letter's terms, which the jury resolved. However, the appellate court found that this ambiguity theory was not raised in the trial court, thus precluding its consideration on appeal, as issues not asserted at the trial level cannot be raised for the first time in appellate proceedings. Appellant had instead claimed an obvious mistake regarding the letter of credit renewal that made performance impossible.

The appellant's theory of relief has not been preserved for review, as evidenced by an analysis of the testimony notes and filed memoranda. In closing arguments, the appellant claimed that Meridian's refusal to honor Mr. Pincus's sight draft was due to the absence of a certificate signed by Mr. Orleans. Appellant contended that a document signed by Mr. Rappaport, following Mr. Orleans's death and after the renewal of the letter of credit, should suffice. The appellant argued that the requirement for the certificate was not critical to the lease since neither the lease nor the escrow agreement mentioned Mr. Orleans. However, the appellant did not address the concept of "ambiguity," nor did it indicate that Mr. Orleans's death made the letter of credit's terms unclear or request a jury instruction on this matter. The memoranda submitted by the appellant mirrored its trial arguments, briefly mentioning "ambiguity" in connection with "mistake," without showing that an ambiguity existed. Moreover, the conclusion of the memorandum focused solely on claims of bad faith and mistake, rather than ambiguity. Consequently, the appellant’s challenge to the judgment n.o.v. is not preserved and lacks merit, as the criteria for granting such judgment demand that no reasonable disagreement exists regarding the verdict's propriety. The review standard requires sufficient evidence to support the verdict, granting the verdict winner favorable inferences while disregarding unfavorable testimony. The appellant must demonstrate an abuse of discretion or legal error to overturn the trial court's decision. The relevant principles governing letters of credit are established by the Uniform Commercial Code, which defines a letter of credit as a bank's engagement to honor drafts or payment demands upon compliance with specified conditions.

A transaction involving a letter of credit consists of three agreements: the underlying contract between the customer and the beneficiary, the contract between the bank and its customer regarding the letter's issuance and reimbursement, and the letter of credit itself obligating the bank to pay the beneficiary. The main purpose of a letter of credit is to ensure prompt payment upon the presentation of compliant documents. The bank's obligation is independent of the other agreements and arises solely upon the presentation of documents that meet the letter's requirements. The appellant's argument that the death of Mr. Orleans created ambiguity regarding a required certificate is rejected; strict adherence to document presentation is necessary. While U.C.C. allows contract law to complement letters of credit without conflicting with their unique nature, the intent of a written contract is determined solely by its terms. Clear and unambiguous contract language must be enforced as written, while ambiguous contracts allow for extrinsic evidence to clarify meaning. Ambiguity can be either latent or patent, with patent ambiguity arising from unclear language visible in the contract itself.

A latent ambiguity in a contract arises from external factors that create uncertainty in meaning, despite clear language in the contract itself. Courts may use extrinsic evidence to identify such ambiguities. While courts determine the clarity of contract terms, it is the role of fact finders to resolve ambiguities and discern the intent of the parties involved. In this case, the requirement in a letter of credit for a certificate signed by Mr. Orleans is deemed unambiguous on its face, leading to the question of whether it is latently ambiguous due to Mr. Orleans's death. The appellant argues that the death creates ambiguity regarding the requirement's validity, referencing precedent cases where deaths affected contract interpretations. However, the current situation is distinguished as Mr. Orleans was not a party to the letter of credit. His death did not create ambiguity but made fulfilling the requirement impossible. This finding aligns with the fundamental purpose of letters of credit, which is to ensure prompt payment upon the presentation of conforming documents. A ruling that the death creates ambiguity would undermine the promptness and reliability of such financial instruments, requiring issuers to investigate the living status of all referenced individuals. The conclusion specifically addresses Meridian's obligation under the letter of credit and does not impact any potential claims the appellant may have against McKlan. Furthermore, had the appellant's agents reviewed the letter of credit terms before finalizing the leasehold purchase, they might have avoided the ensuing litigation by either not proceeding with the transaction or negotiating modifications to the requirement.

Irrevocable credits established for customers or beneficiaries can only be modified or revoked with their consent, as per 13 Pa.C.S. 5106(b). The appellant, having opted not to modify or revoke the credit, could have enforced a lease provision requiring McKlan to maintain the credit’s validity during the lease term. However, the appellant’s agents failed to review the letter of credit until after McKlan's bankruptcy and default, preventing them from exercising any options. Consequently, the appellant must accept the consequences of performance impossibility due to Mr. Orleans's death. The terms of the letter of credit remain clear and represent the intentions of both Meridian and Mr. Pincus, leading to the failure of the appellant's challenge to the trial court's judgment in favor of Meridian, with no need to address other related issues. The appellant requested costs under Pa.R.A.P. 2741, but since the order was affirmed, costs are to be taxed against the appellant. Meridian also sought counsel fees under Pa.R.A.P. 2744, alleging the appeal was frivolous due to issues not preserved in the trial court; however, the court declined to impose these fees. Judge Olszewski concurred, emphasizing that Mr. Rappaport could not utilize the letter of credit since it required Mr. Orleans's signature, which became void upon his death. Rappaport, having bought the property and assumed Orleans's rights, failed to recognize the necessity of Orleans's signature for the letter of credit’s validity, which aligns with the strict compliance rule governing letters of credit.