Farmer v. Crocker National Bank (In Re Swift Aire Lines, Inc.)

30 B.R. 490, 1983 Bankr. LEXIS 6615, 10 Bankr. Ct. Dec. (CRR) 290
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedMarch 15, 1983
DocketBAP Nos. CC-82-1139VGK, CC-82-1149VGK, Bankruptcy No. LA-81-11896CA, Adv. No. LA-81-4979CA
StatusPublished
Cited by17 cases

This text of 30 B.R. 490 (Farmer v. Crocker National Bank (In Re Swift Aire Lines, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Farmer v. Crocker National Bank (In Re Swift Aire Lines, Inc.), 30 B.R. 490, 1983 Bankr. LEXIS 6615, 10 Bankr. Ct. Dec. (CRR) 290 (bap9 1983).

Opinion

OPINION

VOLINN, Bankruptcy Judge:

I. FACTS

Prior to filing bankruptcy on September 18, 1981, Swift Aire Lines, Inc., operated a commercial airline service. Business operations were financed primarily through Wells Fargo Bank.

In November, 1980, appellant, Justin Colin, purchased an 80% stock ownership interest in the debtor for $1,775,000. Colin also agreed in a separate investment agreement dated November 19, 1980, to contribute an additional $775,000 to Swift by loan or purchase of stock. The additional contribution was to be made “in the event that either Wells Fargo Bank, N.A. ... or the Board of Directors of Swift determines in good faith, that such funds are required by Swift for the continuing operation of its business.... ” Colin was to deliver to Swift a bank letter of credit in the amount of $775,000 to secure payment of the additional contribution to the debtor, in the event such payment was required.

Colin applied for a letter of credit from appellant, Crocker National Bank. On January 19, 1981, Crocker issued an irrevocable letter of credit for $775,000 with Swift as beneficiary. The Board of Directors of Swift and Wells Fargo 1 were each given the power to draw on the letter of credit.

Colin also signed and sent a letter dated January 20, 1981, to an officer of Wells Fargo stating that Colin agreed that the debtor could draw on the Crocker letter of credit even if Swift filed a petition under any chapter of bankruptcy, and that the provisions of 11 U.S.C. § 365(e)(2)(B) were waived and would not be asserted by Colin in any attempt by Swift to draw on the letter of credit.

As a condition to Swift or Wells Fargo being able to draw on it, the Crocker letter of credit required a statement that Wells Fargo or Swift had demanded payment of the additional contribution and that such amount remained unpaid for a period of five days. On September 15, 1981, Wells Fargo made formal demand on Colin to make the additional contribution to the debtor.

Prior to expiration of the five days, on September 18, 1981, Swift filed a petition under 11 U.S.C. Chapter 7. Three days later, the appellee, David Y. Farmer was appointed interim trustee.

On October 6, 1981, the trustee presented certain documents to Crocker in an attempt to draw against the letter of credit. The documents included the following:

*492 1) A draft to Crocker to pay to the order of the trustee for the debtor the amount of $775,000.
2) A letter from the trustee to Crocker demanding payment of the draft pursuant to the letter of credit.
3) A letter from the trustee to Crocker stating that Wells Fargo had requested “that a drawing be made” under the letter of credit.
4) A letter from Wells Fargo to Crocker requesting that $775,000 be drawn under the letter of credit. The letter stated that Colin failed to pay said amount within five days after demand and that the funds were necessary for continued operation of the business of the debtor.
5) A letter from Wells Fargo to the trustee with the same content as document 4) above.
6) A copy of the agreement which required Colin to make the additional contribution and provide the letter of credit.
7) A copy of the letter from Colin to Wells Fargo waiving Swift’s bankruptcy as a defense to payment under the letter of credit.
8) A copy of the letter whereby Wells Fargo made demand on Colin to make the original contribution.
9) A copy of the notice of the trustee’s appointment and a copy of the trustee’s oath.

On October 7, 1981, Crocker refused to honor the documents submitted by the trustee. The reasons were as follows:

1) The draft was not drawn by the beneficiary of the letter of credit and was not payable at sight, as required by the letter of credit.
2) The letter of credit required a statement from Wells Fargo which must be manually signed by the beneficiary and followed by the designation “Corporate Secretary, Swift Aire Lines, Inc.” This requirement was not met.
3) The letter of credit required a statement from Wells Fargo that the “funds are required by Swift Aire Lines, Inc. for the continued operation of its business ...” Crocker contended that this statement was false at the time the documents were presented and, therefore, such presentment was defective.
4)The trustee did not have the power to draw under the letter of credit. 11 U.S.C. § 365(c) was cited as an example. 2

On October 19, 1981, the trustee filed a complaint against Crocker in the bankruptcy court for wrongful refusal to honor the letter of credit. On December 3, 1981, Crocker filed a third-party complaint against Colin for indemnification in the event that the trustee prevailed. On January 5, 1982, Colin filed a cross-complaint against the trustee for conspiracy, fraud, negligent misrepresentation, abuse of process, constructive trust, and declaration of rights based on the underlying transaction between Colin and the debtor. Crocker and Colin each demanded a trial by jury.

On December 21, 1981, the court set January 27,1982, as a trial date. Prior to trial, the trustee moved to strike the demand for a jury trial. These motions were granted orally by the court after hearing on January 12,1982. At that time, Colin was orally granted leave to intervene as a party defendant and he was deemed to have adopted the answer filed by Crocker. The court’s oral determinations were reduced to writing on January 26,1982.

On January 8, 1982, Crocker filed a motion for summary judgment on the basis that the trustee failed to tender the requisite documents as a matter of law to draw against the letter of credit. On January 15, 1982, the trustee filed a cross-motion for partial summary judgment on the basis that the trustee tendered sufficient documents as a matter of law to draw against the letter of credit. The summary judgment motion of the trustee was partial because Crocker had asserted that statements made by the trustee in the tendered documents were fraudulent which Crocker asserted would relieve it of honoring the attempted *493 draw on the letter of credit under Cal. Comm.Code § 5114(1). The allegations of fraud could not be decided on summary judgment.

A hearing on the summary judgment motions was held on January 25, 1982. The court orally denied Crocker’s motion for summary judgment and granted the trustee’s motion for partial summary judgment. Trial of the issue of the trustee’s fraud was commenced on January 27, 1982. The proceedings were continued to and concluded on February 25, 1982.

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Cite This Page — Counsel Stack

Bluebook (online)
30 B.R. 490, 1983 Bankr. LEXIS 6615, 10 Bankr. Ct. Dec. (CRR) 290, Counsel Stack Legal Research, https://law.counselstack.com/opinion/farmer-v-crocker-national-bank-in-re-swift-aire-lines-inc-bap9-1983.