Golden West Refining Company v. SunTrust Bank
Filed August 18, 2008
Ninth Circuit Court of Appeals
Cite as 06-56006

Court Affirms Verdict on Expiration of Letter of Credit

The case stemmed from an issue where Crestar issued an irrevocable letter of credit on CENCO, Inc.’s account, to secure a hold-harmless agreement made when it acquired two leases from Golden West Refining Company. The letter of credit was issued in 1999.

The letter of credit stated, “it would expire one year from its date of issue, but would automatically renew for additional one-year periods” unless Golden West elected not to require such renewal.

Crestar, the predecessor of SunTrust Bank, believed that the letter of credit would only be outstanding for ninety days. In 2001, it informed Pat Robertson, the trustee of UniTrust, CENCO owner, that it would not renew the letter of credit unless it was secured.

As a result, CENCO sued Golden West in state court, alleging that Golden West had improperly failed to terminate the letter of credit. Golden West’s initial default was later vacated by the state court, which ultimately left the letter of credit in effect.

In February 2005, after the lessor of the Golden West properties demanded from Golden West under lease-terms on which CENCO had agreed, to hold Golden West harmless, and CENCO failed make to the lessor requisite payments.

Consequently, Golden West made a draw on the letter of credit. SunTrust dishonored the letter of credit, asserting that it was perpetual and therefore had expired under Uniform Commercial Code (UCC) section 5-106(d).

Golden West sued SunTrust in district court for wrongful dishonor of the letter of credit and breach of contract.

On judgment, the district court granted summary judgment to Golden West, finding that the letter of credit was not perpetual, had not expired, and was still in effect on the date of Golden West’s draw. SunTrust appealed.

The court made the decision based on the following grounds:

• that the language of section 5-106(d) is plain and unambiguous


• that the plain meaning of “to state” is “to express in words.” It is essential that the words of a letter of credit definitively provide that it will continue in perpetuity.


• Further, as to SunTrust’s affirmative defense of waiver by Golden West, the meaning of “discrepancy” could only be determined by consideration of the entirety of  section 5-108.

Further , the court held that such a consideration makes clear that only “discrepancies in the presentation” are waived under section 5-108(c) if not included in the notice of dishonor.

Accordingly, the district court’s interpretation of “discrepancy” in section 5-108(c) was consistent with section 5-108(d), and it correctly determined that SunTrust did not waive its affirmative defense of waiver.

Golden West’s inaction with regard to compelling CENCO to follow the state-court order was consistent with its position that it had no such obligation because the letter of credit was never cancelled.

The state-court judgment affected only Golden West and CENCO. Golden West’s failure to enforce the order affected only any right it had to enforce the order against CENCO.

During review, the appeals court found that under sections 5-106(b) and 5-108(a), the state court order could not permit SunTrust validly to cancel the letter of credit, since it expressly if SunTrust could terminate it only in specified circumstances.

Finally, the appeals court held that SunTrust was under no obligation to cancel the letter of credit because it was not a party to the state court action.

The Ninth Circuit Court of Appeals therefore affirmed a judgment of the district court, which held that under Uniform Commercial Code section 5-106(d), a letter of credit that did not express in words that it was perpetual was “not perpetual and therefore did not expire five years after its stated date of issuance”.