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AMERICAN EMPLOYERS INS. v. PIONEER BK. & TRUST
December 18, 1981
AMERICAN EMPLOYERS INSURANCE COMPANY, PLAINTIFF,
PIONEER BANK AND TRUST COMPANY, DEFENDANT.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
American Employers Insurance Company ("American Employers")
sues Pioneer Bank and Trust Company ("Pioneer") alleging the
wrongful dishonor of drafts presented under each of three
irrevocable letters of credit issued by Pioneer. American
Employers has moved for summary judgment and Pioneer has filed
a cross motion to dismiss the Complaint. For the reasons
stated in this memorandum opinion and order, Pioneer's motion
is denied and American Employers' motion is granted in part
and denied in part.
On November 1, 1974 Pioneer (the issuer) issued an
Irrevocable Letter of Credit (the "1974 Letter") in favor of
American Employers (the beneficiary) for the account of
Jenkins Industries, Inc. ("Jenkins," the customer). Under its
terms the 1974 Letter was automatically extended from year to
year unless Pioneer provided American Employers with 30 days'
notice before an anniversary date. Payment under the 1974
Letter was conditioned upon American Employers' presentation
of a sight draft demanding payment and an accompanying
that [American Employers], as Surety, have
executed one or more bonds on behalf of Jenkins
Industries, Inc. and that a claim has been made
or a situation exists under which, in the sole
judgment of [American Employers], claim may be
made or loss or expense sustained under said bond
and that monies represented by [American
Employers'] drafts are required in the discretion
of [American Employers] for its protection under
said bond(s) or for payment of premiums.
On May 21, 1975 Pioneer issued two additional Irrevocable
Letters of Credit (the "1975 Letters") employing the identical
set of terms and conditions. They differed only in their
principal amounts and in their being issued for the account of
"Jenkins Industries, Inc., a general partner, and S & A Mining
Associates, a limited partner," rather than Jenkins alone.
On July 23, 1981*fn1 American Employers July 21 and
accompanying statements dated July 23, demanding payment under
each of the letters of credit. Each statement referred to the
execution of bonds on behalf of Jenkins, and each draft
directed Pioneer to charge Jenkins' account.
Under Ill.Rev.Stat. ch. 26, § 5-112(1) ("Section 5-112(1)")
Pioneer had until the close of business July 28 to honor
American Employers' demand. When Pioneer failed to do so
American Employers filed suit July 29.
American Employers' Contentions
American Employers asserts that:
(1) All three letters of credit remained in
effect in 1981 because Pioneer had never given
notice of cancellation.
(2) American Employers provided Pioneer with a
sight draft and accompanying statement in full
compliance with each letter of credit.
(3) Pioneer's failure to respond amounted to a
dishonor of the demand.
(4) American Employers is therefore entitled to
full payment under the terms of the letters of
As this opinion will reflect those arguments are,
with a single (though important) limitation,
unanswerable as a matter of law.
Pioneer counters with a number of defenses. For
the most part they are ...
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