The opinion of the court was delivered by: Justice O'brien delivered the opinion of the court
Appeal from the Circuit Court of Cook County.
Honorable Stephen A. Schiller, Judge Presiding.
Plaintiff, Richard G. Fanslow, filed a complaint against defendant, The Northern Trust Company (Northern Trust), alleging wrongful dishonor of a letter of credit (count I), nonpayment of a sight draft after acceptance (count II), and breach of good faith (count III). The trial court entered summary judgment in favor of Northern Trust on counts I and II and dismissed count III. Plaintiff appealed. We affirm.
In 1988, a corporation owned and controlled by Fanslow sold its interest in Summit National Life Insurance Company (Summit) to SNL Corporation which was controlled by Allen Stewart (Stewart). *fn1 To partially finance the transaction, Stewart gave Fanslow a "Promissory Note Secured by Letter of Credit." The letter of credit was issued by Northern Trust for Fanslow's benefit (the NTC L/C). The NTC L/C provided, in pertinent part:
"WE HEREBY ISSUE THIS IRREVOCABLE STANDBY LETTER OF CREDIT WHICH IS AVAILABLE BY YOUR DRAFT DRAWN AT SIGHT ON US, BEARING THE CLAUSE `DRAWN UNDER IRREVOCABLE STAND-BY LETTER OF CREDIT NO. S253144 OF THE NORTHERN TRUST COMPANY' WHEN ACCOMPANIED BY:
1. A STATEMENT PURPORTEDLY SIGNED BY RICHARD G. FANSLOW OR HIS AUTHORIZED REPRESENTATIVE STATING THAT:
(1) SNL CORPORATION HAS DEFAULTED IN ONE OR MORE OF ITS OBLIGATIONS UNDER THE TERMS OF THE PROMISSORY NOTE IN THE AMOUNT OF USD 6,400,000.00 PAYABLE TO THE ORDER OF RICHARD G. FANSLOW AND DATED OCTOBER 5, 1988 (THE `NOTE'), THEREFORE IMMEDIATE PAYMENT OF USD (INSERT AMOUNT OF DRAFT) IS NOW DUE AND OWING UNDER THE NOTE.
WE HEREBY ENGAGE WITH YOU THAT ALL DOCUMENTS PRESENTED IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF CREDIT WILL BE DULY HONORED BY US WITHIN THREE WORKING DAYS IF DELIVERED TO THE NORTHERN TRUST COMPANY, 802 S. CANAL STREET, CHICAGO, ILLINOIS, 60675 PRIOR TO 3 PM ON OR BEFORE THE EXPIRATION DATE."
A separate $8 million letter of credit was issued by Merrill Lynch International Bank (London) (MLIB) to secure the NTC L/C (the MLIB L/C). In turn, Stewart pledged some $8 million on deposit with MLIB in London to secure the MLIB L/C.
Shortly after the sale and purchase of Summit, the insurance company experienced severe financial difficulties and filed a petition for rehabilitation with the Commonwealth Court of Pennsylvania (the Pennsylvania lawsuit). In its effort to preserve the assets of the rehabilitation estate, the Pennsylvania Insurance Commissioner applied to the Commonwealth Court for an injunction against Fanslow, Northern Trust and MLIB to prevent them from exercising their rights and obligations under the NTC L/C and the MLIB L/C. The Pennsylvania Insurance Commissioner alleged that the $8 million on deposit with MLIB in London which secured the MLIB L/C (and by extension the NTC L/C) also secured another and later-created obligation owed to Summit by Stewart and thus the funds belonged to the Summit rehabilitation estate rather than to Fanslow. The nature of the Pennsylvania Insurance Commissioner's request notwithstanding, the application failed to name either Fanslow or Northern Trust as a party. Consequently neither was formally served with process, although Fanslow (but not Northern Trust) was informed of a hearing scheduled for September 29, 1994.
At the September 29, 1994, hearing, both MLIB and Fanslow appeared specially to contest jurisdiction. Northern Trust did not appear. The Pennsylvania court nevertheless enjoined MLIB from paying on the MLIB L/C. It did not, however, enjoin Fanslow from drawing upon or Northern Trust from paying upon the NTC L/C. The court's supplemental memorandum issued in relation to this decision states:
"In seeking this relief, the [Pennsylvania Insurance Commissioner] asked us to take action over Fanslow which would ineluctably affect the legal and substantive rights of Northern Trust. However, Northern Trust was not named as a party, not mentioned in the pleading and was not served or otherwise notified.
Although all counsel agreed at hearing on the rehabilitator's emergency request that Northern Trust had an obligation to Fanslow by virtue of the letter of credit, no evidence was produced to establish this obligation. * * *
Thus, the court is in no position to take action to interdict a banking relationship in another jurisdiction involving a letter of credit, without the least notification to the issuing bank, which it appears, is putatively a real party in interest in these proceedings."
On October 1, 1994, Stewart failed to make a scheduled interest payment on the note secured by the NTC L/C. Consequently, on the morning of October 3, 1994, Fanslow presented certain documents to Northern Trust to draw upon the NTC L/C. Later that same day, the Pennsylvania Insurance Commissioner amended its application to the Pennsylvania court for an injunction to name Northern Trust as a "party in ...