## Facts

- Wichita Eagle and Beacon Publishing Company, Inc. (Wichita Eagle) leased downtown Wichita, Kansas property that included buildings used for its newspaper operations.
- After acquiring another publishing company, Wichita Eagle moved operations to a different facility and sought to put the leased property to a new use.
- The property owners (including Marcellus M. Murdock and others) and Wichita Eagle arranged for Circular Ramp Garages, Inc. (Circular Ramp) to take the site and develop a parking garage.
- Under a long-term (99-year) lease, Circular Ramp agreed to exercise due diligence to obtain permits and to begin and complete construction of a parking garage meeting a minimum value requirement.
- The lease required Circular Ramp to provide $250,000 security—cash/bonds, a surety bond, a letter of credit, or another guaranty—to secure performance of its construction obligations.
- Circular Ramp obtained from Pacific National Bank of San Francisco (the Bank) a document titled “Letter of Credit No. 17084,” naming the lessors as beneficiaries for up to $250,000.
- The Bank charged its standard fee for issuing a letter of credit. The instrument was prepared by Circular Ramp’s attorney and was reviewed and accepted by Wichita Eagle and the Bank.
- The instrument set out conditions for payment, including: (1) Circular Ramp’s failure to perform as required; (2) written notice of the failure sent to Circular Ramp, followed by an affidavit to the Bank stating that notice was given; and (3) failure by Circular Ramp to cure within 30 days after notice.
- Circular Ramp failed to move the project forward and did not develop the garage.
- The beneficiaries provided the required written notice, waited the 30-day period, and supplied the Bank an affidavit stating notice was given and the failure was not cured.
- Wichita Eagle then presented a draft for $250,000 under the instrument, and the Bank refused to pay.
- Wichita Eagle sued the Bank in federal court; the Bank asserted defenses and brought related third-party claims tied to the lease and development arrangement.

## Issues

1. Whether the document titled “Letter of Credit No. 17084” should be treated as a letter of credit (rather than a guaranty or other security device) for purposes of the Bank’s payment obligation.
2. Whether Wichita Eagle’s demand (draft and accompanying affidavit/notice proof) satisfied the instrument’s stated conditions so that the Bank was required to honor the draft.
3. Whether the Bank could avoid payment based on asserted defects or technical objections in the notice, affidavit, or timing of the demand.

## Decision

- The court concluded that, although the characterization question was not free from doubt, the instrument should be treated as a letter of credit and evaluated under letter-of-credit principles to the extent appropriate.
- The court found that Circular Ramp failed to perform the construction-related obligations that the $250,000 instrument was intended to secure.
- The court found that the beneficiaries gave the required notice, allowed the contractual cure period to run, and presented documentation that met the instrument’s conditions.
- The court held the Bank’s refusal to pay was wrongful and entered judgment requiring the Bank to pay Wichita Eagle $250,000 under the instrument (with related disputes addressed through associated claims).

## Legal Principles

- A bank-issued instrument labeled and priced as a “letter of credit,” and structured as a promise to pay a stated amount upon presentation of specified documents, may be treated as a letter of credit even when it functions as performance security for an underlying lease.
- In letter-of-credit analysis, the issuer’s duty to pay turns on whether the beneficiary presents the documents and certifications the instrument requires, rather than on litigating the merits of the underlying contract dispute between beneficiary and applicant.
- When the letter of credit makes payment conditional on notice, an affidavit of notice, and passage of a cure period, the issuer must honor a demand that satisfies those stated conditions; the issuer cannot refuse payment based on objections that do not amount to a failure to meet the express conditions.

## Conclusion

The district court treated “Letter of Credit No. 17084” as a letter of credit and held the Bank liable for wrongful dishonor because Circular Ramp failed to perform and Wichita Eagle satisfied the instrument’s notice, affidavit, and 30-day cure requirements before presenting a conforming $250,000 draft.


Wichita Eagle & Beacon Publishing Co. v. Pacific National Bank of San Francisco, 343 F. Supp. 332 (1971)