Border National Bank of Eagle Pass v. American National Bank of San Francisco

Joseph De Bona was a broker dealing in sugar. In April 1920, De Bona sought to purchase sugar from Maldonado & Company (Maldonado). Negotiations between De Bona and Maldonado culminated in an agreement for De Bona to purchase 200 tons of sugar in the future from Maldonado provided that De Bona’s bank, Border National Bank of Eagle Pass (Border Bank) (plaintiff) wired Maldonado’s bank, American National Bank of San Francisco (American Bank) (defendant) an irrevocable letter of credit. Subsequently, Border Bank notified Maldonado that it would guarantee De Bona’s contract for the sugar. Then, Maldonado contracted with Amsinck & Company (Amsinck) to purchase sugar to fill De Bona’s contract. Amsinck required a letter of credit from Maldonado. American Bank furnished a letter of credit on behalf of Maldonado, relying on the letter of credit from Border Bank. In June 1920, De Bona attempted to cancel his contract with Maldonado. A few days later Border Bank notified American Bank that it was revoking its obligation under the letter of credit. Maldonado and American Bank insisted that De Bona and Border Bank perform pursuant to their obligations. In September 1920, the sugar was shipped, and American Bank paid out on its letter of credit to Amsinck a total of $96,310.11 for the sugar. In November 1920, American Bank presented a draft, or money order, to Border Bank for $98,594.88. Border Bank refused to pay. The sugar was sold for $28,534.46 at public auction. American Bank sued Border Bank to recover the difference between the cost of the sugar and the proceeds at auction. The district court entered judgment for American Bank in the amount of $72,368.84. Border Bank appealed, arguing that its agreement to guarantee De Bona’s debt was ultra vires, or outside the bank’s legal authority, so the debt obligation was void.