Article

Note: There were two bidders at a sale of inherited realty to the highest bidder for cash by a court appointed Special Master. One was heir Freddie Hataway, and the other was an attorney for a third party who also represented the other three heirs. Hataway presented a "letter of guarantee" issued by BancorpSouth undertaking to pay funds not to exceed US$72,000 in favor of the Special Master on receipt of "clear title" to the property. The Special Master rejected the bid in favor of a bid of US$60,000 by the attorney, concluding that the "letter of guarantee" was "not for cash", and sold the property for the attorney's US$60,000 uncertified trust account check drawn on the attorney's law firm. The Ninth Chancery Court District, Willard, J., then confirmed the Special Master's sale of the property. The unsuccessful bidder, Hataway, appealed. On appeal, the Supreme Court of Mississippi, Carlson, J., reversed and remanded. (Hataway v. Estate of Nicholls, No. 2003-CA-02321-SCT, 2004 Miss. LEXIS 1328 (Miss. Oct. 28, 2004) [U.S.A.] (noted in 2005 Annual Survey 294)). The higher bidder argued that the letter accompanying the bid was a letter of credit within the meaning of Rev. UCC Article 5 and that it was no less cash than an uncertified trust check in that "upon receipt of the deed, the bank would have been required to pay up to $72,000." The appellate court agreed, noting that "[h]ad the special master accepted the letter and delivered the clear title, BancorpSouth would have been required to make payment in an amount up to $72,000". On motion for rehearing, the Supreme Court of Mississippi reconsidered, reversed itself, and affirmed the Chancery Court.

The letter of guarantee stated:

Our customer, Ms. Freddie Hataway, has requested this letter of guarantee from BancorpSouth in order to support her bid for the above referenced auction.

The bid is not to exceed $72,000 and we guarantee that the good funds will be made available upon receiving clear title to the above referenced parcels.

Contesting the Chancery Court's order, the disgruntled heir contended that the letter was a letter of credit and was "no less 'cash' than the $60,000 uncertified trust account check submitted by [the attorney]."

She cited Mississippi's version of U.S. Rev. UCC Section 5-102(a)(10). The other heirs argued that the letter was not the same as cash. The Supreme Court of Mississippi noted that "[h]ad the special master accepted the letter and delivered clear title, the Bank would have been required to make payment in an amount up to $72,000. Miss. Code Ann. Section 75-5-103(a)."

The court also noted that "under certain circumstances, the Bank's letter would as a matter of fact and law be considered a bid for cash". Without changing its statements about the letter, the court stated that it was "interesting" that the exhibits in support of the motion for summary judgment contained an affidavit from the vice president of the bank that had issued the "letter of guarantee".

"In this affidavit, he stated, inter alia:

That letter was an expression that [the Bank]had made a conditional loan commitment to Mrs. Hataway, although no commitment fee was paid and [the Bank] was not bound to make the loan. If the conditions had been met, that is clear title had been assured, we would have probably made a secured loan up to the amount stated in the letter. The letter was not a letter of credit or other cash equivalent." (emphasis added)[by the court].

The Supreme Court of Mississippi concluded, however, that the Special Master was not required to accept the letter of guarantee because the condition that clear title be delivered could not be met since the Chancery Court had not ordered that clear title be delivered. Accordingly, the Special Master was only able to convey such title as empowered by the Chancery Court and the Chancellor was within its discretion in granting summary judgment.

Comments by James E. BYRNE:

Whether the "letter of guarantee" was an LC does not turn on: a) its title; or b) what the bank that issued it thought it was doing. It is impacted, however, by whether it requires presentation of a document (here, a title deed) or not. The phrase can signify either a non-documentary or a documentary condition but, if the latter, one wonders what the bank examiner would look for in examining the presentation and how it would determine whether "clear title" had passed. Clearly, the court expected that what was required was beyond the face of the deed.

[JEB/jjdd]

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