San Diego Gas & Electric Co. v. Bank Leumi

The instant litigation stems from defendant Bank Leumi’s refusal to honor a draft presented by San Diego Gas & Electric Company (SDG&E) on a “standby” letter of credit issued by Bank Leumi (the Bank). The Bank appeals from a summary judgment in favor of SDG&E. We are asked to consider whether a beneficiary under a standby letter of credit owes the issuer of the letter of credit a duty to mitigate damages and, irrespective of any duty to mitigate, whether any actual mitigation entitles the issuer to a corresponding reduction of the beneficiary’s recovery under the letter of credit. We answer these questions in the negative and affirm the judgment.

Factual and Procedural Background

The facts surrounding the creation of the subject letter of credit are not in dispute. In May of 1988, SDG&E issued its revised standard offer No. 2 firm capacity purchase agreement, an offer to purchase electricity from small power producers. In June of 1988, SDG&E entered into a standard offer No. 2 agreement to purchase power from Luz San Diego Solar Partners, Ltd. I (Luz). Pursuant to that agreement, the Bank issued an irrevocable standby letter of credit in the amount of $400,000, naming…