In the Matter of Marine Distributors, Inc., a California Corporation, Bankrupt. Barbara Postal and Travers A. Laird v. James A. A. Smith, Trustee

This appeal is from a judgment of the district court which affirmed an order of the bankruptcy referee enjoining the United California Bank (UCB) from making payment upon two irrevocable letters of credit it had issued. The letters of credit were issued to William H. Postal and Travers A. Laird representing a part of their selling price of certain assets to Marine Distributors, Inc. (MDI). When MDI became bankrupt its trustee claimed the funds represented by the letters of credit and initiated this proceeding.

More specifically, by a contract of sale dated April 30, 1970 (Agreement), Postal and Laird agreed to sell certain assets of a partnership called Coast Distributing Company to MDI. The purchase price was $135,000 plus assumption of certain liabilities. Part of the price was paid in cash and the remainder was evidenced by promissory notes of MDI. Three notes of a series were issued by MDI to Postal for his share and three to Laird for his. The Agreement provided that the notes would be guaranteed by UCB, or an equivalent bank satisfactory to the seller.

To implement this guarantee MDI applied to UCB for two irrevocable letters of credit, one to be issued to Postal…