Article

Prior History: DBJJJ, Inc. v, National City Bank, 19 Cal.Rptr.3d 904 (Cal. Ct. App. 2004) [U.S.A.]: abstracted at 2005 Annual Survey 279.

Note: To pay for the sale of clothing, Pennsylvania Fashions, Inc. (Applicant) caused National City Bank (Issuer) to issue two LCs subject to UCP500 in favor of DBJJJ, Inc. (Beneficiary).

Under the first LC, Beneficiary or its assignees presented documents to Wilshire State Bank (Advising Bank) on the day of expiry, Monday 26November. Issuer received the documents on Friday30 November, reviewed them, and noted three discrepancies. On Monday 3 December, Issuer sent Applicant a letter to request waiver of the discrepancies which stated a "refusal date" of Tuesday 11 December which was the seventh banking day following receipt of the documents. On the "refusal date", Applicant refused to waive the discrepancies, and Issuer sent a notice of refusal to Beneficiary.

Documents were presented to Issuer under the second LC on Tuesday 11 December, prior to the LC's expiry date of Friday 14 December. After examining these documents and finding discrepancies, Issuer sought Applicant's waiver via letter that again contained a "refusal date" which was Thursday 20 December, the seventh banking day following the banking day of receipt of the documents. On the "refusal date," Applicant informed Issuer that it refused to waive discrepancies and Issuer sent a notice of refusal on the same date.

For each LC, the "refusal date" was the maximum amount of time available under UCP500 Article 13(b) and 14(d)(i). Claiming wrongful dishonor, Beneficiary sued Issuer.

The Superior Court of Los Angeles County, Johnson, J., granted summary judgment in favor of Issuer and concluded that "[Issuer] had until the close of business on the seventh banking day following its receipt of [Beneficiary's] claim and supporting documents...to send its Advise of Rejection." (2005Annual Survey 281) Beneficiary appealed from this decision and the Court of Appeal of California, Second Appellate District, Division Eight, in an opinion by Cooper, PJ., with Boland and Flier JJ., concurring, reversed and remanded for additional proceedings.

The appellate court noted that both Issuer and Beneficiary had failed to establish Issuer's reasonableness or the lack thereof. The appellate court noted "[Issuer] does not argue that there is evidence the seven banking day period was reasonable based on the specific circumstances of the case" (2005 Annual Survey 281) and therefore "failed to establish that, as a matter of law, it provided timely notice to [Beneficiary] of its decision to refuse the documents." With respect to Beneficiary's motion for summary judgment, the appellate court said it "did not demonstrate as a matter of law [Issuer] exceeded a reasonable time as specified in Article13(b) and incorporated in Article 14(d)(i)."

On remand, the parties filed cross-motions for summary judgment with the trial court and submitted evidence in the form of depositions or declarations as permitted under Cal. Rules of Court Rule 342(2005).

Beneficiary argued that Issuer "violated the 'reasonable time' rule of UCP Article 13 (b)" and that Issuer had "determined to refuse the letters, but did not communicate its refusal to DBJJJ until the seventh day." Beneficiary proffered evidence that the LCs were "simple transactions with only five documents thus that taking seven days to make a decision was not reasonable." Additionally, Beneficiary argued it could have cured at least one LC prior to expiry if "[Issuer] informed it of the discrepancies when it first noted them and asked [Applicant] for a waiver." Beneficiary also "presented evidence of past letters of credit that were honored even after their expiration."

Issuer argued it had complied with the terms of the credit and that "the only reason it took 7 days to make its final decision was that it waited to learn whether [Applicant] would waive discrepancies." To support its decision to await Applicant's decision, Issuer provided evidence that Applicant had granted waiver in over three hundred prior LCs and"[Applicant] typically did not respond until the 6th or7th day." Issuer also noted that once Applicant did respond, Issuer sent Beneficiary their notices of refusal on the same day.

After hearing the arguments and considering the evidence, the Superior Court of Los Angeles County, Johnson, J., denied both motions. The court stated that that it "cannot determine as a matter of law that [Issuer] acted reasonably under the circumstances. There are triable issues of fact as to the reasonableness of the Bank's actions."

[JEB/ejh]

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