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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1998 LC CASE SUMMARIES 1998 U.S. Dist. LEXIS 14429 (S.D.N.Y.)
Topics:
Fraud; Issuer's Obligation-fraud; Defense-fraud.
Type of Lawsuit:
On cross-claim, the beneficiary sued issuer for wrongful dishonor.
Parties:
Plaintiff/Applicant- Ping He Company Limited (Counsel for Plaintiff: Samuel Rosenthal, Eliot Lauer of Curtis, Malet-Prevost, Co& Mosle)
Defendant/Beneficiary- NonFerrous Metals (U.S.A.) Inc. (Counsel for Defendant: Weihju Tang of Tang& Assoc., P.C.)
Third Party Defendant/Issuer- Agricultural Bank of China (Counsel: Same as Applicant)
Underlying Transaction:
Contract to trade commodity futures.
LC:
Two standbys totaling US$ 800,000. Silent as to governing rules.
Decision:
The United States District Court for the Southern District of New York, Sotomayer, J., granted the issuer's motion for summary judgment and dismissed the complaint in its entirety.
Rationale:
The issuer is not legally obligated to pay a beneficiary under an LC when the beneficiary submits a fraudulent demand for payment.
Article
Factual Summary: The main action involved a dispute between the applicant and the beneficiary over a commodity futures trading account opened by the applicant with the beneficiary, in which the applicant sought the return of money deposited into the account on the grounds that the beneficiary violated various provisions of the Commodity Exchange Act. In opposing the action, the beneficiary claimed that the applicant owed it money from trading losses.
The instant action related to two standbys issued in favor of the broker at the time the trading account was opened. One of the documents required was a statement that the amount drawn was owed due to commodity dealings and another was to state that a telex was sent to the applicant. When the beneficiary drew on the standby, the issuer refused to pay, claiming that the documents presented were fraudulent. The beneficiary brought a third party action against the issuer for wrongful dishonor. On discovery in the action in chief, documents and admissions by or from the beneficiary indicated that the amount drawn was not owed. The beneficiary also admitted that notice was not telexed to the applicant.
Legal Analysis:
1. Fraudulent Presentation:Since documentary admissions from the beneficiary established that it had presented the issuer with false documents, the court ruled that the issuer was entitled to refuse to honor the presentation. The court stated that the law is well settled that a bank is not legally obligated to pay a beneficiary under a standby letter of credit when a beneficiary submits a fraudulent demand for payment.
©1999 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.