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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2003 LC CASE SUMMARIES 2003 N.Y. App. Div. LEXIS 743 [U.S.A.]
Topic:Conflict of Law; Advising Bank; Inaccurate Advice; Punitive Damages; Prior UCC Section 5-107; New York Non-Conforming Amendment
Type of Lawsuit: Beneficiary sued Advising Bank for LC funds and for consequential and punitive damages due to improper advice of credit.
Parties:
Plaintiff/Respondent/Beneficiary/Shipper- ITM Enterprises, Inc. (Counsel: Stephen I. Feder)
Defendant/Appellant/Advising Bank- Bank of New York (Counsel: Robert J. Kochenthal, Jr. of Saiber Schlesinger Satz & Goldstein)
Underlying Transaction: International purchase and shipment of goods.
LC: LC. Silent as to amount. Subject to UCP. Opinion does not indicate which version.
Decision: The Supreme Court of New York, Appellate Division, Second Department, Krausman J.P., Friedman, Mastro and Rivera J.J., affirmed the denial by the Supreme Court, Queens County (New York) of Advising Bank's motion to dismiss a claim for funds due under the letter of credit, and reversed the trial court's denial of Advising Bank's motion to dismiss the claim for consequential and punitive damages.
Rationale: When there is a material omission in an advice of a LC, the advising bank may be liable to the beneficiary for a loss resulting from the omission. A claim for inaccurate advice of an LC does not entitle a beneficiary to recover consequential or punitive damage.
Article
Factual Summary: Advising Bank omitted a condition of payment when it transmitted terms of LC to a bank representing the Beneficiary. When Beneficiary's presentation failed to satisfy this condition, Issuer refused to honor of the credit. Beneficiary sued the advising bank for inaccurately advising the credit, seeking consequential and punitive damages. The trial court denied Advising Bank's motion to dismiss on both counts. On appeal, affirmed as to denial of the motion to dismiss the claim for funds due under the letter of credit and reversed as to the motion to dismiss the claim for consequential and punitive damages.
Legal Analysis:
1. Role of UCP; Non-Conforming Prior New York UCC Section 5-103(4): Under prior New York UCC Section 5-103(4), a credit such as the one in the case at bar that is subject to the UCP is not subject to the UCC. The court, however, stated that, "[a]lthough a letter of credit which is subject to the UCP is exempt form the Uniform Commercial Code ... provisions dealing with letter of credit, courts may rely upon analogous UCC provisions if consistent with the UCP." Noting that, "[t]he UCP contains no provision governing an advising bank's duty to accurately transmit the terms of a letter of credit," the court relied on Prior UCC Section 5-107(c) which addresses this issue "since it is not in conflict with the UCP."
2. Advising Bank, Prior UCC § 5-107(c): The court noted that Prior UCC Section 5-107(c), "imposes a duty on an advising bank to accurately transmit the terms of the letter." The court stated that, "[u]nder the UCC, once the beneficiary of a letter of credit receives written advice of its issuance, he acquires the right to collect damages from the advising bank if the purpose of the letter of credit is frustrated by the giving of an inaccurate advice."
Noting that there were disputed questions of fact as to the role of the Adviser and "whether the payment term which it omitted in advising the letter of credit was a material component of the underlying agreement upon which the plaintiff relied," the appellate court found that these questions justified denial of Advising Bank's motion for summary judgment on the Beneficiary's claim for funds due under the LC.
3. Punitive Damages: Citing UCC §§ 1-106 and 5-111, the court stated that "[a] claimant under a letter of credit may recover the amount that is the result of the dishonor or repudiation, as well as incidental damages, but not consequential or punitive damages." Applying this rule, the appellate court reversed the denial of Advising Bank's motion for summary judgment on Beneficiary's claim for consequential and punitive damages.
[JEB/bso]
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