Article

Type of Lawsuit: Beneficiary sued Issuer for wrongful dishonor and anticipatory repudiation.

Parties:

Plaintiff/Appellee/Beneficiary- Nissho Iwai Europe PLC (Counsel: James L. Kerr)

Defendant/Appellant/Issuer- Korea First Bank (Counsel: Richard A. Rosen)

Underlying Transaction: Sale of automotive parts.

LC: Revolving Standby LC for installments of US$11,500,000. Subject to UCP500.

Decision: The New York Supreme Court, Appellate Division, First Department, Andrias, Ellerin, Lerner, Friedman, and Marlow, J.J., affirmed the decision of the New York Supreme Court, New York County, Cahn, J., denying Issuer's motion to vacate the decision of the New York Supreme Court, Cozier, J., who granted Beneficiary's motion for summary judgment.

Rationale: When no fraud exists, and new evidence is not material to the contract interpretation issues of the original motion, Beneficiary did not have a duty to reveal that evidence on the original motion.

Prior History: Nissho Iwai Europe PLC v. Korea First Bank, 2002 NY LEXIS 3471 (N.Y. Sup. Ct. 2002); 290 A.D.2d 331 (N.Y. Sup. Ct. 2000) abstracted at 2001 Annual Survey 250.

Factual Summary (based in part on prior decisions): Repayment of a loan agreement between Beneficiary and Applicant was to be made in sixteen equal quarterly installments. To secure the loan, Applicant's parent corporation issued a guaranty and Bank issued a revolving standby LC. When Applicant failed to pay an installment due, Beneficiary presented documents under the LC, and Issuer paid the amount of that installment.

After paying the first installment, Issuer refused to pay a drawing on the next installment, claiming that it had not been reimbursed by the applicant for the previous payment and that the amount available under the credit was exhausted at the first drawing, despite its status as a revolving LC. Following Issuer's refusal, Beneficiary brought an action for wrongful dishonor and anticipatory repudiation, seeking damages, or in the alternative, declaratory relief. The trial court granted Beneficiary's motion for summary judgment, awarding damages in the amount of US$12,468,875 (US$11.5 million plus interest) and US$68,756,400.58 (the remaining balance of the loan plus interest).

After judgment was entered by the trial court, Issuer claimed that new evidence had been discovered. Issuer appealed, seeking to have the judgment vacated on the basis of the new evidence [the nature of the new evidence is not specified in the opinion]. Motion to vacate was denied by the appellate court. On appeal, affirmed.

Legal Analysis:

1. Fraud; Ambiguity in the LC; Parol Evidence: Issuer claimed that the new evidence proved Beneficiary and Applicant collaborated in producing an "intentionally ambiguous" LC. Additionally, Issuer claimed that the evidence showed Beneficiary and Applicant defrauded Issuer by misrepresenting that the underlying transaction involved a sale for automotive parts rather than granting a general operating loan. In rejecting Issuer's request, the court stated that the "disputed terms are not ambiguous and parol evidence cannot be used to create an ambiguity where none exists upon the face of the instrument." The court also disagreed that parol evidence can be used to prove Issuer was misled regarding the nature of the LC or underlying transaction. The court stated that "[e]ven if, as [Issuer] represents, a letter of credit for a loan is subject to a more rigorous due diligence process than one for the sale of goods, [Issuer], a sophisticated business entity, will not be heard to say that it was uninformed as to the terms of the underlying contract, which was specifically referenced in the letter or that it relied on representations that the letter does not say what it in fact specifically does say."

[JEB/fkd]

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