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Note: To guarantee payment for the purchase of chocolate, Sorbee International Ltd. (Buyer) obtained a standby LC from PNC Bank (Issuer) in favor of Art D'Or (Seller) and its bank, Banco Santander Agency of Lebrija (Seller's Bank), as cobeneficiaries. Seller's Bank also served as the advising and confirming bank. The LC provided that it could be drawn if the payment by Buyer to Seller was past due by 125 days from the bill of lading date.

Initially unable to supply the products due to its uncompleted factory, Seller agreed with Buyer temporarily to have the chocolate supplied by Chocolate Torras (Interim Supplier). Seller agreed to absorb the price difference between the contract price and the higher price charged by Interim Supplier.

Interim Supplier was to bill Seller at the higher price, sending a copy of the invoice to Buyer, and Seller would bill Buyer at the original contract price. On receiving payment from Buyer, Seller would pay Interim Supplier and absorb any price difference.

Subsequently, Buyer was told that Interim Supplier was about to discontinue delivery if payment was not made. It learned that Seller had not paid Interim Supplier and had falsely stated that it had not been paid by Buyer.

The parties met in Koln, Germany and agreed that Interim Supplier would contract with Buyer who would pay Interim Supplier directly. Seller would then remit to Buyer the difference between the price paid to Interim Supplier and the original contract price.

Subsequently, Buyer learned that Seller's Bank had presented four invoices under the standby LC which Issuer refused because they allegedly contained altered due dates.

On the day before the LC expired, Seller's Bank again drew on the LC for approximately US$385,000. The Issuer refused to honor due to discrepancies.

Claiming to have made all payments when due, Buyer sued Issuer, Seller and Seller's Bank, seeking an injunction against drawing on the LC, declaratory relief, damages for breach of LC warranties under Prior UCC section 5-111, and breach of contract. At a hearing, Buyer's counsel represented to the court that Beneficiary had withdrawn the LC presentation, which, pursuant to its terms, had expired. The court then dismissed the complaint as moot.

Buyer filed an Emergency Motion for Reconsideration, claiming there were outstanding claims against Seller and Seller's Bank for breach of LC warranty and breach of contract. The court granted Buyer's motion in part, vacating the part of the order that had dismissed Seller, but affirming the part of the order dismissing Seller's Bank.

A default judgment was entered against Seller in the amount of amount of US$378,292.16 for breach of contract and US$128,928.92 for breach of warranty under Prior UCC 5-111.

Buyer then filed a subsequent motion to reconsider the reinstatement of Buyer's claims against Seller's Bank. The Common Pleas Court of Philadelphia County, Herron, J., denied the motion. The court indicated that since Buyer had no claim against Seller's Bank that did not relate to the LC, dismissal of Seller's Bank was appropriate.

[JEB/asc]

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