Article

Factual Summary: Issuer issued an irrevocable LC for US$382,431.25 to the Beneficiary. On 28 February 1996, Negotiating Bank negotiated the credit. Subsequently, Issuer amended LC maturity date as 5 September 1996 with the consent of Beneficiary, and informed Negotiating Bank of the amendment. On 26 August 1996, China's court rendered an injunction due to fraud and executed US$336609.87 from the credit. On 8 July 1997, Issuer made payment of the remaining sum of the credit to Negotiating Bank.

As Assignee of Negotiating Bank's claim under the credit, Plaintiff sued Issuer for reimbursement. The court dismissed the claim.


Legal Analysis:

1. Credit Fraud; Injunction:

Beneficiary under LC delivered defective materials to Applicant, making it impossible for Applicant to produce finished clothing products and meet the quality requirement of the sale contract. As Beneficiary's act was fraud, the injunction to suspend payment under the LC was legally justifiable.

2. Acceptance; UCP500 Article 9(d); Extension of Maturity Date:

After Issuer had accepted the drafts under the LC, it was obligated to pay at maturity. However, the maturity date was extended with the consent of Beneficiary and Issuer informed Negotiating Bank of the amendment, so pursuant to UCP500 Article 9(d), the reimbursement obligation of Issuer did not arise until the amended maturity date.

3. Assignment of Negotiating Bank's Claim under LC:

As Assignee of Negotiating Bank's claim, Plaintiff was entitled the Negotiating Bank's reimbursement claim under LC. Since there is an injunction due to fraud, Issuer had fulfilled its obligation under the credit by making payment of the remaining sum of the credit to the Negotiating Bank after being executed by the court.

[JS/ec]

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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.

* JIN Saibo is partner of Commerce & Finance Law Offices. He may be reached at: jinsaibo@tongshang.com. Assisted by LIANG Jiang.