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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2008 LC CASE SUMMARIES 52 A.D.3d 215 (NY App. Ct. 2008) [USA]
Topics: Compliance; Discrepancies; Merchandise Descriptions; Description of Goods; UCP500 Article 37(c); Quantity of Goods; UCP500 Article 39(b)
Type of Lawsuit: Applicant sued Issuer for wrongful honor.
Parties: Plaintiff/Appellant/Applicant/Imptex Int'l Corp. (Counsel: Robert M. Rosenblith of Chestnut Ridge, NY)
Defendant/Appellee/Issuer/HSBC Bank USA, N.A. (Counsel: Tracy S. Woodrow of Buffalo, NY)
Underlying Transaction: Not Stated
LC: Commercial LC for the sale of goods.
Decision: The Appellate Division of the Supreme Court of New York, First Department, Lippman, P.J., Mazzarelli, Williams, Sweeny, and Acosta, JJ., in a per curiam opinion, applying the law of New York and UCP500, reversed the order of the Supreme Court, New York County, Charles E. Ramos, J., granting summary judgment to Issuer on the third presentment and granted summary judgment to the applicant.
Rationale: A document listing a 5% increase in the quantity of goods required by the LC violated UCP500 Article 39(b), did not strictly conform, and should not have been honored.
Article
Factual Summary: An LC issued to pay for the sale of goods required that the presented documents state that the merchandise was "on rolls". Three presentations were made to the Issuer. In each presentation, the documents stated that, in addition to the merchandise being "on rolls", the merchandise was packaged in "bales". With respect to the third presentation alone, the documents listed a quantity of goods exceeding the amount called for in the LC by 5%.
When the Issuer honored all three presentations, Applicant sued for wrongful honor. The trial court granted Issuer's motion for summary judgment. On appeal, reversed as to the third presentation with summary judgment entered in favor of the Applicant.
Legal Analysis:
1. Merchandise Description; UCP500 Article 37(c); Compliance; Description of Goods. The merchandise description in the LC referred to the merchandise as being "on rolls". According to the opinion "the documents presented" used this phrase but also referred to "the merchandise as packaged in 'bales,' a term not specified in the letter of credit". Applicant argued that the appearance of this term created a discrepancy or was inconsistent with the description in the LC. The appellate court disagreed, characterizing the Issuer's action in honoring the LC as appropriate and stating that there was strict compliance. It ruled that "the additional references to 'bales' did not, under the circumstances, create a discrepancy or inconsistency with the terms of the letter of credit."
2. Quantity of Goods; UCP500 Article 39(b); Compliance. The credit stated the quantity of goods, apparently not in terms of a stated number of units or individual items since the opinion applied UCP5.00 Article 39(b) (Allowances in Credit Amount, Quantity and Unit Price) which would not be applicable in that event. The opinion stated that the quantity stated in the documents exceeded the quantity in the credit beyond the 5% tolerance permitted under UCP500 Article 39(b). The appellate opinion concluded that the third presentation "did not strictly conform to the terms and conditions of the letter of credit, and should not have been honored."
Comments:
1. Merchandise Description. Because of the brevity of the opinion, it is difficult to appreciate the decision. The LC was payment for specified textiles, described, after amendment before presentation, as:
100 PCT POLYSTER DUCK S.F. PLAIN 1/1 WEAVE BUT TWO ENDS WOVEN AS ONE WOVEN ON AIRJET LOOMS WITH FRINGE SELVEDGE. FIRST QUALITY, DYEABLE MADE IN CHINA. MINIMUM 58 INCHES WIDE 84X24 YARN: 16/8 ON ROLLS. EACH ROLL CONTAINING 500 YARDS. TOTAL QUANTITY: 80,000 YARDS PRICE/YD: USD0.6325
The documents required for presentation included a commercial invoice, detailed packing list, and bill of lading. This raises the issue of whether or not the introduction of the term "bales" into the description of the goods in the commercial invoice caused the description not to correspond with that of the LC? If it did not, then it surely would not be inconsistent with the description in the other documents. If it did, the other documents would not matter since only one discrepancy is necessary. In addition, the question turns on international banking practice and not the practice of the industry involved. Since the description did state that the merchandise was "on rolls", then the question would be whether the presence of bales, whatever that term means, is problematic.
2. Quantity. The opinion correctly notes that a quantity in excess of the implied tolerances of UCP500 Article 39(b) is discrepant. An issuer would be entitled to refuse such documents. Whether honor of such a presentation constitutes wrongful dishonor depends on the agreement between issuer and applicant. It is worth noting that the Applicant's reply brief states that "there is nothing in the reimbursement agreement ... which modifies HSBC's statutory obligation". The court does not address this question but it is surprising to find the standard described as the UCP strict compliance standard rather than a more flexible one that would turn on materiality of the discrepancy. One would normally expect a flexible standard based on materiality to be found in an LC application.
[JEB/wl]
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