Article

Note: Sara Corporation (Seller), a Pakistani garment manufacturer, entered into a series of contracts with a US apparel importer, Sainty International America, Inc. (Buyer). One order involved shipment of 150,000 pieces of loungewear for resale to Saks, Inc. in six installments. When the fifth installment was delayed, communications ensued between the parties. When the shipment arrived in New York, Buyer refused it because it was too late and the shipment was returned to Pakistan where some of it was resold without labels.

Seller sued Buyer for breach of contract for refusal to accept the fifth installment plus incidental damages including additional damages for other unrelated claims. The United States District Court for the Southern District of New York, Francis, J., entered judgment for the Buyer with respect to the fifth shipment.

The parties had agreed that payment for the loungewear would be by letter of credit and Buyer/ Applicant obtained one from HSBC Bank that provided that shipment would be "FOB Karachi." Due to the delays, however, the goods were transshipped in Oman, and although not stated, it appears that Seller/Beneficiary was unable to provide a complying bill of lading under the letter of credit.

Buyer/Applicant argued that the letter of credit terms reflected the delivery terms in the contract, excusing its obligations. The Judge rejected this argument, noting that the parties had modified the agreement subsequently by emails. Stating that the letter of credit no longer reflected the modified contract, the Judge observed that "none of the negotiations between Sara and Sainty ever addressed the issue of transshipment, and no prohibition was included in any document reflecting the terms of sale." However, the Judge ruled that the fifth shipment was not delivered by the modified deadline and entered judgment in favor of Buyer/Applicant regarding the fifth shipment. In rejecting Buyer/Applicant's argument regarding the correlation of the letter of credit and contract terms, the Judge noted that it "fails because that contention is based exclusively on the Letter of Credit." In this regard, the Judge cited and quoted authorities on the independence principle.

[JEB/mcb]

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