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Note: Singapore Recycle Centre (Buyer), a Singapore based importer and exporter of scrap metal, contracted with Kad International Marketing (Seller) for the sale of 30,000 metric tons of scrap metal. The parties subsequently entered into another contract for the sale of another 30,000 metric tons of scrap metal. Both contracts required Buyer to obtain letters of credit covering the contract price within seven banking days and subject to Seller's approval. Seller, in return, was required to issue an indemnity bond. Buyer then contracted to resell the same scrap metal it contracted to buy from Seller to Xiamen Companies.

When First Commercial Bank, Buyer's bank, issued a letter of credit (hereinafter "November LC") to Citibank, Seller's Bank, it rejected the letter of credit because of a disagreement on its terms. Seller requested that the letter of credit be amended and arranged for it to be issued to Commercial Bank.

In order to mitigate the costs of obtaining the scrap metal, Seller requested that Buyer advance $200,000 USD; which Buyer did. The parties agreed that the sum would be refunded if Seller failed to ship the contracted for scrap metal. Furthermore, Buyer agreed with the Seller to obtain "back to back" letters of credit to cover the full price of the contracts. First Commercial Bank then issued a commercial letter of credit (hereinafter "December LC") to Commercial Bank. The LC would only become operative upon Buyer's receipt of Seller's indemnity bonds.

Seller then issued two indemnity bonds to Buyer and First Commercial Bank stated that the November LC was operative. Thereafter, Seller raised several issues, most importantly that its bank, Commercial Bank, had yet to confirm the letters of credit. Consequentially, Buyer sent $40,000 USD to Seller in order to have the letters of credit confirmed. On March 11, 2005, both letters of credit expired and Seller had yet to send any scrap metal. Seller ultimately failed to refund the initial $200,000 USD advance payment and the subsequent $40,000 USD confirmation fees.

Buyer sued Seller for breach of contract, fraudulent inducement, and conversion. The Judge ruled that Buyer's motion be granted in part and denied in part, and that partial judgment be entered against Seller for $238,590 USD plus interest. In order to recover from Seller, the Judge stated that Buyer must prove that it fully performed and whether and to what extent it was damaged by Seller's breach. Seller argued that Buyer failed to fully perform the contract because it did not obtain confirmed letters of credit. The Judge disagreed stating that a contractual requirement for a "unconditional, irrevocable transferable operative documentary Letter of Credit" is not a requirement that the letter of credit be confirmed. The contract did not expressly requires that the letter of credit be confirmed. Seller also failed to prove there is a "standard practice in the industry" to confirm all letters of credit. Even if Seller were able to show that confirming all letters of credit standard practice in the industry, custom and practice cannot modify unambiguous terms of a contract. The Judge also ruled that the terms of the letters of credit were not altered by the course of performance because the evidence shows that although Buyer would provide the cost of confirming the letter of credit by Seller's bank, the parties did not require such confirmation.

Finally the Judge ruled that confirming a letter of credit was not a condition precedent to Seller's performance, "Notably absent from all of these provisions is any mention of [Seller] shipment of goods being conditioned upon [Buyer] providing a letter of credit, or terms such as 'if,' 'unless,' or 'until,' which New York courts have accepted as unequivocally indicating that a parties' performance is conditioned upon some other event."

On the issue of damages, the Judge ruled that Buyer is entitled to the difference between the contract price and fair market price of the scrap at the time Buyer learned of Seller's breach and the advances plus interest that Buyer paid Seller.

[JEB/rrs]

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