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Note: Lin Xie d/b/a Giant International Metal Resources (Broker) contracted with Qiangsheng Import N Export Co., Ltd. (Ultimate Buyer) to sell scrap metal and contracted with Seattle Iron and Metals Corporation (Ultimate Supplier/Transferee Beneficiary) to procure it. Payment was to be made via transferable commercial LC in the amount of US$406,000 issued for the account of Ultimate Buyer in favor of Broker and transferred in favor of Ultimate Supplier. Among other things, the LC required presentation of a bill of lading.

For reasons not explained in the opinion, Ultimate Supplier delivered the goods to Broker who effected shipment, received the bill of lading, and attempted to present it to Wells Fargo (Nominated Bank) which had effected the transfer. Nominated Bank refused to take up the transport documents since other required documents were not presented at that time. When Broker demanded and received the additional documents from Transferee Beneficiary, it presented them to Nominated Bank. The delays rendered the bills of lading stale and payment was properly refused under the LC.

Qiangsheng Import N Export Co., Ltd (Ultimate Buyer/Applicant) eventually paid Broker less than the agreed price and Broker, in turn, made a partial payment to Ultimate Supplier/Transferee Beneficiary. To recover the balance owed to it, Ultimate Supplier then sued Broker for breach of contract, unjust enrichment, negligent misrepresentation, and fraud. The trial court entered summary judgment in favor of Ultimate Supplier/Transferee Beneficiary and dismissed Broker's affirmative defense. On appeal, the Court of Appeals of the State of Washington, Lau, J., affirmed the King County Superior Court award, Washington, J., of summary judgment in favor Plaintiff/Transferee Beneficiary.

The appellate court stated that in light of the independence principle governing LCs, codified in Rev. U.C.C. § 5-103(d), "a party to an underlying contract has a separate cause of action for breach of that contract."

The appellate court noted that while an action is available to the seller against the buyer for nonpayment under an LC, a seller must first comply with U.C.C. § 2-325(2), which provides in relevant part that "[i]f the letter of credit is dishonored, the seller may on seasonable notification to the buyer require payment directly from him." Broker argued that "dishonor" within the meaning of U.C.C. § 2-325 does not occur unless Beneficiary/Seller "duly presents" complying LC documents to Issuer. The appellate court rejected this argument, noting that the reason for dishonor of the LC is not material to buyer's obligation to pay for the goods. The court reasoned that Rev. U.C.C. § 5-102(a)(5) (Definitions) defining what constitutes "'dishonor' of a letter of credit" contains no due presentment requirement. Moreover, the appellate court reasoned that adopting Broker's "due presentment" approach "would lead to an anomalous result-where the seller performs under the contract but fails to properly present LOC documents, the buyer may retain the goods, leaving the seller with no breach of contract remedy." As long as Issuer refused to pay under the LC, dishonor by Issuer is established. The appellate court concluded that based on the available evidence the only reasonable conclusion is that Issuer refused to pay under the LC.

The appellate court further noted that pursuant to U.C.C. § 1-204(3) (Time; "Reasonable Time"; Seasonably) "an action is taken 'seasonably' when it is taken at or within the time agreed or, if no time is agreed, at or within a reasonable time." Because the parties never agreed to a notification deadline, Ultimate Seller/Transferee Beneficiary was required to provide notice within a reasonable time, which "depends on the nature, purpose and circumstances of the action." Moreover, the appellate court noted that under U.C.C. § 1-201(25)(c) (General Definitions) "[a] person has 'notice' of a fact when . . . from all the facts and circumstances known to him or her at the time in question he or she has reason to know that it exists." In other words, the appellate court concluded that there is no requirement of a formal recitation that the letter of credit had been dishonored. The appellate court thus concluded that the undisputed record showed that Ultimate Seller/ Transferee Beneficiary seasonably demanded payment from Broker; Ultimate Seller/Transferee Beneficiary sent Broker invoices for the full amount the same day it shipped the goods, acknowledged its understanding that Broker was trying to collecting the remaining portion towards Ultimate Seller/ Transferee Beneficiary's invoices, and that Broker provided no declaration establishing that he did not know of Ultimate Seller/Transferee Beneficiary's payment demand.

Finally, the appellate court rejected Broker's argument that Ultimate Supplier's/Transferee Beneficiary's breach of contract claim was barred by a one year statute of limitation under Rev. U.C.C. § 5-115 (Statute of Limitations). The court noted that neither Broker nor a party with identical interest raised the statute of limitations argument at the trial level and concluded that Broker waived his statute of limitation claim because the court could refuse to review any claim of error that was not raised in the trial court local procedural rules.

[JEB/avk]

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