Article

Factual Summary: To assure payment for the sale of cane sugar, Ultimate Buyer obtained a US$8,625,000 transferable commercial LC from Issuer in favor of Intermediary. The LC was then advised by Confirming Bank. Intermediary planned to use some of the LC to pay a yet-to-be determined Ultimate Supplier of cane sugar. When Intermediary reached an agreement with Ultimate Supplier to purchase sugar, Intermediary requested Confirming Bank to effect a partial transfer of the LC to the Ultimate Supplier. Allegedly, after assuring Intermediary that the transaction was acceptable, Confirming Bank refused to effect the transfer, purportedly stating that "it would not have agreed to the transaction if it had known sugar was involved." As a result, the transaction with the Ultimate Supplier was not consummated.

When Intermediary found another Ultimate Supplier, Confirming Bank again refused to effect the transfer request, stating "that accepting a nontransferable Letter of Credit and paying it to a third party might be illegal." The failure to effect a transfer resulted in the cancellation of the sale agreement between Intermediary and the new Ultimate Supplier.

Over the next few months, Intermediary and Ultimate Buyer amended their agreement twice and Intermediary made deals with several other suppliers. Lack of response and other delays on the part of Confirming Bank caused these deals to fall through. Ultimately, these delays caused Intermediary to lose its performance bond in the amount of US$176,000 which it had obtained as security in favor of Ultimate Buyer.

Claiming that it was wronged by Confirming Bank's refusal to effect a transfer, Intermediary sued Confirming Bank for breach of contract, promissory estoppel, and unjust enrichment. In the complaint, Intermediary alleged that Confirming Bank had agreed "to provide [Intermediary] with banking services which included [the] transfer and assignment of LCs. . ." Confirming Bank moved to dismiss on the ground that the complaint failed to state a cause of action. The trial court denied the motion to dismiss, ruling that the complaint stated causes of action on these allegations. On appeal, this ruling was affirmed.

Legal Analysis:

1. Express Agreement of Transfer; UCP500 Art. 48; Breach of Contract: Confirming Bank argued that the complaint alleged only that Confirming Bank made an implicit promise to transfer the LC by confirming a transferable LC. The Trial Judge had stated that "[i]f true, this argument would render the contract invalid under UCP[500] 48(c) [Transferable Credit], which states that a bank must transfer a letter of credit only on terms to which it expressly consents." The Judge nevertheless ruled that "[a] more natural reading of [the language in the complaint] is that [Confirming Bank] expressly agreed to transfer or assign the proceeds of letters of credit, along with providing other banking services." On appeal, the appellate division affirmed, ruling that an allegation in a complaint that a bank had expressly and specifically agreed to transfer a UCP500 LC was sufficient to permit a finding of express consent within the meaning of UCP500 Article 48(c) to the terms of the contemplated transfer and therefore stated a cause of action for breach of contract.

2. Promissory Estoppel; Reliance; Performance Bond: The Trial Judge had stated that "under the doctrine of promissory estoppel, a clear and unambiguous promise binds the promissor if the promisee has suffered some detriment in relying upon it." The Judge then ruled that Intermediary stated a cause of action for promissory estoppel because its complaint claims to have relied, to its detriment, on a clear promise by Confirming Bank to transfer a standby LC. The appellate division affirmed, stating that "the complaint sufficiently alleges a 'clear and unambiguous promise' to sustain the cause of action for promissory estoppel."

3. Unjust Enrichment: The Trial Judge noted that the complaint alleged that Intermediary paid Confirming Bank fees for banking services for the purpose of transferring the LC. The Judge reasoned that if this allegation was true, allowing Confirming Bank to retain the fees could be unjust. The appellate division affirmed, stating that "[t]he allegations that [Intermediary] paid [Confirming Bank] the fees in connection with the $176,000 standby letter of credit, in the belief that [Confirming Bank] had promised to transfer the letter of credit, are sufficient to sustain the cause of action for unjust enrichment."

[JEB/jds]

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