Note: GE Capital (Beneficiary), a Utah corporation, agreed to finance the receivables of Group Travel Planet, LLC (Secured Debtor), an Ohio corporation. As part of the agreement, Sevier County Bank (Issuer), a Tennessee corporation, issued a standby LC in favor of GE Capital at the request of Secured Debtor/Applicant.

Issuer sent the standby from its office in Tennessee to Beneficiary in Utah. Subsequently Beneficiary sold and assigned its receivables including those of Secured Debtor to American Express Travel Related Services Co., Inc. (Assignee). Assignee alleged that the assignment agreement included the right to draw on the LC.

After the assignment, Issuer notified Beneficiary that the standby would not be extended beyond its next expiration. Prior to that date, Applicant filed for bankruptcy and Beneficiary made a partial drawing on the standby that was not honored. Subsequently, Beneficiary and Assignee executed a document entitled Letter of Credit Assignment Agreement that explicitly transferred Beneficiary's LC rights to Assignee.

Assignee then sued Issuer for wrongful dishonour in the U.S. federal court in Utah, and Issuer moved for dismissal claiming that the court lacked personal jurisdiction over it.

The U.S. District Court for the District of Utah, Central Division, Stewart, J., granted Issuer's motion to dismiss and closed the case.

The Judge ruled that Issuer did not have the requisite "minimum contacts" with Utah to establish personal jurisdiction under the U.S. Constitution. He noted that Issuer had not entered into a contractual relationship with Beneficiary by issuing the standby. The Judge found that Issuer entered into a contract with Applicant while Beneficiary, and through assignment, Assignee were beneficiaries of this contractual relationship. Secondly, he stated that Issuer's issuance of the standby and communications to Assignee did not satisfy "minimum contacts" because Issuer had no contact with the forum state besides mailing the standby and a notice of non-extension of the standby a year later. "These contacts fail to establish that [Issuer] purposely availed itself of the privilege of conducting business in Utah or that [Issuer] could have reasonably anticipated being haled into court in Utah. To hold otherwise would effectively 'subject any bank that issues a letter of credit to suit in any state in which the bank could expect the credit to be used to buy goods or real estate." Such a holding would violate [Issuer's] right to due process." (citing ITALICS Leney v. Plum Grove Bank, 670 F.2d 878, 881 (10th Cir. 1982).


By "assigning" its LC rights to Beneficiary, it is unclear what Beneficiary accomplished. Under applicable U.S. LC law, Revised UCC § 5-114(c) (Assignment of Proceeds), A[a]n issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it consents to the assignment." Even were the action to be treated as an assignment of the beneficiary's right to sue the issuer for wrongful dishonor (assignment of a chose in action), it is doubtful that such an action defeats the effect of the statute.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.