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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2011 LC CASE SUMMARIES No. 2010-01576, 2011 N.Y. App. Div. LEXIS 1445 (February 22, 2011) [USA]
Topic: Transfer of LC
Type of Lawsuit: Purchaser/Assignee of business and related lease of property sued Seller/Assignor and Issuing Bank for possession of Standby Letter of Credit and collateral supporting it. Issuer counterclaimed, asserting right of set off against collateral due to other debts.
Parties: Plaintiff/Purchaser/Assignee of Lease - Shah Food Industries, Inc. (Counsel: Lee M. Albin, Garden City, N.Y.)
Defendant/Seller/Assignor of Lease - JCA Associates, Inc.
Defendant/Issuer - North Fork Bank (Counsel: Lazer Aptheker Rosella & Yedid, P.C., Melville, N.Y.)
Underlying Contract: Purchase of business and lease.
LC: Standby letter of credit for US$85,500, subject to UCP500.
Decision: The Supreme Court of New York, Appellate Division, Dillon, J.P., affirmed the decision of the Supreme Court, Suffolk County, Costello, J., which had granted summary judgment in favor of Issuer, but reversed the trial court's grant of summary judgment, which had dismissed the causes of action asserted against Seller/Assignor.
Rationale: An applicant cannot claim to have effected transfer of a LC.
Article
Factual Summary: In connection with the purchase of a business and lease, Seller/Assignor assigned to Purchaser/Assignee a beneficial interest in a US$85,000 certificate of deposit (CD) held as security for a standby LC. Seller/Assignor had provided the CD as collateral for a LC by Issuer and also for all its present and future debts. Seller subsequently entered into an agreement with Issuer providing that Issuer did not "waive its common law or statutory right of set-off or any other rights generally available to creditors." When Issuer claimed a "superior right of set-off of [Seller/Assignor's] obligations under unrelated loans against the certificate of deposit", Purchaser/Assignee sought a judgment, declaring Purchaser/Assignee had a superior right to the CD. The trial judge granted Issuer's motion for summary judgment, declaring Issuer held the superior right to the CD, and dismissed all causes of action against Issuer and Seller/Assignor. On appeal, affirmed in part, and reversed in part.
Legal Analysis:
1. Transfer of LC: Purchaser/Assignee argued that the standby had been transferred to it by Applicant/Seller/Assignor, and claimed a right to the CD (which had been given as collateral for the LC) that was superior to the Issuer's. The trial court ruled that Purchaser/Assignee's argument that the LC had been transferred by Applicant/Seller/Assignor was invalid since the attempted assignment was by the applicant, not the beneficiary. The Appellate Division observed that UCP500 Article 48 only recognizes beneficiary transfer and not applicant transfer.
[JEB/jsc]
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