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.



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.