Prior History: IPSCO Tubulars, Inc. v. Ajax Tocco Magnethermic Corp., No. 3:10CV00021 BSM, 2010 WL 5211491 (E.D. Ark. Dec. 15, 2010) [USA], summarized in 2011 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 468.

Note: In a contract to supply austentizing and quenching equipment to produce heat-treat steel pipe, Ajax Tocco Magnethermic Corp. (Supplier) provided a one year USD 600,000 standby issued by JP Morgan (Issuer) in favor of IPSCO Tubulars, Inc. (Buyer) in connection with a demand for final payment. The standby required that Buyer/Beneficiary wire payment on the contract to Issuer and submit a signed notice to Issuer 14 days prior to drawing. Buyer/Beneficiary made final payment by check payable to Supplier/Applicant rather than wiring funds via Issuer. When Buyer/Beneficiary indicated that it would draw on the standby, Issuer informed it that the LC "was not funded." Subsequently, the standby expired.

Buyer/Beneficiary sued Supplier/Applicant for breach of contract, gross negligence and constructive fraud. Supplier/Applicant moved for summary judgment on the contract and constructive fraud claims. The United States District Court for the Eastern District of Arkansas, Jonesboro Division, Miller, J., denied the motion with respect to breach of contract but granted it with respect to constructive fraud.

Beneficiary/Buyer argued that LC requirements constituted an impermissible amendment to the LC and that Supplier/Applicant's refusal to notify Issuer that the payment had been made was improper. The Judge ruled that these factual issues precluded summary deposition.

Comment: The statement by the banker that the LC "was not funded" was not precise. The standby contained two conditions that had to be met before a drawing could comply, namely wiring payment to the issuer for the applicant (the source of the "funding" comment) and a notice to issuer in advance of the drawing. Neither is non-documentary and failure to perform them would render a drawing non complying. However, the standby was in force when it was issued and constituted an irrevocable obligation of the issuer.



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