Article

Note: In this brief opinion, the New York Supreme Court, Appellate Division, First Department, affirmed a decision in favor of Woori America Bank which was either the issuer or confirmer in an action for wrongful dishonor brought by MP Fashion Inc., which appeared to be the beneficiary.

The appellate court stated that the documents failed to comply with the LC.

The appellate opinion noted that “The question whether plaintiff's presented documents were in strict compliance with the letter of credit is one of law, which the motion court should have considered based on the documents themselves, independent of any disputes or questions of fact concerning the underlying transaction.” In support of this proposition, it cited Banco Nacional De Mexico, S.A. Integrante Del Grupo Financiero Banamex v. Societe Generale, 34 A.D.3d 124, 128–129, 820 N.Y.S.2d 588 (N.Y. App. Div. 2006), summarized at 2006 Annual Review of International Banking Law & Practice 281. The appellate opinion concluded that although the trial court had conducted a trial instead of granting summary judgment, the dismissal of the complaint “was proper”.

Legal Analysis:

Comment: The quoted statement is surprising. While there may not be an evidentiary question regarding what the LC requires and what documents state, the question of compliance is not a matter for the court. Whether it is an issue of “law” or “fact” is a difficult question in situations where there is a jury trial.

While Banamex was decided as a matter of law, there was no question whether the documents complied. The issue in that case was application of the doctrine of comity to a Mexican court injunction under the LC subject to New York law and jurisdiction.

U.S. U.C.C. Section 5-108(e) (Issuer’s Rights and Obligations) addresses this issue. It provides “An issuer shall observe standard practice of financial institutions that regularly issue letters of credit. Determination of the issuer’s observance of the standard practice is a matter of interpretation for the court. The court shall offer the parties a reasonable opportunity to present evidence of the standard practice.”

This provision reflects the understanding that whether or not the issue of standard practice can be decided by the judge on a summary basis, that there is a need to determine what constitutes standard practice which cannot be found by the traditional sources of “law” but which often requires the judge to consider testimony from experts.

[jeb/gmc]

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