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Note: To secure payment for the sale of recreational goods, Interlyz S.A. de C.V. (Buyer/Applicant), a Mexican company, purportedly obtained a USD 72,490.10 letter of credit issued by HSBC Mexico, SA (Issuer) in favor of Razor USA, LLC (Seller/Beneficiary), a California company. Tamex Forwarding, Inc. (Freight Forwarder), a Texas company, received the goods from Seller/Beneficiary and held them until Buyer/Applicant “paid 310,000 pesos to a customs brokerage firm owned by [Freight Forwarder]’s majority shareholder.” After the import duties were paid, the goods were delivered to Buyer/Applicant but Buyer/Applicant failed to pay Seller/Beneficiary and Seller/Beneficiary never received the LC proceeds.

Seller/Beneficiary sued Buyer/Applicant and Freight Forwarder in Texas state court for breach of contract among other claims and received a default judgment against Buyer/Applicant. Failing to recover from Buyer/Applicant, Seller/Beneficiary and Freight Forwarder entered into a “Mediated Settlement Agreement” whereby Freight Forwarder was required to “provide information” to Seller/Beneficiary in order to collect on its default judgment and to deposit USD 15,000 into trust pending resolution of the case. Additionally, Seller/Beneficiary promised to credit Freight Forwarder for “all amounts” recovered from Buyer/Applicant.

Freight Forwarder removed the case to federal court and Seller/Beneficiary amended its complaint to include a breach of contract claim regarding the settlement agreement, a “money had and received claim” and a claim under the Carmack Amendment to the Interstate Transportation Act for carrier liability. Freight Forwarder moved for summary judgment on all claims. The United States District Court for the Southern District of Texas, Saldaña, J., granted summary judgment in favor of Freight Forwarder and dismissed Seller/Beneficiary’s complaint with prejudice.

In its Second Amended Complaint, Seller/Beneficiary alleged that “[p]ursuant to the Letter of Credit, [Freight Forwarder] was required to ship the Goods to [Buyer/Applicant] and to forward the original and one copy of the commercial invoice, stamped by [Freight Forwarder] ‘showing the date, signature, and person’s name who received shipment’…within fifty (50) days of its receipt of the Goods”. Seller/Beneficiary argued that Freight Forwarder was contractually liable under the LC based on an “implied agreement” or, alternatively, as an agent of Buyer/Applicant. The Judge rejected both arguments noting that Seller/Beneficiary failed to include an “implied agreement” theory in its complaint and on the basis that Seller/Beneficiary offered “no evidence that [Freight Forwarder] was a party to the letter of credit.” Furthermore, Seller/Beneficiary offered no evidence that Freight Forwarder expressly or impliedly assumed liability on the LC as an agent of Buyer/Applicant, a disclosed principal against whom Seller/Beneficiary had already received a default judgment.

Seller/Beneficiary also argued that Freight Forwarder breached the “Mediated Settlement Agreement”. The Judge, however, ruled the agreement unenforceable for lack of consideration as only Freight Forwarder incurred an obligation. That Seller/Beneficiary promised to “credit” Freight Forwarder for “all amounts” recovered from Buyer/Applicant was inadequate as Seller/Beneficiary was already obligated under Texas’s “one satisfaction rule” to do the same.

The Judge also dismissed Seller/Beneficiary’s “money had and received claim” stating that “[Seller/Beneficiary] can only speculate that [Freight Forwarder] received money from [Buyer/Applicant] in connection with the shipment.” The Judge dismissed Seller/Beneficiary’s final Carmack Amendment claim noting that no evidence was provided that the goods were lost or damaged and further that “[Freight Forwarder] never breached any enforceable contract with [Seller/Beneficiary].”

Comment: It is unclear where the text regarding the commercial invoice and purported duty of Freight Forwarded to send the documents to Issuer originated as no copy of the LC or text therein was provided to the court.

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.