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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2001 LC CASE SUMMARIES Beograd 2001 U.S. App. LEXIS 2434 (2nd Cir.) [U.S.A.]
Topics: Anticipatory Repudiation; Force Majeure; UCP400 Article 46; UCP400 Article 19
Type of Lawsuit: Beneficiary sued issuer for wrongful dishonor.
Parties: Plaintiff/Beneficiary/Seller/Appellee- Procter & Gamble Cellulose Co. (Counsel: Linda C. Goldstein) Defendant/Issuer/Appellant- Investbanka Beograd (Counsel: Deyan Ranko Brashich) Nominated Paying Bank- Beogradska Banka Nominated Paying Bank- First Bank of Tennessee
Underlying Transaction: Not stated
LC: Commercial LCs for US$ 250,058.90, $294,487, $92,500, $100,522.13, and $419,398.20. Subject to UCP400.
Decision: The U.S. Court of Appeals for the Second Circuit, Walker, J., affirmed the decision of the U.S. District Court for the Southern District of New York, York, J., denying the issuer's motions for judgment as a matter of law prior to submission of the case to the jury, for a new trial, and for relief from judgment, and entering judgment on a jury verdict for the beneficiary.
Rationale: Although beneficiaries are generally required to present documents before the expiration date, this requirement does not apply to instances where the issuer anticipatorily repudiates the letters of credit and does not supply the beneficiary with the required documents in the first place.
Prior History: Proctor & Gamble Cellulose Co. v. Investbanka Beograd, 200 U.S. Dist. LEXIS 5636 (S.D.N.Y. 1 May 2000); abstracted at 2001 Annual Survey 256.
Article
Factual Summary: On three of five letters of credit issued by a Yugoslavian bank, the beneficiary presented complying documents prior to the expiry date. On the other two LCs, it was prevented from doing so by closure of the issuer's agent due to imposition of sanctions. Subsequently, the nominated paying bank returned to the issuer the original LCs which it held, copying the beneficiary on its correspondence. When the issuer failed to honor any of the presentations, the beneficiary brought an action for wrongful dishonor of the three LCs and anticipatory repudiation of the other two. The trial court granted summary judgment as to the first LC. At the trial on the other four LCs, both parties moved for judgment as a matter of law at the close of the beneficiary's evidence and again at the close of all evidence presented. The jury returned a verdict for the beneficiary and the issuer moved for a new trial and relief from judgment, which was denied and judgment for the beneficiary was entered. The court ruled that there was substantial evidence supporting the verdict. On appeal, the U.S. Court of Appeals for the Second Circuit affirmed.
Legal Analysis
1. Anticipatory Repudiation: UCP400 Article 46: The issuer "challenged the jury's imposition of liability against it for anticipatory repudiation of the two letters of credit that it issued to the beneficiary", arguing that under UCP400 Article 46 the beneficiary is precluded from stating a claim for anticipatory repudiation because it failed to present the letters of credit before the expiration date. The court concluded that "the formality of presenting the documents as provided for under UCP400 Article 46 does not apply where, in instances such as this, the issuing bank anticipatorily repudiates the letters of credit, by indicating a clear intention not to perform its obligation, before the expiration of the period of presentment."
2. Richter & Partners Inc. v. Clarica Life Insurance Company 2001 Ont. Sup. C.J. LEXIS 1870 Canada
3. Topics: Insolvency; Proceeds
4. Note: To assure payment of a ten-year commercial lease, the tenant/applicant, Lava Systems, Inc., arranged for a standby LC for US$ 850,000 subject to UCP500 to be issued by the Bank of Motreal naming Clarica Life Insurance Company, the landlord, as beneficiary. The lease stipulated that the LC was to be held by the landlord "as security for the faithful performance by the Tenant of all terms, covenants and conditions of this Lease for which the Tenant is responsible. The Landlord may draw upon the Letter of Credit in whole or in part as may be necessary to compensate the Landlord for any loss or damage sustained due to the Tenant's breach of its obligations under the Lease." The tenant having failed to pay two months' rent, the landlord/beneficiary drew on the LC and received proceeds from the issuer. The tenant filed for bankruptcy protection and the court-appointed receiver then formed an agreement with the landlord/.87 2001 LC CASE SUMMARIES beneficiary whereby the receiver agreed to pay the applicant's rent on a per diem basis. The landlord drew on the entire remaining balance under the LC and received the proceeds from the issuer. The receiver as trustee subsequently disclaimed the lease, the landlord subsequently re-rented the premises, and the receiver as trustee subsequently disclaimed the lease and required an accounting from the landlord and return of the proceeds. The landlord refused. The Ontario Superior Court of Justice, Cameron, J., allowed the receiver's claim to recover any proceeds drawn by the beneficiary in excess of the amount allowed on the lease. The court made the following conclusions: "(a) the Letter of Credit was a pre-condition to the payment of Inducements, the unrecovered amount of which exceeded the balance owing under the Letter of Credit; (b) a Letter of Credit is a stand-alone agreement between the Bank and the Landlord dealing only with the Bank's money, not the property of its customer, and is not dependent on the Lease or the equities between the customer and the beneficiary; and (c) the Letter of Credit was a security for all the Tenant's obligations under the Lease including the covenant to leave in good repair and to repay the Inducements, and not just Rent or indebtedness generally."
5. River Oaks Furniture, Inc., (In re:), BNY Financial Corp. v. Lifestyle Enterprises, Inc. 269 B.R. 733 (Bankr. N.D. Miss. 2001) [U.S.A.]
6. Topics: Insolvency
7. Note: While reorganizing under local insolvency law, applicant River Oaks Furniture, Inc. ordered custom-sized furniture components, providing for payment by a commercial LC for US$ 86,000 issued by the Bank of New York. Beneficiary initiated shipment of applicant's order and forwarded the proper documents to the issuer and demanded payment. The beneficiary then informed the applicant that the shipments had arrived and were ready for delivery. Beneficiary requested that the applicant arrange for it to deliver the shipments to the applicant's warehouses. Pending delivery to the applicant, Beneficiary transferred the shipments into storage in California. Upon learning that the ultimate buyer had backed out of the sale, the applicant told the issuer not to honor the beneficiary's demand on the LC. the issuer dishonored and the applicant never took physical delivery of the shipment. The beneficiary sued the applicant in bankruptcy court seeking an allowance as an administrative expense, payment for the shipments, and demurrage incurred by storing the shipments. The United States Bankruptcy Court for the Northern District of Mississippi awarded the beneficiary an administrative claim which the applicant appealed. The U.S. District Court for the Northern District of Mississippi, Eastern Division, Davidson, J., affirmed the award. The appellate court ruled that allowance of an administrative claim was appropriate even though the applicant never took delivery of the goods since the debtors benefited from the shipments in that they enabled it to continue to function as a growing concern.
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