Type of Lawsuit: Sellers as third party beneficiaries of factor's contract to provide an LC sued factor for wrongful interference with the underlying contract and unjust enrichment.

Parties: Plaintiff/Beneficiaries/Seller- Suntex Industrial Corp, LTD and RNB Garments Phillipines, Inc. (Counsel: Robert A. Penza, Gordon, Fournaris & Mammarella, Wilmington, DE.). Defendant/Factor/Guarantor- CIT Group/BBC, INC. (Counsel: Steven L. Caponi, Blank, Rome, Comisky & McCauley, Wilmington, DE.) Issuer- Chase Manhattan Bank Applicant/Buyer- Ruff Hewn, Inc.

Underlying Transaction: Contract for sale of clothing.

LC: Five Commercial LCs ranging from US$ 217,777.48 to US$ 405,523.20. Silent as to governing rules.

Decision: The U.S. District Court for the District of Delaware, McKelvie, J, granted factor's motion for summary judgment.

Rationale: The refusal of a factor that has arranged for issuance of an LC and guaranteed reimbursement to waive discrepancies in the presentation for a justifiable reason such as failure of the applicant to reimburse does not depart from its obligations of good faith or constitute tortuous interference with the contract between beneficiary and applicant.

Factual Summary: In exchange for buyer's accounts receivable, factor guaranteed reimbursement of payment on LCs issued for buyer's account to purchase clothing articles. The agreement empowered factor to decline to waive payment of a discrepant presentation on the LCs. Pursuant to this agreement, several LCs were issued providing for a freight forwarder's bill of lading or an airway bill consigning goods to the buyer/applicant. After the goods were shipped, the beneficiaries presented documents under the LCs which were found to be discrepant. When the issuer approached the beneficiary and the factor for waiver, the factor refused because the applicant did not have funds to reimburse it. As a result, the LCs were dishonored although the goods were received and accepted by the applicant which subsequently went into insolvency proceedings and could not account for them. The beneficiaries then brought an action against the factor for, "(i) tortuous interference with supply contracts between the [beneficiaries] and applicant; (ii) breach of the Letter of Credit Agreement that existed between factor and beneficiary (as alleged third party beneficiaries) (iii) negligent and intentional interference with prospective economic advantage; and (iv) unjust enrichment." Applying the law of North Carolina, the court granted the factor's motion for summary judgment.

Legal Analysis:

Tortuous Interference; Waiver of Discrepancies: The beneficiaries alleged that the factor tortuously interfered with the underlying contract by refusing to waive discrepancies under the LC where the applicant took possession of the goods. They contended that the waiver of the discrepancies under its obligation under general commercial law and the law related to LCs and to deal in good faith was not appropriate for summary determination. Rejecting this argument, the court ruled that the factor acted in accordance with its legitimate business purposes in refusing to waive the discrepancies and that its concern about being reimbursed was ample justification for its refusal. The court stated that "the dishonor of a demand for payment when that demand does not comply with the terms of the Letter of Credit cannot constitute bad faith." 2001 LC CASE SUMMARIES


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.