Article

Factual Summary: To enable its customer to pay for the purchase of goods, New York agency of bank issued a commercial LC in favor of Seller/Beneficiary. First Advisor declined to confirm, and Seller/ Beneficiary requested Issuer to send LC to London office of BCCI, which confirmed. The text of the message included, "[a]t the express request of the beneficiary, you may add your confirmation; confirmation charges are for the beneficiary's account." A series of drawings under the LC were handled and reimbursed without incident.

When Seller/Beneficiary drew three bills of exchange for US $ 1,052,248.10 payable 150 days from shipment, Confirmer forwarded them to Issuer. Issuer accepted notifying, the Confirmer, and Confirmer discounted the bills of exchange in reliance on the Issuer's telecommunications. After Second Advisor/Confirmer was seized and closed by regulators for fraud and other illegalities shortly after documents were presented, Issuer did not pay on maturity. The issuer required assurance as to the authority of the trustee before paying. In the meantime, Issuer's New York agency was declared to be a "Specially Designated National" by the U.S. and its assets blocked, requiring a special permit from the Office of Foreign Asset Control to 25 2002 LC CASE SUMMARIES bring suit against Issuer. Such a permit was issued to Plaintiff/Trustee which brought this action, moving for partial summary judgment. Partial summary judgment in favor of Plaintiff/Trustee for Confirmer.

Legal Analysis:

1. Confirmation: Trustee claimed that Issuer was bound to reimburse a confirmer that properly honored a presentation under UCP400 Articles 11(d)(predecessor to UCP500 Article 10(d)), and Article 16(d)(predecessor to UCP500 Article 14(d)(i))("[i]f a bank so authorized ... or incurs a deferred payment undertaking ... the party giving such authority shall be bound to reimburse the bank which has ... incurred a deferred payment undertaking ... ."). Issuer, however, argued that the LC and telex contained no authorization for BCCI to add its confirmation. The court found this argument unpersuasive based on the express language in the LC. Relying on the expert testimony, the court concluded that such phrases are "consistently used by issuing banks to authorize advising banks to add their confirmation to a letter of credit." Based on this testimony, the court concluded that a confirmation was required and not silent confirmation. Additionally, the willingness of the beneficiary to pay confirmation fee provided further evidence. The court also drew a "natural inference" from the beneficiary's telex to the issuer requesting the document to be advised through BCCI since it was unable to obtain a confirmation by another London bank.

2. Undertaking to Reimburse: Although issuer denied that it authorized confirmation, the court noted that communications to the advising bank subsequent to presentation of documents independently obligated the issuer.

3. Beneficiary Not Indispensable: Issuer argued that the action could not proceed unless the beneficiary was joined as a party. Noting that any obligation to the beneficiary under the LC was satisfied when BCCI paid the LC, the court rejected this argument.

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