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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1996 LC CASE SUMMARIES 934 F. Supp. 570 (S.D.N.Y. 1996).
Topics:
Fraud between applicant and beneficiary.
Type of Lawsuit:
By applicant against beneficiary for fraudulent presentation of documents.
Principals:
Plaintiff/Applicant/Assignee: Hyosung America, Inc.;
Defendant/Beneficiary/Seller: Sumagh Textile Co., Ltd.;
Issuer: The Commercial Bank of Korea, Ltd.;
Reimbursing Bank: First Commercial Bank of Taiwan;
Underlying Transaction:
Series of textile purchases.
LC:
Commercial credit of unknown amount. Silent as to whether L/C is subject to UCP.
Procedural History:
Judge Scheindlin of the United States District Court for the Southern District of New York granted beneficiary's motion for summary judgment.
Rule:
The failure of an applicant to inspect documents and goods which it was permitted to do by contract with the assignor prevents it from claiming reasonable reliance on any misrepresentation in presented documents.
Article
Factual Summary: Broker entered into a contract with assignee/factor to assign purchase orders from customers for textile goods and broker was to arrange purchase of those goods from various suppliers. To assure payment for a specific textile purchase, assignee/ applicant obtained a letter of credit payable to the supplier/beneficiary. The letter of credit provided that the fabric content of the textiles sold would be 65% rayon and 35% wool, reflecting the buyer's requirements. When the beneficiary shipped nonconforming goods, but drew upon the basis of allegedly forged documents fraudulently describing the fabric contents, the issuer paid. The applicant brought an action against the supplier/beneficiary on various counts related to the underlying contents including a claim of fraud relating to letters of credit. The court granted the beneficiary's motion for summary judgment on the fraud count.
Legal Analysis:
1. Beneficiary fraud in action by applicant: The court noted that the applicant had numerous opportunities to review the content of the fabric and to refuse further to amend the credit. In granting beneficiary's motion for summary judgment, the court stated that the beneficiary would have discovered the true fiber content of the goods and could have avoided payment had it exercised its rights under the underlying contract and revised details available to it. As a result, the requisite element of reasonable reliance necessary for common law fraud was not present.
Comment:
In this multi count complaint, it is useful that there was no allegation of breach of warranty. The question between applicant and beneficiary once the L/C has been paid is, simply put, whether there was fraud in the underlying transaction. If the L/C had not been paid, falsified documents may well have justified dishonor or injunctive relief.
©1997 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE
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.