Article

Factual Summary:

Applicant had an LC issued in the amount of US$ 1.3 million as settlement for its breach of a construction contract. Within one year of a partial draw on the LC, the applicant claimed that the documents failed to conform and commenced an action against the issuer. Applicant voluntarily dismissed its action after the issuer filed a motion to dismiss.

Seven years later, the applicant filed an action against the confirming bank and the issuer, alleging breach of contract. The trial court granted the confirming bank's motion for summary judgement, finding that all of material transactions involving the confirming bank took place in New York and that under New York law, the applicant's cause of action was barred by New York's statute of limitations. The issuer also filed a motion to dismiss which was granted because the applicant's action was time barred under the law of the forum. On appeal, affirmed.

Legal Analysis:

The applicant argued first that the trial court erred in dismissing the case on the basis of the limitations period codified in a bank record-keeping statute (Ohio Rev. Code Ann. 1109.69). The provisions provided that banks are required to retain or preserve certain bank records and supporting documents (official checks, drafts, money orders, and other instruments for the payment of money issued by the bank and which have been cancelled) for six years. It also provided that "any action by or against a bank based on, or ... which would depend upon, the contents of [those] records for which a period of retention" has been established, must be brought within the period of time established for which such records must be retained.

Applicant argued that the legislature did not intend to, and that the statute did not, bar all actions based on those bank records against a bank after six years, but only actions in which the bank had actually destroyed the records in reliance on the statute. Since the issuer did not claim that it had destroyed the records, it contended that the statute did not apply, and that its breach of contract claim should have been allowed to proceed.

The appellate court rejected applicant's argument. It concluded that the records at issue were bank records expressly named in the statute and that the statute mandated that an action dependent on those records be brought within six years. It noted that the statute did not require the destruction of the records. In passing, it was noted that any conceivable harshness in applying the limitations period was mitigated by the applicants own voluntary dismissal of its complaint seven years earlier.

The appellate court also rejected applicant's claim that the fifteen year general statute of limitations provision of the Ohio code took precedence over the special banking statute of limitations period, noting that this argument had previously been rejected by the Ohio Supreme Court in Abraham v. National City Bank Corp., 553 N.E. 2d 619 (Ohio 1990). The appellate court also rejected, as lacking merit, applicant's claim that the banking law provision at issue violated the open courts provision of the Ohio Constitution.

Comment:

Limitations and Bank Record Keeping: The linkage of a limitations period with record-keeping requirements is sensible. Its applicability to litigation is a possibility that may escape many practitioners.

Laws Applicable to Confirmers: Perhaps the most significant aspect of this case is that aspect of the trial court's decision which was not appealed. The obligations of the confirmer, a New York bank, were found to be governed by its statute of limitations laws, and dismissed under those laws. Without regard to the question of whether a question of limitations is procedural (and a matter for the forum) or substantive, the court treated the issue as substantive. The significant fact is that it applied the confirmer's law to the confirmation, even though that law differed from that applicable to the issuer. While the situation was odd (the confirmer has no obligation to the applicant), the principle should obtain with regard to other relationships. The confirmer does not, unless it expressly so stipulates, intend that its obligations and actions be governed by the law of the issuer, at least as to others such as the beneficiary.

The rub occurs in an action for reimbursement between the issuer and the confirmer. In such a situation, the issues turn on whether to give priority to the correspondent relationship (and the correspondent) or to regard the issuer's obligation as unique. The issue is scarcely addressed in correspondent agreements, cases, statutes or rules.

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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 ICC or the other partners in DC-PRO.