Article

Factual Summary: To pay for shirts imported into the US from India, the importer obtained an LC naming the exporter as beneficiary. The LC indicated that documents must be presented within 15 days of the date of the bill of lading, but in any event no later than 30 May 1994. In order to draw on the LC, the exporter was required to present a signed commercial invoice, a bill of lading stamped "on board" with a shipment date not later than 15 May 1994, and a sight draft. The LC provided that it was subject to the terms of UCP 500.

The underlying goods were shipped on or about 14 May 1994. The required documents were sent to the issuer on 30 May 1994 by the Indian Overseas Bank, described in the opinion as the beneficiary's "negotiating bank" and received 1 June 1994. Two discrepancies were noted (incorrect beneficiary name on draft and improper dating of 'on board' notation) by the issuer and the LC was dishonored.

The beneficiary subsequently brought suit against the issuer, alleging wrongful dishonor and against the applicant/buyer for breach of contract, fraud, and negligent misrepresentation. The issuer and the beneficiary moved for summary judgement. The issuer's motion was granted.

Legal Analysis:

1. Expiration and Presentment By Mail: Finding no express expiry date on the LC and relying on the UCP's requirement that all credits must stipulate an expiry date as well as unrebutted expert testimony regarding standard banking practice, the court found that the parties had agreed that the expert language concerning date of presentment was to serve as an expiration date. While the UCP is silent as to when presentment takes place if made by mail, the court noted that New York's UCC Article 3 "provides that presentment by mail" is "determined by the time of receipt of the mail." Thus, the beneficiary failed to present under the LC prior to its expiration.

2. Waiver and Estoppel: Since the Issuer had not listed expiry as a reason for dishonor in its notice of dishonor, the beneficiary contended that it had waived or was estopped from asserting expiry as the reason for dishonor. In rejecting this argument, the court noted that there was no "waiver" since the issuer had dishonored the presentation or took any other action to pay after the expiration date.

3. Expiration Date: Latest Date Documents Can Be Presented Constitutes Expiration Date: Even though the term "expiration date" was not used in the LC, a provision that presentation must take place "not later" than a given date was to be an expiration date.

4. Expert Testimony: In concluding that LC language documents must be presented "not later than" a given date, the court relied on an uncontroverted expert affidavit that the language established an expiration date under banking custom.

5. Presentation: Occurs upon Receipt: In the absence of an express provision in the UCP as to when expiration takes place (dispatch v. receipt), the court drew upon UCC Article 3 (Commercial Paper) for analogy to support its conclusion that presentation only occurs upon receipt and that it was not timely where it was reversed two days after the expiration date.

6. Preclusion: The court also rejected the beneficiary's contention that the issuer was precluded from asserting expiration as a discrepancy under UCP 500 Article 14(d). It distinguished between a discrepancy "in presented documents" on the one hand, and in the presentation itself, on the other hand. The problem, as the court stated it is that the beneficiary "must confront the underlying reality of a letter of credit." Regarding the obligation rule, the issuer was not precluded from asserting the expiration.

Comment:

1. One is almost breathless as the court winds it way among the rocks and shoals from the question as to whether there was an expiration date to that of whether there was preclusion or waiver. When, at last, the opinion reaches safe harbor, one can appreciate the result in Revised UCC Section 5- 108(d) to state expressly that expiry is not a discrepancy subject to preclusion. This approach is also reflected in 1997 Draft International Standby Practices Rule 5.04, which provides that "[f]ailure to give notice of expiry does not preclude dishonor for that reason."

2. One worrisome aspect to otherwise sound conclusions in this opinion is the analysis which supported them. The conclusion that the language of the LC gave rise to an expiration date is, of course, correct and, one would have thought, obvious--though not clearly stated before in an opinion. The court noted unanimity among the experts. If some expert were importuned to opine otherwise, would the issue then have required a full trial? One would hope not. The meaning of rules of practice is a question for the court under UCC Section 1-205(2) and is for the court as a matter of law to make the determination as to their meaning from conflicting testimony.

3. Another lurking question is raised by the court's description of the Indian bank which forwarded the documents to the issuer as "its [the beneficiary's] negotiating bank." If this bank were nominated in the LC to negotiate, presentation to it prior to the expiry date (as occurred here) would satisfy the requirements of the credit. Because this principle is so well established, one must assume that the court meant "collecting" bank and not a bank nominated in the LC to negotiate despite its use of the term "negotiating."

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