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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
1999 LC CASE SUMMARIES 1999 WL 156379 (S.D.N.Y. March 22, 1999) [U.S.A.]
Topics:
Non-compliant Presentation; Waiver of Discrepancies; Applicant Approval.
Type of Lawsuit:
The beneficiary sued a co-applicant who financed issuance of an LC as a co-purchaser for breach of contract and failure to pay.
Parties:
Plaintiff/Beneficiary/Seller- Knic Knac Agencies (Counsel: Gene R. Kazlow)
Defendant/Co-applicant/Financial Intermediary- 3M Global Trading Inc. (Counsel: Michael F. Maschio)
Defendant/Applicant/Buyer- Masterpiece Apparel, LTD. (Counsel: Yvette Harmon)
Underlying Transaction:
Sale of textiles and ready-made garments.
LC:
Several commercial LCs. Silent as to amounts and governing rules.
Decision:
The United States District Court for the Southern District of New York, McKenna, D.J., granted the financial intermediary's summary judgment motion.
Rationale:
A financial intermediary who arranged for LC issuance is not a co-purchaser and is not in breach for failure to waive discrepancies for goods accepted by the applicant even if it had done so on other presentations.
Article
Factual Summary:
Financial intermediary arranged for issuance of several LCs to pay for shipments of garments from India to New York. After goods were shipped and accepted by the applicant, the beneficiary drew on the LC but failed to present required inspection certificates and the issuer dishonored. Claiming "waiver" on the basis of prior course of conduct under prior LCs, the beneficiary brought an action against the financial intermediary for breach of the sales contract. The financial intermediary's motion for summary judgment was granted.
Legal Analysis:
1. Waiver of Discrepancies by Applicant: The beneficiary argued that the financial intermediary should be obligated to authorize payment notwithstanding the discrepancies on the basis of its obligation on the underlying contract. The court, however, ruled that the financial intermediary was not a co-purchaser even though it issued duplicative purchase orders for technical reasons. The duplicates referred to the original purchase order and the financial intermediary "was not a party to the commercial sales transaction and never took possession of the goods manufactured by plaintiffs."
2. Waiver of Discrepancies by Applicant: The beneficiary contended that the financial intermediary had waived the discrepancies because similar discrepancies had been waived in the past, and the beneficiary "[was] regularly receiving payment under the letter of credit without the presentation of the inspection certificates." The court rejected this assertion, stating "the fact that a party has waived discrepancies in the past does not require it to waive similar discrepancies in documents presented on future shipments."
Comment:
The discrepancy in this case was the failure to present an inspection certificate. The beneficiary alleged that the practice of the applicant "was to have its agent inspect the goods in India and report to [applicant] in New York; if the goods were satisfactory, [applicant] would direct the plaintiffs to ship the goods on the representation that the inspection certificates would be sent from New York later." Even though the applicant had accepted the goods, it did not supply the inspection certificates to the beneficiary. The presentation was, therefore, discrepant. By performing under these procedures, the beneficiary ran the risk that the applicant would fail to cooperate. As a result, it surrendered the protection of the LC.
© 2000 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.