Article

Bankruptcy; Reimbursement

Note:

Credit Lyonnais, New York branch, issued and honored commercial letters of credit supporting the applicant's purchase of gasoline and reimbursed itself from funds wire transferred to it by the purchasers to whom applicant contemporaneously resold the gasoline. The issuing bank was then sued by the secured bank lenders of the applicant's sister company. The lenders claimed that they had a first priority security interest in the sister company's accounts, that without their authority the sister company assigned to the applicant its contractual rights to purchase and resell the gasoline, and that the issuing bank knowingly reimbursed itself from the proceeds of assigned accounts. The court denied cross motions for summary judgment, chiefly because there were material fact disputes regarding whether and to what extent the lenders were damaged by the issuing bank's letter of credit financing of these purchases and resales. Unfortunately, the opinion does not indicate whether the issuing bank took possession of any negotiable documents or otherwise discuss the possibility that the issuing bank had a priming lien of the type expressly recognized in section 5-118 included with revised UCC Article 9.

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