Factual Summary:

Although the application correctly spelled the name of the beneficiary as "Sung Jun Electronics Co., Ltd.", the bank issued the LC for the benefit of "Sung Jin Electronics Co. Ltd." Beneficiary presented documents containing the correct name to a negotiating bank which purchased and forwarded them to the issuer. The issuer, having identified alleged discrepancies, unsuccessfully sought the applicant's waiver. The issuer dishonored, naming four discrepancies, only one of which figured in the opinion:

1. The Name of the Beneficiary: The L/C identifies the beneficiary as Sung Jin Electronics Co. Ltd. instead of Sung Jun Electronics Co. Ltd.

Although the issuer continued to seek applicant waiver, it returned the documents approximately two weeks later. The negotiating bank then sued the issuer for wrongful dishonor, alleging breach of contract, "breach of the UCP", unjust enrichment, and breach of the implied covenant of good faith and fair dealing. On cross motions for summary judgment, the trial court awarded summary judgment to the issuer and denied it to the negotiating bank.

Legal Analysis:

1. Summary Judgment: The court stated "[a]lthough summary judgment is never lightly granted, letter of credit disputes generally present legal issues, rather than questions of fact, and are thus often appropriate for final adjudication upon submission of papers and affidavits", citing E & H Partners v. Broadway National Bank, 39 F. Supp. 2d 275, 280 (S.D.N.Y. 1998).

2. UCP: Noting that "[t]he UCP is a compilation of internationally accepted commercial practices," quoting from Alaska Textile Co., Inc. v. Chase Manhattan Bank, N.A., 982 F. 2d 813, 816 (2d Cir. 1992), the court stated "[a]lthough it is not law, the UCP commonly governs letters of credit by virtue of its incorporation into most letters of credit". Since the letter of credit was subject to the UCP, the court did not apply prior UCC Article 5 under New York nonconforming Section 5-102(4).

3. Discrepancy: Beneficiary's Name Misspelled: In requesting the letter of credit, the applicant stipulated that it be issued to "Sung Jun". The issuer however issued the letter of credit for the benefit of "Sung Jin". The negotiating bank argued that the difference in spelling between "Sung Jun" and "Sung Jin" could not have misled or prejudiced the issuer, and was therefore not a discrepancy which justified dishonor. The court disagreed, citing Beyene v. Irving Trust Co., 762 F.2d 420 (2d Cir. 1985) which found that a misspelled name on a bill of lading ("Soran" for "Sofan") was a material discrepancy which made dishonor proper. The court stated that the misspelling of the beneficiary's name was similar to that in Beyene ("Soran" for "Sofan"), and noted that the negotiating bank did not even "claim that Sung 'Jin' would be obviously recognized as a misspelling of Sung 'Jun'".

4. Discrepancy: Beneficiary's Duty to Inspect LC Terms: The negotiating bank asserted that the discrepancy in question (name on LC which differed from the correct name on the application) was the fault of the issuer, and therefore should not be used as a basis for dishonor. The court disagreed, stating "the beneficiary must inspect the letter of credit and is responsible for any negligent failure to discover that the credit does not achieve the desired commercial ends", quoting from Mutual Export Corp. v. Westpac Banking Corp., 983 F.2d 420 (2d Cir. 1993). The court reasoned that the beneficiary is in the best position to determine whether an LC meets the needs of the transaction, a determination which it should make prior to performance.

5. Misspelling of Beneficiary's Name: Internal Inconsistency: The court distinguished the instant case in which the LC contained only one (albeit inconsistent in light of the underlying transaction) spelling of the name of the beneficiary from a situation in which there were two different spellings in the letter of credit itself. Citing Bank of Montreal v. Federal Nat'l Bank & Trust Co., 622 F. Supp. 6 (W.D. Okla. 1984), the court stated that an LC which is internally inconsistent is ambiguous and should be resolved against the issuer. In this case however, there was no internal inconsistency nor ambiguity within the LC, but rather discrepancies between the LC and the presented documents.

6. Duty of Good Faith: The negotiating bank argued that the issuer dishonored the LC at the instruction of the applicant/buyer, violating its duty of good faith and fair dealing. The court disagreed. Noting that while the issuer had an obligation to independently review the beneficiary's submission to determine if there were any discrepancies, an issuer is free to seek waiver from the applicant for any discrepancy without approval of the beneficiary under UCP500 Article 14(c). The court concluded "there is no evidence that [the issuer] communicated with [applicant] other than to ask whether [applicant] would accept the discrepancies and approve the requested payment".


1. This decision reveals that the courts have not overcome the silliness first witnessed in the now infamous Beyene case. In Beyene, the court held that the misspelling of the notifying party in a bill of lading ("Soran" for "Sofan") was sufficient grounds to justify dishonor but also stated that an obvious typographical error ("Smithh" for "Smith") would not be a discrepancy. Part of the silliness is the court's reliance on the Mutual Export decision. In that case, the beneficiary failed to object to the expiry date which was far earlier than what had been needed or requested by the applicant. In such a situation, the beneficiary had no basis to object to the issuer's failure to honor a post expiry presentation. It should have objected to the LC expiration term before performing if it wished to keep the protection of the LC. On the contrary, commercial parties would not think it necessary to change "Jin" to "Jun" where all the other data relating to the transaction and the beneficiary such as address, order number, etc. was correct. There is a significant difference between an incorrect LC term (e.g. an expiry date) and an obvious or harmless typo. The court fails to grasp it, however.

2. That is not to say that there is not a name issue. Presumably, the typo affected all documents, including the commercial invoice. If so, then the more rigorous standard of UCP500 Article 37 would apply, especially since Article 37(a)(ii) requires that invoices "must appear on their face to be issued by the beneficiary named in the credit ... ." The question, then, is did the invoice appear to have been issued by the beneficiary named in the LC. This determination requires careful consideration of the documents and their data as a whole and not the glib response apparently given by the trial court.

3. One would have hoped that the LC community and the courts had matured past this level of pettiness in their analysis. There is still hope for some relief however given that this case is on appeal on a jurisdictional issue. Courts, lawyers, and LC bankers could all benefit from a clarification of the distinction between typos in the description of goods and other typo "discrepancies". The issue is one of identification and linkage. If the documents all related to the LC and one another, bore the same address, related to the same order, and were otherwise linked to the transaction as revealed in the LC, for example by order number, etc., the difference is an apparent typographical error and not a discrepancy.



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.