Compliance; Dishonor; Underlying Contract; Substantial Performance


Beneficiary and applicant entered into a sales agreement that provided for payment by LC, specifying the latest date of shipment, and allowing a variance in quantity of goods to be shipped. The LC "describe[d] the specific styles ordered, the quantity ordered for each style and the price per dozen for each style, but [did] not anywhere aggregate the total quantity shipped". The goods were shipped to the applicant, but the applicant contended that the shipment was late, and that the quantities shipped differed from the numbers specified in the contract.

Although the opinion did not mention whether the beneficiary ever presented documents to the issuer or whether the issuer dishonored the LC, it would appear that no payment was made because the beneficiary filed suit against the applicant for breach of contract and failure to pay. Upon its motion, summary judgement was granted in favor of the applicant, and beneficiary appealed. On appeal, the Supreme Court of New York, Appellate Division unanimously affirmed because the undisputed evidence showed that the beneficiary did not perform the underlying contract.

The beneficiary contended that the variance in the quantity of goods shipped was allowed under the LC. The court rejected this argument, stating that the language in the LC suggested "that the different styles ordered were not interchangeable, and that the permissible variance in quantity was with respect to each style ordered, and not, as [beneficiary] claims, with respect to the total quantity of all styles ordered." The court ruled that this variance in quantity of goods delivered constituted a breach of contract on the beneficiary's part, thus relieving the applicant from his duty to honor his part of the contract.

Additionally, the applicant had produced a copy of the bill of lading from the shipping company showing that the goods were not shipped by the beneficiary until after the latest date specified in the LC. As the beneficiary did not contest its authenticity, the appellate court accepted the information in the bill of lading as further proof of beneficiary's violation of the terms of the contract.



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.