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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2000 CASE SUMMARIES 98 Civ. 2359; 2000 U.S. Dist. LEXIS 5636 (S.D.N.Y. 1 May 2000) [U.S.A.]
Topics:
Anticipatory Repudiation; Force Majeure; UCP400 Article 19
Type of Lawsuit:
Beneficiary sued issuer for wrongful dishonor.
Parties:
Plaintiff/Beneficiary/Seller - Procter & Gamble Cellulose Co.
Defendant/Issuer - Investbanka Beograd
Nominated Paying Bank - Beogradska Banka
Nominated Paying Bank - First Tennessee Bank
Underlying Transaction:
Not stated.
LC:
Commercial LCs for US$ 250,058.90, $294,487, $92,500, $100,522.13, and $419,398.20. Subject to UCP400.
Decision:
The U.S. District Court for the Southern District of New York, Koeltl, J., denied the issuer's motions for judgment as a matter of law prior to submission of the case to the jury, for a new trial, and for relief from judgment, and entered judgment on a jury verdict for the beneficiary.
Rationale:
Where it is apparent that an issuer will not honor an LC, anticipatory repudiation has occurred even if no presentation has yet been made.
Article
Factual Summary: On three of five letters of credit issued by a Yugoslavian bank, the beneficiary presented complying documents prior to the expiry date. On the other two LCs, it was prevented from doing so by closure of the issuer's agent due to imposition of sanctions. Subsequently, the nominated paying bank returned to the issuer the original LCs which it held, copying the beneficiary on its correspondence. When the issuer failed to honor any of the presentations, the beneficiary brought an action for wrongful dishonor of the three LCs and anticipatory repudiation of the other two. The trial court granted summary judgment as to the first LC. At the trial on the other four LCs, both parties moved for judgment as a matter of law at the close of the beneficiary's evidence and again at the close of all evidence presented. The jury returned a verdict for the beneficiary and the issuer moved for a new trial and relief from judgment, which was denied and judgment for the beneficiary was entered. The court ruled that there was substantial evidence supporting the verdict.
Legal Analysis:
1. Anticipatory Repudation: The issuer argued that the beneficiary had not performed and that there was no evidence of repudiation as to the last two LCs. The court rejected this argument, noting that the return of the credits "was an anticipatory repudiation of the contracts under the letters of credit because it was clear that the issuer would not pay under the letters of credit at that point". The court also concluded that, having anticipatorily repudiated these two LCs, "it was no longer relevant whether the nominated [paying] bank was open when the expiration dates arrived. The evidence at trial was that the issuer had anticipatorily breached its obligations under the last two letters of credit before the expiration dates had even arrived."
2. Force Majeure: UCP400 Article 19: The issuer argued that it was excused from its obligations to perform under the LC by operation of the force majeure clause of UCP400 Article 19, which in conjunction with UCP400 Articles 46(b) and 48(a) places the risk of closure for force majeure on the beneficiary. The court noted that this argument was "somewhat inconsistent with the issuer's position at trial that the nominated [paying] bank was open for the presentation of documents even if it could not actually make payments under the letters of credit." In any event, the court ruled that the issuer's "argument under Article 19 is moot in view of the jury's finding that the issuer anticipatorily repudiated its obligations with respect to the last two letters of credit."
© 2001 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.