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BANK OF CANTON, LTD. v. REPUBLIC NATL. BANK OF NEW

July 9, 1980

The BANK OF CANTON, LTD., Plaintiff,
v.
REPUBLIC NATIONAL BANK OF NEW YORK, Defendant and Third-Party Plaintiff, v. SHARP INTERNATIONAL CORP., Third-Party Defendant



The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

Plaintiff, The Bank of Canton, Ltd., ("BC") brought this action against defendant Republic National Bank of New York ("RNB") to recover damages resulting from RNB's dishonoring of drafts presented upon a letter of credit issued by RNB, which BC had negotiated. RNB filed a third-party complaint against Sharp International Corp. ("Sharp"), the customer at whose request RNB issued the letter of credit. Jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332(a), and also upon 12 U.S.C. § 632, defendant RNB being a national bank and the underlying transaction involving an international banking. The case is before the Court on cross-motions of BC and RNB for summary judgment pursuant to Rule 56, F.R.Civ.P. For the reasons stated, BC's motion is granted and that of RNB denied.

I.

 The following undisputed facts appear from the affidavits and exhibits submitted on the motions.

 Under date of January 31, 1977, RNB issued its irrevocable letter of credit No. A-38410, in the amount of $ 100,080. The beneficiary was EACA International Ltd. of Hong Kong. The letter covered "5,004 pcs. EP.800 TV GAME at U.S. $ 20.00 each, FOB HONG KONG, including 1% spare parts, free of charge." The letter specified that the covered goods would be shipped from Hong Kong to New York. The letter provided: "partial shipments are permitted." The credit was made "subject to the Uniform Customs and Practice for Documentary Credits (1974 revision), International Chamber of Commerce Publication No. 290" (hereinafter "UCP"). RNB provided in its letter of credit as follows:

 
"We hereby agree with the drawers, endorsers and bona fide holders of drafts drawn under and in compliance with the terms of this credit that such drafts will be duly honored on due presentation to the drawees if negotiated on or before the expiration date or presented to the drawees together with this letter of credit on or before that date."

 The expiry date was April 10, 1977. The documents to accompany drafts upon the letter of credit were specified as follows:

 
" -- Commercial invoice in quintuplicate.
 
-- Special customs invoice in quadruplicate.
 
-- Packing list.
 
-- FCC Certificate.
 
-- Full set, plus 2 non-negotiable copies of clean "onboard' ocean bills of lading, issued to order of Republic National Bank of New York, N. Y., (L/C A-38410), marked: "Notify: Sharp International Corp., 60 West 45th Street, New York, N. Y., 10036' and "Freight Collect', evidencing shipment in containers only, not later than March 28, 1977."

 RNB issued this letter of credit at the request of its customer, Sharp. Sharp had entered into a contract to purchase 5,004 electronic television games from EACA International Ltd. ("EACA"), an exporter in Hong Kong. The games contracted for were to bear Model No. EP800, a number also set forth in the letter of credit. One of the documents required by the letter of credit was an "FCC Certificate." This requirement reflected the fact that the Federal Communications Commission regulates the marketing of all radio frequency devices in the United States. Electronic TV games are included among such devices. An application for FCC approval must be accompanied by a technical description of the proposed equipment; a sample or prototype for the FCC to examine; and a form of identification plate to be affixed to the equipment, listing the name of the applicant and the model number of the equipment (in this case EP800). Application for FCC approval can only be made by the company whose name is to be placed on the equipment. While the applicant, in whose name the certificate is issued, may or may not be the manufacturer, the certificate is relied upon by those marketing the equipment at different levels of distribution. See 47 C.F.R. §§ 2.961 et seq.

 When it acts favorably upon an application in respect of such equipment, the FCC grants what is known as "type approval." The electronic TV game involved in this case, Model No. EP800, received FCC "type approval" in a letter dated September 17, 1976, addressed by John T. Robinson, Chief, Equipment Authorization Branch, Laboratory Division of the FCC, to E & P Electronic (HK) Ltd. of Hong Kong, attention Paul Yang. The FCC letter of September 17, 1976 reflects that E & P Electronic (HK) Ltd. (hereinafter "E & P") had made application for type approval of the equipment on September 6, 1976. The full text of the FCC's letter of approval dated September 17, 1976 is set out in the margin. *fn1" The FCC printed the following instructions across the face of its letter of approval:

 
"ATTACH THIS GRANT OR COPY THEREOF TO YOUR CUSTOMS ENTRY FOR EACH SHIPMENT OF EACH TYPE NUMBER."

 On February 28, 1977, EACA presented to BC for negotiation a draft in the amount of $ 60,000, drawn upon RNB, under the latter's letter of credit. The draft covered the shipment of 3,000 sets of EP800 TV games, and was accompanied by documents which BC examined against the requirements of the letter of credit. Concluding that the documents were in order, BC negotiated the draft, and, on March 2, 1977, mailed the draft and documents to RNB for payment.

 The documents accompanying the $ 60,000 draft included a commercial invoice dated February 24, 1977, running from EACA as seller to Sharp as buyer. The invoice reflected a purchase order, dated January 31, 1977, of 5,004 EP800 TV games. Under "quantities," the invoice recited "this shipment 3,000," and "balance shipment 2,004." The invoice further provided: "1 percent spare parts will be shipped with the last shipment."

 The documents submitted with the $ 60,000 draft also included a partial copy of the FCC letter of grant dated September 17, 1976 (see fn. 2, ante). That document was xeroxed so as to reproduce only the FCC heading, the date, the addressee (E & P), the caption, the salutation, and the first of the three paragraphs of text. The second and third paragraphs, as well as the signature, were missing.

 On March 11, 1977, EACA presented a second draft, in the amount of $ 40,080, to BC for negotiation. Again, after examining the accompanying documents within the context of the RNB letter of credit, BC negotiated the draft, and on March 11 airmailed the draft and documents to RNB for payment. The documents accompanying this second draft included a commercial invoice dated March 2, 1977 reflecting the total quantity ordered of 5,004 pieces, and shipment of the balance of 2,004 pieces, an amount also reflected in the customs invoice and ocean bill of lading. The commercial invoice recited: "One percent spare parts have been shipped with this shipment (free of charge)." A "spare parts list" accompanying the draft itemized the spare parts shipped. The quantity as to most items was 50 pieces. On four items, 100 pieces were shipped, and on one item 150 pieces were shipped. BC also forwarded, with this second draft in the amount of $ 40,080, a comparably truncated copy of the FCC certificate covering Model No. EP800 electronic TV games.

 RNB received the $ 60,000 draft and accompanying documents from BC on March 8, 1977, and the $ 40,080 draft and accompanying documents on March 15. The first response BC received from RNB on either of these drafts was a cable sent by RNB on March 21 and received by BC on March 22. That cable referred to the $ 40,080 draft, which RNB said was "not acceptable to our customer due to unsigned copy of FCC certificate issued in the name of E & P Electronic." BC responded by airmailing to RNB, on March 24, a full copy of the FCC certificate, advising RNB in the forwarding letter and a cable of March 24, that E & P Electronic, the company named in the certificate, was the manufacturer of the shipped goods. RNB received the full text of the FCC certificate on March 31.

 In a telex dispatched by RNB on March 30 and received by BC on March 31, RNB addressed the $ 60,000 draft, and stated that it was unable to effect payment "in view one percent spare parts not shipped and only copy of FCC Certificate received not signed and issued in name of E & P Electronic." BC responded by airmailing, on March 31, another full copy of the FCC certificate. BC also stated, in its reply telex, that one percent spare parts had been shipped with the shipment covered by the second of the two drafts, as indicated in the invoice accompanying that draft. BC further stated that partial shipments were permitted under the pertinent documents.

 By further telex on April 1, BC contended that RNB's advice of purported discrepancies in the documents accompanying the $ 60,000 draft was not timely given under the UCP. No further communications were exchanged between the banks with respect to the $ 60,000 draft.

 The second draft, in the amount of $ 40,080, generated some further telex exchanges. In a telex sent on March 31, RNB acknowledged receipt of the "corrected FCC form" enclosed with BC's letter of March 24, but stated that it was still unable to pay because the bills of lading were "stale." RNB relied in that connection upon Article 41 of the UCP. BC responded by telex of March 31, disputing that contention. By telex dated April 2, RNB reverted to the FCC certificate, stating that it must have "either an original duly signed certificate granted in name of beneficiaries of credit and not in name of E & P Electronic or a signed copy duly legalized by the U.S. Consul in Hong Kong." RNB further advised BC that it had been served with a show cause order in court proceedings initiated by Sharp, in which Sharp was apparently seeking an injunction against payment under the letter of credit. BC protested this most recent refusal to pay the $ 40,080 draft by telex dated April 4. That protest prompted a further telex from RNB dated April 6, in which RNB stated its understanding that "an FCC certificate must be an original document" issued by the agency, and not a copy; that the certificate issued to "someone other than the shippers" was not acceptable under UCP rules unless RNB's customer waived the discrepancy, which the customer (Sharp) declined to do; and that RNB had been advised by its attorneys that it was "obligated to withhold credit under the letter of credit based upon the court order..."

 BC protested these further refusals to pay in a telex dated April 7. The letter of credit expired by its terms on April 10, 1977, without payment of either draft. This suit, in which BC seeks damages ...


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