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MERCHANTS BANK OF NEW YORK v. CREDIT SUISSE BANK

April 20, 1984

THE MERCHANTS BANK OF NEW YORK, Plaintiff, against CREDIT SUISSE BANK, Defendant.


The opinion of the court was delivered by: CARTER

CARTER, District Judge

Defendant Credit Suisse Bank ("Credit Suisse") brings this motion to dismiss the complaint against it pursuant to Rule 12(b) (6), F.R.Civ.P., for failure to state a claim on which relief can be granted. Credit Suisse was sued by the Merchants Bank of New York ("Merchants") for damages which Merchants claims it sustained in consequence of Credit Suisse's wrongful dishonor of an irrevocable letter of credit. Merchants, which acted as the advising bank in the letter of credit transaction, also claims that Credit Suisse breached certain duties with respect to it, which exposed Merchants to liability to Continental Time Corp. ("Continental"), the beneficiary of the letter of credit. Continental was never paid under the letter of credit and consequently sued Merchants. The latter paid Continental $150,000 in settlement of that suit.

 Merchants has set forth four claims in its complaint against Credit Suisse based upon contract, fraud and bad faith, contribution and indemnification. For the reasons discussed below, Credit Suisse's motion to dismiss is granted with respect to the contract and contribution claims. Merchants has stated a valid cause of action with respect to the remaining two.

 Background

 1. The Letter of Credit

 At the request of Credit Suisse's customer, George Bloch, Credit Suisse issued an irrevocable letter of credit in the amount of $236,961.90, in favor of Continental, which was a customer of Merchants. The money was payable against the delivery of certain documents enumerated in the letter with respect to a shipment of watches from Continental in the United States to Bloch in Switzerland. Merchants advised Continental of the issuance of the letter of credit and of its terms and conditions.

 On January 23, on behalf of Continental, Merchants presented documents to Credit Suisse for the purpose of collecting payment under the letter of credit arrangement. Alleging certain discrepancies in the documents, Credit Suisse refused them. By telex dated January 29, it requested authorization from Merchants to present the documents on a collection basis. *fn1" By return telex the same day, Merchants advised Credit Suisse that it could present the documents on a collection basis. Credit Suisse accordingly presented the documents to Bloch. Bloch refused to pay, claiming a set-off based upon an alleged debt of Continental to a third party, which had, Bloch maintained, been assigned to him prior to the issuance of the letter of credit. On February 13, two days after the letter of credit expired, Merchants demanded by telex immediate payment from Credit Suisse. Credit Suisse did not honor the demand. The irrevocability of the letter of credit had been destroyed once it became a collection item.

 2. Other Litigation

 In January, 1980, Continental assigned 83.3% of the $236,961.90 proceeds of the letter of credit to S. Frederick and Co. ("Frederick"), and in January, 1981, it assigned the remainder (16.6%) of the proceeds to Arlington Distributing Co., Inc. ("Arlington"). In May, 1980, both assignees brought separate actions, which were later consolidated, against Credit Suisse in the Civil Court of the Canton of Vaud, Switzerland to recover proceeds based on Credit Suisse's alleged wrongful dishonor. *fn2" In November, 1981, Continental sued Credit Suisse in this court to recover under the letter of credit on grounds that Credit Suisse wrongfully refused to pay. (In March, 1982, Frederick had assigned back to Continental 75% of its share (62.5% of the entire proceeds)). Judge Lasker dismissed the action in favor of the action pending in Switzerland on condition that Credit Suisse not oppose the intervention of Continental there. Continental Time Corp. v. Swiss Credit Bank, 543 F. Supp. 408 (S.D.N.Y. 1982). Credit Suisse brought Bloch into that suit.

 Although Continental has not yet intervened in the Swiss suit, in August, 1982, it sued Merchants in the New York State Supreme Court for negligence, misfeasance and/or nonfeasance, and for breach of Merchants' contractual duties under the Uniform Commercial Code ("UCC"). *fn3" Continental's motion for summary judgment was granted on February 10, 1983, Continental Time Corp. v. Merchants Bank of New York, 117 Misc. 2d 907, 459 N.Y.S.2d 396 (Sup. Ct. New York County, 1983). Merchants moved for leave to renew its opposition to Continental's motion for summary judgment upon submission of additional affidavits. The state court granted this motion and upon renewal denied the motion for summary judgment. (Merchants' Exh. M). The material issue raised by Merchants was whether or not it had requested and received instructions from Continental directing Merchants to authorize Credit Suisse to place the letter of credit on a collection basis. Merchants settled the state court action for $150,000, which is the amount it now seeks to recover from Credit Suisse.

 Discussion

 1.The Contract Claim

 Merchants' contract claim rests mainly upon the proposition that its settlement with Continental entitles it to "step into the shoes" of Continental with regard to the latter's right to the proceeds of the letter of credit up to the amount of the settlement payment. *fn4" Combined with this argument is Merchants' vague assertion of an implied contract, quasi-contract, or unjust enrichment theory that would entitle Merchants to reimbursement of the settlement amount based on the existence of a duty between itself and Credit Suisse under the letter of credit agreement. These claims can be evaluated only by sorting through the parties' obligations to one another in the context of the letter of credit.

 A letter of credit transaction *fn5" involves three separate and independent relationships: 1) an underlying sale of goods contract between buyer (Bloch) and seller (Continental); 2) an agreement between a bank (Credit Suisse) and its customer (the buyer, Bloch) in which the bank assents to issue a letter of credit; and 3) the bank's (Credit Suisse's) resulting engagement to pay the beneficiary (the seller, Continental) on the condition that certain documents presented to the bank conform with the terms of the credit issued on its customer's behalf. Voest-Alpine Int'l Corp. v. Chase Manhattan Bank, N.A., 707 F.2d 680, 682 (2d Cir. 19830; Cf. International Leather Distributors Inc. v. Chase Manhattan Bank, N.A., 464 F. Supp. 1197, 1201 n.9 (S.D.N.Y.) (Werker, J.), aff'd, 607 F.2d 996 (2d Cir. 1979). An advising bank, the part filled by Merchants, assumes no, or very limited responsibilities under the letter of credit arrangement. It is considered a neutral party, important in forging some connection between the issuing bank and the beneficiary, parties which generally have no prior link. The advising bank is confined to transmitting information and ...


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