United States District Court, Southern District of New York
November 1, 1991
ALASKA TEXTILE CO., INC., PLAINTIFF,
LLOYD WILLIAMS FASHIONS, INC., LLOYD WILLIAMS INTERNATIONAL, INC., FAIRFIELD-NOBLE CORP. DOING BUSINESS UNDER THE FIRM NAME AND STYLE OF "CATHY HARDWICK, DIV. OF FAIRFIELD-NOBLE CORP.", AND THE CHASE MANHATTAN BANK, N.A., DEFENDANTS.
The opinion of the court was delivered by: Metzner, Senior District Judge:
Plaintiff, Alaska Textile Co., (Alaska), seeks $95,538 in
damages from Chase Manhattan Bank, N.A., (Chase), for the
alleged wrongful dishonor of two letters of credit issued by
Chase to Alaska as beneficiary. As Chase is a corporation
organized under the laws of the United States the court has
subject matter jurisdiction pursuant to 12 U.S.C. § 632.
Alaska is a small business engaged in the importation of
fabric from India, and is owned by Amnon Kashi. In early 1988
it received three orders from Lloyd Williams Fashions, Inc.,
(Lloyd), a manufacturer of ladies wear, for Dupioni silk to be
shipped from India to Lloyd's factory in Hong Kong. Chase, at
Lloyd's request, issued two letters of credit in favor of
Alaska for $82,500 and $47,141.25, respectively.
On April 26, 1988, Merchants Bank of New York, (Merchants),
acting on behalf of Alaska, reviewed the documents for
submission to Chase to obtain payment on the letters of
credit. Temistocles Garces, (a/k/a "Junior"), Merchants'
letter of credit examiner, noticed three discrepancies: (1)
the documents were presented more than twenty-one days after
the date the goods were shipped; (2) the packing lists
contained unauthenticated corrections changing the width of
the Dupioni silk from 48/50" to 48"; (3) and the airway bill
lacked a "notify party" designation. Junior informed Kashi of
these discrepancies. Kashi was desperate for cash to save his
business, and told Merchants to present the documents to Chase
"as is." Junior's collection letter to Chase used the industry
accepted phrase "presented on an approval basis" to indicate
that discrepancies in the documents existed, and that Alaska
was asking Chase to request Lloyd to waive these discrepancies
and authorize payment.
On April 27, 1988 Merchants presented the collection letter
and the documents to Chase. Chase inspected the documents for
one letter of credit on May 2, and for the second letter of
credit on May 3, 1988, and determined that discrepancies
existed which justified dishonor. However, following the
instructions of the collection letter, the bank requested
Lloyd to waive the discrepancies. Junior contacted Chase by
telephone on May 9 and was informed by Chase of the
discrepancies and that it was still waiting to hear from
Lloyd. Junior voiced no objections.
By May 4, Kashi knew of Chase's refusal to pay without
Lloyd's approval. On May 5 he went to Lloyd's place of
business and asked that Lloyd waive the discrepancies, because
he desperately needed the money to pay his supplier. The last
thing he wanted was for Lloyd to notify Chase that it would
not waive. The next day Lloyd agreed to pay if Kashi would
accept a 10 per cent discount on the amount due. Kashi was
amenable but then Lloyd failed to waive the discrepancies and
make payment even at a 10 per cent discount.
Kashi kept after Lloyd which then offered to pay the
discounted amount within 60 days, but Kashi refused this
latest offer. Lloyd then informed Chase of its refusal to
waive the discrepancies. On May 18, 1988, Chase sent a telex
to Merchants formally dishonoring the documents and listing
some discrepancies in addition to those mentioned above. It
stated that the documents were being held at Merchants'
In cases arising under 12 U.S.C. § 632, a court applies
federal common law choice of law rules, Wells Fargo Asia Ltd.
v. Citibank, N.A., 695 F. Supp. 1450, 1454 (S.D.N.Y. 1988),
which in the instant case mandate the application of New York
law because this state has the most significant contacts with
this litigation. Corporacion Venezolana de Fomento v. Vintero
Sales Corp., 629 F.2d 786, 794-95 (2d Cir. 1980), cert. denied,
449 U.S. 1080, 101 S.Ct. 863, 66 L.Ed.2d 804 (1981).
Additionally, the letters explicitly were subject to the
Uniform Customs Practices for Documentary Credits, Pub. No. 400
(1983 Revision) ("UCP") which, under New York law, supersedes
the Uniform Commercial Code. See N.Y.U.C.C. § 5-102(4)
An issuing bank need honor a letter of credit only when the
by the beneficiary strictly comply with the letter's terms.
Marino Industries v. Chase Manhattan Bank, N.A., 686 F.2d 112,
114-115 (2d Cir. 1982); Bank of Cochin Ltd. v. Manufacturers
Hanover Trust, 808 F.2d 209 (2d Cir. 1986). "Literal compliance
with" the letter of credit's specifications is essential and
"[d]ocuments nearly the same as those required are not good
enough." Voest-Alpine Intern. Corp. v. Chase Manhattan Bank,
N.A., 707 F.2d 680, 683 (2d Cir. 1983).
Alaska does not deny the fact that the packing lists
contained unauthorized corrections or that the shipping
documents were presented more than twenty-one days late. Thus,
under the rule of strict compliance these two variances alone
justified Chase's dishonor, and this court need not make
findings as to the other alleged defects. Marino, supra, 686
F.2d at 118.
Plaintiff argues, however, that under Article 16 of the UCP,
Chase waived its objections to the discrepancies because of
its delay not only in determining whether to accept or reject
the documents but also in giving notice of its ultimate
refusal. According to Article 16(c) "[t]he issuing bank shall
have a reasonable time in which to examine the documents and
to determine" whether to accept or reject them. 16(d) provides
that "[i]f the issuing bank decides to refuse the documents,
it must give notice to that effect without delay by
telecommunication or, if that is not possible, by other
expeditious means, to the bank from which it received the
documents, or to the beneficiary." (Emphasis added). Under
16(e) failure to comply with the timeliness requirements of
either 16(c) or 16(d) shall result in the issuing bank being
"precluded from claiming that the documents are not in
accordance with the terms and conditions of the credit."
The UCP does not specify what constitutes a "reasonable
time" under 16(c) for the bank to decide whether to accept the
documents but it is the common practice of the banking
industry in New York to construe 16(c) as meaning three
banking days. In Bank of Cochin, supra, the district court
adapted the industry practice, but in affirming the judgment,
the court of appeals expressly withheld decision as to whether
the three day time limit should be read into the UCP. Bank of
Cochin, supra, 808 F.2d at 213.
This case presents an unusual situation that neither the UCP
nor any letter of credit case law address. Alaska was aware of
the documents' discrepancies before it presented them, and
knew that it could not cure the defect of late presentment.
Nonetheless, because Alaska urgently needed the payment from
Lloyd and wanted the deal to go through, it submitted the
documents to Chase "on an approval basis." In so doing, Alaska
was asking Chase to refrain from exercising its right to
reject the discrepant documents immediately after inspection,
and instead to request the customer's waiver of the
discrepancies. By making this request and at the same time
urging Lloyd to waive the discrepancies, Alaska has waived its
right to strict compliance with UCP's Article 16(c).
Plaintiff has failed to provide proof to charge Chase with
violating 16(d). We have no dates as to when Kashi refused the
60-day extension of payment which would have triggered the
obligation of Chase to dishonor the letter of credit.
Alaska further urges that Chase waived its right to dishonor
the letters of credit because its May 18th telex to Alaska did
not adequately specify that late presentment was one of the
reasons for the denial. Article 16(d) requires that an issuing
bank "state the discrepancies in respect of which the issuing
bank refuses the documents" when giving notice of rejection to
the presenter. In the telex, Chase listed several
discrepancies, one of which was the "late presentation of
documents". Alaska contends that 16(d) requires greater
specificity than was present in the phrase Chase employed.
Nowhere does the UCP mandate such preciseness. Further, the
UCP refers to late presentment only twice: in the case of the
expiration of the letter of credit and when the documents are
presented more than twenty-one days after the mandated
shipping date. Since the letters of credit had not yet
expired, "late presentation
of documents" could have only meant "late presentments." This
claim is without merit.
The plaintiff's claim is dismissed.
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