the plaintiff. Defendant HNB issued two letters of credit with the plaintiff as the beneficiary. The second letter of credit, No. L/C 113139, was for $ 263,340.00, which represented payment for the 39,600 garments, that were to be delivered to Lerner's freight forwarder in Korea by August 30, 1989. L/C 113139, by its terms, was to expire on September 15, 1989.
On or about September 4, 1989, plaintiff, through its bank, sent HNB the required documentation for 18,000 of the 39,600 garments. HNB received the documentation on September 8, 1989, and determined that same day that there were discrepancies on the face of the documents. HNB sent notice of the discrepancies to Lerner, along with the message, "please advise".
On or about September 9, 1989, plaintiff, through its bank, sent HNB the required documentation for the remaining 21,600 garments. HNB received the documentation on September 13, 1989, and determined on that same day that there were discrepancies on the face of the documents. HNB sent notice of the discrepancies to Lerner, along with the message, "please advise".
On September 18, 1989, HNB decided to reject the first set of documents, which it had possessed for ten (10) days, six of which were business days. It notified plaintiff's bank of its decision by telex.
On September 20, 1989, HNB decided to reject the second set of documents, which it had possessed for seven (7) days, four of which were business days. It notified plaintiff's bank of its decision by telex.
On October 17, 1989, plaintiff, through its bank, sent a complete set of revised documents which purportedly corrected the alleged discrepancies. HNB received those documents on October 19, 1989. From the record, however, it appears HNB took no action on the revised documents.
Plaintiff's bank sent a number of telexes to HNB, demanding payment on the L/C, or an explanation for the delay. HNB responded on October 26 that the documents would not be returned, and that the matter was now being handled by defendant Lerner and plaintiff Full-Bright directly. See Telex, October 26, 1989.
HNB did not return plaintiff's documents to plaintiff's bank until November 17, 1989.
HNB claims that it is not obligated to pay out on the L/C because plaintiff's documents did not strictly comply with the terms of L/C 113139.
Full-Bright contends that HNB is estopped from asserting non-compliance of the documents because of its delay in processing them.
I. Standards for Summary Judgment
Under Fed. R. Civ. P. 56(c), the moving party is entitled to summary judgment if the papers "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." On such a motion, "a court's responsibility is to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Coach Leatherware Co., Inc. v. AnnTaylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991) (citing Knight v. U.S. Fire Insurance, 804 F.2d 9 (2d Cir. 1986), cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987)) (citation omitted). The responding party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). "The non-movant cannot 'escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts,' . . . or defeat the motion through 'mere speculation or conjecture.'" Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (citations omitted). While the party resisting summary judgment must show a dispute of fact, it must also be a material fact in light of the substantive law. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).
II. Liability under L/C 113139
A commercial letter of credit is a common payment mechanism in international trade. Typically, the buyer (the applicant) arranges with his bank (the issuing bank) to issue a letter of credit in favor of the seller (the beneficiary) for the amount of the purchase price. The applicant sets forth the terms the bank must incorporate into the credit. The letter of credit represents the issuing bank's irrevocable promise to pay the seller-beneficiary when the latter presents certain documents (e.g. documents of title, transportation, insurance, or invoices). Alaska Textile v. Chase Manhattan, 982 F.2d 813, 815 (2d Cir. 1992).
It is a fundamental principle of letters of credit that the bank's promise to pay the beneficiary under the letter of credit is completely independent of the underlying sales contract between the buyer and the seller. See, e.g., Bank of China v. Chan, 937 F.2d 780 (2d Cir. 1991); All Service Exportacao, Importacao Comercio, S.A., New York Branch, 921 F.2d 32 (2d Cir. 1990). The bank's promise to the beneficiary is direct and absolute. Accordingly, it is no defense for the bank to claim that the seller's goods were non-conforming.
A second principle of letters of credit is that the beneficiary of the letter of credit must strictly comply with the terms of the letter. See, e.g., Trifinery v. Banque Paribas, 762 F. Supp. 1119 (S.D.N.Y. 1991); Texpor Traders, Inc. v. Trust Co. Bank, 720 F. Supp. 1100 (S.D.N.Y. 1989).
Further principles governing letters of credit are set forth in the Uniform Customs and Practice for Documentary Credits established by the International Chamber of Commerce ("UCP").
Article 16 of the UCP provides in pertinent part:
b. If, upon receipt of the documents, the issuing bank considers that they appear on their face, not to be in accordance with the terms and conditions of the credit, it must determine, on the basis of the documents alone, whether to take up such documents or to refuse them and claim that they appear, on their face, not to be in accordance with the terms and conditions of the credit.