present either the letter of credit or the advice of credit, while CHI did present the advice of credit. Plaintiff, on the other hand, while conceding that neither the letter of credit nor the advice of credit was ever delivered to it, see Zorn Affidavit P 38, argues that the operative document for purposes of UCC Section 5-116(2) was the original telex sent by Leumi to IDB, which indisputably held this telex in its files. Plaintiff further argues that IDB held the letter of credit as bailee for CHI and, after notice of the assignment, for plaintiff, by operation of law, see N.Y.U.C.C. § 9-305, to the extent of its 48.75 percent interest in the proceeds. Thus, according to plaintiff, the delivery and presentment requirements of UCC Section 5-116(2)(a) and (c) were met in this case.
UCC Section 5-116(2)(a) states that the delivery of either the letter of credit or the advice of credit to the assignee will perfect the assignee's security interest and effectuate the assignment. See N.Y.U.C.C. § 5-116(2)(a). This subsection is meant, in part, to protect against assignor double-dealing. See James J. White & Robert S. Summers, Uniform Commercial Code § 19-9, at 872 (3d ed. 1988). The statute and caselaw are silent as to which document must be delivered when the advising bank holds the original letter of credit issued by the paying bank and issues an advice of credit to the beneficiary.
This Court holds that, for purposes of the UCC Section 5-116(2)(a) delivery requirement, if the advising bank issues a written advice to the beneficiary of a letter of credit as to the issuance of the letter of credit, and if the advising bank requires the beneficiary to present the written advice each time it seeks to draw on the letter of credit, then the written advice is the document that must be delivered to the assignee in order to secure payment under the letter of credit. See J. Dolan, The Law of Letters of Credit P 10.04[b], at 10-24 (2d ed. 1991).
Plaintiff argues that such a holding would put UCC Section 5-116(2)(a) in conflict with Article 12(b) and (c) of the UCP. The Court disagrees. As mentioned above, the UCP is silent as to the handling of the assignments of letters of credit. See Algemene Bank, 748 F. Supp. at 183. Article 12(b) and (c) of the UCP speak to the establishment of the credit, which is not at issue here. These articles state that a teletransmission is the operative letter of credit if the telex states that it is subject to the UCP and if it lacks a statement such as "full details to follow" or that a forthcoming mail confirmation is to be the operative instrument. See UCP, art. 12(b)-(c). Article 12(a) of the UCP clearly shows that Article 12(b) and (c) do not preclude an advising bank from issuing a written advice of credit. See UCP, art. 12(a). Thus, under the UCP, the Leumi telex operated to establish Leumi's credit with regards to CHI, the beneficiary, prior to CHI's receipt of the advice of credit--an alteration of the rule concerning the establishment of credit under the UCC. See N.Y.U.C.C. § 5-106(1)(b) (requiring the beneficiary's receipt of advice of credit to establish the beneficiary's right to credit); James J. White & Robert S. Summers, Uniform Commercial Code § 19-4, at 828 (3d ed. 1988).
Nevertheless, IDB's issuance of a written advice of credit did not affect the establishment of the credit between Leumi and CHI; instead it created the document that CHI was required to present to IDB in order to secure payment under the Leumi letter of credit. Had no such advice been issued, then the telex itself would have presumably been the document to be delivered under Section 5-116(2)(b). See J. Dolan, The Law of Letters of Credit P 10.04[b], at 10-24 (2d ed. 1991).
All credit involves risk. The delivery and presentment requirements of UCC Section 5-116(2) are meant to protect the assignor, assignee, and the paying bank from the type of fraud that plaintiff is alleging to have occurred in this case. Plaintiff could have lessened the risk of CHI receiving the entire payment under the letter of credit by requiring delivery of the advice of credit. See 6A William D. Hawkland, Uniform Commercial Code Series § 5-116:02, at 228-29 (cum. supp. June 1993). Although partial assignments may preclude delivery of the actual document, given that at least two parties are entitled to the letter of credit proceeds, plaintiff and CHI could have created a bailment relationship with IDB that would have satisfied UCC Section 5-116(2)(a). See Union Planters National Bank v. World Energy Systems Assocs., 816 F.2d 1092, 1096 (6th Cir. 1987).
Despite the Court's holding concerning the delivery of the advice of credit, summary judgment is still inappropriate in this case because plaintiff has shown that a material issue of fact exists as to whether or not CHI held the advice of credit and was required to present the document each time it sought payment under the advice of credit. IDB claims that it sent the advice of credit to CHI after the November 7, 1991 payment, and that it required CHI to present the advice of credit in order to secure payment under the letter of credit. See IDB's 3(g) Statement P 10; Rosenwasser Affidavit P 6; Marin Affidavit PP 4, 8. After noting the amount of each payment on the advice of credit, IDB contends that it returned the written advice of credit to plaintiff after each payment. See IDB's 3(g) Statement P 10; Marin Affidavit P 8. Plaintiff, however, points out the inconsistencies in the deposition testimony of IDB employees, see Plaintiff's Opposition Brief at 11 & n.8, and suggests that IDB, not CHI, held the advice of credit. If this can be proved, then plaintiff may conceivably show that IDB held the document as a bailee to CHI and--following the November 9, 1994 notification--to plaintiff because IDB's consent to a bailment with plaintiff would not be required:
Where the collateral . . . is held by a bailee, the tine of perfection of the security interest . . . is when the bailee receives notification of the secured party's interest: this rule rejects the common law doctrine that it is necessary for the bailee to attorn to the secured party or acknowledge that he now holds on his behalf.