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3COM CORP. v. BANCO DE BRASIL

April 3, 1998

3COM CORPORATION, Plaintiff, against BANCO DE BRASIL, S.A., Defendant.


The opinion of the court was delivered by: SOTOMAYOR

OPINION AND ORDER

 SONIA SOTOMAYOR, U.S.D.J.

 Plaintiff, 3Com Corporation ("3Com"), moves for summary judgment pursuant to Fed. R. Civ. P. 56 on its cause of action for wrongful dishonor of a standby letter of credit issued by defendant, Banco do Brasil S.A. ("Banco"). Defendant cross-moves for summary judgment. For the reasons to be discussed, plaintiff's motion for summary judgment is granted, and defendant's cross-motion for summary judgment is denied.

 BACKGROUND

 3Com, a Delaware Corporation with its principal place of business in California, sells and licenses computer hardware and software. In October 1993, 3Com entered into a distributor agreement with Comp Service Ltda. ("Comp Service"), a Brazilian company, and Expasa Florida Inc., whereby Comp Service became an authorized distributor of 3Com's computer products in Brazil; Expasa Florida Inc. was Comp Service's purchasing agent in the United States. In June 1994, Comp Service notified 3Com that Techtrade Export ("Techtrade") would be replacing Expasa Florida as its purchasing agent, and Techtrade would assume Expasa's obligations. In October 1994, Comp Service signed a guaranty in which it guaranteed the payment and performance of Techtrade's obligations to 3Com. The guaranty also contained clauses in which Comp Service agreed to direct liability to 3Com and in which Comp Service waived "any demand for payment or performance or notice of non-payments or non-performance, or notice of default."

 In November 1994, Comp Service arranged for Banco to issue a standby letter of credit to support payment of Comp Service's obligations to 3Com. On November 21, 1994, Banco issued an irrevocable standby letter of credit in the amount of $ 250,000 with 3Com as the beneficiary. 3Com was notified of the letter of credit by Bank of America, the advising bank.

 The standby letter of credit, as amended in December 21, 1994, contained the following relevant terms. The letter of credit required Banco to "make payment on sight" upon 3Com presenting a draft and a statement "that the amount of the draft which this statement accompanies will be applied by us to indebtedness due and owing Comp Service Ltda. for invoices which Comp Service Ltda. defaulted on the payments terms to 3Com Corp." The letter of credit contained an original expiration date of May 20, 1995. However, the letter of credit automatically renewed itself, without written amendment, on each successive calendar year unless Banco sent 3Com "written notice that we have elected not to renew the letter of credit beyond such date." Drawings on the credit could occur up to the expiry date. Additionally, the letter of credit by its terms was subject to the Uniform Customs and Practice for Commercial Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 ("UCP").

 The letter of credit renewed automatically on May 20, 1995 until May 20, 1996. Between July 1995 and April 1996, Banco sent three telexes to Bank of America which requested Bank of America to "please obtain authorization to cancel a standby." After receipt of each of these telexes, Bank of America notified 3Com of Banco's request. Each time 3Com denied Banco's request for cancellation.

 On May 13, 1996 *fn1" , seven days before the May 20 expiration date, Banco sent the following telex to Bank of America stating in pertinent part:

 YOUR STANDBY L/C NBF.LASB 222099 OUR GUARANTEE NBR.GBT 2681001696 USD 250,000.00 FAVORING 3COM CORP., SANTA CLARA, CA REQUESTED BY COMP SERVICE LTDA., SAO PAOLO, SP PLS CANCEL A/M STANDBY L/C AND RELEASE US FROM LIABILITIES REGARDING A/M GUARANTEE.

 On June 13, 1996, over two weeks after the May 20 expiration date, Banco sent another telex to Bank of America stating: "A/M STANDBY WAS PREVIOUSLY DUE ON MAI20[sic], 1995 AND AUTOMATICALLY RENEWED UNTIL MAY 20, 1996. PLEASE CONSIDER OUR SWIFT MT 799 DD 96MAI13 (sic) AS A NOTICE OF TERMINATION AND RELEASE US FROM LIABILITIES." Bank of American subsequently sent a letter to 3Com on June 17, 1996 advising 3Com of Banco's request to "have the letter of credit canceled." 3Com responded that it did not wish to have the letter of credit canceled. Bank of America sent a telex to Banco dated July 6, 1996, which stated:

 FURTHER TO YOUR REQUEST FOR CANCELLATION OF ABOVE REFERENCED LETTER OF CREDIT WE WISH TO INFORM YOUR [sic] THAT BENEFICIARY DECLINES YOUR REQUEST. SUBJECT LETTER OF CREDIT IS THEREFORE IN FULL FORCE AND EFFECT UNTIL MAY 20, 1997 OR ITS FUTURE EXPIRATION DATE AS LONG AS AUTOMATIC RENWAL [sic] CLAUSE IS IN EFFECT. PLEASE BE GUIDED ACCORDINGLY.

 Banco's reply to Bank of America's telex on July 11, 1996 stated that Banco's May 13 telex requesting cancellation corresponded to a notice of termination; therefore, automatic renewal of the letter of credit could not be accepted. Bank of America subsequently advised Banco that Banco's May 13 telex was a request for cancellation, not a notice of cancellation. Because 3Com rejected Banco's cancellation request, Bank of America maintained that the letter of credit was still in effect.

 In March 1996, 3Com had issued two invoices exceeding $ 250,000 for goods sold to Techtrade and Comp Service. The invoices were not paid when due. On July 19, 1996, 3Com drew on the letter of credit by submitting a draft of $ 250,000 and the accompanying statement with the language required by the letter of credit. In August 1996, Banco gave 3Com a notice of dishonor of the draw, stating that the letter of credit had expired and that 3Com had not issued any invoices to Comp Service. On May 9, 1997, 3Com again submitted a draw on the letter of credit by submitting a draft and an accompanying statement. On May 15, 1997, Banco again gave notice of dishonor of ...


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