Content area
Full Text
This survey concentrates on the most significant letter of credit ("LC")1 issues addressed in cases decided in the United States in the year 201 1.2
Pre-Honor Cases
Pre-honor cases are those in which a dispute arises before demand for payment under an LC has been honored by the issuer of the LC. These actions typically involve a beneficiary or other presenter claiming wrongful dishonor, and they focus on: (i) whether timely and sufficient notice of dishonor was given,3 (ii) whether the discrepancies stated in that notice justify dishonor,4 or (iii) whether there are extraordinary reasons requiring or permitting dishonor, such as forgery or material fraud,5 injunction, governmental order, or insolvency.
DISCREPANCY DEFENSES AND PRECLUSION
CVD Equipment Corp. v. Taiwan Glass Industrial Corp.6 is particularly instructive. The beneficiary of a commercial LC presented a bill of lading, which the issuer rejected for lack of an on board notation. The seller-beneficiary subsequently presented a "cured" bill of lading that showed an on board notation, which the issuer rejected as "late presented" (i.e., not presented within twenty days of the shipping date as required by the LC).7 The seller-beneficiary argued that the issuer was precluded from relying on discrepancy defenses first raised more than five business days after presentation to the nominated bank that forwarded documents to the issuer.8 The trial court granted summary judgment in favor of the issuer, because for an issuer the five-day period permitted under UCP600 Article 16(d) clearly starts after presentation to the issuer.9
In addition to the commercial LC supporting payment to the seller, there was a reciprocal standby LC issued by the seller's bank to the buyer. The standby provided for cancellation upon the seller-applicant's submission to the standby issuer of a copy of an original bill of lading.10 The court correctly concluded that the LC's automatic cancellation provision eliminated the need for any further beneficiary consent and that the standby issuer could not be precluded from raising its defense based on LC cancellation.11 The court reasoned that the LC's cancellation provision required that the bill of lading received by the standby issuer satisfy the requirements of UCP600 as if presented under a commercial LC to obtain payment of the purchase price.12 The court concluded that the first bill of lading...