Banco do Brasil, S.A. v. City Nat. Bank of Miami

• Decision Date: 01 December 1992
• Docket Number: No. 89-2822,89-2822
• Parties: , 17 Fla. L. Week. D2668, 19 UCC Rep.Serv.2d 831 BANCO DO BRASIL, S.A., Appellant, v. CITY NATIONAL BANK OF MIAMI, Appellee.
• Court: Florida District Court of Appeals

Page 689

609 So.2d 689

61 USLW 2434, 17 Fla. L. Week. D2668, 19 UCC Rep.Serv.2d

831

BANCO DO BRASIL, S.A., Appellant, v. CITY NATIONAL BANK OF MIAMI, Appellee.

No. 89-2822.

District Court of Appeal of Florida,

Third District.

Dec. 1, 1992.

White & Case and Stephen M. Corse, Miami, for appellant.

Lapidus & Frankel and Richard L. Lapidus, Miami, for appellee.

Before BARKDULL, BASKIN and COPE, JJ.

REVISED OPINION

COPE, Judge.

Banco do Brasil appeals a final judgment in favor of City National Bank in Banco do Brasil's suit for payment under a letter of credit. We reverse.

I.

Sea-Land Seafood, Inc., a Miami seafood importer, arranged for appellee City National Banco do Brasil made four payments under the letter of credit without incident. After making the fifth payment, in the amount of $200,000, City National telegraphed Banco do Brasil that it would not honor the letter of credit and would not pay the $200,000 amount. No explanation for this refusal was given to Banco do Brasil. ¹

Bank of Miami to issue an irrevocable letter of credit in favor of its joint venture partner, Sul Atlantico de Pesco, S.A., a Brazilian seafood exporter. City National designated Banco do Brasil (the Brazilian exporter's bank) to act as the advising bank, and Banco do Brasil also served as the paying bank for the letter of credit transactions.

During the following year, Banco do Brasil made numerous requests for payment or for an explanation for nonpayment. After one year's delay, City National finally sent a telex setting forth its reasons for dishonor.

Banco do Brasil brought suit. After a bench trial, the court ruled in City National's favor. Banco do Brasil has appealed.

II.

The letter of credit in this case was, by agreement of the parties, expressly made subject to the 1974 edition of the International Chamber of Commerce's Uniform Customs and Practices for Documentary Credits ("UCP"). We follow the leading case of Bank of Cochin, Ltd. v. Manufacturers Hanover Trust Co., 808 F.2d 209 (2d Cir.1986) in interpreting the pertinent provisions of the UCP which are applicable to the present case:

In order to effectuate the vital policy of promoting certainty in letter of credit transactions, the UCP provides the following safeguards in Article 8:

(d) The issuing banks shall have a reasonable time to examine the documents and to determine ... whether to make such a claim [of wrongful honor].

(e) If such claim is to be made, notice to that effect, stating the reasons therefor, must without delay, be given by cable or other expeditious means to the bank from which the documents have been received (the remitting bank) and such notice must state that the documents are being held at the disposal of such bank or are being returned thereto.

UCP 8(d), (e) (emphasis added). These provisions have been interpreted to incorporate a penalty against an issuing bank that does not assert the noncompliance of documents in a timely fashion:

If the documents in any respect do not conform to the terms of the credit, the obligor bank must forthwith determine whether it will stand upon its rights to reject the documents or whether it will waive the defect. It will not do for bank or buyer to wait and ride the market. If it does so, it will have waived its objection to nonconformity of documents. Article 8 records the dual obligation of the obligor who believes that documents do not conform to the terms of the credit. Protest must be prompt; rejection must be unequivocal; and upon rejection the documents must either be forthwith returned or the obligor must forthwith represent that it holds them at the disposal of the presenter.

H. Harfield, Bank Credits & Acceptances 232 (5th ed. 1974) (emphasis added); see also Marino Industries Corp. v. Chase Manhattan Bank, N.A., 686 F.2d 112, 118 (2d Cir.1982)....

In sum, under the Article 8 scheme, payment by MHT on the letter of credit bound Cochin to reimburse unless Cochin took the required action set forth in 8(d) and (e) to avoid its obligation. Cochin was required (1) to examine the documents and determine, within a reasonable time, whether to make a claim that MHT's payment was not in compliance with the terms of the credit; and (2) without delay and using expeditious means, to notify MHT of the specific ....

defects and to advise MHT of the disposition of the documents.

"Without delay" is defined neither in Article 8 nor in any case law dealing with international letters of credit. However, the phrase is akin to "immediate (at once ), instant, instantaneous, instantly, prompt." W. Burton, Legal Thesaurus 1053 (1980). All of these synonyms connote a sense of urgent action within the shortest interval of time possible. However one wishes to define "without delay," it is apparent that a twelve to thirteen day lapse of time cannot be considered notification "without delay" under any reasonable definition of that phrase. In this era of near instantaneous international communications, we can find no rationale to justify Cochin's delay in informing MHT of the specific defects and of its intention to return the documents.

Id. at 212-13 (emphasis in original). See also J. Dolan, The Law of Letters of Credit para. 6.06[b], at 6-59 (1991) ("Delays of seven days ..., twelve or thirteen days ..., and nine days ..., are too long.") (citations omitted); Sec. 675.112(1)(a), Fla.Stat. (1991).

In our view the Bank of Cochin decision represents the prevailing and better view. Letters of credit are issued for a time certain. In numerous cases it will be possible for documentary deficiencies to be cured if timely notification is given. If cure is not possible, expeditious notification permits the party to take immediate steps to recapture the funds paid or otherwise protect its position. See J. Dolan, The Law of Letters of Credit para. 6.06[b], at 6-57 ("The duty in Article 8(e) to give notice without delay 'connote[s] a sense of urgent action within the shortest interval of time possible.' ") (citation omitted); see also id. para. 6.06[c]. While City National advocates following Philadelphia Gear Corporation v. Central Bank, 717 F.2d 230 (5th Cir.1983), we conclude that Bank of Cochin and the Philadelphia Gear dissent represent the better reasoned and more widely accepted view. ²

The delay by City National in specifying the defects precluded it from asserting that the documents did not comply with the letter of credit.

Although we find merit in other points raised by Banco do Brasil, in view of the foregoing it is unnecessary to discuss them.

The final judgment is reversed and the cause remanded with directions to enter judgment for Banco do Brasil.

BASKIN, J., concurs.

BARKDULL, Judge (dissenting.)

I respectfully dissent.

This appeal seeks review of an adverse judgment suffered by the appellant in an attempt to collect on a Letter of Credit issued by the appellee City National Bank, hereinafter referred to as CNB. The final judgment reads in part as follows: ¹ THIS CAUSE, came before the Court pursuant to the claim brought by Plaintiff, Banco do Brasil, S.A., to recover $200,000.00 paid to Sul Atlantico de Pesco, the beneficiary of a Letter of Credit issued by defendant, City National Bank of Miami.

* * * * * *

FINDINGS OF FACT

1. City National Bank issued a Letter of Credit dated October 20, 1982. The Letter of Credit was issued at the request of its customer, Sea-Land Seafood, Inc., a Miami corporation engaged in the business of importing seafood for resale in the United States. Sul Atlantico de Pesco, S.A., a Brazilian company exporting seafood in Brazil, was the beneficiary of the Letter of Credit. Banco do Brasil, a Brazilian bank, was the advising bank under the Letter of Credit. (Exhibit 5)

2. The Letter of Credit was issued on October 20, 1982, in the amount of $300,000.00. (Exhibit 5)

3. Banco do Brasil telexed City National Bank asking how payments would be made for an advance since the special condition set forth in the Letter of Credit required the product to be inspected and passed by the U.S.F.D.A. before a draft under the letter could be payable. (Exhibit 6) Subsequently, on October 26, 1982, City National Bank issued Amendment No. 1 to the letter deleting the requirements relating to the U.S.F.D.A. and substituting a guarantee from the beneficiary and one of its principals that the products would be Grade A and would pass U.S.F.D.A. inspection. (Exhibit 8)

4. By telex dated October 26, 1982, Banco do Brasil advised City National Bank that the beneficiary claimed to be entitled to advance payments of 50% of the Letter of Credit. (Exhibit 9) By telex dated October 26, 1982, the beneficiary advised City National Bank directly that it was entitled to receive 50% of the amount as an advance under the Letter of Credit. (Exhibit 7) Subsequently, on October 27, 1982, City National Bank issued Amendment No. 2 to its Letter of Credit. (Exhibit 11) Amendment No. 2 provided as follows:

'Paragraph No. 5 is extended to read: Banco do Brasil is authorized to make advance payment of 50% to the beneficiary against Certificate made out to City National Bank of Miami, Miami, Florida, and Sea-Land Seafood, Inc., issued by Inspect S.A. Itajai, Brazil.....'

At the time of Amendment No. 2, no payments or presentments had been made under the Letter of Credit. (Exhibits 11, 15, 18 and 20)

5. By telex dated November 3, 1982, Banco do Brasil advised City National Bank that the beneficiary had presented an inspection certificate and invoice seeking an advance payment of $150,583.86 under the Letter of Credit. (Exhibit 15)

6. By telegraph dated November 4, 1982, City National Bank asked Banco do Brasil whether the $150,583.86 which was to be paid represented the total invoice of the merchandise to be shipped or an approximate 50% of the Letter of Credit amount. (Exhibit 16)

7. By telex dated November 4, 1982, Banco do Brasil advised City National Bank that the amount to be paid ($150,583.86) represented...