Bank of Cochin Ltd. v. Manufacturers Hanover Trust

Decision Date09 July 1985
Docket NumberNo. 83 Civ. 1767 (JMC).,83 Civ. 1767 (JMC).
Citation612 F. Supp. 1533
PartiesBANK OF COCHIN LIMITED, Plaintiff, v. MANUFACTURERS HANOVER TRUST COMPANY and St. Lucia Enterprises, Ltd., Defendants.
CourtU.S. District Court — Southern District of New York

Dunn & Zuckerman, New York City (Jeffrey L. Feldman, New York City, of counsel), for plaintiff.

Manufacturers Hanover Trust Co., New York City (Robert N. Rosenblith, New York City, of counsel), for defendants.

MEMORANDUM DECISION

CANNELLA, Senior District Judge:

Plaintiff's motion for summary judgment is denied. Fed.R.Civ.P. 56(a).

Defendant's motion for summary judgment is granted. Fed.R.Civ.P. 56(b).

FACTS

Bank of Cochin Limited "Cochin", an Indian corporation and the issuer of letter of credit BB/VN/41/80, commenced this diversity action against Manufacturers Hanover Trust Company "MHT", a New York corporation that acted as the confirming bank on the letter. Cochin seeks recovery of the amount paid by MHT, thereafter debited to Cochin's account at MHT, on drawings negotiated in New York between MHT and St. Lucia Enterprises, Ltd. "St. Lucia". Codefendant St. Lucia, a purported New York corporation and the letter of credit beneficiary, has perpetrated a large fraud on both banks and nonparty customer Vishwa Niryat (Pvt.) Ltd. "Vishwa". Unfortunately, St. Lucia has vanished and the Court must decide whose shoulders will bear the scam.

The parties agree on the salient events and have presented essentially identical and uncontroverted statements of fact pursuant to Rule 3(g) of the Civil Rules for the Southern District of New York. See San Filippo v. U.S. Trust Co., 737 F.2d 246, 248 (2d Cir.1984), cert. denied, ___ U.S. ___, 105 S.Ct. 1408, 84 L.Ed.2d 797 (1985). On February 8, 1980, in Bombay, India, Vishwa requested Cochin to issue an irrevocable letter of credit covering up to $798,000 for the benefit of St. Lucia. The letter was to have expired on April 15, 1980 and covered the anticipated shipment and purchase of 1,000 metric tons of aluminum melting scrap consisting of aluminum beverage cans.1

On February 14, 1980, Cochin requested MHT to supply financial information on St. Lucia. MHT responded by telex the following day that St. Lucia did not maintain an MHT account and that a thorough check of normal credit sources did not reveal any "pertinent" information. On February 22, Cochin conveyed the terms and conditions of the letter of credit to MHT by Telex and requested MHT to advise "St. Lucia Enterprises Ltd" of the establishment of the letter and to add MHT's confirmation.2 The letter of credit was issued subject to the Uniform Customs and Practice for Documentary Credits (1974 Revision), Int'l Chamber of Commerce, Pub. No. 290 "UCP".3

On February 25, MHT mailed its written advice of the letter of credit establishment to St. Lucia and confirmed the amended letter on February 29.4 Cochin amended certain terms of the letter on four occasions in March and April 1980. MHT mailed its advices of these amendments to St. Lucia from March to May and sent copies to Cochin, which were received without comment.5 The final amended letter of credit contained the following relevant terms and conditions:

a. Sight drafts of the invoice values;
b. Six copies of the signed invoices;
c. One set of clean shipped on board bills of lading;
d. A west European certificate of origin;
e. A certificate of analysis of the aluminum scrap from Lloyd's of London "Lloyd's" or another international testings agency;
f. Shipment from a west European port to Bombay;
g. A maritime insurance policy, covernote 429711, to be confirmed by St. Lucia's cable to Oriental Fire and General Insurance Co. "Oriental";
h. A packing list in triplicate;
i. One set of nonnegotiable documents to be sent to Vishwa and a confirming cable to Vishwa;
j. A certification from Lloyd's or the shipping company that the ship was a first class or approved non-Pakistani vessel;
k. St. Lucia's certification that it had complied with all terms of the letter of credit;
l. Shipment by May 31, 1980; and
m. Letter of credit expiration on June 15, 1980.

The aluminum was allegedly shipped on May 29, 1980 from Bremen, West Germany to Bombay on the M/V Betelguese. On June 2, St. Lucia established an account at a Manhattan office of Citibank, N.A. "Citibank", the collecting bank, in the name of St. Lucia Enterprises, Ltd. On June 9, St. Lucia presented MHT with documents required by the letter of credit and ten sight drafts amounting to $796,603.50,6 payable to St. Lucia Enterprises. The documents included five copies of the invoices, a clean shipped on board bill of lading, a St. Lucia certification that the aluminum was of west European origin, a certificate of analysis by an international Dutch materials testing agent, a telex confirmation of a telephone message to Oriental that the aluminum had been shipped to Bombay pursuant to covernote 4291, a packing list in triplicate, a St. Lucia certification that one set of nonnegotiable documents had been sent to Vishwa and that Vishwa had been advised by cable, certifications from the shipping company that the M/V Betelguese was an approved first class Panamanian vessel, and a St. Lucia cover letter specifying the documents submitted and requesting payment from MHT. The St. Lucia letter and certifications were on the letterhead of "St. Lucia Enterprises" and were signed by "D Agney".

MHT compared the documents against the requirements of the letter and determined that they complied with all the terms and conditions. On June 13, MHT negotiated the drafts and issued a check for $798,000 payable to St. Lucia Enterprises. The check was indorsed St. Lucia Enterprises Ltd. and was deposited in the Citibank account on June 17, 1980. Citibank collected the check from MHT through normal banking channels. MHT debited Cochin's account for $798,000 on June 13. MHT sent a copy of its payment advice, the drafts and documents to Cochin by registered air mail on June 13. Unfortunately, Cochin apparently did not receive these documents until June 21. As it turned out, St. Lucia shipped nothing to Vishwa. The documentation submitted to MHT was fraudulent in every regard; indeed, the bills of lading, quality certification and vessel certification were issued by nonexistent corporations. St. Lucia received payment on the letter of credit and Cochin has been unable to locate any party connected with the fraudulent scheme.

Cochin sent a telex to MHT on June 18, inquiring whether St. Lucia had presented documents for negotiation. MHT responded by telex on June 20 that it had paid St. Lucia $798,000 on June 13 and had forwarded the documents to Cochin at that time. On June 21, Cochin sent the following telex to MHT:

We acknowledge receipt of the documentu sic Stop We find certain discrepencies sic in the same Stop kindly donot sic make payment against the same until we telex you otherwise Stop.

On June 23, MHT replied to Cochin's telex as follows:

Reference your telex June 21 credit BB VN 4180 our 500748 Stop We note your telex fails to give reason fro sic rejection documents as required UCP Article 8 Stop According our records documents fully complied credit terms and beneficiary already paid therefore we cannot accept your refusal of documents.

By telex dated June 27, Cochin informed MHT of alleged defects in the documents apparently uncovered by Vishwa: (1) St. Lucia's cable to Oriental showed the wrong insurance covernote number of 4291 instead of 429711; (2) St. Lucia did not submit "proof" that a set of nonnegotiable documents and confirming cable had been sent to Vishwa; (3) only one set of documents showed the original certificate of origin whereas the rest included only photocopies; and (4) the invoice packing list and certificate of origin were not duly authenticated. Cochin also noted (5) the overpayment of $1,396.50. MHT credited Cochin's account for $1,396.50 and notified Cochin by telex on June 30.

By telex dated July 3, Cochin asked MHT to recredit its account for $796,603.50 and advised MHT that it was returning the letter of credit documents. Cochin also cited an additional discrepancy that (6) MHT had negotiated documents for St. Lucia Enterprises but that the letter of credit was established for St. Lucia Enterprises Ltd. On July 4, Cochin informed MHT by telex that the documents negotiated by MHT contained the following additional defects: (7) only five signed copies of the commercial invoices, rather than six, were forwarded and (8) documents were signed by "D Agney" without specifying his capacity at St. Lucia.

MHT responded by telex of July 14 that Cochin had failed to timely and properly specify the alleged documentary variances as required by article 8 of the 1974 UCP. The telex also noted that Cochin had failed to promptly return the documents or advise MHT that Cochin was holding the documents at MHT's disposal as required by the UCP. MHT asserted in a telex dated July 16 that it still had not received certain documents from Cochin. The parties exchanged additional telexes confirming and denying that payment was proper. Cochin's Rule 3(g) statement adds the additional allegations that (9) St. Lucia failed to indicate the documents submitted in drawing against the letter of credit, and (10) the shipping company certificate fails to indicate the vessel registration number.

DISCUSSION

Letter of credit liability cases are particularly appropriate for judicial resolution without trial because they present solely legal issues. See Dulien Steel Prods., Inc. v. Bankers Trust Co., 298 F.2d 836, 837 (2d Cir.1962); Transamerica Delaval Inc. v. Citibank, N.A., 545 F.Supp. 200, 203 (S.D. N.Y.1982). The parties do not dispute the essential facts and agreed in pretrial conference to present joint summary judgment motions. This case raises novel and unsettled issues of letter of credit law concerning confirming bank liability to an issuing bank for wrongful honor of a letter of credit. The law,...

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