J. Zeevi and Sons, Ltd. v. Grindlays Bank (Uganda) Limited

• Decision Date: 16 June 1975
• Citation: 371 N.Y.S.2d 892,333 N.E.2d 168,37 N.Y.2d 220
• Parties: , 333 N.E.2d 168 J. ZEEVI AND SONS, LTD., et al., doing business as J. Zeevi and Sons, Respondents, v. GRINDLAYS BANK (UGANDA) LIMITED, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 892

371 N.Y.S.2d 892

37 N.Y.2d 220, 333 N.E.2d 168

J. ZEEVI AND SONS, LTD., et al., doing business as J. Zeevi and Sons, Respondents, v. GRINDLAYS BANK (UGANDA) LIMITED, Appellant.

Court of Appeals of New York.

June 16, 1975.

Certiorari Denied Oct. 6, 1975.

See 96 S.Ct. 126.

Henry Harfield and Larry A. Stumpf, New York City, for appellant.

Edmund B. Hennefeld, Harry H. Lipsig and Pamfil A. Riposanu, New York City, for respondents.

Richard G. Powell, H. Rodgin Cohen and David Clayton Carrad, New York City, for the New York Clearing House Ass'n, amicus curiae.

COOKE, Judge.

Defendant appeals from an order of the Appellate Division, First Department, which unanimously affirmed an order of the Supreme Court, New York County, granting the motion of plaintiff J. Zeevi and Sons, Ltd., for partial summary judgment on the first cause of action in the complaint, denying defendant's cross motion for summary judgment on both causes of action in said pleading, directing entry of judgment in favor of said plaintiff on said first cause of action and severing and continuing the remaining cause, as well as from the judgment entered thereon.

The first cause of action in the complaint involves an irrevocable letter of credit, dated March 24, 1972, numbered 1 10/84 and in the sum of $406,846.80. The second cause contains allegations regarding the deposit of a check with defendant on March 24, 1972 and the opening on the next day by defendant of an irrevocable letter of credit numbered 1 10/85 for $203,423.40. Allegedly, each letter of credit was drawn to plaintiff partnership. Plaintiffs assert that there are issues of fact warranting trial in respect to the latter transaction.

The pertinent factual picture unfolds without dispute. On March 24, 1972, Hiram Zeevi & Company (Uganda) Ltd., an Israeli corporation, deposited with defendant, Grindlays Bank (Uganda) Ltd., local currency valued at approximately $406,846.80, for the purpose of establishing a fund upon which plaintiff J. Zeevi and Sons, an Israeli copartnership, could draw money. On the same date, defendant opened its irrevocable credit No. 1 10/84 for $406,846.80 in favor of said partnership and issued a letter of credit acknowledging that it had opened the irrevocable credit for '$406,846.80 (U.S. dollars four hundred and six thousand eight hundred and forty six cents eighty)', and provided that the credit amount be available against clean drafts drawn on the depositor in equal amounts of $40,684.68 commencing April 15, 1972 and monthly thereafter. It stated '(t)his credit is valid until 31st January, 1973 for presentation of drafts in Kampala.' The letter concluded with these provisions:

'We guarantee the payment of drafts drawn in conformity with the terms and conditions stated. The negotiating bank must send drafts direct to us by air-mail.

'The negotiating bank is authorized to claim reimbursement for their payments on the due dates listed above from (First National City Bank, 399 Park Avenue, New York) to the debit of our account with them together with a certificate to the effect that all terms of the credit have been complied with and the relative drafts have been airmailed to us.'

By directives dated March 28, 30 and April 13, 1972, officials of the Bank of Uganda, acting with the authority of the Minister of Finance under the Exchange Control Act of Uganda, notified defendant that foreign exchange allocations in favor of Israeli companies and nationals should be canceled and, accordingly, ordered it to make no foreign exchange payments pursuant to credit number 1 10/84. While, on April 4, 1972, defendant had informed its New York agent, First National City Bank (hereinafter Citibank), of the issuance of the letter of credit for 'credit No. 1 10/84', defendant advised said agent, by cable dated and received April 14, 1972 and by letter of April 17, 1972, that the Government of Uganda had instructed it to cancel the letter of credit numbered 1 10/84 and directed said agent not to 'effect payment against drawing US $40684--68 due t be paid on or $40684--68 due to be paid on or letter bearing the same respective dates and a corresponding message were forwarded by defendant to said partnership. A letter dated May 5, 1972 from defendant stated: 'In the circumstances we have had no option but to instruct our agents in New York not to effect reimbursement of the drawing due to be made on 15.5.1972 without further reference to us.'

On December 28, 1972 Chemical Bank ('Chemical') presented to Citibank for reimbursement 10 drafts each for $40,684.68, totaling $406,846.80, drawn under letter of credit 1 10/84, and on January 11, 1973 Chemical wrote to Citibank that 'we are again presenting our domestic collection R92049 in the amount of $406,846.80 under irrevocable letter of credit 1 10/84, reimbursable on your good selves and ask for reimbursement as per the terms and conditions thereof.' On January 19, 1973 Citibank returned the subject drafts unpaid to Chemical.

This action by the partnership, the beneficiary of the two letters of credit, and J. Zeevi and Sons, Ltd., the assignee of said partnership, was commenced by an order of attachment on November 24, 1972, whereby the funds of defendant on deposit with Citibank were attached and defendant was served by publication. Supreme Court denied defendant's motions to dismiss for lack of jurisdiction and to increase the amount of plaintiff's bond on the attachment and to reduce the amount of the attachment, both of which orders were affirmed by the Appellate Division.

Defendant contends that the complaint must be dismissed because the court lacks subject matter jurisdiction, that the law of the Republic of Uganda applies and under it the complaint must be dismissed, that the decision under review is contrary to the act of State dictrine, and that said decision violates the Bretton Woods Agreement.

Subdivision 2 of section 200--b of the Banking Law, entitled 'Actions maintained against foreign banking corporation; residents; foreign corporations, foreign banking corporations as nonresidents', provides in part:

'2. Except as otherwise provided in this chapter, an action * * * against a foreign banking corporation may be maintained by another foreign corporation or foreign banking corporation or by a nonresident in the following cases only:

'(c) where the cause of action arose within this state, * * *'.

Subdivision (b) of section 1314 of the Business Corporation Law contains almost identical language.

A letter of credit, a well-known instrumentality of commerce (Kingdom of Sweeden v. New York Trust Co., 197 Misc. 431, 441, 96 N.Y.S.2d 779, 787), is governed by the same general principles of law as are all other contracts in writing (Moss v. Old Colony Trust Co., 246 Mass. 139, 151, 140 N.E. 803; Bank of United States v. Seltzer, 233 App.Div. 225, 229, 251 N.Y.S. 637, 641). It is either revocable or irrevocable and, once the latter has been established, the consent of all parties, particularly the beneficiary, is necessary in order to modify the original terms and conditions of the credit (Lamborn v. National Park Bank of N.Y., 240 N.Y. 520, 525, 148 N.E. 664, 665; Dulien Steel Prods. of Wash. v. Bankers Trust Co., D.C., 189 F.Supp. 922, 927, aff'd, 298 F.2d 836, 2 Cir.).

The first cause of the complaint alleges and the facts establish a cause of action occurring within New York. In the irrevocable letter of credit 1 10/84 under scrutiny, defendant contracted to pay upon compliance with its terms (Lamborn v. National Park Bank of N.Y., supra, 240 N.Y. at p. 525, 148 N.E. at p. 665) and defendant's order countermanding payment by cable and letter took effect upon receipt by Citibank in New York and then gave rise to a cause of action here (Gonzalez v. Industrial (Bank of Cuba), 12 N.Y.2d 33, 38, 234 N.Y.S.2d 210, 212, 186 N.E.2d 410, 412). Citing Hibernia Nat. Bank v. Lacombe, 84 N.Y. 367, this court stated in Gonzalez that 'a cause of action arises where that is done which should not be done'. In this instance, New York was the locus of repudiation, whereas it should have been a site of payment. The provision respecting reimbursement in New York was an integral part of that for which the parties bargained, it was not a discrete obligation. The separate character of defendant's undertakings is negated by its guarantee of payment of drafts. The value to those in commerce of having a place at a financial capital where funds can be obtained on a simple letter of credit, away from a relatively small bank in an undeveloped country of uncertain political stability, is...