Mago Int'l v. LHB AG

• Decision Date: 15 August 2016
• Docket Number: August Term 2015,Docket No. 15–2776
• Parties: Mago International, Plaintiff–Appellant, v. LHB AG, Defendant–Cross–Claimant–Appellee.
• Court: U.S. Court of Appeals — Second Circuit

833 F.3d 270

Mago International, Plaintiff–Appellant,

v.LHB AG, Defendant–Cross–Claimant–Appellee.^*

Docket No. 15–2776

August Term 2015

United States Court of Appeals, Second Circuit.

Argued: June 15, 2016

Decided: August 15, 2016

Theodore Geiger, New York, NY, for Plaintiff–Appellant.

Mark A. Berman (Jeremy B. Stein, on the brief), Hartmann Doherty Rosa Berman & Bulbulia, LLC, New York, NY, for Defendant–Cross–Claimant–Appellee.

Before: STRAUB, WESLEY, and LIVINGSTON, Circuit Judges.

WESLEY

, Circuit Judge:

Mago International (“Mago”) appeals from an order and judgment of the United States District Court for the Southern District of New York (McMahon, J. ), in which judgment was entered in favor of LHB AG (“LHB”) after resolution of cross-motions for summary judgment. The central question concerns whether Mago complied with terms of a standby letter of credit (“SLOC”) issued by LHB—specifically, whether the submission of unsigned copies of bills of lading complied with the letter's requirement that Mago provide a “photocopy of [a bill of lading] evidencing shipment of the goods to the applicant.” App. 101. The District Court concluded that the unsigned copies did not evidence shipment and thus Mago did not strictly comply. We agree and accordingly affirm the order and judgment of the District Court.

BACKGROUND

In 2011, Mago—a company based in New York—entered into a contract to sell chicken, beef, and other meat products to NTP Genita (“Genita”), a company based in Pristina, Kosovo. As is common in international transactions, in order to ensure it received payment, Mago required Genita to obtain an SLOC, issued by Bank for Business, a Kosovar bank, and confirmed by LHB. Under the terms of the letter, if Genita failed to pay Mago within forty-five days after the date of an invoice, Mago could present a defined set of documents to LHB and obtain payment on the SLOC. Among the documents LHB required was a “photocopy of B/L evidencing shipment of the goods to the applicant.” App. 101.

Mago shipped twelve containers of products to Genita under four invoices, designated 199(1–5), 199(6–7), 208(1–2), and 208(3–5), respectively. Genita defaulted on all four invoices. Mago tendered its first set of documents to LHB on September 19, 2012, including two unsigned bills of lading for each of the two 199 invoices. App. 114–21. LHB rejected this tender for, inter alia , not containing signed bills of lading. App. 129. Mago's second tender cured other deficiencies identified by LHB but contained the same unsigned bills of lading for the two 199 invoices. App. 139–44. LHB again rejected the tender, emailing Mago's managing director that the unsigned bills of lading were not in conformity with the terms of the letter. Mago's third tender occurred on October 8, 2012, the last day possible to submit a demand for payment. As all previous tenders had done, this one contained signed bills of lading for the 208 invoices—but instead of unsigned bills of lading for the 199 invoices, Mago provided two telexes from the shipping company, Mediterranean Shipping Company (“MSC”). These telexes announced that MSC had retained the original, signed bills of lading in its files and authorized release of the shipments to Genita without the latter presenting the original bill of lading. App. 160, 166. LHB rejected this tender as well. Finally, on October 11, 2012, Mago tendered a set of documents containing signed bills of lading for each invoice. App. 172–84. LHB rejected this tender as untimely. App. 185.

Mago then filed suit in the Southern District alleging wrongful dishonor of the SLOC and naming both LHB and Bank for Business as defendants.² On April 1, 2015, both LHB and Mago cross-moved for summary judgment. The District Court issued its order granting LHB's motion and denying Mago's motion on August 4 and entered judgment on August 6. Mago timely appealed from both the order and the judgment.

DISCUSSION

An SLOC is an agreement by a bank to pay a beneficiary on behalf of a customer who obtains the letter, if the customer defaults on an obligation to the beneficiary. See, e.g. , Tudor Dev. Grp. v. U.S. Fid. & Guar. Co. , 968 F.2d 357, 360 (3d Cir. 1992)

. “Originally devised to function in international trade, a letter of credit reduced the risk of nonpayment in cases where credit was extended to strangers in distant places” Voest–Alpine Int'l Corp. v. Chase Manhattan Bank, N.A. , 707 F.2d 680, 682 (2d Cir. 1983). “The issuing bank, or a bank that acts as confirming bank for the issuer, takes on an absolute duty to pay the amount of the credit to the beneficiary, so long as the beneficiary complies with the terms of the letter.” Beyene v. Irving Tr. Co. , 762 F.2d 4, 6 (2d Cir. 1985). However, “[i]n order to protect the issuing or confirming bank, this absolute duty does not arise unless the terms of the letter have been complied with strictly.” Id. “Adherence to this rule ensures that banks, dealing only in documents, will be able to act quickly, enhancing the letter of credit's fluidity. Literal compliance with the credit therefore is also essential so as not to impose an obligation upon the bank that it did not undertake and so as not to jeopardize the bank's right to indemnity from its customer.” Voest–Alpine , 707 F.2d at 682–83. Therefore, “[i]n determining whether to pay, the bank looks solely at the letter and the documentation the beneficiary presents[ ] to determine whether the documentation meets the requirements in the letter.” Marino Indus. Corp. v. Chase Manhattan Bank, N.A. , 686 F.2d 112, 115 (2d Cir. 1982). “The corollary to the rule of strict compliance is that the requirements in letters of credit must be explicit and that all ambiguities are construed against the bank. Since the beneficiary must comply strictly with the requirements of the letter, it must know precisely and unequivocally what those requirements are.” Id. (citations omitted).

As the District Court noted, resolution of this case turns on whether Mago strictly complied with the terms of the SLOC—specifically, whether presentation of unsigned copies of bills of lading satisfy the credit's requirement that Mago submit a “photocopy of B/L evidencing shipment of the goods to the applicant.” App. 101.³ Mago argues principally that, under the Uniform Customs and Practice for Documentary Credits (the “UCP”) and interpretive guidance issued by the International Chamber of Commerce Banking Commission, where a letter of credit requires “copies” of transport documents like bills of lading, those copies do not need to be signed. Although the letter does explicitly incorporate the UCP and even assuming Mago interprets the UCP correctly, Mago's argument fails for the simple reason that LHB's letter did not simply require a copy of a bill of lading, but required one that “evidenc[ed] shipment of the goods to the applicant.” App. 101. Thus, whatever general guidelines are applicable, the copies here were required to evidence shipment. Because the bill of lading at issue required a signature to evidence shipment, the presentation of those documents did not strictly comply with the terms of the letter.

Even though the unsigned copies of the bills of lading here reflect the name of a ship and purported date of shipment, absent the carrier's signature, there is no evidence that the shipping information on the bill of lading reflects the actual shipment of the goods—precisely the information that the SLOC requires. Notably, the signature block on the bills where the carrier would have signed is immediately preceded by language to that effect:

RECEIVED by the Carrier in apparent good order and condition (unless otherwise stated herein) the total number or quantity of Containers or other packages or units indicated in the box entitled Carrier's Receipt for carriage subject to all the terms and conditions thereof from the Place of Receipt or Port of Loading to the Port of Discharge or Place of Delivery, whichever is applicable.

App. 181. Without the carrier's signature, the...